WEBVTT - Markets in a Permanent Mini-Crisis: Why Investors Are Waiting, Not Predicting

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin

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<v Speaker 1>Talks Money Market Rap. What are we talk about the

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<v Speaker 1>biggest moves in the markets this weekend?

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<v Speaker 2>What is driving them? I am Maren Sunset Web as

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<v Speaker 2>you're at large with Bloomberg UK Wells.

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<v Speaker 3>And I'm joined steering senior report and author of the

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<v Speaker 3>Money Distilled Newslater.

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<v Speaker 2>Morning John Man, Morning John. I think it's morning John.

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<v Speaker 2>I'm not even sure anymore whether this is a truth.

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<v Speaker 3>Day or not a truth day, but well beas I

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<v Speaker 3>just look at what was Hampton in the market, and

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<v Speaker 3>the oil praise today is up, so it must be

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<v Speaker 3>our war O day.

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<v Speaker 2>It's a war on day, not a war on day.

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<v Speaker 1>Okay, So here is the question? Then, is this just

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<v Speaker 1>where we are now? We're now in We're not in

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<v Speaker 1>an extreme crisis mode when it comes to war, not

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<v Speaker 1>in a constant let's or bomb each other mode. We're

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<v Speaker 1>in a constant mini crisis no one knows quite what's

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<v Speaker 1>going on, rolling mode, which is totally different.

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<v Speaker 3>I suppose that's one way to the state of permanent

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<v Speaker 3>kind of hubbubs, a.

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<v Speaker 1>Permanent hubbub, but not necessarily a state of permanent war. Yeah.

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<v Speaker 3>I mean, well, I guess what was the problem here

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<v Speaker 3>is that every one wants an off ramp, but the

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<v Speaker 3>two sides can't agree or in satisfactory or ramp.

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<v Speaker 1>Yes, but that rather suggests that we're on a very

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<v Speaker 1>very very long, super messy off ramp. Everyone wants both

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<v Speaker 1>sides kind no one really wants to keep going. Iran

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<v Speaker 1>doesn't really get one to get too much more involved

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<v Speaker 1>with irritating someone who's unpredictable, so provocative, et cetera. And

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<v Speaker 1>Trump is a bit nervous about taking anything further in

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<v Speaker 1>case they also PYPA really does get very severe.

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<v Speaker 2>So everyone kind of wants the offer. They almost to

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<v Speaker 2>agree to everything.

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<v Speaker 1>But so we are on one, just a slightly abnormal one,

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<v Speaker 1>and somehow markets have to work around that. But if

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<v Speaker 1>markets are supposed to look at the look to the

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<v Speaker 1>long term, maybe markets are right about kind of ignoring

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<v Speaker 1>at all if we are on an elongated, long off.

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<v Speaker 3>Rep I think that's a little bit too upbeat, I think, John.

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<v Speaker 1>I'm trying to make this podcast more upbeat.

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<v Speaker 2>Don't know.

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<v Speaker 3>People love a bit of doom and gloom. No, I

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<v Speaker 3>think that Actually I was looking at kind of markets

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<v Speaker 3>this week, so the UK, particularly in some of them

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<v Speaker 3>those was there was a couple of kind of significant

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<v Speaker 3>sort of offit warnings, and mine was from Chris Nicholson,

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<v Speaker 3>which is a host builder, and basically last month they

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<v Speaker 3>said it looked as if things were faint and near

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<v Speaker 3>the end of last mind so the war had been

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<v Speaker 3>you know, running for about our minds and they said

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<v Speaker 3>it's basically okay, you don't need to worry. And then

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<v Speaker 3>this Mondic came out with a trading update. They basically said, well, actually, no,

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<v Speaker 3>things have actually turned down quite a bit and now

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<v Speaker 3>we're going to he doesn't look as if we're going

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<v Speaker 3>to sell any land this year. And also, you know,

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<v Speaker 3>our profit's going to be much lower than we expected

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<v Speaker 3>because we're gonna have to kind of rain everything in.

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<v Speaker 3>And the share price felt something like thirty five percent

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<v Speaker 3>in the day. And then you have big consumers Goods

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<v Speaker 3>group wreck Ad beenkerser. They came out their share price

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<v Speaker 3>has been fallen since February, but on the day they

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<v Speaker 3>fell by an our five percent because you know, they

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<v Speaker 3>said that the disruption the Middle East is our sales

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<v Speaker 3>l like for like sales much lower than they expected.

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<v Speaker 3>And I think what this kind of drives home is

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<v Speaker 3>that the market is now at the point where it

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<v Speaker 3>can't really put a price on stuff until it starts

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<v Speaker 3>to see the impact coming through. And I think that's

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<v Speaker 3>the problem we sort of set there, and it's so reflexive.

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<v Speaker 3>It's like, we look at the prices, we say, well,

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<v Speaker 3>the market's not reacting, so it can't be that bad.

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<v Speaker 3>But but the market is waiting to get data from

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<v Speaker 3>the real world because it's kind of like, well, you know,

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<v Speaker 3>how do we know what's going to happen next? There

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<v Speaker 3>is no way you put a praace on it. So

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<v Speaker 3>I think we're just going to keep seeing this As

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<v Speaker 3>the bad data feeds through, maybe some of the kind

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<v Speaker 3>of impacts that we thought we were going to see

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<v Speaker 3>earlier on will start to happen because they basically you

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<v Speaker 3>need a can approve it moment, particularly because everyone's got conditioned.

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<v Speaker 1>This is very different to how I think we've thought

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<v Speaker 1>of markets in the past. We thought of markets as

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<v Speaker 1>being a predictive machine to a degree. You know, not

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<v Speaker 1>everything is priced in always, of course it isn't there

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<v Speaker 1>ridiculous idea, but quite often you say, well, you know,

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<v Speaker 1>markets a pretty clever and they're pricing a lot of

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<v Speaker 1>stuff in an advance, and now you're suggesting there's this

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<v Speaker 1>different environment and the market is not pricing things in.

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<v Speaker 2>It's waiting till things actually happen. It's not predictive, it's

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<v Speaker 2>reactive to reality.

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<v Speaker 3>Well, I guess it ties with this overall thing that,

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<v Speaker 3>you know, whatever. The kind of the twenty tens were

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<v Speaker 3>like the long duration decade, but it basically time didn't matter,

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<v Speaker 3>and that was partly tied up with interest rates. We know,

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<v Speaker 3>the kind of far future. If you were going to

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<v Speaker 3>make a load of money in the far future, that

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<v Speaker 3>was worth as much as making a load of money tomorrow.

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<v Speaker 3>So you bought the companies that were going to make

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<v Speaker 3>a load of money in the far future because the

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<v Speaker 3>future seemed predictable, because I think the predictability horizon of

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<v Speaker 3>the world generally has shrunk to like massively. So it's

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<v Speaker 3>a kind of short duration world. And that's also reflected

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<v Speaker 3>in the market's sense of visibility if you want to

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<v Speaker 3>get high fluting about it. Otherwise you could just say

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<v Speaker 3>nobody knows what's going to happen next, particularly whenever you

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<v Speaker 3>know trum poor Theranians can turn around and say something

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<v Speaker 3>completely different from day to day, so I just think

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<v Speaker 3>the markets. It's rational that the market's discounting ability has

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<v Speaker 3>shrunk massively.

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<v Speaker 1>I want to talk briefly about the UK and that

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<v Speaker 1>you know, we've been very positive on the UK stock

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<v Speaker 1>market but very negative on the UK economy, and I

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<v Speaker 1>remain pretty negative on the UK economy, in fact, very

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<v Speaker 1>negative on the UK economy. But there have been some

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<v Speaker 1>very sort of slightly positive things happening right, mildly stronger

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<v Speaker 1>than expected GDP growth in February, or that we only

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<v Speaker 1>half care about that because that was February before the war.

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<v Speaker 1>A slight fall in UK unemployment that again wasn't ad

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<v Speaker 1>per expected, although you could argue that that's simply to

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<v Speaker 1>do with people just going, well, they give up.

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<v Speaker 2>I give up. Now we're going to get a job,

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<v Speaker 2>so I give up. And there's also a very interesting.

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<v Speaker 1>Conversation to be had around that, whether that's to do

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<v Speaker 1>with effectively the UK being on the edge of a recession,

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<v Speaker 1>or whether it's to do with AI.

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<v Speaker 2>I suspect the former, but I know a lot of

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<v Speaker 2>other people think I think the other.

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<v Speaker 1>And the final thing that has happened additionally out this

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<v Speaker 1>week is there's some news of the UK budget deficit

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<v Speaker 1>is slightly lower than you might have expected at a

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<v Speaker 1>three year low and again, and that sounds good, but

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<v Speaker 1>it's worth remembering that we still do have a will

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<v Speaker 1>been great deficit, and the debt is still building, and

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<v Speaker 1>that that fall in borrowing is presumably connected to the

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<v Speaker 1>sharp rise in taxes, which may still have a laver

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<v Speaker 1>of reaction over the next few years. You know, you

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<v Speaker 1>get when you put up taxes. Initially you normally get

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<v Speaker 1>a revenue bounce, but then people are just their behavior

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<v Speaker 1>and that revenue bounce mildly disappears anyway. Nonetheless, nonetheless, if

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<v Speaker 1>you wanted to, you could have a go dragging dragging

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<v Speaker 1>some sparkle out of these three things.

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<v Speaker 3>You can.

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<v Speaker 1>And I mean, I.

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<v Speaker 3>Actually think the underlying strength of the UK economy is

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<v Speaker 3>better than most people had thought, and have thought that

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<v Speaker 3>for a while. And I do think the biggest problem

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<v Speaker 3>the UK has is the head went from bad governance

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<v Speaker 3>and it's been like that for a long time. It's

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<v Speaker 3>not just labor's fault, but of certainly kind of raised

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<v Speaker 3>it to you know that as bad as the previous

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<v Speaker 3>law at least, and so you know, we've got I mean,

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<v Speaker 3>if you look at the PMS came out today, so

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<v Speaker 3>their snapshots activity and services and manufacturing industries much much

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<v Speaker 3>better than expected. And these are for April, and partly

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<v Speaker 3>that's probably you know, companies kind of stalking up ahead

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<v Speaker 3>knowing that things are going pear shaped in the Middle East.

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<v Speaker 3>But the point is that none of these economic figures

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<v Speaker 3>by themselves or the certainly not taken together a point

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<v Speaker 3>in the economy that is in like massive distress. But

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<v Speaker 3>the I mean, the sentiment indicators are just off the

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<v Speaker 3>chaps bad. You know, there was that we saw a

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<v Speaker 3>nip Sauce consumer confidence reading yesterday that shows that people

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<v Speaker 3>are gloomy than they were ahead of two thousand and

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<v Speaker 3>eight and in nineteen seventy nine of all times. So

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<v Speaker 3>there's a there's a bit of a weird disconnect, which

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<v Speaker 3>I think is probably driven by people hating inflation. I

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<v Speaker 3>think I think inflation is probably the big drivery most

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<v Speaker 3>people misery, because everyone feels poor and feels that they're

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<v Speaker 3>being ripped off and doesn't see things getting any better.

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<v Speaker 3>But yeah, the underlying economy is not too bad. I

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<v Speaker 3>think the big risk is that if interest rates stay

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<v Speaker 3>where they are or even go up a bit because

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<v Speaker 3>of you know, they kind of energy crisis that we're

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<v Speaker 3>probably facing. Then that will knock a lot of that

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<v Speaker 3>on its head, particularly things like the housing market and

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<v Speaker 3>the wealth effect from that such as I mean.

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<v Speaker 1>This is I was going to say, people hate inflation,

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<v Speaker 1>but one thing that's really really difficult is general inflation

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<v Speaker 1>combined with falling house prices.

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<v Speaker 2>That's very hot. A lot of Britt's tough gig.

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<v Speaker 3>Well, yeah, and you see all these news stories in

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<v Speaker 3>the papers at the moment, but people saying, oh, I

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<v Speaker 3>can't sell my you know, X, y Z house for

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<v Speaker 3>this price, and obviously these solutions will cut the price.

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<v Speaker 3>The problem is people spent so long. Yeah, but people

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<v Speaker 3>spent so long thinking that how is what the X

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<v Speaker 3>And the other thing is when you look at the

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<v Speaker 3>prices from when they bottom, and this goes back to

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<v Speaker 3>what we talked about the other day, they haven't actually

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<v Speaker 3>made any money in real tails, even if they get

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<v Speaker 3>to sell them for the prices that they can't sell

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<v Speaker 3>them for. So I think people are waken up to

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<v Speaker 3>what is actually quite a big hall in their household

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<v Speaker 3>psychological balance sheet.

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<v Speaker 1>Yes, yeah, so it is interesting and I've got we've

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<v Speaker 1>got an interview coming out with Andy heldin soon and

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<v Speaker 1>when I who used to be the economist at Bank

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<v Speaker 1>of England. And one of the things that we talk

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<v Speaker 1>about in that is something that we've talked about and

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<v Speaker 1>I think with Russell Napier and other people previously, which

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<v Speaker 1>is about her actually household balance shees but house ord

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<v Speaker 1>balance sheets are in really good, really good shape. You know,

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<v Speaker 1>the UK household sectors really deleveraged over the last decade

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<v Speaker 1>and you know, were they to feel confident, a lot

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<v Speaker 1>a lot of good economic stuff could happen in the UK,

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<v Speaker 1>but they really really don't.

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<v Speaker 2>Okay, So that's that bit of misery. So so much

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<v Speaker 2>for facts for that.

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<v Speaker 1>John Plea's well briefly to talk about this business of

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<v Speaker 1>pinsion mandation and this idea that pension funds could be

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<v Speaker 1>forced to invest in particular areas of interest to the

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<v Speaker 1>government and that there's been some changes there and has

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<v Speaker 1>loads this.

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<v Speaker 3>Week, Yeah, thankfully. So basically so we know the Mantion

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<v Speaker 3>House Accord was like a voluntary agreement with seventeen of

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<v Speaker 3>the biggest pension providers in the UK to stick ten

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<v Speaker 3>percent of DC pensions into private assets and five percent

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<v Speaker 3>of those had to be in the UK. Now, okay,

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<v Speaker 3>let's park whether that's a stupid well, it is a

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<v Speaker 3>stupid idea, but let's part that. So the Government in

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<v Speaker 3>the Pensions Bill, rather than saying okay, well, these guys

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<v Speaker 3>have agreed to do this, that's fine, they're stuck in

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<v Speaker 3>this clause which basically says that if they don't do it,

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<v Speaker 3>we can force them to do it. And not only

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<v Speaker 3>can we force them to do what they've said they

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<v Speaker 3>do in the Mansion House agreement, we can force it

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<v Speaker 3>is completely uncapped. We can tell them to invest in

0:11:56.200 --> 0:11:59.440
<v Speaker 3>anything at all. The House of Lords thankfully kicked that

0:11:59.520 --> 0:12:03.000
<v Speaker 3>back and said, no chance, that's not happening. The Government

0:12:03.040 --> 0:12:05.640
<v Speaker 3>came back and said, well, okay, we will just be

0:12:05.720 --> 0:12:09.120
<v Speaker 3>able to mandate basically to the limits of what the

0:12:09.160 --> 0:12:12.560
<v Speaker 3>Mansion House thing says, so ten percent and private assets.

0:12:12.920 --> 0:12:14.800
<v Speaker 3>And last night the House of Lords voted against that

0:12:14.920 --> 0:12:18.079
<v Speaker 3>again and pinged it back to them. And so now

0:12:18.200 --> 0:12:20.600
<v Speaker 3>basically unless the Government kind of backs down on those,

0:12:20.679 --> 0:12:24.760
<v Speaker 3>chances are reasonable that actually the whole Pensions Bill will collapse,

0:12:25.840 --> 0:12:27.200
<v Speaker 3>you know, or rather it won't get through in this

0:12:27.280 --> 0:12:30.640
<v Speaker 3>parliamentary session. And the thing is, the Pensions industry is

0:12:30.679 --> 0:12:33.080
<v Speaker 3>not especially happy about that because they actually like a

0:12:33.080 --> 0:12:36.280
<v Speaker 3>lot of the other changes, which you can't go through here.

0:12:36.480 --> 0:12:40.080
<v Speaker 3>But but the point is, you know, I don't know,

0:12:40.120 --> 0:12:42.120
<v Speaker 3>I'm kind of grateful for the House of Lords here.

0:12:42.200 --> 0:12:45.920
<v Speaker 3>It's nice to see that someone's at least attempting to defend,

0:12:46.880 --> 0:12:50.160
<v Speaker 3>you know, our freedom to invest in what we feel

0:12:50.240 --> 0:12:53.120
<v Speaker 3>we should be investing in, rather than having it dictated.

0:12:52.640 --> 0:12:56.079
<v Speaker 2>To I didn't know you were usually anti the hazard Lords.

0:12:57.000 --> 0:13:00.280
<v Speaker 3>Well, I'm not. I'm actually quite pro the House towards

0:13:00.280 --> 0:13:01.480
<v Speaker 3>It's one of these things that walks a lot a

0:13:01.520 --> 0:13:03.480
<v Speaker 3>bit of in practice than it does in theory.

0:13:04.320 --> 0:13:07.160
<v Speaker 1>Absolutely, and it's worked very well for many, many hundreds

0:13:07.160 --> 0:13:08.640
<v Speaker 1>of years, which maybe leave it alone.

0:13:08.800 --> 0:13:12.120
<v Speaker 2>Anyway, that's not our area.

0:13:12.480 --> 0:13:13.800
<v Speaker 3>We are not political at all.

0:13:14.559 --> 0:13:29.320
<v Speaker 2>Yeah, we are not political. On the subject of pensions.

0:13:29.840 --> 0:13:32.440
<v Speaker 1>We were talking the other day, you and I about NEST,

0:13:32.840 --> 0:13:36.240
<v Speaker 1>the publicly backed pension fund that thirteen and a half

0:13:36.280 --> 0:13:39.400
<v Speaker 1>fourteen million people have their utenoal pensions in, and how

0:13:39.440 --> 0:13:39.839
<v Speaker 1>we're not.

0:13:39.880 --> 0:13:43.000
<v Speaker 2>One hundred percent impressed, and you're writing about this week.

0:13:43.000 --> 0:13:45.600
<v Speaker 2>But also there was a letter this.

0:13:45.520 --> 0:13:49.320
<v Speaker 1>Week that went from the regulated the pension funds warning

0:13:49.320 --> 0:13:51.280
<v Speaker 1>them that they need to keep an eye on their liquidity,

0:13:51.600 --> 0:13:54.440
<v Speaker 1>and also that they will face or could face, huge

0:13:54.480 --> 0:13:58.440
<v Speaker 1>costs if they sell their private assets. And I thought

0:13:58.440 --> 0:14:01.640
<v Speaker 1>that was very interesting. Costs, right, costs, by which we

0:14:01.720 --> 0:14:04.720
<v Speaker 1>partly mean actual costs defensive sell private stuff, but by

0:14:04.760 --> 0:14:06.040
<v Speaker 1>which we also mean losses.

0:14:06.840 --> 0:14:12.959
<v Speaker 3>Yeah, yeah, selling us a discount. It's almost it's almost

0:14:13.000 --> 0:14:14.840
<v Speaker 3>like these people who think, well, I can't sell my

0:14:14.960 --> 0:14:18.920
<v Speaker 3>house for the stated nave, like, well, that's because it's

0:14:19.000 --> 0:14:22.640
<v Speaker 3>not worth the stated nav There was a really good

0:14:22.640 --> 0:14:25.400
<v Speaker 3>paper actually from a kind of ascent manager that I

0:14:25.440 --> 0:14:30.040
<v Speaker 3>saw in ft Alphavil the other day, Sona Asset Management,

0:14:30.440 --> 0:14:32.480
<v Speaker 3>and they sort of did a very good breakdown of

0:14:32.640 --> 0:14:35.680
<v Speaker 3>private credit and its history and why it's kind of

0:14:35.760 --> 0:14:38.280
<v Speaker 3>running into trouble just now. And I think that the

0:14:38.320 --> 0:14:40.520
<v Speaker 3>begg Is takeaway from it was not so much that

0:14:40.600 --> 0:14:43.400
<v Speaker 3>private credit's going to cause something like two thousand and

0:14:43.440 --> 0:14:46.920
<v Speaker 3>eight or even that is not a valid asset class.

0:14:46.960 --> 0:14:49.280
<v Speaker 3>You know, it will still exist in the future, much

0:14:49.400 --> 0:14:53.320
<v Speaker 3>like junk points still exist. Even alow they did a

0:14:53.320 --> 0:14:55.560
<v Speaker 3>big blow up at the start of their career.

0:14:55.560 --> 0:14:57.240
<v Speaker 2>Just asking for helpe mel John.

0:15:00.920 --> 0:15:03.720
<v Speaker 3>But their point was they're going to go through such

0:15:03.720 --> 0:15:07.600
<v Speaker 3>a long period of poor performance. And I think this

0:15:07.800 --> 0:15:11.400
<v Speaker 3>really gets to why like we don't really or at least

0:15:11.400 --> 0:15:13.320
<v Speaker 3>if it is in your pension funds, you want to

0:15:13.400 --> 0:15:16.840
<v Speaker 3>know about it, and probably ideally you don't want in

0:15:16.920 --> 0:15:19.360
<v Speaker 3>your pension fund because now he's probably not the time

0:15:20.600 --> 0:15:24.200
<v Speaker 3>to be getting into this stuff. And again it's just

0:15:24.200 --> 0:15:26.400
<v Speaker 3>comes back to what we said on the podcast the

0:15:26.440 --> 0:15:32.760
<v Speaker 3>other day. People need to just take responsibility for knowing

0:15:32.760 --> 0:15:35.640
<v Speaker 3>what's in their pension because otherwise, you know, no one

0:15:35.720 --> 0:15:37.640
<v Speaker 3>else is going to do it for you.

0:15:37.680 --> 0:15:40.880
<v Speaker 1>That's going to do it for them at this point. Yeah, okay,

0:15:40.960 --> 0:15:42.280
<v Speaker 1>let's send you something optimistic.

0:15:43.480 --> 0:15:44.440
<v Speaker 3>And the sun's.

0:15:46.560 --> 0:15:49.600
<v Speaker 2>Might be with you.

0:15:50.160 --> 0:15:54.560
<v Speaker 3>See through your window. That's quite right out there.

0:15:55.160 --> 0:15:57.120
<v Speaker 2>Sorry, take it back, sun is shining with me as well.

0:15:57.160 --> 0:16:01.800
<v Speaker 2>That's a bad thing. They've got the sunshining all right, brilliant.

0:16:01.840 --> 0:16:03.360
<v Speaker 1>So just let me say to everybody that if you

0:16:03.360 --> 0:16:04.880
<v Speaker 1>want to know more about the miseries of the UK

0:16:04.960 --> 0:16:06.920
<v Speaker 1>economy and and.

0:16:07.080 --> 0:16:08.920
<v Speaker 2>Some of the things that are great about it and

0:16:09.040 --> 0:16:09.720
<v Speaker 2>reasons to be.

0:16:09.680 --> 0:16:13.040
<v Speaker 1>Optimistic, don't listen to me and John, but do listen

0:16:13.280 --> 0:16:15.840
<v Speaker 1>to our podcast out on Monday with Andy Haldane, because

0:16:15.880 --> 0:16:17.760
<v Speaker 1>he comes up with a lot of things that will

0:16:17.760 --> 0:16:19.800
<v Speaker 1>make you think. But likely this is going to be okay,

0:16:20.200 --> 0:16:22.840
<v Speaker 1>although John, you and I believe that's some major policy

0:16:22.960 --> 0:16:25.000
<v Speaker 1>changes and the UK is in a great place. Without

0:16:25.000 --> 0:16:27.440
<v Speaker 1>those major policy changes, things are going to be tough,

0:16:27.640 --> 0:16:31.160
<v Speaker 1>but there's so much going on underneath all the misery

0:16:31.200 --> 0:16:34.760
<v Speaker 1>that the future could be bright if only we had

0:16:34.800 --> 0:16:35.960
<v Speaker 1>a competent government.

0:16:37.440 --> 0:16:39.880
<v Speaker 2>Thanks for listening to this week's Merrin Talok's Money Debrief.

0:16:40.000 --> 0:16:42.440
<v Speaker 2>If you like, or share, rate, review, and subscribe whereever

0:16:42.480 --> 0:16:43.320
<v Speaker 2>you listen to podcasts.

0:16:43.360 --> 0:16:44.840
<v Speaker 1>Also, if you're sure, to follow me in John on

0:16:44.920 --> 0:16:48.160
<v Speaker 1>ex or Twitter at marinis w and John Undersclotch Stepe.

0:16:48.520 --> 0:16:51.240
<v Speaker 1>This episode was produced by some Mesadi production and support

0:16:51.240 --> 0:16:54.040
<v Speaker 1>and sound design by Moses and Questions of comments on

0:16:54.080 --> 0:16:56.520
<v Speaker 1>this show and all our shows are always welcome. Our

0:16:56.560 --> 0:17:03.680
<v Speaker 1>show email is Marin Money at Bloomberg dot net