Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Melton Talks Mony news round up, where
Speaker 2: we talked about the biggest moves and markets this week
Speaker 2: and was driving them. I'm join Stepbeck, senior reporter of
Speaker 2: Bloomberg and author of the award winning Money Distilled newsletter,
Speaker 2: and joining me in the studio while Merton is away again,
Speaker 2: it's Marcus Ashworth. Marcus is a regular here. He's a
Speaker 2: Bloombergy opinion columnist with deep expertise in European markets. He's
Speaker 2: also the guy phone whenever I want to ask anything
Speaker 2: about bonds and all round useful contributors to the show.
Speaker 2: So hello Marcus. Great to be with us again. I
Speaker 2: was thinking about what we should talk about this week. Well,
Speaker 2: like I wasn't thinking what we should talk about this week,
Speaker 2: because what we should talk about this because pretty obvious
Speaker 2: because gold is up through fave those and five hundred
Speaker 2: dollars and owns as we speak this morning, which is
Speaker 2: not necessarily coming. I thought we would be earlier in
Speaker 2: the year.
Speaker 1: Yeah, if you think about everyone's target for the end
Speaker 1: of this year was basically five thousand, and we're ten
Speaker 1: percent above that. We're not even the end of January
Speaker 1: that we are generally give that. But one here is
Speaker 1: that you know, where is where does this stop? We
Speaker 1: just had the World Council of Gold Council's stats out
Speaker 1: uh and within that also there was an interesting view
Speaker 1: on central banks in particular which it doesn't seem to
Speaker 1: me Barb poland we can come back on that that
Speaker 1: there has actually been that much central bank buying driving
Speaker 1: gold up. This is all catch up. For the last
Speaker 1: two or three years you've seen eachtf whole basically being
Speaker 1: net sellers and retail have not really not been that involved.
Speaker 1: This is private and switch for central bank clearly, you
Speaker 1: know from onwards Russia and now it's seemed proponent buying
Speaker 1: lots of gold is shifted away from them in the
Speaker 1: biggest buyers very much. You catch up and it's speculation
Speaker 1: and look, at some point this is all going to
Speaker 1: go horribly wrong. Calling the top is a fool's game,
Speaker 1: fool's gold even And you know, really I can't explain
Speaker 1: it other than the fact that lots of people seem
Speaker 1: to think it's about dollar debasement, which it isn't. But
Speaker 1: you know, we can get onto that in a minute.
Speaker 2: But Yeah, silver.
Speaker 1: Has got a slight shortage and definite squeeze going on.
Speaker 1: But you know, mining production is up quite a lot,
Speaker 1: Recycling is up a little bit as well, finding enough
Speaker 1: jewelry usage is down for gold, as you would expect
Speaker 1: people doing stick a shock on that. And that's the point.
Speaker 1: When do investors get stick a shock at five and
Speaker 1: a half six thousand, where is it they actually go?
Speaker 1: Do you know what do I want to be in
Speaker 1: at the top asset management? I don't think I really
Speaker 1: want to be buying it many more here? See what
Speaker 1: for the moment I was loving it?
Speaker 2: Yeah, And I mean one I suppose one thing I
Speaker 2: would ask about and dollar debasement because obviously if you
Speaker 2: look at the dollar, I mean, it's going down a
Speaker 2: bit this year.
Speaker 1: But it's still you don't think it's dollar debasement, it's not.
Speaker 2: Yeah, it's historically still relatively expensive. The dollar has been
Speaker 2: much much lower than less in the last twenty.
Speaker 1: Is you've got to separate usage of dollar, yeah, which
Speaker 1: is the strong currency policy actually of what the US
Speaker 1: administration talking about, and then the actual value of it.
Speaker 1: And there's no about it. If you look at the
Speaker 1: S and P winning seven thousand. This is not about
Speaker 1: selling of US assets or selling of the US dollar
Speaker 1: per se. It's hedging of exposure to your dollar. It's
Speaker 1: been a lovely trade for the rest of the world
Speaker 1: the last two or three years by US text dogs
Speaker 1: whatever it is. And also be long dollar. Don't hedge
Speaker 1: your dollar exposure. Now the trade still works, except you
Speaker 1: really do want to hedge your dollar exposure. And that's
Speaker 1: not dollar debasement, that's just overvalue dollar. And I think
Speaker 1: that's common sense.
Speaker 2: See, I think that's a key point more because obviously
Speaker 2: you I mean, this is what was called US exceptionalism,
Speaker 2: and that has ended, and that it's no longer kind
Speaker 2: of comforting. As you see you have seventy percent of
Speaker 2: your equity exposure in the S and P five hundred
Speaker 2: and you know all of this as you see onhedged.
Speaker 2: Basically everyone has just been owning the US because there
Speaker 2: has been no other alternative.
Speaker 1: And know they longer currency as well. You've got to
Speaker 1: separate it from only the asset, which I still think exists.
Speaker 1: I do think, you know, the S and P has
Speaker 1: got more to go. Look at the FED. The FED
Speaker 1: are actually fairly confident on inflation. Okay, they're not rushing
Speaker 1: to cut interest rates because the economy is so strong,
Speaker 1: the stock market is still so strong, it's still got
Speaker 1: the best companies in the world. It's still going to
Speaker 1: do very well. Will other countries do better, possibly, But
Speaker 1: that's you know, you know, the emerger markets certainly listened
Speaker 1: to some my aspects there, but that is a conscious
Speaker 1: risk choice. The question is do you want to own
Speaker 1: US assets absolutely great yields and treasuries, great liquidity, great
Speaker 1: stock markets, blah blah blah. Do you want to own
Speaker 1: the double bet which is own list And if you're
Speaker 1: a foreign investor being naked long dollar out right, probably
Speaker 1: not anymore. That is how I think you have to
Speaker 1: separate the two things.
Speaker 2: Yeah, and I mean that makes a lot of sense.
Speaker 2: I mean, if you're a steling investor, I mean you
Speaker 2: may not have noticed, you but obviously the pound against
Speaker 2: the dollar has gone from one thirty five to one
Speaker 2: thirty eight this week. You don't, let's say, you're not
Speaker 2: going to instantly notice that in your portfolio. Of the
Speaker 2: pound does keep going up against the dollar and you
Speaker 2: haven't hedged that exposure in some way, then it's actually
Speaker 2: going to act as quite a big drag on your returns,
Speaker 2: so can see you could definitely see that as an issue.
Speaker 2: I mean, I suppose I would also say that they're
Speaker 2: probably I would argue that the play is an element
Speaker 2: of wanting to hedge against US political uncertainty, which I
Speaker 2: don't see is being the same as fleeing it. It's
Speaker 2: more just, Okay, I've been comfortable having all of my
Speaker 2: eggs in this one basket, and suddenly they're starting to think.
Speaker 2: I said, does it make sense to have all it's
Speaker 2: going on?
Speaker 1: And since twenty Since twenty twenty, I mean it's been
Speaker 1: a sleep trade. If you've been a long here's me,
Speaker 1: all of a sudden you've got to wake up and think,
Speaker 1: hang on second one, is there better alternatives elsewhere? And
Speaker 1: to do I want quite so much exposure? Or in
Speaker 1: that way, kaiso exposed to the currency if you're still
Speaker 1: confident holding the underlying assets bit bonds or or stocks.
Speaker 1: I think US bonds are great value. I think US
Speaker 1: stocks are probably still the place large larger to be
Speaker 1: the dollar itself. I think you have to be slightly
Speaker 1: careful getting too bearish on it because it's underlying got
Speaker 1: a lot of so much economic strength that I think
Speaker 1: it's a difficult short Do you want to head some
Speaker 1: of your exposure a foreign investor, Absolutely, and you know
Speaker 1: there are alternatives, particularly in emerging markets, I think, which
Speaker 1: are make for the sensible investment if you're a US investor.
Speaker 1: But reality is, I don't think the dollar's going up
Speaker 1: and I don't think it's going down too much. But
Speaker 1: you know, for choice, I think this is a trend
Speaker 1: which will we will see more dollar weakness at the
Speaker 1: coast of the next three months.
Speaker 2: I suppose the other thing I would ask about precious
Speaker 2: metals particularly, but it is sort of all part of
Speaker 2: this reconfigure portfolios because obviously, if you look back over
Speaker 2: the last year and actually he's getting on for close
Speaker 2: to two years now, the rest of the world has
Speaker 2: been catching up with the US. And so I was
Speaker 2: reading something interesting from Steen Jackibson, who's an analyst over Guys.
Speaker 2: I can't remember, think it's Rubble Bank, but he was
Speaker 2: talking about who the it's on this topic, the euro
Speaker 2: US dollar exchange rate, and it's a chating thing. And
Speaker 2: I know the charts are a little bit you know,
Speaker 2: people don't always think people think charts are just like astrology.
Speaker 2: But he was pointing out bunch of lines, a bunch
Speaker 2: of lines. So he was pointing out the euros now
Speaker 2: it is two hundred month moving average against the dollar,
Speaker 2: and if it breaks up above that, so this is
Speaker 2: the end of the month stuff. It mass a long
Speaker 2: term trend. And he's saying that the tipping point looks
Speaker 2: like it might be there if the uro managers to
Speaker 2: stay stronger against the dollar, and you're kind of you're
Speaker 2: turning the trend around. And that's a point at which
Speaker 2: aid allocation teams start to say, okay, well, hang on,
Speaker 2: this is this is well, it's basically saying what you're saying,
Speaker 2: we're taking a risk here by being overly exposed, nakedly
Speaker 2: long to the dollar. And this is something they can
Speaker 2: use almost to justify the decision to pull back on
Speaker 2: that a bit, because also, if you haven't been holding
Speaker 2: gold at all, you're probably starting to feel like a
Speaker 2: bit of a numpty. And also the well bombs, and
Speaker 2: also they can the arguments for for having a sixty
Speaker 2: thirty five five portfolios start to become more mathematically convincing,
Speaker 2: because not here, not at the top, well not at all.
Speaker 2: But this is the problem absolutely exactly with golds down
Speaker 2: so well, you plug that into the historic calculations and
Speaker 2: it looks as if the benefit has outweighed the volatility
Speaker 2: was before the dead and it suddenly looks as if, well,
Speaker 2: so that would be sensible portfolio construction. And I just
Speaker 2: wind that please.
Speaker 1: Why now when dollar euros at one twenty, all of
Speaker 1: a sudden you think, oh, it's about time I should
Speaker 1: shift out the dollar. Why are the top I mean really,
Speaker 1: it's like the goal. Why would you shoot your portfolios
Speaker 1: ten percent of gold? Now? It's brain dead? You know, really,
Speaker 1: people have got to do the risk reward on this
Speaker 1: stuff and think for themselves common sense. You know, where
Speaker 1: do I really think in a year in two years time,
Speaker 1: these things will be and the chances of gold and
Speaker 1: silver having a horrible blow off top and all going
Speaker 1: very badly wrong, I think are getting exponentially. Nonetheless, with
Speaker 1: regards to and I wrotised written an article about the
Speaker 1: dollar euro in particular, the Europeans start to hurt above
Speaker 1: one twenty. They already started talking about in the European
Speaker 1: Central Bank. And if you look at a longer term chart,
Speaker 1: you will see every time it pokes its head above
Speaker 1: one twenty and certainly gets close to one twenty five,
Speaker 1: they come and hit it on the head with a hammer,
Speaker 1: and I expect that's exactly what's going to happen. And
Speaker 1: we have the eased to be a meeting next Thursday,
Speaker 1: February the fifth, where I expect there will be a
Speaker 1: few more noises and we all back away from this all.
Speaker 1: Maybe the next move in interest rates in Europe should
Speaker 1: be a hike. No, it should not. It should be
Speaker 1: either dead silence, which would have been preferable, but now
Speaker 1: they can have to say we actual fact, we still
Speaker 1: probably have a bias to ease, and maybe that a
Speaker 1: week in the euro a bit the brutal reality. We
Speaker 1: know the dollar wants to go down, the euro has
Speaker 1: only one way to go, and they could very little
Speaker 1: if they can do about it, apart from actually cut
Speaker 1: into straights. Now you would argue you were French with
Speaker 1: inflation world below one percent, they should be, but you
Speaker 1: know a lot of the Germans, for some reason in
Speaker 1: their economy is completely on the floor, don't seem to
Speaker 1: want to do this. But I suspect by the end
Speaker 1: of the year if the Fed and i'd lane the
Speaker 1: Bank of the have cut again and probably one or two,
Speaker 1: maybe even three more times you will see a further
Speaker 1: rate cuts in Europe and I think that will be fine.
Speaker 1: But until then there's a chance that the EU gets
Speaker 1: a little bit too strong and it starts killing They're
Speaker 1: already very weak export growth and indeed economy sadly.
Speaker 2: Same point here because I haven't looked at here properly
Speaker 2: and then don't maybe you haven't, adel but why is
Speaker 2: for Ancian flution as law as it is, it kind
Speaker 2: of stands as being.
Speaker 1: Yeah, there's that again. Look, most these things are energy
Speaker 1: driven and there is some basis stuff in it, but
Speaker 1: you know, there is a very bad economy there at
Speaker 1: the moment, and it's it's quite extraordinary how how long
Speaker 1: it's been under one percent, and you know the risks
Speaker 1: of it going lower. Italian inflation isn't very strong either. Again,
Speaker 1: there are there are some basis effects from through as
Speaker 1: things going going through, but I mean, you know, it
Speaker 1: is starting to come more of a worry in France
Speaker 1: that they're realizing this is this isn't just one off
Speaker 1: effects from things like energy and whatever they are. There
Speaker 1: is some actual residual problems, perhaps with lack of economic
Speaker 1: growth and stimulus and momentum in the economy.
Speaker 2: Yeah, and that is kind of a problem given we
Speaker 2: are they are dated to GDPs, because at least we
Speaker 2: can talk about tax receipts going up faster than anyone
Speaker 2: expects purely in inflation driven basis.
Speaker 1: But I mean, if you look at the overall gross
Speaker 1: you know, dat GP of the UK, we're actually in
Speaker 1: one of the best best spaces. I mean, I mean
Speaker 1: a particularly corporate and household letting setting aside where the
Speaker 1: government is. But we're relatively under one hundred present a GDP.
Speaker 1: It does compare more favorably to most of Europe bar Germany,
Speaker 1: but Germany is rapidly catching the rest of us up.
Speaker 1: So yeah, I think France has has issues, particularly with
Speaker 1: household debt and to extend corporate debt as well. But
Speaker 1: the good thing, the only thing that I'm going for
Speaker 1: at the moment, and clearly you can see that reflecting
Speaker 1: the spread above German yields, is that the European Commission
Speaker 1: are turning a blind eye. They are getting their budget
Speaker 1: through somehow by hooker by crook, and you know, they're
Speaker 1: not creating the flack within and Brussels that they otherwise
Speaker 1: may have done it this situation. So at the end
Speaker 1: of the day, everyone's got a turn a bit of
Speaker 1: a blind eyes of France and let it a bit
Speaker 1: like they have done in the past and continue to
Speaker 1: do with Italy, and let it get try and get
Speaker 1: itself out of its own mess because you know, domestic
Speaker 1: politics are a mess.
Speaker 2: Yeah, what's going on with the yen, because that's the
Speaker 2: other thing that everyone sort of was broadly a little
Speaker 2: bit jetterly about early.
Speaker 1: Right, First things first, again, if you look at the
Speaker 1: Japanese economy overall, excluding it is very large government debt,
Speaker 1: which is bigger than anyone's really is. The domestic economy
Speaker 1: is doing perfectly fine. Inflation actually is relatively okay. They
Speaker 1: are they'll be wanting inflation to come in as the
Speaker 1: rest of the world, and that's why they've been nudging
Speaker 1: up their interest rates very calmly. Everyone gets scared about
Speaker 1: the single the yen and carry trade, as in, you know,
Speaker 1: people borrowing yen and buy us tech stocks, and it
Speaker 1: funds the world's growth to a large degree. I think
Speaker 1: people misunderstand how that trade works. That works very much
Speaker 1: in short term tenors one month, three month, three month
Speaker 1: type stuff. It doesn't exist in thirty and forty year
Speaker 1: JGB yields, which is a very domestic market. However, recently
Speaker 1: a lot of hedge funds have got involved in trying
Speaker 1: to get busy, and I think quite a few of
Speaker 1: them have been stopped out. So we're seeing a lack
Speaker 1: of buyers domestically the pension funds, but like the UK,
Speaker 1: do not want to own extra duration. In Japan, EI
Speaker 1: yels are getting better and high. We are not seeing
Speaker 1: the Japanese fund managers thinking, oh I can now get
Speaker 1: the same yield or better even in yen, I will
Speaker 1: move my money out of dollars. They're quite reversed. They
Speaker 1: are keener to stay out of Japan and they believe
Speaker 1: that the US will be cutting interest rates. Why not
Speaker 1: own that bomb market? And that's why I think you
Speaker 1: have to look at it. Where is the prospect of
Speaker 1: lower rates and lower yields more likely an actual fact?
Speaker 1: You know, especially with the weekning yen is up pill recently,
Speaker 1: so they haven't been bringing money back on shore. They're
Speaker 1: not that excited by higher yields. So that what weather
Speaker 1: the yen, Well, the yen got towards one sixty and
Speaker 1: clearly You've had the US Treasury encouraging the back of
Speaker 1: Japan to call up very aus fxtealers and saying, where
Speaker 1: would you possibly be offering me to buy some yen please?
Speaker 1: The rate check which happened the last Friday, and it
Speaker 1: look it had an immediate effect because it was done
Speaker 1: again in US time by the US Treasury. You know,
Speaker 1: notice been served. And I would say that the end
Speaker 1: will continue to weaken, but very very carefully this time
Speaker 1: because getting caught the wrong way on it is going
Speaker 1: to be extremely papers when and if, and probably more
Speaker 1: likely when the US Treasury comes in and they do
Speaker 1: a concerted intervention, you know that will move it ten
Speaker 1: big figures rather than fostest time. So in that sense,
Speaker 1: it had got two week the end. And I think
Speaker 1: it's only so much that the Japanese economy, Japanese government
Speaker 1: want this to allow this to happen. And I think
Speaker 1: we've been served a line of the sound has been drawn.
Speaker 1: Is that going to hold? Probably not, but at some point, yeah,
Speaker 1: crashing waves will come in.
Speaker 2: It's just for clarity. Why does the US not want
Speaker 2: the end to get weaker against the dollar?
Speaker 1: Because he doesn't want the dollar to get strongercase it
Speaker 1: wants the US export market to have a better chance
Speaker 1: against the rest of the world. It's a little bit
Speaker 1: dumb the way they look at this, but broadly, what
Speaker 1: they're trying to say is that nice try. Guys, were
Speaker 1: seeing the Chinese do exactly the same thing, was seeing
Speaker 1: the Koreans do, and the Japanese the same game. Let's
Speaker 1: keep our currencies very weak against principally the dollar, but
Speaker 1: everything else and against each other more importantly, probably, actually,
Speaker 1: you can't all play the same game. Get away with it.
Speaker 1: We see you, and that's why, you know, the Japanese
Speaker 1: are more observant of the lack of tolerance and how
Speaker 1: it affects them with the US.
Speaker 2: This means like kind of cold see Wars tape thing.
Speaker 1: Yeah, they've literally the Japanese have got away with this
Speaker 1: for a little bit too long. So the Chinese and
Speaker 1: the US Treasury has them in their sites.
Speaker 2: Excellent. Oyah. I think that's a pretty convincing roundp of
Speaker 2: all the importance up from this week. I was just
Speaker 2: pretty impressed it. Did you miss anything?
Speaker 1: Lots?
Speaker 2: I sure, but anything we feel qualified to discuss. Thanks
Speaker 2: for listening to this week's Merton Talks Money Debrief. If
Speaker 2: you like our show, rate review, and subscribe Wherever you
Speaker 2: listen to podcasts, it keeps saying. Your questions are comments
Speaker 2: to Mern Money at bloomberd dot net. You can also
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Speaker 2: joined Underscore Stepeck, and Marcus is at Marcus Ashworth. This
Speaker 2: episode was supported by me Joint step Peck, and it
Speaker 2: was produced by Moses and Am and Summer Sadie