WEBVTT - Markets Weekly: Tech and Crypto Slide, BOE Surprise, Turbulence for Gilts and Pound

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Merton Talks Money news round up, where

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<v Speaker 2>we talk about the biggest move in markets this week

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<v Speaker 2>and what's been driving them. I'm joined Steppeck, Senior report

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<v Speaker 2>of Bloomberd, author of the award winning Money to Still newsletter,

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<v Speaker 2>and joining me in the studio today while Merrion is

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<v Speaker 2>away again, is Marcus Ashwell. Marcus is by now a

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<v Speaker 2>fun favorite and a regular.

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<v Speaker 1>On the Groundhog Day.

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<v Speaker 2>Yes, yes, Punks of Tony. Phil is with us today.

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<v Speaker 2>Expert on born Marcus and European equities and everything else

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<v Speaker 2>and a regular contributor. Great to tell you with us again, Marcus,

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<v Speaker 2>what's a pleasure this week? This week? This week we've

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<v Speaker 2>just had the Bank of England's running hold quite exciting.

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<v Speaker 1>Actually yeah, we're expecting Snoresville, but no, I think we're

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<v Speaker 1>seeing that the Bank of England are expecting growth for

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<v Speaker 1>this year to be below one percent. That's down from

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<v Speaker 1>one point twenty five from what they thought in November.

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<v Speaker 1>That's a cut of quarter of growth my word. But

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<v Speaker 1>more importantly I guess is that they from November to

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<v Speaker 1>this February, they have changed their forward expectations of inflation

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<v Speaker 1>by a full one percent or one hundred basis points

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<v Speaker 1>lower than they thought it would be. That's quite noticeable.

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<v Speaker 1>So half of that was from the budget. The other

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<v Speaker 1>half is just inflation is coming out of the system.

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<v Speaker 1>So why if we've got sub one percent growth and

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<v Speaker 1>now therefore sub two percent inflation, do we have interest

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<v Speaker 1>rates at three point seventy five. We shouldn't, And I

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<v Speaker 1>think even they're realizing that they need to cut so importantly.

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<v Speaker 1>One of the internal deputy governors, Sarah Breeden, moved across

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<v Speaker 1>into the cut camps. Are four people voted for cut,

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<v Speaker 1>five stayed on hold, but two of those five are

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<v Speaker 1>namely the Governor Andrew Bailey and outside member Catherine Mann.

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<v Speaker 1>Made very clear that they would expect to cut probably

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<v Speaker 1>next time or something by April, so it's either March

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<v Speaker 1>or April they will cut. I think we'll vote for

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<v Speaker 1>a cut, so the market's not fully priced in yet,

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<v Speaker 1>but it's getting that way. I think we've got two

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<v Speaker 1>more unemployment data releases and one inflation before the March meeting,

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<v Speaker 1>so it could be as soon as March, though, I

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<v Speaker 1>think we should just put our hopes on they'll they

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<v Speaker 1>will cut in April, and more important, they will cut

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<v Speaker 1>again this year at least once, which they're starting the

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<v Speaker 1>price and they realizing then no so called neutral raid

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<v Speaker 1>is more like three and a quarter than three and

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<v Speaker 1>a half. Still got three people sort of in denial,

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<v Speaker 1>but they're even their sort of argument's getting a little

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<v Speaker 1>bit weaker. They just think everything's sticky and nothing's ever

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<v Speaker 1>going to change. But there are evidence signs and the

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<v Speaker 1>key factor is unemployment. That's what they're really well, I.

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<v Speaker 2>Know the deve Bfrey governor specifically said very a weird

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<v Speaker 2>unemployment is now about five percent. I thought that was

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<v Speaker 2>quite strange.

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<v Speaker 1>Yeah, it was important to what exactly got that spot on,

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<v Speaker 1>I think, and Dan Ramsen is pointing out and he's

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<v Speaker 1>one obviously hes already would look to cut, is that

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<v Speaker 1>this is going to cut spending. It's cutting the come

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<v Speaker 1>into the economy, and really, not to put fun about

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<v Speaker 1>what rach Ruths has done is really impacting unemployment. It's

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<v Speaker 1>people aren't hiring. It's not like they're letting people redundant

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<v Speaker 1>in Swedes thankfully yet, but they're clearly not hiring and

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<v Speaker 1>that is starting to impact and it's starting to impact

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<v Speaker 1>on spending, so for the back of anything to expect

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<v Speaker 1>growth to be blow on person, I think that's quite important.

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<v Speaker 1>And clearly they're seeing inflation is just coming straight down

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<v Speaker 1>and they're not as worried anywhere near as concerns the

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<v Speaker 1>well that it would remain sticky. So another two possibly,

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<v Speaker 1>I think three great cuts this year. I think it's

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<v Speaker 1>quite possible if the numbers continue on this trend, and

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<v Speaker 1>that trend in week definitely uh not doesn't look good

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<v Speaker 1>for the UK economy, which is a's but I think

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<v Speaker 1>they've under club growth to be quite frank. And one

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<v Speaker 1>thing it's quite interesting is that they did it emphasize

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<v Speaker 1>that the state sector will continue to grow very nicely

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<v Speaker 1>because it's been fueled by all our tax hikes. Well

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<v Speaker 1>those taxes are taken from us, John, they are feeling

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<v Speaker 1>it into the state sector, Isn't that lovely? But for

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<v Speaker 1>private sector not so good.

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<v Speaker 2>But that is interesting because the point is that the

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<v Speaker 2>bank has turned around, you know, they must think the

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<v Speaker 2>private sector is doing actually really quite a lot wasp

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<v Speaker 2>than we had thought. And I mean I can see

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<v Speaker 2>that maybe part of this is because obviously the figures

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<v Speaker 2>were quite disrupted by the pre budget fear again. And

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<v Speaker 2>then after the budget there are a couple of signs

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<v Speaker 2>that maybe everyone's a bit more relieved, but that's not

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<v Speaker 2>at all clear. And also the last employment figures, it

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<v Speaker 2>was very striking that the public sector pay and obviously.

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<v Speaker 1>Seven point nine what's the private sector it was.

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<v Speaker 2>It wasn't two and a half.

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<v Speaker 1>Somewhere I think actually actually look at the running numbers

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<v Speaker 1>two point nine or whatever, but a big difference.

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<v Speaker 2>Yeah, And I mean I know that those.

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<v Speaker 1>They're talking with effects Yeah, yeah.

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<v Speaker 2>Okay, well okay, but we've got to expect them follow

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<v Speaker 2>does that mean that we.

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<v Speaker 1>Should see Well, we had this in Germany as well.

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<v Speaker 1>I mean, to be fair, the way it works is

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<v Speaker 1>why inflation is so bad for the UK. We have

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<v Speaker 1>everything is ratched in an index and the government sets

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<v Speaker 1>all these things. A lot of these things are set

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<v Speaker 1>in April, which is why we know inflation will fall

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<v Speaker 1>by zero point five And alone was the budget effects

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<v Speaker 1>because she's got out of her own way this year,

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<v Speaker 1>which he made inflation much worse than there for the

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<v Speaker 1>Bank of English job much harder previous year, but this

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<v Speaker 1>last budget she's worked that one out at.

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<v Speaker 2>Least one thing. That also means that she's compartitives are

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<v Speaker 2>much easier as well well.

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<v Speaker 1>Of course, So yeah, the base effects again exactly. So

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<v Speaker 1>the point here is that we have, you know, quite

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<v Speaker 1>noticeable changes that the government has made mistakes on, but

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<v Speaker 1>one or two of them they are starting to get

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<v Speaker 1>and their own way. But the base online case of

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<v Speaker 1>the economy is moneies are being pushed into the state

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<v Speaker 1>sector and will continue to That will hold the norminal

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<v Speaker 1>of GDP up, not the capital but the normal overall

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<v Speaker 1>level of gross domestic products. But the shift is happening

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<v Speaker 1>beneath that is that the state sectors can take a

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<v Speaker 1>far greater percentage. You've got you know, these these public

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<v Speaker 1>sector pay rises are a legacy from the inflation posting

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<v Speaker 1>in Ukraine, and that's that's still working through the system.

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<v Speaker 1>But it's very very hard to get the state sector

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<v Speaker 1>to except lower wages as we see this gone strike.

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<v Speaker 2>And some of them wanted to bring up on productivity

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<v Speaker 2>because I've noticed people starting to talk about productivity picking

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<v Speaker 2>up in the UK. How much of that is specifically

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<v Speaker 2>a function of this that can end to labor hoarding

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<v Speaker 2>if you like. So as you say, because the minimum

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<v Speaker 2>we just shut up and you know, and employee National

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<v Speaker 2>insurance is going on private sector employers I thinking that

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<v Speaker 2>too expensive to hire people. So basically there was an

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<v Speaker 2>argument that they had perhaps hoarded people after COVID and

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<v Speaker 2>is it the end of that.

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<v Speaker 1>That's definitely a part. I mean I could just try

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<v Speaker 1>it out and say AI, but some of that well,

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<v Speaker 1>I think there is some of it, particularly graduate equipment.

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<v Speaker 1>But you know, yeah, I think that is precisely that

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<v Speaker 1>is that is that particularly hostility retail constructions like that

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<v Speaker 1>that where people were holding on to staff thinking they

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<v Speaker 1>would have struggled to hire them. Now it's the other

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<v Speaker 1>way around. So that's that's still got to work through.

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<v Speaker 1>But so productivity I think is a very misunderstood concept

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<v Speaker 1>and I think that people put too much emphasis on

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<v Speaker 1>being able to measure it. We can't work out how

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<v Speaker 1>many people are in this country. How can we work

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<v Speaker 1>out what product use. We can't work out what labor

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<v Speaker 1>stats are. I mean, you know, really this.

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<v Speaker 2>Is a very good point. Yeah, there's another reason to

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<v Speaker 2>take productivity beyond my so pincher salt. Okay, so shall

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<v Speaker 2>we move from the Bank of England, But.

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<v Speaker 1>We can say quite nicely into into what's going on

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<v Speaker 1>in the sas often which.

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<v Speaker 2>Which been sick. We don't want to do that. I

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<v Speaker 2>want to do a jarring transition.

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<v Speaker 1>Well, the software as a surface sector had a rather

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<v Speaker 1>unpleasant week, which may be because of AI and the

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<v Speaker 1>productivity from leading less people to even to code. Even

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<v Speaker 1>coders are at risk now, let alone financial journalists. So

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<v Speaker 1>you know, the reality is what we've seen is a

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<v Speaker 1>very big shift underneath the surface in stock markets, where

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<v Speaker 1>you've had companies which have been doing very well the

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<v Speaker 1>last few years selling software. A London Stock Exchange group

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<v Speaker 1>surprisingly hit hard, Sage Experience, Relex Walter's clerk. There's lots

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<v Speaker 1>of names which have been doing sort of riding the

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<v Speaker 1>tech boom, and then they realized they are getting seriously

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<v Speaker 1>differentiated now. So AI spend is going in certain place

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<v Speaker 1>and it will kill the existing software sector really very quickly.

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<v Speaker 1>We saw some very such savage stock market falls, but

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<v Speaker 1>at the same time also credit spreads widening out in

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<v Speaker 1>some of these even investment grade companies.

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<v Speaker 2>Because a lot of this is also because the private

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<v Speaker 2>sector is getting hit, isn't it, Yeah, very.

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<v Speaker 1>Much as well. Yeah, the private equity private credits sector particularly, Yeah,

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<v Speaker 1>because a lot of these leverage loans and sort of

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<v Speaker 1>hard to visualize, and they're there, it's very difficult to

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<v Speaker 1>get a proper read on. So then we can look

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<v Speaker 1>at is investment gray bond corporate bond spreads and they

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<v Speaker 1>have widened somewhere some seen fifteen and twenty basis points,

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<v Speaker 1>which in it in itself is the end of the world,

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<v Speaker 1>but it is a definite rerating of the sector. And

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<v Speaker 1>certain companies which are viewed as being there are old

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<v Speaker 1>economy in the new economy are getting hit hard. But

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<v Speaker 1>what's also happening is if you actually look at the

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<v Speaker 1>levels of the stock market, not just the foot see

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<v Speaker 1>one hand, particularly the S and P, and this mirror

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<v Speaker 1>is out across you know, its like Career Japan, which

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<v Speaker 1>are very tech sensitive. There's a massive rotation going on.

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<v Speaker 1>The factors of which you know, inequity has been rated

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<v Speaker 1>on are shifting and now we're seeing value stocks, dividend

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<v Speaker 1>higher dividend paying more old economy stocks. I mean, some

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<v Speaker 1>of the best performing stocks in the S and P

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<v Speaker 1>were railroads and uh, you know, and even ob oil companies,

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<v Speaker 1>which have kept the stock market up. But a lot

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<v Speaker 1>of money is shifting very quickly out of out of

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<v Speaker 1>favor software sort of technology which isn't quite keeping up

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<v Speaker 1>with the pace with the new world, and back into

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<v Speaker 1>things which are much more viable than solid which is

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<v Speaker 1>you know, I stop Picker's delight.

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<v Speaker 2>So sale, digital bay, physical, Oh thank you, thank you

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<v Speaker 2>to be a journalist, I'll say, I'll say, but I mean,

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<v Speaker 2>do you think so? I mean, because one of the

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<v Speaker 2>things that I know the liceners will be thinking, they'll

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<v Speaker 2>see this year place I start like relics, which is

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<v Speaker 2>going down by single day. They love the look at

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<v Speaker 2>that chart, because what retail investor doesn't love catching the

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<v Speaker 2>fallen nave.

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<v Speaker 1>Why do you think, well, I mean, there's definite you know,

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<v Speaker 1>if you actually anthropic a bit bemused themselves that the

0:11:14.760 --> 0:11:16.880
<v Speaker 1>so called sort of cash list that was was this

0:11:16.880 --> 0:11:21.440
<v Speaker 1>this legal services sort of new new tool which could

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<v Speaker 1>cut out a lot of things. They don't actually think

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<v Speaker 1>I think it's that great themselves. So this is these

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<v Speaker 1>are the gays could Yeah, there's plenty of other you know,

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<v Speaker 1>I'm not saying that in the sector. There's now a

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<v Speaker 1>lot more and will be substantially more products. I mean,

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<v Speaker 1>I think and topic of itself launched thirty in January

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<v Speaker 1>alone of across lots of different sectors doing different things,

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<v Speaker 1>and there's lots of competition in there, and they're probably

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<v Speaker 1>more worried about their own jobs. Ironically, you know, creating

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<v Speaker 1>new new things with the AI itself will self create.

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<v Speaker 1>So in that sense, I think there's there's a lot

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<v Speaker 1>of interesting factors to the way, but probably this is

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<v Speaker 1>overdone for I mean, certain companies are just rehashing software

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<v Speaker 1>and they are very vulnerable. Other products are still very

0:12:09.480 --> 0:12:14.120
<v Speaker 1>valid and and and will we have reasonable shelf lives. However,

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<v Speaker 1>if you look out two three years, then that that

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<v Speaker 1>is the wires and that's why the sectory rate. It

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<v Speaker 1>also suddenly because everyone suddenly realized that this is starting

0:12:21.920 --> 0:12:24.199
<v Speaker 1>to happen. It's starting to happen immediately. And the legal

0:12:24.240 --> 0:12:26.720
<v Speaker 1>service is obviously the huge vast amounts we will pay

0:12:26.760 --> 0:12:29.440
<v Speaker 1>to our lovely lawyers. We wish we could pay them more.

0:12:30.559 --> 0:12:32.360
<v Speaker 1>But you know, why why are we paying or why

0:12:32.360 --> 0:12:34.880
<v Speaker 1>are companies paying management consultants vast amounts of money? Or

0:12:34.880 --> 0:12:38.600
<v Speaker 1>they you know, they get a well trained graduate whacket

0:12:38.600 --> 0:12:41.160
<v Speaker 1>into chat GBT and and why do you have to

0:12:41.160 --> 0:12:44.360
<v Speaker 1>pay someone, you know, ex hundreds of thousand pounds an

0:12:44.360 --> 0:12:46.679
<v Speaker 1>hour to do something which you could do yourself.

0:12:46.360 --> 0:12:48.439
<v Speaker 2>And well, and we are seeing that. I mean, none

0:12:48.480 --> 0:12:50.840
<v Speaker 2>of the manageming consultancies are lessed as far as I

0:12:50.840 --> 0:12:53.679
<v Speaker 2>can remember, but you're not. Realities and stories every day

0:12:53.679 --> 0:12:57.640
<v Speaker 2>about the consultancies kind of haven't it caught back or.

0:12:57.640 --> 0:13:04.079
<v Speaker 1>Deploy accountants since lawyers consultants are all going to find

0:13:05.040 --> 0:13:07.280
<v Speaker 1>things harder, aren't stay well.

0:13:07.320 --> 0:13:11.160
<v Speaker 2>I suppose it's interesting because we as journalists have been

0:13:11.360 --> 0:13:15.920
<v Speaker 2>through this with the Internet destroyed the publishing industry.

0:13:15.600 --> 0:13:16.760
<v Speaker 1>As it was the interweb.

0:13:17.559 --> 0:13:19.960
<v Speaker 2>Yeah, yeah, that thing that was only going to have

0:13:19.960 --> 0:13:24.400
<v Speaker 2>the same economic impact is the fax machine, Upton book publishing,

0:13:24.480 --> 0:13:27.000
<v Speaker 2>Upton music. All that is. So I guess this is

0:13:27.120 --> 0:13:29.040
<v Speaker 2>just a new fees for the definite set of weight

0:13:29.120 --> 0:13:29.600
<v Speaker 2>call at work.

0:13:30.040 --> 0:13:31.839
<v Speaker 1>There's an awful lot of money behind it, you know,

0:13:31.920 --> 0:13:34.680
<v Speaker 1>from salesforce onwards, which are growing the vast vast companies

0:13:34.800 --> 0:13:38.720
<v Speaker 1>you know, providing things which you know, it's a rough

0:13:38.760 --> 0:13:41.360
<v Speaker 1>cral world because the turnover products and the ability to

0:13:41.920 --> 0:13:48.160
<v Speaker 1>self perpetuate and learn is going exponentially so that it's

0:13:48.320 --> 0:13:50.400
<v Speaker 1>very hard to price. And it all got priced in

0:13:50.440 --> 0:13:52.280
<v Speaker 1>one day. But as I said, some of this I

0:13:52.280 --> 0:13:54.800
<v Speaker 1>think is permanent, but still some of these companies may

0:13:54.880 --> 0:13:57.400
<v Speaker 1>be very careful and do your own research, you may

0:13:57.400 --> 0:13:59.480
<v Speaker 1>find they've been a little bit, you know, chucked out

0:13:59.520 --> 0:14:00.240
<v Speaker 1>with the Barold.

0:14:01.280 --> 0:14:02.880
<v Speaker 2>I think when that note you can go and do

0:14:03.000 --> 0:14:06.199
<v Speaker 2>your own research. You might even want to ask one

0:14:06.240 --> 0:14:09.760
<v Speaker 2>of these new fangal day eyes. I'm not having anything

0:14:09.800 --> 0:14:12.200
<v Speaker 2>to do with them, not training the competition.

0:14:15.160 --> 0:14:15.600
<v Speaker 1>Exactly.

0:14:20.360 --> 0:14:22.520
<v Speaker 2>Thanks for listening to this week's Merton Talks Money debrief.

0:14:22.560 --> 0:14:24.560
<v Speaker 2>If you like our show, rate review, and subscriber whatever

0:14:24.600 --> 0:14:27.480
<v Speaker 2>you listen to podcasts. He keep saying questions or comments

0:14:27.480 --> 0:14:30.120
<v Speaker 2>to Merring Money at bloombard dot net. You can also

0:14:30.160 --> 0:14:32.880
<v Speaker 2>follow me and Marcus on x I'm at Joint Underscore

0:14:32.920 --> 0:14:37.440
<v Speaker 2>Steppeck and Marcus is at Marcus Ashworth. This episode is

0:14:37.440 --> 0:14:39.880
<v Speaker 2>hosted by me Join Stepeck and it was produced by

0:14:39.880 --> 0:14:41.440
<v Speaker 2>Moses and Am and Summer Sadi