WEBVTT - Beware of the ‘Concentrated’ AI Chipmaker Bubble 0:00:03.120 --> 0:00:09.080 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.320 --> 0:00:12.160 Hello, it's Maren's unsetweb here. 0:00:12.360 --> 0:00:14.480 Just want to remind you before we begin that I 0:00:14.480 --> 0:00:17.120 will be at the Fringe Festival in Edinburgh once again 0:00:17.200 --> 0:00:21.000 this year, hosting four days of riverting conversations in Adam 0:00:21.040 --> 0:00:23.800 Smith's old home, Pan Meo House. I'll be there from 0:00:23.800 --> 0:00:27.080 August's seventeenth to August twentieth. John will be there with 0:00:27.160 --> 0:00:28.520 me on a couple of days. You don't want to 0:00:28.520 --> 0:00:30.040 miss those days, and we're going to tell you which 0:00:30.080 --> 0:00:32.320 ones they are. Get your tickets by heading the main 0:00:32.320 --> 0:00:36.559 Fringe website and searching for Maren. And don't forget these 0:00:36.600 --> 0:00:40.240 tickets do sell out quite fast, so move quickly. Now 0:00:40.280 --> 0:00:42.720 back to our regular programming today, my guest is going 0:00:42.760 --> 0:00:46.400 to be James Ferguson of macro Strategy Partnership, which he founded, 0:00:46.640 --> 0:00:49.320 but first as always senior reporter, author of the Money 0:00:49.320 --> 0:00:53.479 Distilled newsletter and technical analysis fan John Steppeck is with me. 0:00:54.120 --> 0:00:56.720 John, I love that introduction. 0:00:58.240 --> 0:01:01.480 You are a fan of technical analysis. What was going 0:01:01.520 --> 0:01:05.640 on about your charts? Having to look at that chart 0:01:05.720 --> 0:01:09.560 this happens, you know, I mean, it's all so science. 0:01:09.360 --> 0:01:13.399 Support and resistance the only two fundamentals to. 0:01:13.400 --> 0:01:18.240 Know exactly the stuff works, right, Okay? Right? John? 0:01:18.520 --> 0:01:20.679 Here we are John and I, by the way, are 0:01:20.720 --> 0:01:25.199 talking before the election results are out. So as we talk, 0:01:25.560 --> 0:01:27.760 as is the case of my conversation with Mark, we 0:01:27.840 --> 0:01:31.200 have absolutely no idea who will be Prime Minister of 0:01:31.200 --> 0:01:32.600 the UK at the end of the week, is there. 0:01:32.560 --> 0:01:32.959 Right John? 0:01:33.319 --> 0:01:35.160 Not a Scooby? 0:01:36.200 --> 0:01:40.800 Absolutely, I mean it's on a nine edge. 0:01:41.440 --> 0:01:44.399 No, no, no idea who could be who could be 0:01:44.400 --> 0:01:44.840 in charge? 0:01:45.040 --> 0:01:48.320 Okay, but whoever it is, whoever it is, there's a 0:01:48.360 --> 0:01:51.200 consensus here that this is not an election to win. 0:01:51.480 --> 0:01:53.360 You win this election, you inherit. 0:01:53.080 --> 0:01:56.680 Are horrible economy of horrible stuff going on, very low 0:01:56.760 --> 0:01:57.520 grade Brexit. 0:01:57.520 --> 0:01:59.360 Oh my goodness, it's so awful. 0:01:59.320 --> 0:02:04.200 Low growth, loper capital growth, terrible living standard's nasty, inflation. 0:02:04.440 --> 0:02:06.000 I mean, it's very bad. Right. 0:02:06.120 --> 0:02:08.720 You don't want to win this election, that is the consensus. 0:02:09.200 --> 0:02:12.680 But when you actually dig deeper into the numbers and 0:02:12.760 --> 0:02:16.200 take away the overlay of misery that BRIT's like to 0:02:16.200 --> 0:02:19.000 put on top of anything that happens anywhere, it's not 0:02:19.160 --> 0:02:22.040 so bad. This is not the poisoned chalice that Goldon 0:02:22.040 --> 0:02:25.520 Brown handed over back in twenty ten, it's something else altogether. 0:02:25.720 --> 0:02:27.800 Yeah, definitely not. I mean, if you look back at 0:02:27.800 --> 0:02:31.399 the elections or in the two thousands, basically certainly fall 0:02:31.480 --> 0:02:33.560 in the financial crisis. I don't think there is another 0:02:33.639 --> 0:02:36.919 election that you would with a street face, I wish 0:02:37.000 --> 0:02:40.600 I could win that one instead. Maybe twenty fifteen. We 0:02:40.919 --> 0:02:44.359 certainly not twenty seventeen or twenty nineteen or twenty ten. 0:02:44.440 --> 0:02:47.840 Well, nineteen ninety seven, Tony Black got a pretty good deal. 0:02:48.320 --> 0:02:50.040 Oh no, But I mean in the two thousands, this 0:02:50.120 --> 0:02:52.840 is but I think, yeah, what I'm saying is this 0:02:52.880 --> 0:02:55.000 is the best election when for quite a long time 0:02:55.120 --> 0:02:57.000 we've had quite a few that have been a lot 0:02:57.000 --> 0:02:59.520 worse than this one. And should we talk about why 0:02:59.560 --> 0:03:01.760 we're saying that, given that everyone else is saying the 0:03:02.000 --> 0:03:04.480 you know, the economies in the state and it's terrible, 0:03:04.520 --> 0:03:08.040 and why are those people wrong? Go on, John tell us, 0:03:08.240 --> 0:03:10.720 So dead to GDP is very high. This is true, 0:03:10.720 --> 0:03:13.400 it's about one hundred percent. But everyone else in the 0:03:13.440 --> 0:03:17.160 G seven except for Germany, is worse. So that's the 0:03:17.160 --> 0:03:19.280 first thing that you have to remember when we're talking 0:03:19.320 --> 0:03:22.119 about debt. If it was just us that stood out, 0:03:22.280 --> 0:03:24.000 that would be bad. But it's not. 0:03:24.360 --> 0:03:27.080 Okay, just just be absolutely clear. 0:03:27.200 --> 0:03:30.680 What you're saying is that it doesn't matter that we 0:03:30.800 --> 0:03:35.000 have debt at one hundred percent of GDP because other 0:03:35.120 --> 0:03:38.840 people have higher levels of debt relative to their GDP. 0:03:39.000 --> 0:03:42.960 John John, John John, Yes, we try really hard to 0:03:42.960 --> 0:03:45.680 be absolutely not relative on this podcast, and look, you 0:03:45.840 --> 0:03:48.960 just come up with the hugest bit of relativism I 0:03:48.960 --> 0:03:50.000 think I've ever heard from you. 0:03:50.240 --> 0:03:52.640 Yes, but you do have to be relative on this. 0:03:53.600 --> 0:03:56.440 Whenever it comes to government debt, the state everyone else 0:03:56.480 --> 0:03:59.880 actually does matter because all of this money is in 0:04:00.320 --> 0:04:05.960 government bonds needs to be somewhere, and if you don't 0:04:06.120 --> 0:04:10.080 look like the worst candidate, then something that's going to 0:04:10.120 --> 0:04:12.920 come your way. I mean, it's not an ideal situation 0:04:13.000 --> 0:04:15.880 to be in, but it's not an urgent situation, and 0:04:15.920 --> 0:04:18.800 I think that's probably the more important point. It's one 0:04:18.839 --> 0:04:21.240 of these things where you don't need to come in 0:04:21.440 --> 0:04:24.280 and go nuts. Whereas in twenty ten, there was a 0:04:24.320 --> 0:04:27.120 reasonable argument to say that the government of the day 0:04:27.200 --> 0:04:32.440 then did actually have reasons to be fearful. It's not 0:04:32.480 --> 0:04:35.480 to say that the policies that were adopted are necessarily 0:04:35.520 --> 0:04:37.400 the right ones, but there was a good reason to 0:04:37.440 --> 0:04:39.159 be coming in and seeing how we can get this 0:04:39.279 --> 0:04:43.360 debt down, because you know, actual sovereigns were going bust 0:04:44.480 --> 0:04:48.360 Ireland and Portugal and Iceland and things like that, Whereas 0:04:48.560 --> 0:04:51.680 in the moment the situation is dire but is not acute, 0:04:52.360 --> 0:04:55.040 I think, is the point, and I think that's getting 0:04:55.080 --> 0:04:55.640 lost about it. 0:04:56.800 --> 0:04:58.280 I'll accept that bit of relis. 0:05:01.080 --> 0:05:03.640 Okay, So we're not gonna worry about debt for now. 0:05:03.680 --> 0:05:05.480 I mean, obviously we have to worry about at some point, 0:05:05.520 --> 0:05:08.280 but it's not an immediate worry that can be dealt with. 0:05:08.800 --> 0:05:12.880 And then outside that things really don't look so bad 0:05:13.040 --> 0:05:15.560 do Their growth is kind of fine. We're not in 0:05:15.600 --> 0:05:18.719 recession anymore. In fact, we're well out of recession. Growth 0:05:18.720 --> 0:05:22.719 in the first quarter was pretty good. Households and businesses 0:05:22.760 --> 0:05:27.800 are both apparently reasonably confident and crucially sitting on big 0:05:27.839 --> 0:05:29.040 pats of cash. 0:05:28.839 --> 0:05:31.480 Right, Yeah, I think that's that's really important. I think 0:05:31.520 --> 0:05:34.200 that's something every time I bring this up. I don't 0:05:34.200 --> 0:05:36.800 know about you, but if you'd say this you on Twitter, 0:05:36.880 --> 0:05:40.800 are in public, then people don't believe that consumers are 0:05:40.839 --> 0:05:45.960 actually in a relatively good place. But the households has 0:05:46.040 --> 0:05:48.320 its household balance sheets are so much healthier than they 0:05:48.360 --> 0:05:50.960 we are again back in two thousand and eight, and 0:05:51.040 --> 0:05:55.240 people have actually been de leveraging since then. So you 0:05:55.360 --> 0:05:59.839 actually have a consumer who is prayed to go going 0:06:00.120 --> 0:06:03.640 major credit field spendings pre given the excuse, but the 0:06:03.680 --> 0:06:06.120 point is that you know there is capacity there, and 0:06:06.120 --> 0:06:10.120 that's one reason why device and interest rates hasn't knocked 0:06:10.200 --> 0:06:13.280 the blazes out of the economy because actually, corporations and 0:06:13.320 --> 0:06:17.880 households we're in a better position than anyone really gave 0:06:17.880 --> 0:06:21.080 them credit for. So I think that's actually that's much 0:06:21.080 --> 0:06:24.880 more important actually than the sovereign debt issue. We have 0:06:24.920 --> 0:06:30.200 the makings of a healthy economy, maybe even an economy 0:06:30.200 --> 0:06:33.520 that is the potential to boom in the right circumstances. 0:06:34.240 --> 0:06:38.560 And it really kind of is on whoever wins on 0:06:38.760 --> 0:06:43.760 Thursday to not screw that up, rather than marching in 0:06:43.839 --> 0:06:45.919 and saying, oh, everyone's terrible, we're going to have to 0:06:45.920 --> 0:06:47.880 do this, We're going to have to do that. But 0:06:47.920 --> 0:06:49.960 I mean, we'll see what happens. 0:06:50.520 --> 0:06:54.200 So we'd expect as interest rates begin to come down 0:06:54.360 --> 0:06:57.040 and as we say, a period of political stability with 0:06:57.080 --> 0:07:00.320 whoever wins, we would then expect consumers to come out 0:07:00.320 --> 0:07:03.480 and get spending and companies to start investing. I mean, 0:07:03.520 --> 0:07:05.440 companies have a big pile of catch and they haven't 0:07:05.440 --> 0:07:07.880 been investing much over the last couple of years. So 0:07:07.920 --> 0:07:11.360 we could see an investment boom and a consumer boom 0:07:11.400 --> 0:07:13.040 which could take us through the next couple of years. 0:07:13.040 --> 0:07:13.440 Released. 0:07:14.440 --> 0:07:18.160 Yeah, I think so. And I think the main thing 0:07:18.240 --> 0:07:22.080 is that whoever does get any power shouldn't do this 0:07:22.160 --> 0:07:26.280 panicky thing about the first hundred days, which I don't 0:07:26.280 --> 0:07:28.640 know where that crept into the political discourse from, but 0:07:28.880 --> 0:07:33.760 it's nonsense and it's what ruined trusts actually, I think. 0:07:33.880 --> 0:07:36.800 But you know, they need to not panic, they need 0:07:36.840 --> 0:07:38.800 to come in, they need to say, Okay, we're sitting 0:07:38.840 --> 0:07:42.240 on a majority, quite feasibly a very big majority. So 0:07:42.360 --> 0:07:44.880 rather than using that to sledgehammer through a whole load 0:07:44.880 --> 0:07:47.640 of things in the first six months, it's just sort 0:07:47.640 --> 0:07:49.720 of sit back and say, right, how can we not 0:07:50.640 --> 0:07:55.680 ruin and derail what is actually a recovering economy, and 0:07:55.720 --> 0:07:59.680 how can we you know, try and note, how can 0:07:59.720 --> 0:08:01.960 we be in mind we've got five years ahead of 0:08:02.000 --> 0:08:05.600 its let's not run in like bulls in the China shop. 0:08:06.120 --> 0:08:10.160 Yeah, I suppose one of the one of the problems 0:08:10.200 --> 0:08:14.040 with a government with a big majority coming in with 0:08:14.120 --> 0:08:16.960 lots of plans, coming into an economy that is much 0:08:17.040 --> 0:08:20.560 more stable and a much better shape than you expect, 0:08:21.160 --> 0:08:24.400 is that you may think it can bear more in 0:08:24.440 --> 0:08:25.520 the way of cost. 0:08:25.320 --> 0:08:27.080 And regulation than it really can. 0:08:27.560 --> 0:08:30.680 Yeah, and that's where the risk of messing it up 0:08:30.760 --> 0:08:35.640 comes in. Oh, look everything's fine, there is money, so 0:08:35.679 --> 0:08:38.480 we'll do this, this, this, this, and this, which of 0:08:38.480 --> 0:08:39.560 course we're reverse thing. 0:08:39.920 --> 0:08:43.199 That's interesting of one of the biggest concerns with the 0:08:43.320 --> 0:08:48.400 Labor government is they don't even have an ideological stance 0:08:48.480 --> 0:08:51.800 against red tape. The Tories in theory don't like it. 0:08:51.920 --> 0:08:54.600 In reality, I mean, why the reasons they love it 0:08:54.760 --> 0:08:56.319 probably going to give what to do it is because 0:08:56.360 --> 0:09:00.360 they haven't actually stood behind that theoretical ideology. But at 0:09:00.440 --> 0:09:04.440 least there's something there, whereas labor doesn't actually see it 0:09:04.520 --> 0:09:08.599 as our problem, or you could see more botons or 0:09:09.040 --> 0:09:11.880 companies that already have lots of botons. 0:09:12.640 --> 0:09:14.480 Well, this is not a political podcast, so John and 0:09:14.520 --> 0:09:16.800 I know absolutely nothing about that kind of thing, but 0:09:16.840 --> 0:09:17.560 we do know quite. 0:09:17.400 --> 0:09:21.840 A lot about stock markets. Welcome to Maarren Talks. 0:09:21.880 --> 0:09:23.560 Money in the podcast in which people who know the 0:09:23.600 --> 0:09:24.920 markets explain the markets. 0:09:24.960 --> 0:09:26.720 I am larn sumset web onto. 0:09:26.559 --> 0:09:32.680 My conversation with James Ferguson of the Macro Strategy Partnership. James, 0:09:32.800 --> 0:09:34.280 one of the reasons I wanted to have you on, 0:09:34.320 --> 0:09:35.959 among many is a piece you wrote a couple of 0:09:36.000 --> 0:09:39.760 months back called Union Jack in the Box about UK 0:09:39.960 --> 0:09:42.440 equities and as you know this podcast, we are very 0:09:42.520 --> 0:09:46.800 keen on UK equities and you talked about how it 0:09:46.880 --> 0:09:49.320 being absolutely no wonder the foot Sea had just broken 0:09:49.360 --> 0:09:52.240 out to a new six. You're yeah, Hi, you appeared 0:09:52.360 --> 0:09:56.600 very positive, but actually you weren't quite as positive as 0:09:56.800 --> 0:09:59.160 some of the other UK bulls. 0:09:59.280 --> 0:09:59.439 Right. 0:10:00.040 --> 0:10:02.920 Bit in here is there's the paradoxical sting in the tail. 0:10:03.960 --> 0:10:07.840 So there's two things that make equities go up. It's 0:10:07.880 --> 0:10:12.120 either the profits going up the EPs bit of the equation, 0:10:12.600 --> 0:10:15.079 or it's the pe bit going up, which we call 0:10:15.120 --> 0:10:18.960 a rerating. And obviously, you know, we're seeing a lot 0:10:18.960 --> 0:10:21.160 of re rating in the US. For example, at the moment, 0:10:21.520 --> 0:10:25.240 there's not a huge amount of profit growth going on 0:10:25.280 --> 0:10:28.360 in the US, but a very strong market is causing 0:10:28.640 --> 0:10:31.880 a rerating, which is putting the multiples up. 0:10:31.960 --> 0:10:34.880 But that is an expectation of profits going up. I mean, 0:10:34.880 --> 0:10:35.920 that's a point, right. 0:10:36.040 --> 0:10:37.760 Yeah, absolutely, So if you can look at the UK, 0:10:37.920 --> 0:10:40.760 you've got very little expectation of profits going up much. 0:10:40.760 --> 0:10:44.520 And I still wouldn't wouldn't push that point too hard. 0:10:44.880 --> 0:10:47.080 But what you have got, and the reason that I 0:10:47.120 --> 0:10:49.600 was writing a UK check in the box in terms 0:10:49.640 --> 0:10:51.960 of the fact that we have this breakout to a 0:10:52.000 --> 0:10:54.240 new six year high and why that could go higher, 0:10:54.720 --> 0:10:58.160 is that the UK is very cheap, so the multiples 0:10:58.160 --> 0:11:01.439 are very low, so there is a potential possibly for 0:11:02.040 --> 0:11:06.520 a rerating. And what would cause a rerating usually would 0:11:06.559 --> 0:11:08.920 be the fact because if you think about the pe, 0:11:09.080 --> 0:11:11.840 that's actually the inverse of the earnings yield. So then 0:11:11.880 --> 0:11:15.520 we can compare equities fairly directly based on their earnings. 0:11:15.880 --> 0:11:19.000 Two bonds, So if interest rates are going to come down, 0:11:19.040 --> 0:11:20.600 if there's a lot of scope for interest rates to 0:11:20.600 --> 0:11:25.240 come down, then that means that bond yields are coming down, 0:11:25.480 --> 0:11:28.040 which means that earnings yields should be able to come down, 0:11:28.040 --> 0:11:30.160 which means that even if there's no increase in earnings, 0:11:30.520 --> 0:11:35.240 you could get a positive rerating. And that argument is 0:11:35.280 --> 0:11:37.960 predicated on where we are in the cycle. In the UK, 0:11:38.040 --> 0:11:41.520 I mean if the Bank of England was operating truly 0:11:41.559 --> 0:11:45.920 independently rather than being kind of a slave as indeed 0:11:46.000 --> 0:11:49.160 I think ECB is to what's happening in the US. 0:11:49.240 --> 0:11:51.880 They don't like to do anything different to the FED, 0:11:51.960 --> 0:11:53.680 and they don't like to do it at a different time, 0:11:54.040 --> 0:11:56.520 and then don't usually like to do it much in 0:11:56.600 --> 0:11:59.120 terms of a different scale. But the fact is that 0:11:59.160 --> 0:12:03.280 the US printed more money during COVID relative to the 0:12:03.320 --> 0:12:08.160 economy than either the Europeans or the UK establishment or 0:12:08.160 --> 0:12:11.280 central banks did, and as a consequence, their overhang of 0:12:11.320 --> 0:12:15.160 excess savings has lasted longer, so they are taking longer 0:12:15.200 --> 0:12:20.520 to quash inflation and longer before they start to realize 0:12:20.520 --> 0:12:23.040 that maybe the economy isn't nearly as strong as they 0:12:23.120 --> 0:12:26.040 think it is once they've used up all those excess 0:12:26.080 --> 0:12:28.600 savings that were printed during COVID. If you look at 0:12:28.600 --> 0:12:33.240 the UK on a standalone basis, I would argue that 0:12:33.320 --> 0:12:36.280 the Banklingion should have been cutting rates for months now, 0:12:36.480 --> 0:12:40.800 I mean, possibly starting as almost a year ago, and 0:12:40.840 --> 0:12:44.040 when they realize what they've done or what they haven't done, 0:12:44.360 --> 0:12:46.560 and they start to cut rates, there is a huge 0:12:46.600 --> 0:12:50.120 scope for rate cutting in the UK, and if they 0:12:50.400 --> 0:12:53.080 cut rates anything like as much as they could and should, 0:12:53.640 --> 0:12:56.280 then of course you're going to get at least short 0:12:56.320 --> 0:12:59.280 term bond yields coming down a lot. That should steepen 0:12:59.360 --> 0:13:01.480 the yield curves deep in the yeld curve is very 0:13:01.480 --> 0:13:05.400 good for earnings prospects. But also if you lower the 0:13:06.559 --> 0:13:09.480 yield the bond yield, then you should be able to 0:13:09.600 --> 0:13:11.400 lower the earnings yield, which is the same thing as 0:13:11.400 --> 0:13:15.239 saying re rating the pehih. And that is the springboard 0:13:15.320 --> 0:13:19.040 that I think is open to the UK potentially a 0:13:19.040 --> 0:13:21.240 lot of interest rate cuts which could potentially have a 0:13:21.320 --> 0:13:23.920 very big impact. I say potentially because it lost the 0:13:23.960 --> 0:13:25.240 still reliant on Andrew Bailey. 0:13:25.559 --> 0:13:27.880 Let's just go back a little bit so just bically, 0:13:27.920 --> 0:13:30.200 when you say the Bank of England is not behaving 0:13:30.320 --> 0:13:33.559 like an independent central bank, you don't mean that it's 0:13:33.600 --> 0:13:37.920 taking some kind of secret instruction from the government. You 0:13:38.040 --> 0:13:41.640 mean that it's acting as a sort of subsidiary of 0:13:41.679 --> 0:13:42.080 the FED. 0:13:42.280 --> 0:13:45.600 Yeah, it's more a subsidiary of the economic theories that 0:13:45.800 --> 0:13:49.880 are dominant in the FED. So you know, monitarist theories 0:13:50.280 --> 0:13:53.960 have been completely disallowed in all the central banks, but 0:13:54.000 --> 0:13:57.680 particularly in the FED. The FED has six hundred pH 0:13:57.760 --> 0:14:01.400 economics PhDs, and apparently not a single one of them 0:14:02.040 --> 0:14:04.840 knows anything much about economic history. But they all are 0:14:05.120 --> 0:14:09.360 heavily steeped in what we might call neo Kainsian theory. 0:14:09.600 --> 0:14:14.120 And according to the Neokanesian theory, everything is measured by 0:14:14.320 --> 0:14:16.960 and ruled by interest rates. They pay no attention to 0:14:17.000 --> 0:14:20.480 money supply. Now, obviously, as far as monetarists were concerned, 0:14:20.880 --> 0:14:22.840 interest rates are merely a means to an end. If 0:14:22.880 --> 0:14:25.280 you lower interest rates, the main idea to that was 0:14:25.320 --> 0:14:27.280 that that would lead to an increase in money supply, 0:14:27.320 --> 0:14:29.800 because it would make it more attractive with a steeper 0:14:29.880 --> 0:14:33.480 yield curve for banks to lend and therefore for borrowers 0:14:33.480 --> 0:14:36.920 to borrow. But because they didn't do that, they completely 0:14:37.160 --> 0:14:41.800 missed the impact of their money printing on inflation. So 0:14:41.840 --> 0:14:45.280 they completely missed inflation, which, if you remember, they called 0:14:45.560 --> 0:14:48.760 when it did appear transitory, and then when it stuck around, 0:14:49.120 --> 0:14:52.400 well they just started flapping about. And the problem therefore 0:14:52.520 --> 0:14:56.200 is that whilst this idea is still going on, you've 0:14:56.240 --> 0:15:00.320 got central bankers who are almost incapable of play, saying 0:15:00.720 --> 0:15:04.280 the ball that they're being balked, and particularly this side 0:15:04.320 --> 0:15:07.600 of the Atlantic, because the economic growth has slowed even 0:15:07.640 --> 0:15:10.200 sharper here and earlier here than in the US, and 0:15:10.240 --> 0:15:13.080 they should have been cutting rates, they should be realizing 0:15:13.080 --> 0:15:14.800 what will happen to inflation? But they've got no idea 0:15:14.840 --> 0:15:18.160 what will happen to inflation because it's not playing ball 0:15:18.200 --> 0:15:24.240 according to their discredited theory. So therefore, instead of cutting 0:15:24.320 --> 0:15:26.880 rates because the economy is slowing down and they can 0:15:26.960 --> 0:15:29.000 see what will happen to inflation, never get Inflations are 0:15:29.000 --> 0:15:31.560 always lagging by at least twelve months. In fact, the 0:15:31.640 --> 0:15:33.920 inflation lag based on what you do to money supply 0:15:34.400 --> 0:15:37.360 is more like two years. So they shouldn't know what's 0:15:37.400 --> 0:15:39.880 going to happen to inflation. They should have known it 0:15:40.000 --> 0:15:41.640 was going to go up, they didn't, and they should 0:15:41.680 --> 0:15:43.160 now know it's going to go down, and they still 0:15:43.200 --> 0:15:43.920 apparently don't. 0:15:44.080 --> 0:15:47.200 But Hi on James, it has gone down, is going down, 0:15:48.040 --> 0:15:48.800 so they do know that. 0:15:49.440 --> 0:15:51.480 Well, they only know what has happened, and they can 0:15:51.560 --> 0:15:54.400 only look backwards at what has happened, and they consistently 0:15:54.480 --> 0:15:56.040 talk about how it's sticky. I mean, you look at 0:15:56.080 --> 0:16:00.560 a chart of inflation in the UK, and the concept 0:16:00.640 --> 0:16:04.360 of it being sticky is a total head scrutture. I mean, 0:16:04.400 --> 0:16:06.360 it is just it's gone down pretty much in a 0:16:06.440 --> 0:16:08.560 straight line, in the same way that when it went 0:16:08.640 --> 0:16:10.760 up during the transitor period it went up in pretty 0:16:10.800 --> 0:16:13.280 much a straight line. They don't seem to have any 0:16:13.400 --> 0:16:16.520 concept or ability to get in front of the curve 0:16:16.720 --> 0:16:20.200 or understand what is driving inflation. Inflation is always measured 0:16:20.240 --> 0:16:23.200 on a twelve month basis, whereas GDP because of the 0:16:23.360 --> 0:16:25.840 US way of looking at it, or is always measured 0:16:25.840 --> 0:16:28.960 on an annualized quarter on quarter basis. If you measure 0:16:29.080 --> 0:16:31.600 inflation on an annualized quarter on quarter basis, you'd see 0:16:31.640 --> 0:16:34.320 that it's way lower than targeting, even in the US. 0:16:34.880 --> 0:16:37.720 So there's a real sort of problem that the people 0:16:37.720 --> 0:16:39.280 who are sort of in charge of these things don't 0:16:39.400 --> 0:16:42.360 really seem to understand what it is they're looking at, 0:16:42.440 --> 0:16:46.760 and therefore they are data driven or data dependent, and 0:16:46.880 --> 0:16:49.840 the data being lagging means that their policy responses are 0:16:49.880 --> 0:16:50.800 heavily lagging as well. 0:16:50.840 --> 0:16:53.520 Okay, so as far as you're concerned, interest rates in 0:16:53.640 --> 0:16:55.480 the UK should now be falling like a stone. And 0:16:55.520 --> 0:16:56.960 one of the things that John and I talk about 0:16:57.080 --> 0:17:00.080 a lot is the idea that when interest rate do 0:17:00.200 --> 0:17:03.360 start falling, they won't fall back to the levels that 0:17:03.440 --> 0:17:05.679 people have previously got used to, So we're not going 0:17:05.760 --> 0:17:09.080 to see rates falling back to one percent, two percent, etc. 0:17:09.359 --> 0:17:09.800 But it's dead. 0:17:09.840 --> 0:17:13.120 Central banks are going to attempt to kind of normalize 0:17:13.160 --> 0:17:16.040 the rate at more like four percent, But it sounds 0:17:16.080 --> 0:17:18.240 to me as though you're suggesting it should go further 0:17:18.280 --> 0:17:18.480 than that. 0:17:19.240 --> 0:17:21.760 We never get We're juggling a few different things here, 0:17:22.280 --> 0:17:25.920 most of which are being sort of corrupted by what 0:17:26.160 --> 0:17:30.200 the authorities are doing, either the central bank authorities or 0:17:30.240 --> 0:17:34.879 the political Treasury Department authorities. But if you look at 0:17:34.920 --> 0:17:37.400 it purely from a point of view of what we're 0:17:37.400 --> 0:17:40.400 getting in terms of GDP, etc. Then I think three 0:17:40.480 --> 0:17:43.720 percent is a more accurate target to have in mind 0:17:43.760 --> 0:17:47.000 for interest rates than four percent. But I agree with you, 0:17:47.000 --> 0:17:49.399 you can't go back to the old super low levels 0:17:49.800 --> 0:17:52.400 because they use all these governments to use the super 0:17:52.440 --> 0:17:55.359 low levels to massively crank up borrowing. And now we 0:17:55.440 --> 0:17:58.320 have a major problem that we have far too much 0:17:58.400 --> 0:18:00.959 government debt, which means you're really struggling to find out 0:18:00.960 --> 0:18:02.879 who is going to buy this debt, and the only 0:18:02.920 --> 0:18:05.280 way you can sell debt that you couldn't normally get 0:18:05.359 --> 0:18:08.600 buyers to buy it is by making the price lower, 0:18:08.600 --> 0:18:11.000 which means the yield higher. So I think you're actually 0:18:11.080 --> 0:18:14.040 right to assume that there's no way interest rates and 0:18:14.160 --> 0:18:16.560 yields are going back to the old lows. But at 0:18:16.600 --> 0:18:21.200 the same time, given the very tight environment we have 0:18:21.320 --> 0:18:24.560 in economies from the US all the way across the 0:18:24.600 --> 0:18:28.639 Atlantic through Europe as well, is that interest rates and 0:18:28.720 --> 0:18:32.080 real interest rates in particular, are far too high for 0:18:32.200 --> 0:18:35.680 the private sector to do anything other than retrench, and 0:18:35.680 --> 0:18:37.720 therefore they need to be cut, and cut quite aggressive. 0:18:38.480 --> 0:18:40.840 Okay, well, come back to debt, I think, but let's 0:18:40.920 --> 0:18:45.480 just stick with equities when interest rates come down. The 0:18:45.520 --> 0:18:48.520 assumption is that equities do well, as discussed, But is 0:18:48.560 --> 0:18:51.320 there any particular area and the equity market that people 0:18:51.320 --> 0:18:53.480 should be looking at. I mean, everyone says, well, you know, 0:18:53.800 --> 0:18:56.240 rates come down, and growth stocks do well, small caps 0:18:56.280 --> 0:18:58.800 do well, infrastructure does well, et cetera. Why would you 0:18:58.840 --> 0:18:59.160 lie well? 0:18:59.480 --> 0:19:01.080 One of the things, one of the things about a 0:19:01.240 --> 0:19:06.120 rerating is that you know pretty much everything should do well, 0:19:06.320 --> 0:19:09.240 in the sense that all earnings yields should come down, 0:19:09.359 --> 0:19:13.200 and therefore all prices should go up. Now, there will 0:19:13.280 --> 0:19:16.120 be some differences to be sure. I mean, we used 0:19:16.160 --> 0:19:19.560 to argue back in the old days that low interest 0:19:19.640 --> 0:19:22.320 rates are extremely good for growth because we're supposed to 0:19:22.320 --> 0:19:26.199 be looking at the lifetime earnings from a growth company, 0:19:26.520 --> 0:19:29.800 and if it's all dream, it's all far in the future, 0:19:30.320 --> 0:19:33.160 then the cost of waiting is much less when interest 0:19:33.200 --> 0:19:35.639 rates are low. Therefore, if you do a dividend discount 0:19:36.080 --> 0:19:39.119 model calculation, you can afford to pay more for a 0:19:39.160 --> 0:19:42.280 growth stock today long before it actually starts to deliver. 0:19:42.840 --> 0:19:45.280 But we've got this irony going on now that tech 0:19:45.359 --> 0:19:48.399 stocks are going up in the US even though interest 0:19:48.440 --> 0:19:51.440 rates are well real interest rates are now it's sort 0:19:51.480 --> 0:19:53.879 of depending on exactly which ones you look at, and 0:19:53.880 --> 0:19:55.640 I think it could be as much as forty year high. 0:19:56.000 --> 0:19:59.720 You know, these are interest rates that normally and indeed 0:19:59.800 --> 0:20:04.359 are arguably sort of would be crushing the private sector 0:20:04.520 --> 0:20:09.000 and many many measures the US private sector, the consumer, 0:20:09.760 --> 0:20:12.639 the equal weighted S and p pretty much almost anything 0:20:12.680 --> 0:20:16.480 that isn't sort of in the Nvidia AI sort of 0:20:17.240 --> 0:20:21.240 orbit is actually disappointing quite heavily, and you're you're getting 0:20:21.320 --> 0:20:25.840 some some really quite aggressive drops in share prices for 0:20:26.119 --> 0:20:30.000 a whole host of blue chip stocks and the US 0:20:30.160 --> 0:20:33.800 that are very slightly disappointing in terms of their quarterly announcements. 0:20:33.840 --> 0:20:35.880 We'll talk us through the text the tech stocks. Why 0:20:36.160 --> 0:20:38.919 have they been rising in a high interest rate environment? 0:20:39.000 --> 0:20:41.480 What's that all about? And you know, it's been surprising 0:20:41.560 --> 0:20:44.920 people now for months and months and months. Everything's too narrow. 0:20:45.080 --> 0:20:47.200 This isn't going to last. There are bubbles all over 0:20:47.280 --> 0:20:49.840 the place. You know, we've heard all the stories about 0:20:49.840 --> 0:20:51.600