WEBVTT - Markets Wrap: Inflation Means Bad News for Burnham 0:00:02.759 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.560 --> 0:00:21.159 Welcome to the Merton Talks Money Market rap, where we 0:00:21.239 --> 0:00:23.599 talk about the biggest moves and markets this week and 0:00:23.680 --> 0:00:26.599 what's driving them. I'm Join Stewick, senior reporter and author 0:00:26.600 --> 0:00:28.640 of the Money Still newsletter, and joining me in the 0:00:28.680 --> 0:00:32.400 studio will Merton's away and holiday is Simon White, Simon's 0:00:32.400 --> 0:00:35.600 a macro strategies at Bloomberg and author of the Microscope 0:00:35.640 --> 0:00:38.200 Call Them Simon, thanks very much for joining us today. 0:00:38.240 --> 0:00:39.240 Thanks for having me on, John. 0:00:41.320 --> 0:00:43.919 I shall have noticed Simon is also from my neck 0:00:44.000 --> 0:00:47.800 of the woods. If you require subtitles for this podcast, 0:00:48.000 --> 0:00:50.360 then I agree gret to inform you that you are 0:00:50.400 --> 0:00:54.880 fired as a listener. Don't be so cheeky. Races after that. 0:00:55.080 --> 0:01:00.440 After that warning, Simon. British politics. It's been interesting this week, 0:01:00.520 --> 0:01:01.320 hasn't it. 0:01:01.320 --> 0:01:03.800 It's kicking off again, by the way, I will say 0:01:03.800 --> 0:01:07.040 the Glaswegian accent is a lot stronger than my Edinburgh 0:01:07.680 --> 0:01:11.800 softer tones, so the subtitles might be needed for you. Yes, 0:01:11.840 --> 0:01:13.640 it's been interesting. 0:01:13.800 --> 0:01:14.640 Shots filed. 0:01:16.600 --> 0:01:18.319 Yeah, it's been interesting. I mean when hasn't it been 0:01:18.319 --> 0:01:21.600 in pretty politics for some time? Probably, like a lot 0:01:21.640 --> 0:01:23.560 of people like in the same way it was with 0:01:23.640 --> 0:01:25.560 Keir Starmer, like hopeful that it was all going to 0:01:25.640 --> 0:01:29.399 work out, but it didn't, and we're kind of here 0:01:29.440 --> 0:01:32.800 again Burnham. Is he going to fail in a more 0:01:33.280 --> 0:01:37.120 you know, charismatic fashion, or maybe he's gonna, you know, 0:01:37.200 --> 0:01:38.800 get through what he wants to get through. But it's 0:01:38.800 --> 0:01:41.759 hard to sort of reason, you know, with these all 0:01:41.800 --> 0:01:44.520 these promises now about what he's going to spend and 0:01:44.680 --> 0:01:46.399 nothing to do with what he's going to cut, and 0:01:46.440 --> 0:01:48.840 he's sticking to the fiscal rules. So what's your only 0:01:48.920 --> 0:01:49.800 lever left. 0:01:50.320 --> 0:01:52.840 Well, the only lever left is tax and winderling with 0:01:52.960 --> 0:01:55.120 your take is on this. I mean we're all ready 0:01:55.120 --> 0:01:57.680 he got the highest tax rates in the generation or 0:01:58.200 --> 0:02:00.480 maybe two generations. 0:02:00.160 --> 0:02:02.680 In terms of GDP. I just looked at this. It's 0:02:02.720 --> 0:02:05.080 basically outside of war or the aftermath of war, it's 0:02:05.120 --> 0:02:05.840 never been higher. 0:02:05.960 --> 0:02:09.440 Yes, So we are really kind of maxed out as 0:02:09.520 --> 0:02:11.520 far as the tax take goes as well. Nine. That's 0:02:11.560 --> 0:02:13.640 one thing it's easy to see with the borrowing that 0:02:14.120 --> 0:02:16.880 you know, we're very high borrowing. It's easy to see 0:02:16.880 --> 0:02:19.240 with the spending because obviously the borrowing is so tight 0:02:19.520 --> 0:02:23.359 that the self evident was spending too much, but we're 0:02:23.400 --> 0:02:26.880 also taxing too much. So I do wonder how much 0:02:26.919 --> 0:02:30.040 more can he squeeze the pips as it well, I mean, 0:02:30.040 --> 0:02:32.040 even if he wants to pluck the goose. 0:02:32.120 --> 0:02:35.160 I mean he's got, as I say, a limited room 0:02:35.200 --> 0:02:37.560 for maneuver. I mean, I don't know. I mean, look, 0:02:37.880 --> 0:02:41.640 there's been a couple of articles in the papers recently, 0:02:41.680 --> 0:02:43.639 like the GIN and Ganesh and FT, and it was 0:02:43.680 --> 0:02:46.600 Matthew's side and Sunday Times making the same point that 0:02:46.600 --> 0:02:48.560 they kind of want him to fail. Yeah, we need 0:02:48.560 --> 0:02:52.200 another nineteen seventies winter of discontent to kind of reset 0:02:52.240 --> 0:02:52.720 the system. 0:02:52.800 --> 0:02:55.560 Yeah, this was very much because I read the Ganesh one. 0:02:55.639 --> 0:02:59.280 He was basically saying, I this has to go pair 0:02:59.400 --> 0:03:02.880 shaped and definitely go Pia shaped in quite a catastrophic way, 0:03:03.160 --> 0:03:06.519 so that everyone accepts, or the voters accept that actually 0:03:06.560 --> 0:03:09.280 we need to do something different. I mean, I didn't 0:03:09.280 --> 0:03:13.000 expect the FT come out with the acceleration this that argument, 0:03:13.040 --> 0:03:15.600 I have to say, So that was quite interesting to see. 0:03:15.840 --> 0:03:17.920 Yeah, yeah it is. I mean it's it's interesting and 0:03:17.919 --> 0:03:21.520 as I said, the same thought process elsewhere. I mean, 0:03:23.360 --> 0:03:25.040 he's saying all the right things right now and I 0:03:25.040 --> 0:03:28.440 think the sort of cosmetic, if you like, announcement's made 0:03:28.440 --> 0:03:31.040 so far. I mean, you know, the bus cap yeah, 0:03:31.280 --> 0:03:34.960 and they got the VAT and fuel and the business 0:03:35.000 --> 0:03:36.640 rates thing. I mean in the grand scheme of thing 0:03:36.640 --> 0:03:38.360 don't cost a lot, but they sound good. 0:03:38.640 --> 0:03:38.920 Yeah. 0:03:38.960 --> 0:03:41.240 So my sort of sliver of hope is that he 0:03:41.360 --> 0:03:44.080 sort of like says the right things to keep the 0:03:44.520 --> 0:03:46.440 left of his party, you know, tickle their belly a 0:03:46.480 --> 0:03:50.400 little bit, keep them happy, and he's able some point 0:03:50.440 --> 0:03:54.560 down the line to persuade them for the need to say, 0:03:54.600 --> 0:03:56.920 cut the welfare bill right by the way, that that 0:03:57.000 --> 0:03:59.640 alone would solve everything. I mean, it's a roughly fifty 0:03:59.640 --> 0:04:03.640 billion increase since the pandemic, and a lot of that 0:04:03.680 --> 0:04:05.680 happened in a lot of countries because of the pandemic, 0:04:05.720 --> 0:04:09.120 of course, but a lot of other countries their welfare 0:04:09.160 --> 0:04:11.640 bills went back down. I was stuck. So I can't 0:04:11.680 --> 0:04:14.360 imagine we were uniquely sick in some way. 0:04:14.880 --> 0:04:15.040 YEA. 0:04:15.120 --> 0:04:17.719 So it feels like in that fifty billion or roughly 0:04:17.760 --> 0:04:20.440 what it is, would solve all your problems, right, your 0:04:20.480 --> 0:04:23.800 defense problem solved, NHS. I'm sure you could throw money 0:04:23.839 --> 0:04:25.680 at that. Again, you've got a lot of things you 0:04:25.720 --> 0:04:28.239 could fix on the back of that, So that seems 0:04:28.279 --> 0:04:30.200 to me you need to get that one right. And 0:04:30.240 --> 0:04:32.360 if he's able to do a kind of Tony Blair 0:04:33.120 --> 0:04:35.960 persuade them, it's in their interests. It's like part of 0:04:35.960 --> 0:04:39.760 the labor movement, you know, And that Alan Milburn review 0:04:39.800 --> 0:04:42.320 about that really framed it in the right way that, like, 0:04:42.400 --> 0:04:46.080 you know, this is actually a negative for people. So 0:04:46.080 --> 0:04:50.080 if he's has that charisma and that ability to persuade 0:04:50.080 --> 0:04:53.480 in the way that blaured it, maybe it's possible that, 0:04:53.600 --> 0:04:55.520 you know, he's able to keep them happy in some 0:04:55.560 --> 0:04:58.600 ways and then persuade them to do the big decisions 0:04:58.600 --> 0:05:00.440 that they need to do. But I don't know what 0:05:00.480 --> 0:05:02.599 you think about that, whether you think that's likely or. 0:05:03.000 --> 0:05:06.920 I do think that one thing that people possibly under rate, 0:05:07.000 --> 0:05:09.440 and especially people in our position or not. I mean 0:05:09.480 --> 0:05:11.800 people who sort of see the numbers and think, well, 0:05:11.800 --> 0:05:13.960 the numbers are the same. Just swapping out the guys 0:05:14.040 --> 0:05:16.400 isn't going to do something. But I do think that 0:05:16.600 --> 0:05:19.960 slightly let's kill Stamer off the hook for how bad 0:05:20.040 --> 0:05:23.560 he actually was. And I do feel that Starmer specifically, 0:05:23.560 --> 0:05:28.080 and without being cruel or biased, I just think he 0:05:28.160 --> 0:05:32.239 was clearly not a great leader, and at every step 0:05:32.240 --> 0:05:34.080 of the way you could see there were actually mistakes 0:05:34.120 --> 0:05:37.920 made and the welfare reform. On the one hand, I 0:05:37.960 --> 0:05:40.479 agree that the left of the Labor Party is knee 0:05:40.560 --> 0:05:44.159 jack against anything that touches benefits. At the same time, 0:05:44.880 --> 0:05:48.200 you had people in that rebellion that weren't really in 0:05:48.200 --> 0:05:50.280 that wing of the party and they were actually just 0:05:50.760 --> 0:05:54.440 rebelling against other elements of the leadership. But also the 0:05:54.520 --> 0:05:57.440 fact that it was not particularly well thought through. And 0:05:57.480 --> 0:05:59.320 I do get the impression, as you say, if you've 0:05:59.320 --> 0:06:02.680 framed it is a kind of working class waste of 0:06:03.200 --> 0:06:07.360 people's ability issue as it is, and if you actually 0:06:07.680 --> 0:06:11.600 kind of put it through a proper kind of review, 0:06:11.760 --> 0:06:15.200 for example, that comes back with what are you know, 0:06:15.360 --> 0:06:20.880 considered recommendations for ditching this stuff, then actually somebody could 0:06:20.920 --> 0:06:24.200 make the case for it. I guess I do wonder 0:06:24.279 --> 0:06:27.840 low if the idea of you know, kind of cutting 0:06:27.880 --> 0:06:30.520 benefits is just going to go back to oh, this 0:06:30.600 --> 0:06:34.120 is austerity three point zero or whatever that it often 0:06:34.120 --> 0:06:36.640 seems to run it. But I know, I do think 0:06:38.200 --> 0:06:40.400 there's there's a sliver of a chance. 0:06:40.920 --> 0:06:43.720 That that's that's come out. My optimistic thing and obviously, 0:06:43.720 --> 0:06:46.000 well we'll see the near future. Mean, he's picks so 0:06:46.040 --> 0:06:48.040 far I think have been pretty good for his cabinet, 0:06:48.200 --> 0:06:50.960 certainly surprising and very surprising. But I think, you know, 0:06:51.000 --> 0:06:53.400 it's kind of ticked a lot of boxes. I would say, like, 0:06:53.440 --> 0:06:55.719 it's definitely you know, it's not scared the horses. I 0:06:55.720 --> 0:06:58.160 would say, any of these picks really, you know, I 0:06:58.160 --> 0:07:02.000 obviously Healy is the Chancellor, keeping the mood in the 0:07:02.000 --> 0:07:05.840 Home Office, streating in defense. You know, they all seem 0:07:05.839 --> 0:07:07.960 to me like pretty reasonable picks. He's kind of like, 0:07:07.960 --> 0:07:09.520 it feels like he's off to a good start. But 0:07:10.360 --> 0:07:12.840 the mathematics you can't get away from the fact that 0:07:13.280 --> 0:07:15.760 he's going to need to cut spending one way or 0:07:15.760 --> 0:07:18.440 the other. And we don't think he can probably tax 0:07:18.480 --> 0:07:20.800 that much more. I mean, he might try, but this 0:07:20.840 --> 0:07:23.960 is where obviously it could all start to tell ravel and. 0:07:23.880 --> 0:07:25.680 Just kind of fall apart. I mean, but I think 0:07:25.960 --> 0:07:27.640 this is and this is moving on in the kind 0:07:27.640 --> 0:07:30.320 of wider markets. This is the other big issue about 0:07:30.360 --> 0:07:34.000 the spending is that he doesn't have control over the 0:07:34.040 --> 0:07:38.320 biggest variable effect in guilt rates, which is the Iran 0:07:38.640 --> 0:07:42.360 war and oil prices, and we kind of thought. This 0:07:42.600 --> 0:07:45.840 was I'm sorry, we market's king to seem to think 0:07:45.840 --> 0:07:48.960 that this was a pretty much a done deal up 0:07:49.040 --> 0:07:51.640 until obviously the ceasefire started to fall apart. And now 0:07:51.800 --> 0:07:55.440 this morning we've got the hooties attacking Saudi tankers in 0:07:55.480 --> 0:07:58.600 the Red Sea, which means it's the actual was actually 0:07:58.600 --> 0:08:02.760 getting moss rather than getting closer to some kind of truth. 0:08:03.840 --> 0:08:05.840 So I mean, what do you who do you? What 0:08:05.880 --> 0:08:08.640 does that mean for asset prices? Because you tackle the 0:08:08.680 --> 0:08:11.680 macro stuff, and you know, it's some kind of interesting 0:08:11.680 --> 0:08:16.120 about inflation, but not just about inflation being high, about 0:08:16.120 --> 0:08:18.920 it also being kind of volatile and how that makes 0:08:18.920 --> 0:08:19.920 it all even worse. 0:08:20.720 --> 0:08:24.960 Yeah, exactly that. I mean oil prices, you say, back 0:08:25.000 --> 0:08:28.040 in the rise, we're almost that one hundred again on 0:08:28.360 --> 0:08:33.320 you know, Brent oil prices, and you've got all the ingredients. 0:08:33.360 --> 0:08:35.520 I mean, really, inflation never went away in the first place, 0:08:35.960 --> 0:08:40.920 that's one thing. And this getting regn you know, this reignition, 0:08:40.960 --> 0:08:44.400 if you like, from this renewed rise in oil prices 0:08:45.360 --> 0:08:47.800 is a problem. And what happens with inflation is it? 0:08:47.920 --> 0:08:51.720 That's bad enough? Of course prices go up, everything gets 0:08:51.720 --> 0:08:54.720 more costly, of course, But when inflation rises, it tends 0:08:54.760 --> 0:09:00.360 to to use a polysyllabic term that's hetero schatastistic. Yeah, 0:09:02.160 --> 0:09:04.760 now we do need subtitles. But you basically is that 0:09:04.800 --> 0:09:07.120 the higher it gets, the more volatile it gets. And 0:09:07.160 --> 0:09:09.360 you see that with inflation. It's already beginning to happen, 0:09:09.360 --> 0:09:12.040 certainly in US inflation, so you're seeing that kind of 0:09:12.360 --> 0:09:14.920 So you've got this added uncertainty with prices given that, 0:09:15.080 --> 0:09:20.079 like you know, it's essentially the pursing power of your 0:09:20.120 --> 0:09:22.520 money is pretty much the most important signal out there, 0:09:22.559 --> 0:09:24.640 and if that becomes more uncertain it feeds into all 0:09:24.679 --> 0:09:29.880 sorts of goods. Prices, uncertainty, fed policy uncertainty, boring rates, uncertainty, 0:09:29.960 --> 0:09:32.600 cash flows, all that sort of stuff becomes much more 0:09:32.640 --> 0:09:35.559 uncertain So it's really bad for consumption, it's bad for investment, 0:09:36.000 --> 0:09:38.080 it's pretty much bad for everything. And therefore it feeds 0:09:38.080 --> 0:09:42.760 into credit markets, bond markets, market stock markets. Basically they 0:09:42.760 --> 0:09:45.319 all have to have a higher risk premium to take 0:09:45.360 --> 0:09:49.040 account of this extra uncertainty because of the extra volatility. 0:09:49.440 --> 0:09:53.520 So it's not a good environment at all for asset prices. 0:09:53.559 --> 0:09:55.400 And you know, as I say, I don't really think 0:09:55.440 --> 0:09:59.640 inflation looked like it was coming off. It was still elevated, remember, 0:10:00.920 --> 0:10:02.920 and I think it was going to come back in 0:10:03.040 --> 0:10:05.440 a way. But this of course has just accelerated it. Right, 0:10:05.480 --> 0:10:07.959 what's happening again in the middle least, which never really went away. 0:10:09.440 --> 0:10:11.560 And I was looking at this earlier as well when 0:10:11.600 --> 0:10:13.960 it comes to food prices, So we kind of dodged 0:10:13.960 --> 0:10:16.800 a bullet. Yeah, it came to food prices because because 0:10:16.840 --> 0:10:20.600 people thought, you know, there's a lot of fertilizer ingredients 0:10:20.640 --> 0:10:22.839 if you like, come through the Gulf, have come from 0:10:22.840 --> 0:10:24.520 the Gulf where they travel through the straight from mouse 0:10:25.600 --> 0:10:27.160 and you did see a sharp rally in some of 0:10:27.200 --> 0:10:29.600 the stuff, is like uria and ammonia. But it came 0:10:29.640 --> 0:10:33.280 back down really sharply, and that was partly good fortune. 0:10:33.280 --> 0:10:36.520 Really you had like high inventories already. China I think 0:10:36.720 --> 0:10:39.800 released a lot of uria supply into the market, so 0:10:39.920 --> 0:10:42.080 kind of everything went in the right direction. But we 0:10:42.160 --> 0:10:44.600 might not be so lucky this time around, right because 0:10:44.640 --> 0:10:46.959 you know, inventories aren't as high anymore. I don't know 0:10:47.280 --> 0:10:49.600 if China has as much uria can offer back into 0:10:49.600 --> 0:10:53.760 the market. So this nitrogen and phosphate fertilized actually fosstate fertilized. 0:10:53.920 --> 0:10:58.439 It is already elevated. It remained elevated because self uric acid, 0:10:58.480 --> 0:11:02.240 it's big. Fifty percent of sulfur comes through the strait, 0:11:02.640 --> 0:11:04.440 so you've already got a bit of a bottleneck there, 0:11:04.480 --> 0:11:07.760 and that could spread to this nitrogen fertilizer and then yeah, 0:11:07.800 --> 0:11:09.640 then you've got food, a food problem on your hands 0:11:09.679 --> 0:11:10.040 as well. 0:11:24.120 --> 0:11:27.880 And basically all of these things are a stagflationary they 0:11:27.880 --> 0:11:32.040 fundamentally because you've got oil and food costs, so the 0:11:32.080 --> 0:11:34.840 cost of your needs that's going up. That means you'll 0:11:34.840 --> 0:11:37.600 have less money to spend on points, and that just 0:11:37.720 --> 0:11:42.000 makes life harder for everyone, including I guess central bankers. 0:11:43.120 --> 0:11:45.000 I mean, we're not talking. We don't talk. We kind 0:11:45.000 --> 0:11:46.880 of share tips directly on here, but in terms of 0:11:46.880 --> 0:11:49.240 the kinds of things that investors can do, because obviously 0:11:49.720 --> 0:11:54.160 points inflation is just bad for a fixed income. It's 0:11:54.200 --> 0:11:56.560 not ideal for cash. A lot of interest rate it's 0:11:56.640 --> 0:11:59.240 keep up. Cash can sort of keep its head above 0:11:59.280 --> 0:12:02.920 water a lot of time. Gold what's been going with gold? 0:12:02.920 --> 0:12:06.679 Because I noticed that's the kind of was doing this 0:12:06.679 --> 0:12:09.200 thing where it was going down when oil was going 0:12:09.280 --> 0:12:11.760 up for a while, and vice versa. But now this 0:12:11.880 --> 0:12:14.520 seems to have been ticking back higher even low oil 0:12:14.600 --> 0:12:17.840 is up pretty much since basically just the last few days. 0:12:18.240 --> 0:12:19.440 What are your thoughts on that. 0:12:20.720 --> 0:12:22.920 Gold is an interesting one. I mean, obviously it ran 0:12:23.080 --> 0:12:27.320 up unsustainably, Yeah, which was really unfortunate. If you if 0:12:27.320 --> 0:12:30.480 you're kind of like like gold, to have it as 0:12:30.520 --> 0:12:32.760 like a portfolio hedge, that's kind of the worst thing 0:12:32.800 --> 0:12:35.599 you want to see because you know, the inevitable was 0:12:35.640 --> 0:12:37.280 going to happen. It was going to have to unravel 0:12:37.880 --> 0:12:40.199 to some extent, and which it did, and it's always 0:12:40.400 --> 0:12:42.120 it been gold as well, it's probably going to do 0:12:42.200 --> 0:12:45.199 so more than anyone kind of expected, so you kind 0:12:45.200 --> 0:12:47.000 of had to sit through all the kind of expected. 0:12:47.800 --> 0:12:50.000 In my mind anyway, noise of all, that's it. It's 0:12:50.000 --> 0:12:51.840 the end of the gold trade. You know, real rates 0:12:51.840 --> 0:12:54.120 are going up, so that's that's over. You're like, no, 0:12:54.240 --> 0:12:57.480 this is just unwinding the speculative fraud that we saw 0:12:57.559 --> 0:12:59.240 on the run up. And this is a good thing 0:12:59.280 --> 0:13:01.800 because I think a lot of kind of Johnny Come lately, 0:13:01.840 --> 0:13:05.000 if you like people that were you know, you know, 0:13:05.040 --> 0:13:07.360 maybe they were in bitcoin, you know, the sort of 0:13:07.679 --> 0:13:10.440 investors that are just looking for like a quick kind 0:13:10.440 --> 0:13:12.839 of what's going up, let's you know, momenting followers, and 0:13:12.840 --> 0:13:14.720 I think a lot of that people went into the 0:13:14.840 --> 0:13:17.679 into the gold trade, and that obviously really threw it higher. 0:13:18.360 --> 0:13:20.880 And then as you say, what happened subsequently, is it 0:13:20.880 --> 0:13:24.680 then it started going opposite to oil prices basically because 0:13:24.720 --> 0:13:27.920 of tension in the Middle East, Right, So anytime that 0:13:28.800 --> 0:13:31.720 you know, central banks like Turkey were having to basically 0:13:31.760 --> 0:13:36.600 sell reserves, yeah, because they couldn't afford oil prices, right, 0:13:36.679 --> 0:13:38.600 Oils going up and they you know, they don't really 0:13:38.600 --> 0:13:41.319 have much of their own oil supply, so that and 0:13:41.640 --> 0:13:45.120 imagine Middle Eastern central banks were doing that. They don't 0:13:45.160 --> 0:13:47.160 have the same revenue income because they weren't able to 0:13:47.160 --> 0:13:50.280 export their product. So that that really exacerbated that. So 0:13:50.320 --> 0:13:52.440 maybe that's sort of coming to an end right now, 0:13:52.480 --> 0:13:54.840 and you'll get central banks or maybe starting to peter 0:13:54.960 --> 0:13:58.280 back in start buying again. But the fundamental rules like 0:13:58.320 --> 0:14:01.640 a reason sorry we're running gold never actually changed. All 0:14:01.679 --> 0:14:03.880 that change is the price price went up a lot 0:14:03.920 --> 0:14:06.520 and kind of back down to where it was where October, 0:14:06.960 --> 0:14:09.880 you know, not that long ago, and so kind of 0:14:09.920 --> 0:14:12.680 really it's one of these classic things, especially you know, 0:14:12.679 --> 0:14:14.640 when it comes to things like you own for the 0:14:14.679 --> 0:14:18.600 long term, you pay attention to the If you pay 0:14:18.600 --> 0:14:20.240 attention to the price every day, you're going to get 0:14:20.240 --> 0:14:24.960 thrown around, Like you know, typical value investor doesn't really 0:14:25.200 --> 0:14:27.840 tries not to pay too much attention to what the 0:14:27.920 --> 0:14:31.360 voting machine is saying, you know. And I think we're 0:14:31.400 --> 0:14:32.920 at that point now where it's kind of the decks 0:14:32.920 --> 0:14:36.680 have been cleared with gold. So I really I think 0:14:36.720 --> 0:14:39.000 it's got a much more fun like a solid base, 0:14:39.040 --> 0:14:41.040 if you like. For it's going to high and we're 0:14:41.080 --> 0:14:43.960 not going to see what we saw before, right because 0:14:43.960 --> 0:14:46.600 of that that that was kind of an unusual stet circumstances. 0:14:47.000 --> 0:14:48.720 But I do think it's setting up for like a 0:14:48.760 --> 0:14:51.640 longer term, more durable kind of kind of rally. I 0:14:51.640 --> 0:14:53.480 will say that it's not really just about inflation. I 0:14:53.480 --> 0:14:58.000 would say it's both edges of the distribution you're hedging 0:14:58.000 --> 0:15:02.520 with gold, So inflation and deflation. Okay, So in serious deflation, 0:15:02.720 --> 0:15:04.440 which we could get like if you have a credit 0:15:04.480 --> 0:15:07.880 bust like private credit maybe or something like that, you 0:15:07.920 --> 0:15:10.160 get a deflationary bust, and that's that's the tail risk. 0:15:10.200 --> 0:15:14.640 For sure. Gold actually should benefit in that situation because 0:15:14.680 --> 0:15:18.160 it's the very integrity the financial system itself. Yeah, it 0:15:18.200 --> 0:15:21.320 comes under question, and once again gold starts to look 0:15:21.320 --> 0:15:23.560 because it's orthogonal if you like, to the whole thing. Yeah, 0:15:23.960 --> 0:15:26.040 it starts to look attractive again. So I think I 0:15:26.040 --> 0:15:28.360 think there's an again all the fundamental reasons. I think 0:15:28.360 --> 0:15:30.320 that if you were onwing gold for the right reasons before, 0:15:30.600 --> 0:15:33.160 it's not just like a quick trade, you should still 0:15:33.160 --> 0:15:34.320 be in it today. Yeah. 0:15:34.480 --> 0:15:36.320 No, it makes a lot of sense. I say, yeah, 0:15:36.320 --> 0:15:39.320 gold is the is the monetary system kind of insurance 0:15:39.320 --> 0:15:43.160 trade than anything else. And it's interesting you brought up 0:15:43.160 --> 0:15:46.320 the insurance trade because just very quickly I thought one 0:15:46.320 --> 0:15:49.080 thing we should talk about is the hyper scaleers, because yes, 0:15:49.120 --> 0:15:52.360 they're the alphabet which is obviously Google's pair. They've been 0:15:52.400 --> 0:15:56.160 spending loads of money on AI infrastructure, and yes, the 0:15:56.280 --> 0:15:58.560 day they came out and said we might spend even 0:15:58.640 --> 0:16:01.600 more than we said we were going, they spend. And 0:16:01.640 --> 0:16:04.120 they also reported their very first I mean this really 0:16:04.160 --> 0:16:06.920 struck me as the very first negative free cash flow 0:16:07.120 --> 0:16:10.240 quarter since they've been listed in two thousand and four. 0:16:11.000 --> 0:16:12.880 And why of they are? I mean everybody kind of 0:16:12.920 --> 0:16:16.120 knew this was coming. But one of the arguments for why, 0:16:16.600 --> 0:16:18.680 at least I constantly are like, why this isn't like 0:16:18.680 --> 0:16:21.040 the dot com bubble, for example, is because these are 0:16:21.040 --> 0:16:24.160 really resilient companies with like tons of money and they're 0:16:24.200 --> 0:16:26.920 going to be able to spend forever and you know, 0:16:27.000 --> 0:16:29.320 it doesn't really matter. Yes, the valuations might be high 0:16:29.440 --> 0:16:32.400 or something, but this is not like dot Com two 0:16:32.400 --> 0:16:38.200 point zero. So we are this debt spreading out gradually 0:16:38.280 --> 0:16:41.600 through the system and various you know, share issuances and 0:16:41.680 --> 0:16:45.240 things like that coming out. Would would do you see 0:16:45.520 --> 0:16:50.520 happening next? Because this surely does look like the epicenter 0:16:50.600 --> 0:16:53.480 of what whatever bad thing happens next. 0:16:54.840 --> 0:16:58.880 It's a very good question, is it a bubble all 0:16:58.920 --> 0:17:02.040 that sort of stuff, Without getting into definitions of bubbles 0:17:02.120 --> 0:17:05.800 or not. It's one big bet, right, They're all betting 0:17:05.840 --> 0:17:10.280 on the fact that is an epoch changing time for computing, 0:17:10.840 --> 0:17:16.440 and it's going from the old paradigm of CPU driven computing, 0:17:16.920 --> 0:17:21.760 which is kind of deterministic, to non deterministic eye large 0:17:21.800 --> 0:17:26.119 language models GPU driven computing. So it's a very different 0:17:26.240 --> 0:17:30.000 type of computing, and it requires different chips obviously GPUs 0:17:30.160 --> 0:17:34.159 that are much more expensive and depreciate much faster and 0:17:34.200 --> 0:17:38.280 requires these vast data centers because these models are extremely 0:17:38.960 --> 0:17:41.439 hungry for computing bars. It really all comes down to 0:17:41.480 --> 0:17:44.760 that that's their bet. Whether they're right or not, nobody knows. 0:17:45.359 --> 0:17:47.280 You've got in the one extreme, you've got Elon Musk 0:17:47.359 --> 0:17:49.280 thinks we need to build them in space because will 0:17:49.359 --> 0:17:52.400 run out of literally you won't have enough space suitable 0:17:52.400 --> 0:17:55.840 space on Earth. And then you've got Zuckerberg at Meta 0:17:56.200 --> 0:17:59.000 actually saying he's maybe got too much because he's going 0:17:59.040 --> 0:18:01.639 to start renting out some clouds. So even though these 0:18:01.720 --> 0:18:04.760 guys can't agree, then we're agreed that we don't know. 0:18:05.280 --> 0:18:08.560 So it's one big bet. And so I suspect that 0:18:08.600 --> 0:18:10.879 whether the bet is ultimately provene right, which was kind 0:18:10.920 --> 0:18:14.000 of was with the tech thing, but it's path dependency, right, 0:18:14.760 --> 0:18:17.000 if there was you know, the price has got built 0:18:17.040 --> 0:18:19.000 up too much in the interim, and then there's a bust, 0:18:19.359 --> 0:18:22.840 even if you know you built whatever you built was 0:18:22.880 --> 0:18:26.520 actually the right amount or wasn't too much. If to 0:18:26.600 --> 0:18:29.400 get there, there's there's there's a kind of sinking, there's 0:18:29.400 --> 0:18:31.000 a bust or whatever. Then it is what it is, right, 0:18:31.160 --> 0:18:34.880 you're fifty percent decline in your portfolio. That's a problem, right, 0:18:35.119 --> 0:18:37.840 even if over the longer term you're right, And so 0:18:37.960 --> 0:18:42.080 I obviously don't know, but I think that the way 0:18:42.080 --> 0:18:46.280 that they're going about it is is extreme. And obviously 0:18:46.960 --> 0:18:49.119 the leverage that they're building up and their balance sheets 0:18:49.600 --> 0:18:52.560 is also extreme. That's undeniable. I mean the actual debt. 0:18:52.600 --> 0:18:55.560 They've got an un balance sheet of five hyperscal So 0:18:55.560 --> 0:18:58.440 I'm not inclining Apple here. It is about eight hundred 0:18:58.480 --> 0:19:01.000 billion dollars, right, which is which is obviously a lot 0:19:01.040 --> 0:19:03.720 because they used to have pretty much impregnable balance sheets 0:19:04.080 --> 0:19:08.000 and now they have less pregnable balance sheets. But off 0:19:08.040 --> 0:19:10.280 balance sheet, there's there's all these other things that they're 0:19:10.280 --> 0:19:10.800 getting up. 0:19:10.760 --> 0:19:15.840 To special purpose vehicles, it's all a little bit two 0:19:16.000 --> 0:19:16.400 and eighty. 0:19:17.320 --> 0:19:21.560 It's all the usual. Yeah, off balance so there's SPV structures, 0:19:21.600 --> 0:19:26.360 there's data center leases. Yeah, there's there's other liabilities. Essentially, 0:19:26.400 --> 0:19:29.199 don't sit on your balance sheet. And there was a 0:19:29.200 --> 0:19:32.160 report out yesterday, I think it was a nicky and 0:19:32.240 --> 0:19:35.600 Mike Burry retweeted it like that could be in the 0:19:35.680 --> 0:19:38.800 order of one point six trillion, right, So that's obviously 0:19:38.880 --> 0:19:43.199 you know double what So I suspect that, like, you know, 0:19:43.400 --> 0:19:45.240 even if it's all right done for the right reasons, 0:19:45.280 --> 0:19:47.600 they're actually a right about this demand for compute will 0:19:47.600 --> 0:19:51.520 be there. When you get finance involved, it can always 0:19:51.560 --> 0:19:54.280 go too far and you end up with more risks 0:19:54.320 --> 0:19:58.520 than Maybe people are completely priced properly pricing in and 0:19:58.560 --> 0:20:03.080 at some point prices have to retrack back to reality. 0:20:03.160 --> 0:20:05.760 So I could easily see that. And you know, given 0:20:05.800 --> 0:20:09.320 the earnings expectations for all these companies, certainly the memory 0:20:09.320 --> 0:20:13.040 companies and the other hardware companies are so high, there's 0:20:13.080 --> 0:20:15.480 no wriggle room and all the stuff I've been talking 0:20:15.520 --> 0:20:17.439 about with inflation and all the rest of it, and 0:20:17.520 --> 0:20:23.480 this inflation volatility, earnings are unlikely to survive that unscathed. 0:20:24.800 --> 0:20:26.800 So there seems to be so many kind of potential 0:20:26.880 --> 0:20:31.199 pitfalls ahead that for to get smooth sailing in the 0:20:31.200 --> 0:20:33.840 equity market. So my view right now is roughly I 0:20:33.840 --> 0:20:36.639 could easily see a ten to fifteen percent correction in 0:20:37.000 --> 0:20:39.560 US stocks. I don't see much much bigger than that 0:20:39.640 --> 0:20:42.840 right now, because recessions risk is still low. Now, if 0:20:42.840 --> 0:20:45.680 that suddenly changed, recession just suddenly became a lot more likely, 0:20:45.720 --> 0:20:48.040