Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Marin Talks Money Markets Wrap.
Speaker 3: But we talked about the biggest moves in markets this
Speaker 3: week and what is driving them. I'm Maren thumbs At,
Speaker 3: Web Editor at Large at Bloomberg UK Wealth.
Speaker 4: And I'm John Stevieg, Senior reported at Bloomberg and the
Speaker 4: author of the Money Distilled newsletter.
Speaker 2: John Inflation. I'm slightly bored by talking about inflation.
Speaker 3: We've now been talking about in replation relentlessly, you and
Speaker 3: me for wow twenty five years. Actually I mean more
Speaker 3: intensely for the last few it mentally, but nonetheless the
Speaker 3: conversation hasn't gone away.
Speaker 2: We've had the UK inflation numbers. What did they say?
Speaker 4: There's really isn't much the tale. It came in at
Speaker 4: three point four percent today, which was the same as
Speaker 4: last month. Last month it was meant to be two
Speaker 4: point five, but they got the wrong vehicle excise duty numbers.
Speaker 4: It was actually three point four. The most semi interesting
Speaker 4: thing is that in about a year's time, if inflation
Speaker 4: is still above three percent, and it probably will be
Speaker 4: looking at the arithmetic, then will have been above target
Speaker 4: for almost five years, well almost five years non stop, nearly,
Speaker 4: and so you're kind of at the point where people
Speaker 4: are starting to think when inflation is always three percent
Speaker 4: or more, and that starts to influence their behavior, or
Speaker 4: at least an economics area, it does. And so possibly
Speaker 4: the Bank of that will be at the back of
Speaker 4: the Bank of England's mind in terms of when it
Speaker 4: sets interest rates.
Speaker 3: Yeah, although I suppose what should be at the back
Speaker 3: of the Bank of England's mind is the catastrophic failure
Speaker 3: of their policies.
Speaker 4: I think that is always somewhere miles away at the
Speaker 4: back of the Bank of England's minds. In fact, possibly
Speaker 4: in a filing cabinet mark do not open less cognitive
Speaker 4: dissonance afflict you too heavily, and a long.
Speaker 3: Long way away from the filing cabinet that says, how
Speaker 3: about we change that inflation target. Wouldn't three percent be
Speaker 3: a little better, because then we might not mess it
Speaker 3: up so badly it was going to be three percent?
Speaker 2: Change the reality.
Speaker 4: I think part of the point of financial repression, if
Speaker 4: you can even get a going, is to pretend that
Speaker 4: the inflation target is two percent but it's actually three percent.
Speaker 4: I think that I should maybe think of it.
Speaker 3: Do you think do you think that the actual target
Speaker 3: is three percent?
Speaker 4: Conspiracy theory alert, No, it's not a conspiracy. It's more
Speaker 4: just it would be helpful if it was three percent.
Speaker 4: We'd like it to be too but too hard. I
Speaker 4: mean the fact, I mean it was seeing a half
Speaker 4: percent nearly and they're still saying we want to cut rates.
Speaker 4: I mean, if they were that serious, or rather if
Speaker 4: they believed that their tools would push it down, then
Speaker 4: you would think they'd be talking about putting it up
Speaker 4: well than putting it down.
Speaker 2: I don't well, I don't know.
Speaker 3: I don't want to say one more thing about it all,
Speaker 3: but put out one more thought, which is that you know,
Speaker 3: we've talked about financial oppression, you and I so much
Speaker 3: over the years, and our wonderful regular guest ressud Apia
Speaker 3: comes on. He talks about financial oppression, and when we
Speaker 3: talk about financial repression, I keeping interest.
Speaker 2: Rates but low the level of inflation. Obviously we haven't.
Speaker 3: Got that, but we talk about that this idea that
Speaker 3: inflation behind and target for maybe a decade or something
Speaker 3: as a way to try and sort out the UK
Speaker 3: debt situation. But that predicated on controlling spending in the
Speaker 3: first place.
Speaker 2: If you keep spending constantly going.
Speaker 3: Up beyond what you can do with this type of
Speaker 3: mild financial oppression, it's kind of pointless anyway.
Speaker 4: Yeah, And I mean that's a problem. And I think
Speaker 4: that's why I say with politics, you always need to
Speaker 4: hit a wall. At some point, there's going to be
Speaker 4: a pin point that did get hit in the seventies
Speaker 4: and so things changed, and I think probably something some
Speaker 4: model will have to happen. That's tame. No mother really
Speaker 4: like it or not.
Speaker 2: It feels like it can't be that far off.
Speaker 3: Debt to GDP one hundred percent ridiculous?
Speaker 2: Do you remember the day?
Speaker 3: Is not to keep harp on halving on about how
Speaker 3: long you and I've been talking, John, but do you
Speaker 3: remember the days when we used to consider a country
Speaker 3: to be all but bankrupt when it's GDP debt to
Speaker 3: GDP rose it was eighty percent?
Speaker 2: Do you remember that?
Speaker 3: Yeah?
Speaker 4: I remember the deficit rule as well for the EU
Speaker 4: was like three percent. Deficit is getting.
Speaker 2: There to dream UK politicians?
Speaker 3: Yeah, yeah, right, anyway, on to more more interesting stuff
Speaker 3: than the sort of you know, slow motion crisis that
Speaker 3: one day won't be slow motion anymore.
Speaker 2: And then we really will want to talk about it.
Speaker 3: I wanted to talk about the latest Bank of America
Speaker 3: Global Fund Manager.
Speaker 2: Survey just out for this month.
Speaker 3: And this is kind of interesting because they asked the
Speaker 3: same questions every time, one of them being what do
Speaker 3: you expect the best performing as it to be over
Speaker 3: the next five years, And suddenly, instead of everyone going, oh, yeah,
Speaker 3: American equity is definitely always forever, fifty four percent of
Speaker 3: them have said international stocks. Only twenty three percent have
Speaker 3: sent have said US stocks. It's kind of a turn round.
Speaker 3: And this is not say, for example, by the way
Speaker 3: that their portfolios will reflect what they have said. If
Speaker 3: they did, markets would be performing very, very differently because
Speaker 3: the flows out of view A securities would be so huge.
Speaker 3: But nonetheless it reflects a sense of change, right Yeah.
Speaker 4: I mean, I love the Global Fund Manager survey. It
Speaker 4: comes with every mind and it's a really useful sense
Speaker 4: of market sentiment. And some of the elements of it,
Speaker 4: you know, you can trade against. You can say, oh,
Speaker 4: I'm going to take the contrarian view on this, But
Speaker 4: other bits probably liked like this one, and more indicative
Speaker 4: of trend changes. It's kind of gratifying to see because
Speaker 4: we've been talking about how you know, basically we need
Speaker 4: flows to come out of the US, or at least
Speaker 4: not go into the US as much and start going
Speaker 4: everywhere else, and that would help the UK as well
Speaker 4: as all. You know, the other can neglect to global markets.
Speaker 4: So it's nice to see that in theory. At least
Speaker 4: fund managers do believe this.
Speaker 3: Now.
Speaker 4: They think it is time to go back into the vacation.
Speaker 4: They clearly think the US exceptionalism theme has kind of
Speaker 4: run its course. Are very barish on the dollar, which
Speaker 4: is probably the one area where I think the level
Speaker 4: of barishness implies that we could get a short term
Speaker 4: bounce back, but even then it's probably only like a
Speaker 4: short term thing rather than a longer term big shift.
Speaker 3: Yeah, and then I'm looking at the biggest tail risks
Speaker 3: that they think there are out there, trade war triggers
Speaker 3: global recession. Is that a tail risk if everyone expects.
Speaker 4: It, everybody thinks is kind of unlikely or wants to
Speaker 4: think it's unlikely.
Speaker 2: I don't think.
Speaker 4: I think we've been so long without a proper recession
Speaker 4: that people can't quite wrap their heads around the idea
Speaker 4: that there might be one. If you ask me which
Speaker 4: of the two outcomes, no recession or air recession. I
Speaker 4: had to bet on I wouldn't have high conviction, but
Speaker 4: it'd be more no recession because I think it's going
Speaker 4: to be more like inflation nominal GDP growth type of thing.
Speaker 2: What if I gave you mild recession.
Speaker 4: Yeah, but then I think mild recessions kind of like
Speaker 4: no recession and an inflationary because your economy is still growing,
Speaker 4: it's just not growing properly.
Speaker 2: Fair enough.
Speaker 3: If anyone's interested in whether there's going to be a
Speaker 3: recession or not, please listen to this week's Interview podcast
Speaker 3: on Friday.
Speaker 2: There's a lot in.
Speaker 3: There about whether recessions have been canceled completely. We will
Speaker 3: never see the like of the recessions of the previous
Speaker 3: century again.
Speaker 2: Absolutely.
Speaker 4: Oh he's really interesting.
Speaker 2: Yeah.
Speaker 3: Although, and we talked about, you know, one of the
Speaker 3: main things behind this idea that there won't be another
Speaker 3: recession is the idea that the capital cycle is different
Speaker 3: in an intangible economy.
Speaker 2: But then I would still worry slightly about AI because.
Speaker 3: The capex there has been massive. There's definitely a capital
Speaker 3: cycle there. But we'll come back to this another time.
Speaker 3: We'll come back to another time. The other bit I
Speaker 3: wanted to point out in the survey is what do
Speaker 3: you think is currently the most crowded trade? And the
Speaker 3: answer this is not what is the most crowded trade,
Speaker 3: it's what people think the most crowded traders. And the
Speaker 3: answer there at the moment is long gold, which is
Speaker 3: the third month running that people have thought that other
Speaker 3: people are in a crowded trade.
Speaker 4: Right, yeah, I mean the created trade questions are really
Speaker 4: interest in one when the b OFV thing, because when
Speaker 4: you look at it, it doesn't tell you much. This
Speaker 4: actionable or when they said, oh.
Speaker 2: I don't know, I think it doesn't doesn't it tell
Speaker 2: you something. It tells you of.
Speaker 3: People think that long gold is the most crowded trade,
Speaker 3: but only thirteen percent of people think that gold will
Speaker 3: be the best performing investment over the next five years.
Speaker 2: See.
Speaker 3: I look at that, and I think that means that
Speaker 3: they think that more money is in gold and really is,
Speaker 3: which suggests that gold might have.
Speaker 2: Further to go.
Speaker 4: Okay, yep, that's fair enough.
Speaker 2: Maybe you would argue it the other way around. I
Speaker 2: don't know anyway.
Speaker 4: I just think tricky looks if you look at well
Speaker 4: means if you look at it like long mic seven
Speaker 4: was the main thing that they thought was a created trade.
Speaker 4: But they thought that for about nearly like five years
Speaker 4: give or take. There was a couple of moments where
Speaker 4: they said, oh, everybody's too long chaining these equities in
Speaker 4: to what twenty twenty two that was. I guess that
Speaker 4: was when interestories were coming down. But so I don't
Speaker 4: I don't actually know how might kind of value that
Speaker 4: particular discussion highs. But there's the first team that long
Speaker 4: gold has been seated as you know, the most created trade.
Speaker 2: Yeah, well, third month in a row. We've got that chart.
Speaker 3: We've got a child that goes back to October the
Speaker 3: fourteenth here, which tells us what people have thought the
Speaker 3: most crowded traded for a long time. I mean, you
Speaker 3: run through it, it's basically all America long dollar long asstack,
Speaker 3: long US tack long dollar long magnificant seven. And then
Speaker 3: they're brief little bits in there where for about five
Speaker 3: minutes people went long Chin equity is long crypto, etcetera, etcetera.
Speaker 3: But in the end, this is basically for the last
Speaker 3: a decade, it's been all about America, and now suddenly.
Speaker 2: It's about gold. I don't know what the signal is there,
Speaker 2: but it's definitely a signal.
Speaker 4: Oh yeah, maybe it's maybe it is, Maybe it's people
Speaker 4: the accepted wisdom becomes the goals too expense so but
Speaker 4: you can not own it the same as it was
Speaker 4: with the US the US, but you can't not win it.
Speaker 2: That would be fun for those of us who hold gold.
Speaker 3: One more thing to mention briefly was that if it
Speaker 3: is true, if it is true that investors are beginning
Speaker 3: to believe that the US will not be the best
Speaker 3: performing place for for the next five years, and they
Speaker 3: really believe that the best place to be is either
Speaker 3: European equities, and I'm going to include you know, don't
Speaker 3: be upset listen as I'm going to include the UK
Speaker 3: equities inside the European for the purposes of this conversation,
Speaker 3: because I suspect that for a lot of big American
Speaker 3: investors are.
Speaker 2: Kind of the same thing.
Speaker 3: And we were talking last week about flows, or I
Speaker 3: was writing about flows last week anyway, and about how
Speaker 3: there are two you know, when you look at markets,
Speaker 3: you have to think about two things. Think about the
Speaker 3: fundamentals and evaluations long term what that means. But also
Speaker 3: more important than that in the short and medium term,
Speaker 3: you have to think about the flows. So this massive
Speaker 3: performance in the US has all been about piles of
Speaker 3: money pouring in stock. Prices are about supply and demand
Speaker 3: in the end, and in the UK we have inking supply.
Speaker 3: We've talked about this a lot, right, We have and
Speaker 3: less companies being taken out private equity or just giving
Speaker 3: up the ghost altogether, mergers, et cetera. A lot of
Speaker 3: companies living that the market is really really shrunk. So
Speaker 3: we have a shrinking supply. If we get even the
Speaker 3: slightest real tickup in demand, we might see something really
Speaker 3: quite interesting happen.
Speaker 4: Yeah, I think the the US has benefited so much,
Speaker 4: and as you pointed out, so much of the growth
Speaker 4: in the US market was don't the evaluations expined and
Speaker 4: rather than fundamentals getting better even though fundamentals were.
Speaker 5: Good, fundamentals work out the last week, last we year,
Speaker 5: they have been good, but not unusually good, not uniqually good,
Speaker 5: much much the same as most other decades and the
Speaker 5: last one hundred of years of US history.
Speaker 4: Yeah, and it's just a ploy relative to everyone else,
Speaker 4: average was better than what we all got, so it
Speaker 4: would be really interested. And the other thing I'd be
Speaker 4: really interested to see is, given the concerns of a
Speaker 4: private equity, if the train and the trend of de
Speaker 4: equitization actually starts to turn around again, or if that's
Speaker 4: just not going to happen. I mean, there was one
Speaker 4: thing I wondered about private equity, and I don't know
Speaker 4: what your take us on this, but what if the
Speaker 4: volume money going into private markets is basically a functional
Speaker 4: passive making it no longer profitable to essentially be involved
Speaker 4: in public markets and scrutinally putting people off. And what
Speaker 4: actually happens is that private markets start to move back
Speaker 4: towards being semi liquid, semi public, and we kind of
Speaker 4: get a weird suffcode where it comes back that way
Speaker 4: rather than you know, private equity blowing up or something
Speaker 4: and then everyone just going back to the old way
Speaker 4: of ipoing.
Speaker 2: Yeah, that's real.
Speaker 3: That's really interesting, And we should refer listeners back to
Speaker 3: the podcast earlier this week where we were talking about
Speaker 3: private acre but this idea of semi liquid private equity.
Speaker 2: Products where you know, you could get your money out.
Speaker 3: Twice a year, et cetera, which I think slightly defeats
Speaker 3: the whole objective. What we were always told was the
Speaker 3: most brilliant thing about private equity was its in liquidity,
Speaker 3: and that's where you get your your excess return from.
Speaker 3: And if you don't get access return from that way,
Speaker 3: do you get access return. But it is an interesting
Speaker 3: point that it could be that it comes back around
Speaker 3: that way. And we've seen this the new exchange that
Speaker 3: we will be having in the UK as well, which
Speaker 3: is again in exchange for private companies, So it may
Speaker 3: come back that way. But I still hope that we
Speaker 3: will see a return to public markets in that when
Speaker 3: the average investor looks at the fact that the returns
Speaker 3: from private equity and returns from public ocity are remarkably similar,
Speaker 3: surprise for them both being equity, but they can get
Speaker 3: their returns from the public markets at a lower cost
Speaker 3: and with significantly more transparency and with significantly more certainty
Speaker 3: around the governance and compliance of the management. So I
Speaker 3: would have thought that might bring people back to the
Speaker 3: public markets. But again, you know, we'll see nothing about
Speaker 3: that in the Bank of America survey. I'm afraid probably
Speaker 3: you're going to add some questions in on that kind
Speaker 3: of thing. You call them, John, I shall I shall
Speaker 3: Thanks for listening to this week's Marrin Talks Money Debrief.
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