WEBVTT - Inflation, BoA and Gold's Time to Shine

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

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<v Speaker 2>Welcome to the Marin Talks Money Markets Wrap.

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<v Speaker 3>But we talked about the biggest moves in markets this

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<v Speaker 3>week and what is driving them. I'm Maren thumbs At,

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<v Speaker 3>Web Editor at Large at Bloomberg UK Wealth.

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<v Speaker 4>And I'm John Stevieg, Senior reported at Bloomberg and the

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<v Speaker 4>author of the Money Distilled newsletter.

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<v Speaker 2>John Inflation. I'm slightly bored by talking about inflation.

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<v Speaker 3>We've now been talking about in replation relentlessly, you and

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<v Speaker 3>me for wow twenty five years. Actually I mean more

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<v Speaker 3>intensely for the last few it mentally, but nonetheless the

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<v Speaker 3>conversation hasn't gone away.

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<v Speaker 2>We've had the UK inflation numbers. What did they say?

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<v Speaker 4>There's really isn't much the tale. It came in at

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<v Speaker 4>three point four percent today, which was the same as

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<v Speaker 4>last month. Last month it was meant to be two

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<v Speaker 4>point five, but they got the wrong vehicle excise duty numbers.

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<v Speaker 4>It was actually three point four. The most semi interesting

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<v Speaker 4>thing is that in about a year's time, if inflation

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<v Speaker 4>is still above three percent, and it probably will be

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<v Speaker 4>looking at the arithmetic, then will have been above target

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<v Speaker 4>for almost five years, well almost five years non stop, nearly,

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<v Speaker 4>and so you're kind of at the point where people

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<v Speaker 4>are starting to think when inflation is always three percent

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<v Speaker 4>or more, and that starts to influence their behavior, or

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<v Speaker 4>at least an economics area, it does. And so possibly

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<v Speaker 4>the Bank of that will be at the back of

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<v Speaker 4>the Bank of England's mind in terms of when it

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<v Speaker 4>sets interest rates.

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<v Speaker 3>Yeah, although I suppose what should be at the back

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<v Speaker 3>of the Bank of England's mind is the catastrophic failure

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<v Speaker 3>of their policies.

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<v Speaker 4>I think that is always somewhere miles away at the

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<v Speaker 4>back of the Bank of England's minds. In fact, possibly

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<v Speaker 4>in a filing cabinet mark do not open less cognitive

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<v Speaker 4>dissonance afflict you too heavily, and a long.

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<v Speaker 3>Long way away from the filing cabinet that says, how

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<v Speaker 3>about we change that inflation target. Wouldn't three percent be

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<v Speaker 3>a little better, because then we might not mess it

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<v Speaker 3>up so badly it was going to be three percent?

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<v Speaker 2>Change the reality.

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<v Speaker 4>I think part of the point of financial repression, if

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<v Speaker 4>you can even get a going, is to pretend that

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<v Speaker 4>the inflation target is two percent but it's actually three percent.

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<v Speaker 4>I think that I should maybe think of it.

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<v Speaker 3>Do you think do you think that the actual target

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<v Speaker 3>is three percent?

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<v Speaker 4>Conspiracy theory alert, No, it's not a conspiracy. It's more

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<v Speaker 4>just it would be helpful if it was three percent.

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<v Speaker 4>We'd like it to be too but too hard. I

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<v Speaker 4>mean the fact, I mean it was seeing a half

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<v Speaker 4>percent nearly and they're still saying we want to cut rates.

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<v Speaker 4>I mean, if they were that serious, or rather if

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<v Speaker 4>they believed that their tools would push it down, then

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<v Speaker 4>you would think they'd be talking about putting it up

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<v Speaker 4>well than putting it down.

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<v Speaker 2>I don't well, I don't know.

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<v Speaker 3>I don't want to say one more thing about it all,

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<v Speaker 3>but put out one more thought, which is that you know,

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<v Speaker 3>we've talked about financial oppression, you and I so much

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<v Speaker 3>over the years, and our wonderful regular guest ressud Apia

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<v Speaker 3>comes on. He talks about financial oppression, and when we

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<v Speaker 3>talk about financial repression, I keeping interest.

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<v Speaker 2>Rates but low the level of inflation. Obviously we haven't.

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<v Speaker 3>Got that, but we talk about that this idea that

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<v Speaker 3>inflation behind and target for maybe a decade or something

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<v Speaker 3>as a way to try and sort out the UK

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<v Speaker 3>debt situation. But that predicated on controlling spending in the

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<v Speaker 3>first place.

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<v Speaker 2>If you keep spending constantly going.

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<v Speaker 3>Up beyond what you can do with this type of

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<v Speaker 3>mild financial oppression, it's kind of pointless anyway.

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<v Speaker 4>Yeah, And I mean that's a problem. And I think

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<v Speaker 4>that's why I say with politics, you always need to

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<v Speaker 4>hit a wall. At some point, there's going to be

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<v Speaker 4>a pin point that did get hit in the seventies

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<v Speaker 4>and so things changed, and I think probably something some

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<v Speaker 4>model will have to happen. That's tame. No mother really

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<v Speaker 4>like it or not.

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<v Speaker 2>It feels like it can't be that far off.

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<v Speaker 3>Debt to GDP one hundred percent ridiculous?

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<v Speaker 2>Do you remember the day?

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<v Speaker 3>Is not to keep harp on halving on about how

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<v Speaker 3>long you and I've been talking, John, but do you

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<v Speaker 3>remember the days when we used to consider a country

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<v Speaker 3>to be all but bankrupt when it's GDP debt to

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<v Speaker 3>GDP rose it was eighty percent?

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<v Speaker 2>Do you remember that?

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<v Speaker 3>Yeah?

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<v Speaker 4>I remember the deficit rule as well for the EU

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<v Speaker 4>was like three percent. Deficit is getting.

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<v Speaker 2>There to dream UK politicians?

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<v Speaker 3>Yeah, yeah, right, anyway, on to more more interesting stuff

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<v Speaker 3>than the sort of you know, slow motion crisis that

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<v Speaker 3>one day won't be slow motion anymore.

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<v Speaker 2>And then we really will want to talk about it.

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<v Speaker 3>I wanted to talk about the latest Bank of America

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<v Speaker 3>Global Fund Manager.

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<v Speaker 2>Survey just out for this month.

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<v Speaker 3>And this is kind of interesting because they asked the

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<v Speaker 3>same questions every time, one of them being what do

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<v Speaker 3>you expect the best performing as it to be over

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<v Speaker 3>the next five years, And suddenly, instead of everyone going, oh, yeah,

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<v Speaker 3>American equity is definitely always forever, fifty four percent of

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<v Speaker 3>them have said international stocks. Only twenty three percent have

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<v Speaker 3>sent have said US stocks. It's kind of a turn round.

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<v Speaker 3>And this is not say, for example, by the way

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<v Speaker 3>that their portfolios will reflect what they have said. If

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<v Speaker 3>they did, markets would be performing very, very differently because

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<v Speaker 3>the flows out of view A securities would be so huge.

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<v Speaker 3>But nonetheless it reflects a sense of change, right Yeah.

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<v Speaker 4>I mean, I love the Global Fund Manager survey. It

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<v Speaker 4>comes with every mind and it's a really useful sense

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<v Speaker 4>of market sentiment. And some of the elements of it,

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<v Speaker 4>you know, you can trade against. You can say, oh,

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<v Speaker 4>I'm going to take the contrarian view on this, But

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<v Speaker 4>other bits probably liked like this one, and more indicative

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<v Speaker 4>of trend changes. It's kind of gratifying to see because

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<v Speaker 4>we've been talking about how you know, basically we need

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<v Speaker 4>flows to come out of the US, or at least

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<v Speaker 4>not go into the US as much and start going

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<v Speaker 4>everywhere else, and that would help the UK as well

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<v Speaker 4>as all. You know, the other can neglect to global markets.

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<v Speaker 4>So it's nice to see that in theory. At least

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<v Speaker 4>fund managers do believe this.

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<v Speaker 3>Now.

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<v Speaker 4>They think it is time to go back into the vacation.

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<v Speaker 4>They clearly think the US exceptionalism theme has kind of

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<v Speaker 4>run its course. Are very barish on the dollar, which

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<v Speaker 4>is probably the one area where I think the level

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<v Speaker 4>of barishness implies that we could get a short term

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<v Speaker 4>bounce back, but even then it's probably only like a

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<v Speaker 4>short term thing rather than a longer term big shift.

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<v Speaker 3>Yeah, and then I'm looking at the biggest tail risks

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<v Speaker 3>that they think there are out there, trade war triggers

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<v Speaker 3>global recession. Is that a tail risk if everyone expects.

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<v Speaker 4>It, everybody thinks is kind of unlikely or wants to

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<v Speaker 4>think it's unlikely.

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<v Speaker 2>I don't think.

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<v Speaker 4>I think we've been so long without a proper recession

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<v Speaker 4>that people can't quite wrap their heads around the idea

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<v Speaker 4>that there might be one. If you ask me which

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<v Speaker 4>of the two outcomes, no recession or air recession. I

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<v Speaker 4>had to bet on I wouldn't have high conviction, but

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<v Speaker 4>it'd be more no recession because I think it's going

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<v Speaker 4>to be more like inflation nominal GDP growth type of thing.

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<v Speaker 2>What if I gave you mild recession.

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<v Speaker 4>Yeah, but then I think mild recessions kind of like

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<v Speaker 4>no recession and an inflationary because your economy is still growing,

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<v Speaker 4>it's just not growing properly.

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<v Speaker 2>Fair enough.

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<v Speaker 3>If anyone's interested in whether there's going to be a

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<v Speaker 3>recession or not, please listen to this week's Interview podcast

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<v Speaker 3>on Friday.

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<v Speaker 2>There's a lot in.

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<v Speaker 3>There about whether recessions have been canceled completely. We will

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<v Speaker 3>never see the like of the recessions of the previous

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<v Speaker 3>century again.

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<v Speaker 2>Absolutely.

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<v Speaker 4>Oh he's really interesting.

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<v Speaker 2>Yeah.

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<v Speaker 3>Although, and we talked about, you know, one of the

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<v Speaker 3>main things behind this idea that there won't be another

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<v Speaker 3>recession is the idea that the capital cycle is different

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<v Speaker 3>in an intangible economy.

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<v Speaker 2>But then I would still worry slightly about AI because.

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<v Speaker 3>The capex there has been massive. There's definitely a capital

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<v Speaker 3>cycle there. But we'll come back to this another time.

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<v Speaker 3>We'll come back to another time. The other bit I

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<v Speaker 3>wanted to point out in the survey is what do

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<v Speaker 3>you think is currently the most crowded trade? And the

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<v Speaker 3>answer this is not what is the most crowded trade,

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<v Speaker 3>it's what people think the most crowded traders. And the

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<v Speaker 3>answer there at the moment is long gold, which is

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<v Speaker 3>the third month running that people have thought that other

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<v Speaker 3>people are in a crowded trade.

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<v Speaker 4>Right, yeah, I mean the created trade questions are really

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<v Speaker 4>interest in one when the b OFV thing, because when

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<v Speaker 4>you look at it, it doesn't tell you much. This

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<v Speaker 4>actionable or when they said, oh.

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<v Speaker 2>I don't know, I think it doesn't doesn't it tell

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<v Speaker 2>you something. It tells you of.

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<v Speaker 3>People think that long gold is the most crowded trade,

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<v Speaker 3>but only thirteen percent of people think that gold will

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<v Speaker 3>be the best performing investment over the next five years.

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<v Speaker 2>See.

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<v Speaker 3>I look at that, and I think that means that

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<v Speaker 3>they think that more money is in gold and really is,

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<v Speaker 3>which suggests that gold might have.

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<v Speaker 2>Further to go.

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<v Speaker 4>Okay, yep, that's fair enough.

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<v Speaker 2>Maybe you would argue it the other way around. I

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<v Speaker 2>don't know anyway.

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<v Speaker 4>I just think tricky looks if you look at well

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<v Speaker 4>means if you look at it like long mic seven

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<v Speaker 4>was the main thing that they thought was a created trade.

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<v Speaker 4>But they thought that for about nearly like five years

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<v Speaker 4>give or take. There was a couple of moments where

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<v Speaker 4>they said, oh, everybody's too long chaining these equities in

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<v Speaker 4>to what twenty twenty two that was. I guess that

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<v Speaker 4>was when interestories were coming down. But so I don't

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<v Speaker 4>I don't actually know how might kind of value that

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<v Speaker 4>particular discussion highs. But there's the first team that long

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<v Speaker 4>gold has been seated as you know, the most created trade.

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<v Speaker 2>Yeah, well, third month in a row. We've got that chart.

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<v Speaker 3>We've got a child that goes back to October the

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<v Speaker 3>fourteenth here, which tells us what people have thought the

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<v Speaker 3>most crowded traded for a long time. I mean, you

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<v Speaker 3>run through it, it's basically all America long dollar long asstack,

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<v Speaker 3>long US tack long dollar long magnificant seven. And then

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<v Speaker 3>they're brief little bits in there where for about five

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<v Speaker 3>minutes people went long Chin equity is long crypto, etcetera, etcetera.

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<v Speaker 3>But in the end, this is basically for the last

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<v Speaker 3>a decade, it's been all about America, and now suddenly.

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<v Speaker 2>It's about gold. I don't know what the signal is there,

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<v Speaker 2>but it's definitely a signal.

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<v Speaker 4>Oh yeah, maybe it's maybe it is, Maybe it's people

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<v Speaker 4>the accepted wisdom becomes the goals too expense so but

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<v Speaker 4>you can not own it the same as it was

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<v Speaker 4>with the US the US, but you can't not win it.

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<v Speaker 2>That would be fun for those of us who hold gold.

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<v Speaker 3>One more thing to mention briefly was that if it

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<v Speaker 3>is true, if it is true that investors are beginning

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<v Speaker 3>to believe that the US will not be the best

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<v Speaker 3>performing place for for the next five years, and they

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<v Speaker 3>really believe that the best place to be is either

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<v Speaker 3>European equities, and I'm going to include you know, don't

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<v Speaker 3>be upset listen as I'm going to include the UK

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<v Speaker 3>equities inside the European for the purposes of this conversation,

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<v Speaker 3>because I suspect that for a lot of big American

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<v Speaker 3>investors are.

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<v Speaker 2>Kind of the same thing.

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<v Speaker 3>And we were talking last week about flows, or I

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<v Speaker 3>was writing about flows last week anyway, and about how

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<v Speaker 3>there are two you know, when you look at markets,

0:10:42.040 --> 0:10:43.559
<v Speaker 3>you have to think about two things. Think about the

0:10:43.600 --> 0:10:46.200
<v Speaker 3>fundamentals and evaluations long term what that means. But also

0:10:46.520 --> 0:10:48.400
<v Speaker 3>more important than that in the short and medium term,

0:10:48.480 --> 0:10:50.480
<v Speaker 3>you have to think about the flows. So this massive

0:10:50.559 --> 0:10:53.040
<v Speaker 3>performance in the US has all been about piles of

0:10:53.160 --> 0:10:56.000
<v Speaker 3>money pouring in stock. Prices are about supply and demand

0:10:56.200 --> 0:11:00.640
<v Speaker 3>in the end, and in the UK we have inking supply.

0:11:00.760 --> 0:11:03.319
<v Speaker 3>We've talked about this a lot, right, We have and

0:11:03.559 --> 0:11:06.720
<v Speaker 3>less companies being taken out private equity or just giving

0:11:06.800 --> 0:11:09.480
<v Speaker 3>up the ghost altogether, mergers, et cetera. A lot of

0:11:09.559 --> 0:11:13.319
<v Speaker 3>companies living that the market is really really shrunk. So

0:11:13.440 --> 0:11:15.920
<v Speaker 3>we have a shrinking supply. If we get even the

0:11:16.120 --> 0:11:19.600
<v Speaker 3>slightest real tickup in demand, we might see something really

0:11:19.679 --> 0:11:20.440
<v Speaker 3>quite interesting happen.

0:11:20.920 --> 0:11:24.319
<v Speaker 4>Yeah, I think the the US has benefited so much,

0:11:24.400 --> 0:11:27.640
<v Speaker 4>and as you pointed out, so much of the growth

0:11:27.720 --> 0:11:30.199
<v Speaker 4>in the US market was don't the evaluations expined and

0:11:30.320 --> 0:11:33.520
<v Speaker 4>rather than fundamentals getting better even though fundamentals were.

0:11:33.559 --> 0:11:36.720
<v Speaker 5>Good, fundamentals work out the last week, last we year,

0:11:36.760 --> 0:11:39.679
<v Speaker 5>they have been good, but not unusually good, not uniqually good,

0:11:40.160 --> 0:11:43.079
<v Speaker 5>much much the same as most other decades and the

0:11:43.160 --> 0:11:44.959
<v Speaker 5>last one hundred of years of US history.

0:11:45.120 --> 0:11:47.240
<v Speaker 4>Yeah, and it's just a ploy relative to everyone else,

0:11:47.320 --> 0:11:51.079
<v Speaker 4>average was better than what we all got, so it

0:11:51.080 --> 0:11:52.959
<v Speaker 4>would be really interested. And the other thing I'd be

0:11:53.040 --> 0:11:57.520
<v Speaker 4>really interested to see is, given the concerns of a

0:11:57.640 --> 0:12:01.079
<v Speaker 4>private equity, if the train and the trend of de

0:12:01.240 --> 0:12:05.280
<v Speaker 4>equitization actually starts to turn around again, or if that's

0:12:05.400 --> 0:12:07.440
<v Speaker 4>just not going to happen. I mean, there was one

0:12:07.480 --> 0:12:09.360
<v Speaker 4>thing I wondered about private equity, and I don't know

0:12:09.440 --> 0:12:12.439
<v Speaker 4>what your take us on this, but what if the

0:12:12.600 --> 0:12:16.280
<v Speaker 4>volume money going into private markets is basically a functional

0:12:16.800 --> 0:12:21.400
<v Speaker 4>passive making it no longer profitable to essentially be involved

0:12:21.440 --> 0:12:24.640
<v Speaker 4>in public markets and scrutinally putting people off. And what

0:12:24.800 --> 0:12:27.480
<v Speaker 4>actually happens is that private markets start to move back

0:12:27.520 --> 0:12:32.400
<v Speaker 4>towards being semi liquid, semi public, and we kind of

0:12:32.440 --> 0:12:36.000
<v Speaker 4>get a weird suffcode where it comes back that way

0:12:36.120 --> 0:12:38.640
<v Speaker 4>rather than you know, private equity blowing up or something

0:12:38.679 --> 0:12:40.559
<v Speaker 4>and then everyone just going back to the old way

0:12:40.600 --> 0:12:41.640
<v Speaker 4>of ipoing.

0:12:42.360 --> 0:12:43.120
<v Speaker 2>Yeah, that's real.

0:12:43.280 --> 0:12:46.640
<v Speaker 3>That's really interesting, And we should refer listeners back to

0:12:46.760 --> 0:12:49.480
<v Speaker 3>the podcast earlier this week where we were talking about

0:12:49.520 --> 0:12:53.319
<v Speaker 3>private acre but this idea of semi liquid private equity.

0:12:53.080 --> 0:12:55.160
<v Speaker 2>Products where you know, you could get your money out.

0:12:55.080 --> 0:12:57.240
<v Speaker 3>Twice a year, et cetera, which I think slightly defeats

0:12:57.240 --> 0:12:59.480
<v Speaker 3>the whole objective. What we were always told was the

0:12:59.520 --> 0:13:02.080
<v Speaker 3>most brilliant thing about private equity was its in liquidity,

0:13:02.360 --> 0:13:04.680
<v Speaker 3>and that's where you get your your excess return from.

0:13:04.720 --> 0:13:06.920
<v Speaker 3>And if you don't get access return from that way,

0:13:06.960 --> 0:13:09.040
<v Speaker 3>do you get access return. But it is an interesting

0:13:09.080 --> 0:13:11.240
<v Speaker 3>point that it could be that it comes back around

0:13:11.320 --> 0:13:14.280
<v Speaker 3>that way. And we've seen this the new exchange that

0:13:14.400 --> 0:13:16.240
<v Speaker 3>we will be having in the UK as well, which

0:13:16.280 --> 0:13:18.959
<v Speaker 3>is again in exchange for private companies, So it may

0:13:19.080 --> 0:13:22.319
<v Speaker 3>come back that way. But I still hope that we

0:13:22.440 --> 0:13:25.160
<v Speaker 3>will see a return to public markets in that when

0:13:25.200 --> 0:13:29.840
<v Speaker 3>the average investor looks at the fact that the returns

0:13:29.880 --> 0:13:33.320
<v Speaker 3>from private equity and returns from public ocity are remarkably similar,

0:13:33.360 --> 0:13:37.640
<v Speaker 3>surprise for them both being equity, but they can get

0:13:37.679 --> 0:13:40.600
<v Speaker 3>their returns from the public markets at a lower cost

0:13:40.640 --> 0:13:44.600
<v Speaker 3>and with significantly more transparency and with significantly more certainty

0:13:44.800 --> 0:13:48.360
<v Speaker 3>around the governance and compliance of the management. So I

0:13:48.440 --> 0:13:50.120
<v Speaker 3>would have thought that might bring people back to the

0:13:50.160 --> 0:13:54.280
<v Speaker 3>public markets. But again, you know, we'll see nothing about

0:13:54.320 --> 0:13:56.480
<v Speaker 3>that in the Bank of America survey. I'm afraid probably

0:13:56.520 --> 0:13:58.160
<v Speaker 3>you're going to add some questions in on that kind

0:13:58.200 --> 0:14:01.880
<v Speaker 3>of thing. You call them, John, I shall I shall

0:14:08.080 --> 0:14:10.520
<v Speaker 3>Thanks for listening to this week's Marrin Talks Money Debrief.

0:14:10.600 --> 0:14:12.600
<v Speaker 3>If you like our show, rate to review and subscribe

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0:14:14.600 --> 0:14:17.440
<v Speaker 3>follow me on ex at marinessw and John at John

0:14:17.559 --> 0:14:21.239
<v Speaker 3>Underscore Stepic. This episode was produced by Moses Anderman Samasadi.

0:14:21.520 --> 0:14:23.680
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0:14:23.720 --> 0:14:26.480
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0:14:26.520 --> 0:14:27.960
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