Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Maren
Speaker 1: Talks Money Market Wrap. What we talk about the biggest
Speaker 1: moves in markets this weekend? What is driving them? I
Speaker 1: am Maren zum Zet, Web Editor at Large for Bloomberg
Speaker 1: UK Wealth.
Speaker 2: And I'm join Stoic, Senior Reports and author of them
Speaker 2: Money Distilled newsletter.
Speaker 1: Right, John, the bullmarket is back big time. We don't
Speaker 1: even need to bother talking about what's happening in the
Speaker 1: Middle East or what is not happening in the Middle
Speaker 1: of the East. We have no idea. We're just going
Speaker 1: to leave it there.
Speaker 2: But it doesn't care. It doesn't care.
Speaker 1: The market literally doesn't care. Market doesn't care about anything
Speaker 1: except for what at the moment, it's earning numbers, right
Speaker 1: shall We having an amazing earning season, and everyone you
Speaker 1: talk to you he just says, well, this is just
Speaker 1: the most massive of bull markets. And it has to
Speaker 1: be because everybody has some kind of earning surprise. And
Speaker 1: now we're moving into a proper melt up situation. And
Speaker 1: this is all marvelous, ai tastic.
Speaker 2: And no one can get enough compute.
Speaker 1: I can't get enough computer.
Speaker 2: Just no compute anywhere Christy does not compute. Yeah, no,
Speaker 2: so anyway, we could just repeat words of each other.
Speaker 1: But it's amazing you tell us about that. He's going.
Speaker 2: It's just like the Nasdak is up eleven percent since
Speaker 2: the Iran war kicked off. So I know we weren't
Speaker 2: going to mention it, but it's just one of those
Speaker 2: things where you get okay. So clearly the Baer case
Speaker 2: is not being made here. And I thought it was
Speaker 2: interesting that the magazine cover indicator has once again paid
Speaker 2: off just so dramatically.
Speaker 1: Well magazine would John, which magazine would that be?
Speaker 2: It does sound tongue in cheeking poor old economists, but
Speaker 2: it's not. I mean, the reason the economist walks well
Speaker 2: for this is because the economist is the voice of
Speaker 2: the closest thing you get to, the crossover between mainstream
Speaker 2: and business news, so biggest audience for that kind of thing.
Speaker 2: So when you see something on the cover that's related
Speaker 2: to markets, then it just it must be in the price.
Speaker 2: It can't not be in the price because by definition
Speaker 2: everyone already knows it. And when it comes to the
Speaker 2: oil market, the econmans has got particularly strong form because
Speaker 2: one of the most famous covers they ever did was
Speaker 2: back in the late nineties when they did a cover
Speaker 2: that was kind of the headline was drowning in Oil,
Speaker 2: and the idea was basically that the oil price was
Speaker 2: never going to go up again, and basically that was
Speaker 2: the bottom forever, the lowest price the oil ever got
Speaker 2: to until that time. It went negative in you know,
Speaker 2: twenty twenty, and so on last week they came out
Speaker 2: with a cover saying basically, you people are crazy. The
Speaker 2: oil price is far too low. And of course since
Speaker 2: that cover came out, the oil price is down by
Speaker 2: ten percent. So it's just brilliant for kind of just
Speaker 2: building for kind of contrarian positioning, but particularly on oil
Speaker 2: for some reason.
Speaker 1: Well, they may yet be right, you know, inn trees
Speaker 1: have been masking and aful lot of potential supply problems,
Speaker 1: so you know, we may see another hike in the
Speaker 1: old price coming and things may change in the Middle East.
Speaker 1: I mean, who knows, who knows, but you're right the
Speaker 1: magazine cover. When I was looking this morning again, I
Speaker 1: wanted to look back and actually double check when it
Speaker 1: was that BusinessWeek had that covered the number the one
Speaker 1: and what we would remember it obviously, but death of
Speaker 1: Equities it was. Remember that that was nineteen seventy nineteen
Speaker 1: seventy nine, just before inflation got kicked and everything went
Speaker 1: into massive, massive balls. So always worth looking at at
Speaker 1: magazines anyway, did.
Speaker 2: You not just one of our things one of my
Speaker 2: favorite parts of trivia general what year Business Week launched
Speaker 2: nineteen twenty nine?
Speaker 1: Yeah, that would have been my guess. Yeah, wow, brilliant.
Speaker 1: Although you know what, I have very little moral high
Speaker 1: ground here because you remember when Money Week, the magazine
Speaker 1: I was launched, ediitor.
Speaker 2: Of launched.
Speaker 1: Nineteen ninety nine was our trial issues and the first
Speaker 1: couple came out in early two thousand. Although we were
Speaker 1: very very bearish on the dot com komboom we are
Speaker 1: where we're beurish people, but nonetheless that that's when it launched.
Speaker 1: But that was because that was the time when people
Speaker 1: were prepared to finance and financial magazine. Because everyone was
Speaker 1: interested in markets and money and finance. Everyone wanted more
Speaker 1: and more information, so that's when people were prepared to
Speaker 1: put up the money. So Britain it was the same
Speaker 1: in nineteen twenty nine. People are to put up the
Speaker 1: money for Business Week in a way they wouldn't have
Speaker 1: been able to otherwise, And I think, just to be clear,
Speaker 1: you know, business weeks still exists, and money.
Speaker 2: Weeks still exists.
Speaker 1: You know you can survive these things exactly. Things survivable. Anyway,
Speaker 1: Back to earnings, Back to earnings. Everything that you will
Speaker 1: have received in the last couple of days, John, and
Speaker 1: every single thing that I have received in the last
Speaker 1: couple of days is all about all about earnings and
Speaker 1: how everything is fine, and how s and P five
Speaker 1: hundred earnings are going to This is a good one.
Speaker 1: I can't remember who this came from. S and P
Speaker 1: five hundred earnings growth about to break out on the
Speaker 1: upside of a ninety year annal.
Speaker 2: Wow.
Speaker 1: Wow, you know, it's not just big take, it's not
Speaker 1: just big AI across the board. Across the board, we're
Speaker 1: seeing earnings surprises. So it's all marvelous. So from the
Speaker 1: point of view of most people looking at this, they're like, well,
Speaker 1: you know, stop, prizes are based on expected forward earnings.
Speaker 1: Expected for WOD earnings are great, so everything is absolutely fine.
Speaker 1: I did see one, I'm kind one which pointed out
Speaker 1: that given what's going on with earnings, the peg ratio,
Speaker 1: so the forward pe which is divided by long term
Speaker 1: long term earning growth is down to only just over one.
Speaker 1: And back in the old days, we used to say
Speaker 1: if the peg ratio was one, everything was fine. So
Speaker 1: there you go, everything is fine unless earnings growth expectations
Speaker 1: are wrong.
Speaker 2: Yeah, I think I think we can run this. Why not, No,
Speaker 2: just just say yeah, we'll get out there and buy
Speaker 2: go go, go crazy guys, not yourself.
Speaker 1: So although also looking back, I was looking back because
Speaker 1: you know, you look at it and you think, well,
Speaker 1: is this the end of the sixties, Is this like
Speaker 1: the seventies? Is it possible that, in fact, earning's growth
Speaker 1: was really great just before everything went wrong in the
Speaker 1: nineteen seventies. And guess what, Yeah, yeah, yeah, here we
Speaker 1: are rhyming away, rhyming away. So the whole thing behind
Speaker 1: this time is different because record high earnings same in
Speaker 1: the nineteen sixties, coming into the nineteen into nineteen sixty nine,
Speaker 1: record high earnings coming into nineteen seventy, earnings fell back.
Speaker 1: Inflation starts to take off towards the end of the
Speaker 1: nineteen sixties, and then you move into this environment in
Speaker 1: the nineteen seventies where, by the way, earnings kept rising rising.
Speaker 1: Ears was so triple during the nineteen seventies, but the
Speaker 1: market as a whole, the US market went absolutely nowhere
Speaker 1: in that whole decades. Of course, you lot to book
Speaker 1: part of money.
Speaker 2: In real terms, it was massively the eighties, wasn't it.
Speaker 2: The pee bit was the bit that.
Speaker 1: Went through, So you know, the earnings can't save you
Speaker 1: when sentiment turns and when inflation turns. Was kind of
Speaker 1: my point. You've been writing about something much more interesting,
Speaker 1: and I want to talk about that because regular listeners
Speaker 1: and readers will remember the challenge set to me by
Speaker 1: our colleagues in America, and was it last year? Wasn't
Speaker 1: it at the end of last year to go out
Speaker 1: and buy a single share in Ai so that I
Speaker 1: would have it when the great IPOs came and it
Speaker 1: turned out it was impossible to buy sharing Ai, which
Speaker 1: open Ai, which I think I'm hotly grateful really, but
Speaker 1: there you have views on those IPOs, John Well, I'd.
Speaker 2: Just say it's really interesting because one of the things
Speaker 2: that I think it's easy to forget is that stock markets,
Speaker 2: like any other market, the supply, the overall supply of
Speaker 2: stuff actually motels. And it was actually really convenient because
Speaker 2: a colleagues Simon Waite will following the kind of very
Speaker 2: very serious side of the business. He's the kind of
Speaker 2: he writes a column called Microscope, which I think only
Speaker 2: goes to the terminal subscribers. But he was writing about
Speaker 2: share buybacks, and he was making the point that share
Speaker 2: buybacks are the biggest source in the US market of
Speaker 2: equity coming out of the market of de equitization, and
Speaker 2: on an annual basis, simply going back to you know,
Speaker 2: two thousand, there's only been three years in which the
Speaker 2: net equity supply, as in the amount of new equity
Speaker 2: hitting the market, actually was positive. And those years were two,
Speaker 2: two thousand and nine, and twenty twenty. So clearly all
Speaker 2: bad years for the market are all crashy years. And
Speaker 2: one of the points he was making was that this
Speaker 2: year we're sort of expected to have records shared buybacks,
Speaker 2: but share buybacks that are announced very rarely actually are
Speaker 2: followed through on. So you can't guarantee that we're going
Speaker 2: to get this number of buybacks. And what were you know,
Speaker 2: all of the you know, investment and all the rest
Speaker 2: of the companies are doing. Chances are that perhaps these
Speaker 2: buybacks are disappoint So then I was thinking on top
Speaker 2: of this, we've got just an absolute flood of mega
Speaker 2: cap IPOs coming in the summer. So SpaceX is the
Speaker 2: obvious one, but then obviously there's veryousai companies, and then
Speaker 2: there's you know, lots of other stuff we'll probably be
Speaker 2: hoping to get out of the door, Like if SpaceX
Speaker 2: launches and it's really you know, successful, then there'll be
Speaker 2: a que out of the door for all this stuff
Speaker 2: that the private equity guys have you know, been trying
Speaker 2: to offload with no success. And so what I thought
Speaker 2: was interesting is we compare this to two two thousand.
Speaker 2: In two thousand, people often say they're not there isn't
Speaker 2: a trigger for the dot com bubble bursting, But actually
Speaker 2: the the obvious one to point to is the fact
Speaker 2: there was an awful lot of IPOs and then the
Speaker 2: people who were the founders of those companies and employees
Speaker 2: of those companies they had to have they had to
Speaker 2: hold their shares for six months and then and then
Speaker 2: as soon as the six months was up, they all
Speaker 2: were like, I'm getting out of here, and they sold off.
Speaker 2: And actually that's when Sir John Templeton did what was
Speaker 2: probably the best shot trade like in history off the
Speaker 2: back of this thing. He made like a billion dollars
Speaker 2: by knowing when these IPO lockups were up and just
Speaker 2: betting across a load of them the market was going
Speaker 2: to collapse, and he absolutely coined it. Most of us
Speaker 2: are not him, but yes, So it's a long story
Speaker 2: short that I'm wondering what will happen when a flood
Speaker 2: of equity kind of hits a market that is currently
Speaker 2: hungry for it, but then maybe in six months time
Speaker 2: is getting a bit of indigestion. And then on top
Speaker 2: of that, you're getting some some marked to market values
Speaker 2: for assets that previously been privately held. And at first
Speaker 2: it might be okay, but Toular SpaceX goes well. But
Speaker 2: if it all starts to wilt, then all of these
Speaker 2: kind of like private companies that are still being held
Speaker 2: by these you know, by these funds that are struggling,
Speaker 2: they're already struggling. They're gonna have to turn them around
Speaker 2: and say, actually, this isn't worth as much as we'd
Speaker 2: kind of hoped it was going to be worth. And
Speaker 2: all other clients are going to be sitting the going actually, sorry, guys,
Speaker 2: we're kind of done with this. Now you've had like
Speaker 2: five or six years of stuff going through the pipeline,
Speaker 2: and it's not getting any better. We want our money back.
Speaker 2: So I'm wondering if you kind of get an end
Speaker 2: to the kind of endless extend and pretend on the
Speaker 2: private asset side as well at that point, maybe that's
Speaker 2: the bear case. I don't know, it's the most convincing
Speaker 2: bear scenario working come up with at the moment.
Speaker 1: Well, it is because it's happened before, hasn't it. Yeah,
Speaker 1: And let's go back. Have you looked at any of
Speaker 1: the other big bear markets to see if there's one
Speaker 1: of those big supply surgers before them all?
Speaker 2: I mean that's a good point. I mean I haven't
Speaker 2: because I guess two thousand and seven I kind of
Speaker 2: think of as being something completely different. I mean, you
Speaker 2: usually see big deals being done before bear markets, but
Speaker 2: I went I said, most cases, they're not so much
Speaker 2: are triggered as a symptom. Yeah, everyone's got really over excited.
Speaker 2: But is this sort of big can I equity supply
Speaker 2: I think is quite a significant thing in two thirsds
Speaker 2: differently when it stands out to me, have you seen
Speaker 2: any others that may be similar?
Speaker 1: Well, I haven't, but I think it's worth looking at.
Speaker 1: I think we'll offer this to one of our one
Speaker 1: of our professional listeners for free. You know, please go
Speaker 1: out and do the analysis for us and get back
Speaker 1: to us and let us know, because that would work
Speaker 1: a lot better for us than having to do it ourselves, right.
Speaker 2: John, Definitely, definitely, and you give them something to do, definitely.
Speaker 1: Right. What else have you been looking at this week?
Speaker 1: I mean we're just for just so you know, listeners,
Speaker 1: John and I are talking on the day of the
Speaker 1: UK Council elections and Scottish and Welsh elections, so we
Speaker 1: can't talk about the things that we really want to
Speaker 1: talk about today. You know, we're distracting ourselves with this
Speaker 1: AI bubble nonsense when in fact, of course we really
Speaker 1: want to talk about the UK bond market and stuff
Speaker 1: like that, but just not today.
Speaker 2: Well someprise, it'd be kind because I think have looked
Speaker 2: to this week was the UK bord market, and I
Speaker 2: guess with that it's not so much. I mean, the
Speaker 2: political uncertainty obviously adds little fresh songs to all of that,
Speaker 2: but I think there's a more fundamental issue, which is
Speaker 2: the UK is very inflation prone and we talked about
Speaker 2: this before because of really because of poor governance over
Speaker 2: a very long period of time and bad policy making.
Speaker 2: And as Andy Haldane said on the podcast, you know
Speaker 2: a couple of weeks ago, there's enough a lot of
Speaker 2: potential in the economy that could be unlocked just by
Speaker 2: improving the policy making. And the unfortunate thing is to me,
Speaker 2: I think obviously we don't know what will happen as
Speaker 2: they're going to the polls. But whatever happens, either k
Speaker 2: Stamer steps down or he doesn't, and whoever places will
Speaker 2: probably be within the same level of badness. You know,
Speaker 2: maybe one of them might be slightly better, one of
Speaker 2: them might be significantly worse. But there's not you know,
Speaker 2: we're still getting have the same kind of approach that
Speaker 2: if it's not walking, you need you either slap a
Speaker 2: place control that a new law or as opposed to
Speaker 2: maybe if we sit back, I can go out of
Speaker 2: the way, you know, and let it kind of energy
Speaker 2: supply be more rationally produced, you know, and will uply
Speaker 2: not see et cetera, et cetera. So I think we
Speaker 2: may be stuck with poor policy making at least until
Speaker 2: the next general election.
Speaker 1: Yeah, I mean, it's interesting mentioning price controls because price controls,
Speaker 1: and we've discussed before, they just pop up all over
Speaker 1: the place now, and that brings us back to thinking
Speaker 1: about how inflation develops and how long it could last.
Speaker 1: I mean, it's very unusual in economies that have had
Speaker 1: higher and expected higher than expected inflation for four or
Speaker 1: five years or whatever, as we have had, as and
Speaker 1: as they have had in the US, by the way,
Speaker 1: for inflation just to put itself together and come back
Speaker 1: to target just like that. That's really very unusual, and
Speaker 1: particularly I would say unlikely in a political environment when
Speaker 1: the appetite to keep inflation low is kind of gone,
Speaker 1: the appetite to constrain spending, the appetite to look at
Speaker 1: the source of inflation, which in the UK's cases is
Speaker 1: all sorts of things, but out of control spending, endless
Speaker 1: price controls, less regulation, minimum wages and all this kind
Speaker 1: of thing. They're all embedded, and it's almost impossible to
Speaker 1: imagine a new government coming in and saying, actually, do
Speaker 1: you know what, let's stop covering everything up with price
Speaker 1: controls of various sorts and let's get to the bottom
Speaker 1: of inflation. That's not going to happen.
Speaker 2: Yeah, I mean it's I guess there's that whole thing,
Speaker 2: But there's not been any any voter base now for
Speaker 2: getting ready inflation. And I guess it's just the UK.
Speaker 1: By the way, I mean, I think that's at this
Speaker 1: point it's a Western issue. There is no there is
Speaker 1: no appetite anywhere for dealing.
Speaker 2: With the core of the problem of all the countries. Actually,
Speaker 2: the UK's at least it's theoretical fiscal pathway is actually
Speaker 2: pretty good compared to a lot of them in the
Speaker 2: You know that's nonsense, John, Yeah, yeah, but at least
Speaker 2: or not not at least, but at least discussion about it.
Speaker 1: Any one believes it. If anyone believed it, would guilt
Speaker 1: guild hells be so high.
Speaker 2: Well, I mean that's true a lot, But I mean
Speaker 2: the only thing I would say, but get yours in
Speaker 2: wild a function of inflation rather than panicking about the
Speaker 2: deficit connected. Yeah, but the things we've got this inflation
Speaker 2: has consistently been about one percentage point higher than anywhere else.
Speaker 2: So if you want a real interest rate from a
Speaker 2: guilt you have to charge that people who issue it
Speaker 2: kind of more to compensate for that. And I mean, yes,
Speaker 2: that's you know, you can argue the inflation is partly
Speaker 2: because we've never had kind of brilliantly controlled public finances,
Speaker 2: but a lot of it also comes down to the
Speaker 2: kind of price control side of things that we were
Speaker 2: talking about. Whereas, yes, so even even if we had,
Speaker 2: you know, kind of much healthier looking public finances, would
Speaker 2: still be getting charge of the premium because had inflation
Speaker 2: is still higher than it should be an incomparable kind
Speaker 2: of economies. I think something like CPI's averaged three percent
Speaker 2: since twenty ten, yeah, you know, ten years of that
Speaker 2: was the most disinflation in the decade you know, we've
Speaker 2: ever had.
Speaker 1: Yeah, So I mean that's that's what I mean when
Speaker 1: I say it's difficult to imagine it going back to
Speaker 1: two percent. And this is the whole idea that, oh,
Speaker 1: you know, people's expectations is still anchored, are they?
Speaker 2: Are they? Though I don't place a lot of stocking expectations,
Speaker 2: I must admit, just because I think it's if you
Speaker 2: put too much stock in expectations, then that always encourages
Speaker 2: politicians to think that they can somehow wrestle control of
Speaker 2: the narrative just by talking rather than acting. But people's
Speaker 2: expectations usually reflect an underlying reality, which is stuff is
Speaker 2: just getting more and more Expensivelessly.
Speaker 1: You expect what you just had in the mayor r Yeah, okay,
Speaker 1: well that was another optimistic chat, John. I enjoyed that.
Speaker 1: Only we could do a depressing podcast when Mark is
Speaker 1: it hitting new hires all around us and there's a
Speaker 1: possibility of a peace deal in the Middle East on
Speaker 1: the on the table, it's we've got to try harder
Speaker 1: on the optimism. Maybe some more optimistic guests would be
Speaker 1: a good thing. We'll get that Eddie id back on again.
Speaker 1: I think, yeah, yeah, I think we better leave it there.
Speaker 2: Thank you, John, Thanks Mail, thanks.
Speaker 1: For listening to this weeks Marin Talks Money Debrief. If
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