WEBVTT - Using Active Management to Cut Downside Risks 0:00:00.520 --> 0:00:04.920 John, do you know I'm feeling guilty, feeling a little grubby. 0:00:05.480 --> 0:00:09.640 I've spent the last two days doing absolutely nothing but 0:00:10.000 --> 0:00:12.840 criticizing the Bank of England. I've been on the radio, 0:00:13.119 --> 0:00:14.880 I've been on other people's podcasts. 0:00:15.040 --> 0:00:18.560 I mean, very active on Twitter, which is kind of fun. 0:00:18.600 --> 0:00:19.160 I see. 0:00:19.880 --> 0:00:22.439 I'm constantly saying the Bank of England have got this 0:00:22.720 --> 0:00:25.680 completely wrong, that models have been wrong all the way 0:00:25.720 --> 0:00:29.680 through there, massively behind the curve. They don't understand money supply. 0:00:30.240 --> 0:00:33.239 These people are useless. That Andrew Bailey should be at 0:00:33.280 --> 0:00:37.200 the very least apologizing to us and possibly thinking to himself, 0:00:37.280 --> 0:00:38.520 maybe I'm in the wrong job. 0:00:38.840 --> 0:00:39.760 Am we being unfair? 0:00:41.159 --> 0:00:41.360 Well? 0:00:41.440 --> 0:00:43.600 One thing that is, does that mean that this is 0:00:43.640 --> 0:00:47.000 your fault? What does the fact that the bank has 0:00:47.120 --> 0:00:49.479 just come out and put interest rates up by a 0:00:49.560 --> 0:00:53.080 full whopping half a percentage point up to five percent? 0:00:53.479 --> 0:00:55.520 I would love it if that was my fault, and 0:00:55.560 --> 0:00:58.400 I would expected to just put up by a quarter 0:00:58.480 --> 0:00:59.080 point now. 0:00:59.120 --> 0:01:00.720 I would love it if that pob I mean, I 0:01:00.760 --> 0:01:02.400 think they've done the wrong thing. By whatever. I love 0:01:02.440 --> 0:01:03.360 the idea of power. 0:01:03.720 --> 0:01:06.720 I think it's fair to blame you for mortgage rates 0:01:06.720 --> 0:01:07.039 going up. 0:01:07.080 --> 0:01:09.959 Now, No no, no, come on, because I love I say, 0:01:10.000 --> 0:01:12.760 held the usually address it actually get some Normally we 0:01:12.800 --> 0:01:13.479 don't get any. 0:01:14.800 --> 0:01:16.679 Oh yeah, I mean look no, so you're absolutely right 0:01:16.800 --> 0:01:20.080 to be criticizing them. Obviously, it's kind of it's difficult 0:01:20.120 --> 0:01:24.880 to come up with any defense. Really, the sort of 0:01:24.880 --> 0:01:27.600 is sleepy at the wheel, and an awful lot of 0:01:27.760 --> 0:01:32.679 central banking is about communication. It's like, I mean, Mario Draggy, 0:01:33.040 --> 0:01:36.960 I think proved is best. You know, we all these 0:01:37.000 --> 0:01:39.360 stuff about, you know, whatever it takes and all of that. 0:01:39.480 --> 0:01:43.440 The communication part of the central banking actually really matters, 0:01:43.800 --> 0:01:47.480 particularly when you're in a crisis, and the reality is 0:01:47.520 --> 0:01:50.120 that the Bank of England has not only been behind 0:01:50.120 --> 0:01:53.040 the cuff, but it has consistently given the impression that 0:01:53.120 --> 0:01:56.120 it's behind the cuff. And now it's given the impression 0:01:56.160 --> 0:01:59.080 that it's panicking about the fact that it has been 0:01:59.120 --> 0:02:03.000 consistently be the couv I know, it's risking reason too much. 0:02:03.200 --> 0:02:06.360 Precisely the point when inflation is actually coming back down, 0:02:06.760 --> 0:02:09.160 albeit not as quickly as you know, we may have. 0:02:09.320 --> 0:02:12.800 Hawked because we do think that it is entirely possible 0:02:12.800 --> 0:02:15.400 that inflation is about to take a massive turn down 0:02:15.560 --> 0:02:19.720 in that we saw PPI inflation falling fairly dramatically. We've 0:02:19.760 --> 0:02:21.919 seen a lot of talk about what we know through 0:02:22.000 --> 0:02:23.960 prices have rolled over. We've seen a lot of talk 0:02:24.000 --> 0:02:27.120 from pretty much everybody about their input. Prices are beginning 0:02:27.160 --> 0:02:29.720 to fall, and crucially, as are right in my column 0:02:29.720 --> 0:02:33.000 foo Bloomberg Opinion this week, we've seen money supply rolling over. 0:02:33.080 --> 0:02:35.200 So James Ferguson, who we often talk to about CROs 0:02:35.160 --> 0:02:38.239 Strategy partnership, He's been looking at the money supply numbers 0:02:38.240 --> 0:02:42.519 and pointed out that since March twenty twenty, money supply 0:02:42.800 --> 0:02:44.560 and four X you can see it in my column 0:02:44.639 --> 0:02:47.600 has risen twenty percent or so, as has CPI. 0:02:47.760 --> 0:02:49.320 So pretty much fits exactly. 0:02:49.440 --> 0:02:51.440 So those of you who have totally dismissed the idea 0:02:51.440 --> 0:02:53.160 that money supply makes a difference might have to have 0:02:53.160 --> 0:02:55.760 another look at that. And money supply growth has now 0:02:55.800 --> 0:02:58.639 of course rolled over. It's another thing that might lead 0:02:58.760 --> 0:03:01.720 us to believe that inflation might be about to start 0:03:01.760 --> 0:03:03.000 falling fairy dramatically. 0:03:04.040 --> 0:03:06.880 I do think it's very interesting because I I'm on 0:03:07.040 --> 0:03:09.360 the defense about that one way or the other. But 0:03:09.440 --> 0:03:12.240 I do think that if inflation falls faster than anyone 0:03:12.360 --> 0:03:17.680 expects then the entire economics establishing was the mondetarists massive apology, 0:03:17.880 --> 0:03:20.919 because you know, James is actually probably the only person 0:03:21.000 --> 0:03:24.440 I know who was one hundred percent right the Q 0:03:24.800 --> 0:03:29.200 wouldn't cause inflation or anything like hyperinflation after the two 0:03:29.240 --> 0:03:32.000 thousand and eight crash. He then was absolutely the right 0:03:32.080 --> 0:03:36.680 about the money printing lockdown causing inflation after twenty twenty. 0:03:37.080 --> 0:03:39.800 So if he's right again now then then nicely they 0:03:39.800 --> 0:03:41.840 should probably appoint them to the NPC. 0:03:41.840 --> 0:03:42.920 Time to have a bit of a rathin. 0:03:43.040 --> 0:03:45.040 And of course, you know, to be fair well, everyone 0:03:45.400 --> 0:03:47.520 with mainstream economists have for ages and I been saying 0:03:47.560 --> 0:03:49.960 the managers are wrong, the manager's wrong, the managers are wrong. 0:03:50.160 --> 0:03:52.520 This book from the Bank of England or two Bank 0:03:52.560 --> 0:03:55.200 of England economists, Roupeupatal and Jack Meaning, which was a 0:03:55.360 --> 0:03:58.320 little while ago, and I also write about in my column. 0:03:58.680 --> 0:04:01.880 The title of it is Can't we Just Print More money? 0:04:02.760 --> 0:04:06.120 Economics in ten simple questions? And can't we just print 0:04:06.120 --> 0:04:07.960 more money? As the title of one of the one 0:04:08.000 --> 0:04:10.640 of the chapters, chapter ten, which I strongly recommend that 0:04:10.880 --> 0:04:15.200 everybody read, because the answer is no, no, we can't. 0:04:15.320 --> 0:04:19.640 Because it causes inflation, they wrote a book about it. 0:04:21.920 --> 0:04:24.400 Don't you just tax it away or something? Because you've 0:04:24.400 --> 0:04:26.600 got perfect force? So things? 0:04:26.600 --> 0:04:26.680 What? 0:04:26.880 --> 0:04:28.720 No? Yes, well apparently not. 0:04:28.800 --> 0:04:30.719 And I think the most interesting thing about this book 0:04:30.880 --> 0:04:35.320 is that the foreword was written by the increasingly unpopular 0:04:35.400 --> 0:04:38.719 Andrew Bailey, who presumably did what everyone who writes forwards 0:04:38.720 --> 0:04:40.240 for booksport does is. 0:04:40.320 --> 0:04:41.760 Not actually read the book. 0:04:41.839 --> 0:04:44.240 Because you know, if you'd read to chapter ten, can't 0:04:44.279 --> 0:04:46.279 we just print more money? You might have had some 0:04:46.400 --> 0:04:48.320 idea of what was going to happen if you printed 0:04:48.360 --> 0:04:51.320 four hundred and fifty How much? How much did we print? 0:04:51.360 --> 0:04:52.919 Let's COVID four hundred and fifty billion? 0:04:53.360 --> 0:04:55.400 The thing is four hundred and fifty billion that I 0:04:55.440 --> 0:04:57.279 don't have the figure in front of it, but it was. 0:04:57.360 --> 0:04:59.280 It was money. Money was printed. 0:05:00.000 --> 0:05:02.320 There's money. Money was printed. And look where we are 0:05:02.400 --> 0:05:04.880 now here we are here, we are John. We can 0:05:05.320 --> 0:05:07.280 make it sound quite funny, but it's not actually funny 0:05:07.320 --> 0:05:10.560 at all. As previously discussed, and what we're finding here 0:05:10.640 --> 0:05:13.760 is that transmission mechanism has really not been working particularly 0:05:13.800 --> 0:05:16.000 well since the Bank we ENGDN started putting up rates. 0:05:16.120 --> 0:05:18.640 Because, of course, so many people own their homes. 0:05:18.360 --> 0:05:20.640 Out right well over thirty percent, and a lot of 0:05:20.640 --> 0:05:22.560 people are renteds, and so it takes a while for 0:05:22.880 --> 0:05:25.640 those rises in mortgage costs for the people who own 0:05:25.680 --> 0:05:28.000 the houses in which they live to feed through. So 0:05:28.080 --> 0:05:30.800 the percentage of people who live in houses that have 0:05:30.920 --> 0:05:34.080 mortgages on them is not particularly high. And most of 0:05:34.120 --> 0:05:37.120 those people have fixes, so they don't necessarily roll over 0:05:37.200 --> 0:05:37.799 in a hurry. 0:05:38.120 --> 0:05:40.200 So a lot of that pain is still to come, and. 0:05:40.120 --> 0:05:44.600 That has made the transition mechanism not work as fast 0:05:44.720 --> 0:05:48.880 or as efficiently as it has in the past. But 0:05:48.920 --> 0:05:52.200 that doesn't mean that there isn't pain, because there is pain. 0:05:52.240 --> 0:05:54.400 And what if we got eight hundred thousand people rolling 0:05:54.400 --> 0:05:56.320 off in the next six months who are going to 0:05:56.360 --> 0:06:00.000 have to remortgage at rates very considerably higher than they 0:06:00.080 --> 0:06:05.200 would have ever expected. So we should do something, right, 0:06:05.240 --> 0:06:07.480 we should do something to help these people. What do 0:06:07.640 --> 0:06:07.800 we do? 0:06:07.960 --> 0:06:08.200 Job? 0:06:08.920 --> 0:06:12.680 Ah? Yes, this is the this is the age old problem. No, 0:06:12.800 --> 0:06:18.440 we shouldn't do anything. Unfortunately, it's one of the it 0:06:18.480 --> 0:06:20.000 seems to be at least one of the few things 0:06:20.000 --> 0:06:25.320 that the government might resist poking its nose into. You know, 0:06:25.520 --> 0:06:27.440 the problem is that if you if this is the 0:06:27.480 --> 0:06:29.559 transmission mechanism. And I think you can have a whole 0:06:29.560 --> 0:06:33.200 other debate about transmission mechanisms, how they work, whether we 0:06:33.240 --> 0:06:36.400 should be doing any of that sort or not. But 0:06:36.440 --> 0:06:38.599 if the whole point of if your way of slowing 0:06:38.640 --> 0:06:40.760 the economy is to force people to pay more on 0:06:40.800 --> 0:06:45.279 their mortgages, then bailing those people out with taxpayer money 0:06:45.480 --> 0:06:49.560 is just going to be inflationary as well. So it's 0:06:49.760 --> 0:06:53.920 complete waste of time do that. But also I think 0:06:53.920 --> 0:06:57.400 we shouldn't be focusing on the mortgages side to they 0:06:57.440 --> 0:06:59.560 almost it's like people kind of like almost act as 0:06:59.600 --> 0:07:02.760 if this is the only trans mission mechanism. I mean, 0:07:02.839 --> 0:07:04.440 you know, there are a whole load of companies out 0:07:04.440 --> 0:07:06.560 there carrying a load of debt as well, and they'll 0:07:06.560 --> 0:07:10.360 be looking at that and thinking, maybe we shouldn't hire 0:07:10.400 --> 0:07:12.800 another x number of people because in the about six 0:07:12.880 --> 0:07:14.880 months time we need to refinance our debt, and the 0:07:14.880 --> 0:07:18.680 debt course is going to skyrocket. The other transmission mechanism 0:07:18.800 --> 0:07:22.800 is savings, so savers more people are locking in fixed 0:07:22.880 --> 0:07:25.360 rates on their savings now, so I know there's an 0:07:25.400 --> 0:07:27.440 argument to be said that when interest rates go up, 0:07:27.480 --> 0:07:30.920 savers get more income and therefore they can spend more. 0:07:31.160 --> 0:07:33.520 If you look at the actual figures, people are putting 0:07:33.520 --> 0:07:38.280 that money in time deposits rather than current accounts, which 0:07:38.280 --> 0:07:40.080 means obviously the money is locked up and it's not 0:07:40.120 --> 0:07:43.040 going to be spent. So I think there's a work 0:07:43.200 --> 0:07:46.440 at risky kind of confusing issues slightly if we focus 0:07:46.520 --> 0:07:50.119 solely on the kind of relatively small percentage of people 0:07:50.160 --> 0:07:52.840 who are about to come off mortgages and being a 0:07:52.840 --> 0:07:55.240 lot of pain, but they aren't the only ones who 0:07:55.280 --> 0:07:59.040 are being affected by rising interest rates a lot. 0:07:59.640 --> 0:08:02.320 Then listen before we finish up here, I just wanted 0:08:02.400 --> 0:08:04.960 to say a little bit more about the book which 0:08:05.200 --> 0:08:08.800 Jones flogs united at Macroschafty Partners and insist did I 0:08:08.840 --> 0:08:11.360 actually read rather than just give the introduction of which 0:08:11.440 --> 0:08:13.640 is you know is how I mostly read books. There 0:08:13.800 --> 0:08:18.000 is another chapter that I strongly suggest anyone everyone reads 0:08:18.000 --> 0:08:20.360 its chapter three. How do I get a pay rise? 0:08:20.600 --> 0:08:23.320 They're going to need it. Read that chapter and then. 0:08:23.240 --> 0:08:26.600 Should you be tempted to increase your levels of faith 0:08:26.640 --> 0:08:28.240 in the Central Bank, here's a couple of couple of 0:08:28.320 --> 0:08:29.240 quotes for you from the book. 0:08:29.240 --> 0:08:30.680 He is one of my favorites. You're ready for this? 0:08:30.720 --> 0:08:33.880 One suggests perhaps a little complacency maybe, and issue really 0:08:33.960 --> 0:08:36.360 a bit of varying. And let's see, the success of 0:08:36.400 --> 0:08:41.400 independent central banks targeting inflation directly has been palpable, having 0:08:41.440 --> 0:08:43.520 average more than ten percent in the nineteen seventies. In 0:08:43.600 --> 0:08:45.800 nineteen eighties, global inflation felt the five percent of the 0:08:45.840 --> 0:08:48.400 nineteen ninety three percent. In the two thousands, just two 0:08:48.440 --> 0:08:50.960 percent of the twenty tens. It stops there. They're going 0:08:51.000 --> 0:08:52.720 to have to add on a female lines for the 0:08:53.040 --> 0:08:53.840 twenty twenties. 0:08:54.080 --> 0:08:56.480 So already, no, I cannot way like all past with 0:08:56.520 --> 0:08:59.040 So just in case anyone thinks, does any I mean 0:09:00.000 --> 0:09:01.880 there were two percent in fleetion in the twenty tens 0:09:01.880 --> 0:09:05.600 because the entire global economy collapsed in two thousand and eight. 0:09:06.360 --> 0:09:09.160 It's like ten percent inflation in the nineteen seventies because 0:09:09.160 --> 0:09:12.040 the pricey oil rocketed and we had stag flesh three ages. 0:09:12.040 --> 0:09:17.560 It's got nothing to do with central banks. Ah, these people, Sorry, 0:09:17.679 --> 0:09:18.280 I'll show. 0:09:18.800 --> 0:09:21.720 You you are messing with Andrew Bailey's self esteem. You 0:09:21.760 --> 0:09:25.839 stop that right, Look one more quite for you. All 0:09:25.880 --> 0:09:28.040 this means that central banks can print money up to 0:09:28.080 --> 0:09:31.560 a point, but not endlessly. Less the economy falls into 0:09:31.559 --> 0:09:34.280 another age of uncomfortably high price increases and we failed 0:09:34.320 --> 0:09:35.480 DATO inflation target. 0:09:35.920 --> 0:09:37.920 Increases in money must be just right. 0:09:38.440 --> 0:09:40.400 These are the decisions that we at the Bank of 0:09:40.440 --> 0:09:42.280 ECN spend our days grappling with. 0:09:42.960 --> 0:09:48.839 Just right, just right. I'm sure we can all agree. 0:09:49.360 --> 0:09:51.520 It's not just right right now, is it? 0:09:52.480 --> 0:09:55.760 No? No, you need you need to we kill drinking. 0:09:56.559 --> 0:09:59.640 I reckon, I reckon. Mister Bailey's doing a little grappling today. 0:10:03.760 --> 0:10:06.120 Welcome to Maren Talks Money, the podcast in which people 0:10:06.120 --> 0:10:08.120 who know the markets explain the markets. 0:10:08.240 --> 0:10:09.040 I'm Maren Sunset. 0:10:09.160 --> 0:10:11.560 Well. This week our guest is Java's Williams, head of 0:10:11.559 --> 0:10:17.240 Equities at Premier Miton Investors. Javes, thank you so much 0:10:17.240 --> 0:10:20.280 for joining us today. May you say my pleasure? 0:10:21.400 --> 0:10:24.520 I didn't know. It's a great pleasure to be here. 0:10:24.520 --> 0:10:25.480 Thanks very much, Maren. 0:10:26.200 --> 0:10:28.400 Look, we haven't actually seen each other for ages, for 0:10:28.400 --> 0:10:30.280 which I blame COVID and all sorts of other things. 0:10:30.400 --> 0:10:32.360 But one of the last occasions we met was it 0:10:32.520 --> 0:10:35.280 was a long time ago, twenty sixteen, right, and you 0:10:35.440 --> 0:10:39.600 had just written a really interesting little book, which upfront 0:10:39.600 --> 0:10:41.079 I did write the introduction to it as well. So 0:10:41.120 --> 0:10:43.440 we're on the same page at the time, and it 0:10:43.520 --> 0:10:45.840 was called the retreat of globalization, and it was quite 0:10:45.880 --> 0:10:49.440 prescient because here we are seeing globalization retreating before our 0:10:49.559 --> 0:10:51.960 very eyes. So can we talk a little bit about that, 0:10:52.160 --> 0:10:54.280 about what's happened since you wrote that book and how 0:10:54.320 --> 0:10:56.160 you've turned out to be absolutely right? 0:10:56.760 --> 0:10:58.920 Now, the great thing about the retift of globalization was, 0:10:58.960 --> 0:11:02.480 in many way the seeds of the change already in place, 0:11:02.840 --> 0:11:05.480 only earlier stage. At that stage, we've seen more significant 0:11:05.559 --> 0:11:07.920 change since then. Specifically, we saw the pandemic, which is 0:11:07.960 --> 0:11:10.800 anything that's accelerated the trend, and that led to anxiety 0:11:10.840 --> 0:11:14.280 about long distance supply routes getting supplies. It wasn't just 0:11:14.320 --> 0:11:16.600 about the lowest cost. If you wanted ppe in the 0:11:16.600 --> 0:11:18.880 middle of the COVID crisis, you suddenly find you in 0:11:18.920 --> 0:11:21.800 a queue and suddenly container traffic was held up, etc. 0:11:22.080 --> 0:11:25.079 So anxiety about that reshawing, of course has come through 0:11:25.120 --> 0:11:27.200 as a result of that. But also this whole point 0:11:27.200 --> 0:11:30.679 about divisions political divisions again that was reinforced by the 0:11:30.679 --> 0:11:34.120 invasion in Ukraine, and that meant that was reinforced. So 0:11:34.160 --> 0:11:37.000 we're moving towards the retreat of globalization. I don't think 0:11:37.000 --> 0:11:39.840 we've really got into the main trends, which are going 0:11:39.840 --> 0:11:42.840 to be much more unsettled economic markets, corporates will come 0:11:42.920 --> 0:11:45.520 under margin pressure. I think it's going to be quite 0:11:45.520 --> 0:11:48.199 tough for companies not just survive but thrive in future. 0:11:48.400 --> 0:11:50.000 And I think for the first time in thirty years, 0:11:50.000 --> 0:11:51.280 I think it's going to be a real advantage to 0:11:51.360 --> 0:11:54.120 be a listed company as opposed to a privately financed company, 0:11:54.160 --> 0:11:57.000 because of course the cost of bonds and borrowing money 0:11:57.120 --> 0:11:59.080 is going to start to increase. Is going forward in 0:11:59.120 --> 0:12:01.080 a way which is very different to the trends we 0:12:01.080 --> 0:12:02.040 saw during globalization. 0:12:02.120 --> 0:12:04.120 That's really interesting. One of the things at the beginning 0:12:04.200 --> 0:12:08.200 of the COVID pandemic or policies around the COVID pandemic, 0:12:08.360 --> 0:12:10.000 one of the things that happened was that we started 0:12:10.040 --> 0:12:12.680 to see equity markets doing what they're supposed to do, 0:12:12.720 --> 0:12:14.840 and companies suddenly seeing the benefits of being listed, which 0:12:14.920 --> 0:12:16.360 they could suddenly go out for their shoholder and go 0:12:16.440 --> 0:12:18.439 cross they need some money, can I have it? And 0:12:18.480 --> 0:12:21.520 it was handed over and that happened incredibly quickly and efficiently, 0:12:21.880 --> 0:12:24.040 and at the time we looked at that and we thought, well, 0:12:24.160 --> 0:12:27.040 look at that, this is fantastic we're seeing equity markets 0:12:27.040 --> 0:12:29.360 seeing exactly what they're supposed to do in companies that 0:12:29.559 --> 0:12:31.320 for a long time, you know, we had seen this 0:12:32.080 --> 0:12:34.120 dynamic where companies think, well, they don't want to list 0:12:34.120 --> 0:12:36.800 thing and to stay private indefinitely, and it looked like 0:12:36.880 --> 0:12:38.640 this was going to be something of a turning point. 0:12:38.920 --> 0:12:41.320 And of course since then ypos have dried up completely 0:12:41.320 --> 0:12:44.640 and secondary offerings have as well, and that that wonderful 0:12:44.679 --> 0:12:46.920 to light bulb moment seems to have retreated rather. 0:12:47.480 --> 0:12:49.280 Yes, I think what we have seen is obviously markets 0:12:49.320 --> 0:12:51.240 have been unsettled, and we've seen this kind of naturally 0:12:51.480 --> 0:12:55.319 natural kind of minimizing of interest to the very largest megacaps. 0:12:55.320 --> 0:12:57.439 And we have all the same kind of trend. Actually, 0:12:57.440 --> 0:12:59.120 as inflation took off in the seventies, we had in 0:12:59.160 --> 0:13:01.960 those days and the fifty five, which is basically technology 0:13:01.960 --> 0:13:04.079 stocks in those days, they became you know, they sort 0:13:04.080 --> 0:13:05.480 of pinched out at the top, and then you've got 0:13:05.520 --> 0:13:08.079 a flat market in real terms. I think the US 0:13:08.080 --> 0:13:10.120 market S and P didn't go up for another eleven 0:13:10.200 --> 0:13:12.240 years after that, and I think we are entering a 0:13:12.240 --> 0:13:15.080 period when actually mainstream indices may actually flat line in 0:13:15.080 --> 0:13:17.840 real terms for extending number of years, maybe a decade 0:13:17.880 --> 0:13:19.839 or two, at which stage how are you going to 0:13:19.840 --> 0:13:22.360 add value? And that that's when active fund management comes in, 0:13:22.400 --> 0:13:25.160 and the message of the book back in twenty sixteen 0:13:25.280 --> 0:13:28.120 was we would move beyond indices back into active management. 0:13:28.200 --> 0:13:31.240 And active management isn't just about maximizing upside for your shareholders. 0:13:31.280 --> 0:13:33.840 Of course that's very much the case, but alongside the 0:13:33.840 --> 0:13:36.840 great value being an active managers, you can minimize downside 0:13:36.920 --> 0:13:39.680 risk alongside that, and you can also put portfolios together 0:13:39.679 --> 0:13:42.400 which aren't just correlated with the mainstream fluctuations of markets. 0:13:42.520 --> 0:13:44.560 We think these features, all three of them, are become 0:13:44.600 --> 0:13:45.920 incredibly important going forward. 0:13:46.120 --> 0:13:48.520 Okay, when you say flat line in real terms, the 0:13:48.640 --> 0:13:50.360 miserable thing about the last few years is that sounds 0:13:50.360 --> 0:13:55.040 really attractive. The idea one going to actually not lose 0:13:55.160 --> 0:13:58.319 anything in real terms. Suddenly it sounds like a distant dream. 0:13:58.440 --> 0:14:00.240 Well, of course, the problem with flat lining is bouse 0:14:00.280 --> 0:14:02.439 markets fluctuate is that coming in that you slightly above 0:14:02.480 --> 0:14:03.480 the line, but it can mean you can have a 0:14:03.559 --> 0:14:05.600 peers below the line. So my own view is that 0:14:05.600 --> 0:14:08.120 it's going to be quite lumpy, and we don't know 0:14:08.240 --> 0:14:09.800 where the loan is going to be, but they could 0:14:09.800 --> 0:14:12.480 be in the real terms, really quite disappointing all bit 0:14:12.480 --> 0:14:13.880 that they catch up. I mean, if you look back 0:14:13.880 --> 0:14:17.679 in Japan since nineteen eighty nine, it's almost flat lined 0:14:18.320 --> 0:14:20.520 and there's been all sorts of drawdowns along the way, 0:14:20.600 --> 0:14:24.280 so you know, it's not necessarily a very wonderful prospect, 0:14:24.280 --> 0:14:26.240 particularly when inflation in that case was so low. 0:14:26.320 --> 0:14:29.480 Yeah, and Japan is really interesting at the moment, and 0:14:29.480 --> 0:14:32.240 now as you're writing about this week and saying one 0:14:32.240 --> 0:14:34.880 of the extraordinary things about it is that you know, 0:14:35.200 --> 0:14:37.240 the index has gone up massively, but if you look 0:14:37.280 --> 0:14:40.200 at the kind of trusts in the UK that our 0:14:40.240 --> 0:14:42.680 listeners might hold, and you know, they might rush off 0:14:42.760 --> 0:14:44.760 looking their portfolios and look for those twenty percent year 0:14:44.760 --> 0:14:47.120 to day returns, and they're simply not there. And they're 0:14:47.120 --> 0:14:50.280 not there because everyone investing in Japan running those kinds 0:14:50.280 --> 0:14:53.400 of funds is holding the wrong stocks. They're not holding 0:14:53.440 --> 0:14:56.040 the big value stocks that have led the rise, that 0:14:56.080 --> 0:14:58.680 are holding more growthy stuff. And then on the other hand, 0:14:58.760 --> 0:15:01.320 the things that you would I think would really benefit 0:15:01.400 --> 0:15:03.600 from the corporate governance changes in Japan and I either 0:15:03.680 --> 0:15:05.880 very small value stocks, the ones that are trading below 0:15:05.960 --> 0:15:08.520 price to book. They haven't really benefited either because nobody 0:15:08.560 --> 0:15:10.480 knows quite how to buy them or which ones to buy, 0:15:10.520 --> 0:15:12.560 and so they ignore those and go for the large 0:15:12.560 --> 0:15:15.320 cat value. Those up form and very few people hold them. 0:15:15.520 --> 0:15:17.280 I wonder if we might see a similar dynamic in 0:15:17.280 --> 0:15:17.600 the UK. 0:15:18.400 --> 0:15:20.520 I think we will see. Well, we're always hard to 0:15:20.520 --> 0:15:22.200 start to see that. What we have seen over the 0:15:22.280 --> 0:15:23.680 last say two and a half years is the Footy 0:15:23.680 --> 0:15:25.280 one hundred is pretty much the best per pointing stock 0:15:25.320 --> 0:15:27.680 market in the world. It is that perform all others, 0:15:27.720 --> 0:15:30.840 even in lightfulight currency terms. And what's been interesting about 0:15:30.880 --> 0:15:33.040 that isn't just that we've seen the rise in evaluation 0:15:33.040 --> 0:15:35.000 of the Footsy one hundred just tiny bit it's gone 0:15:35.040 --> 0:15:37.320 up when the market's gone down. But specifically we've had 0:15:37.400 --> 0:15:40.840 near water wall selling of local investors of the ukoics 0:15:40.920 --> 0:15:43.240 in the UK over the lasta eighteen months and the 0:15:43.280 --> 0:15:45.560 UK is still carrying on being one of the top performers. 0:15:45.640 --> 0:15:48.480 That's really interesting, that says local sellers. Sure they've got 0:15:48.560 --> 0:15:50.280 quite a few holdings that they're pleased to see it 0:15:50.320 --> 0:15:52.000 go back up. They can put some money into bonds 0:15:52.040 --> 0:15:54.440 and equities which have more value than they did previously. 0:15:54.680 --> 0:15:57.480 But what that really says it's international investors pretty much 0:15:57.480 --> 0:15:59.480 for the first time in thirty years, are beginning to 0:15:59.480 --> 0:16:02.200 take some out of they're very high volatile stocks and 0:16:02.200 --> 0:16:05.360 put it back into companies which generates surplus cash, such 0:16:05.400 --> 0:16:08.280 as UK quoted companies paying good and growing dividends, which 0:16:08.280 --> 0:16:11.080 can obviously produce a return even when stock market's flat line. 0:16:11.200 --> 0:16:13.640 And the scale of that inflow into the UK is 0:16:13.680 --> 0:16:17.200 more than the redemptions. We just see the tiniest bit 0:16:17.600 --> 0:16:20.880 of reductions in selling in the UK. UK market breaks 0:16:20.880 --> 0:16:22.000 out just like we see in Japan. 0:16:22.240 --> 0:16:24.120 So who is still selling in the UK? And I 0:16:24.120 --> 0:16:25.720 do think this is really interesting. And then the big 0:16:25.760 --> 0:16:27.680 funds of the pension funds in particular, they're down to 0:16:28.000 --> 0:16:30.640 pretty small holdings in the UK. What if they all 0:16:30.680 --> 0:16:31.240 love to sell? 0:16:31.600 --> 0:16:34.000 So it's not really the pension fust The pension funds 0:16:34.000 --> 0:16:35.880 are coming to an end, although they're maturing as well. 0:16:35.880 --> 0:16:38.040 Remember so they've moved into bonds as people have become 0:16:38.080 --> 0:16:39.960 older and such light But most particularly what we have 0:16:40.040 --> 0:16:42.040 seen is actually many of the mainstream investors in the 0:16:42.160 --> 0:16:44.760 UK which have actually had an overweight position relative to 0:16:44.800 --> 0:16:47.360 the international industries for the last twenty or thirty years, 0:16:47.440 --> 0:16:50.360 and every time they look at their clients' portfolios, they say, oh, 0:16:50.480 --> 0:16:52.520 this dead weight has been holding me back, and they've 0:16:52.520 --> 0:16:54.400 reduced the UK and reduced the UK and reduce the 0:16:54.480 --> 0:16:56.400 UK and a bit like a supertanker. It may have 0:16:56.440 --> 0:16:58.400 turned round and starting to go up, but from the 0:16:58.440 --> 0:17:00.680 point of view of behavior, we're still talking about the 0:17:00.680 --> 0:17:03.240 behavior of it holding back investors. And I think there's 0:17:03.280 --> 0:17:05.360 a hangover, and I think that is going to try 0:17:05.400 --> 0:17:07.480 up quite soon, and ultimately people will stop selling in 0:17:07.480 --> 0:17:09.600 the UK. Indeed, I think they'll start buying in due 0:17:09.600 --> 0:17:12.080 course because I think the UK market won't just outperformed 0:17:12.119 --> 0:17:13.760 for the next year or two. In my view, I 0:17:13.800 --> 0:17:16.480 think we're in for another decade or two about performance 0:17:16.600 --> 0:17:18.760 of the UK. I think pretty much one of the 0:17:18.760 --> 0:17:20.720 best performing stock markets in the world for the next 0:17:20.720 --> 0:17:21.400 twenty years. 0:17:21.640 --> 0:17:23.760 Okay. Interesting, You know, we have a lot of people 0:17:23.760 --> 0:17:25.880 on the podcast to hold that view and very few 0:17:25.880 --> 0:17:28.399 people outside the podcast to hold that view. It's a 0:17:28.480 --> 0:17:29.960 niche view for Merin Talks Money. 0:17:30.000 --> 0:17:32.200 I think well, most particularly what's interesting about a twenty 0:17:32.280 --> 0:17:33.720 year view is that you've got to start off with 0:17:33.760 --> 0:17:37.080 nearly everyone underweight, and I think global investors specifically are 0:17:37.160 --> 0:17:40.479 very underweight. Local investors less underweight, but still relatively light 0:17:40.520 --> 0:17:42.920 wastings compared with where they worth twenty or thirty years ago. 0:17:42.960 --> 0:17:45.800 But most particularly, they also got to start on unusually 0:17:45.880 --> 0:17:48.600 low valuations. The UK stock market, even the Footy one 0:17:48.680 --> 0:17:52.800 hundred is on astonishingly low valuations compared with international comparisons. 0:17:53.000 --> 0:17:56.960 You need both those conditions low valuations, low current waitings 0:17:57.000 --> 0:17:59.439