Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Maren
Speaker 1: Dorgs Money Market Wrap, where we talk about the biggest
Speaker 1: moves in the markets this week and what is driving them.
Speaker 1: I am Maren Zumset, Web editor at Large for Bloomberg,
Speaker 1: U Gay Wealth.
Speaker 2: And I'm joined Stevic Senior, reported the Bloomberg and author
Speaker 2: of the Money Distiled newsletter.
Speaker 1: Right John. In an effort to ramble less and be
Speaker 1: more specific and more precise about what we discussed, we
Speaker 1: have decided that we are going to tell you at
Speaker 1: the beginning you listen it what it is we are
Speaker 1: going to talk about. So today we are going to
Speaker 1: talk about gold. We're going to talk about the blind
Speaker 1: demand of the ECPTY market, and we are going to
Speaker 1: talk about bonds and inheritance tax.
Speaker 2: Spcell for money.
Speaker 1: That's fast, three whole topics.
Speaker 2: Right.
Speaker 1: Gold. So I was talking to Sebastian Line of Personal
Speaker 1: Assets Trust last night, right, And as you know, Personal Assets,
Speaker 1: it's a trust that we're both very fond of, but
Speaker 1: it always has a pretty big gold holding. And I
Speaker 1: was talking to them about that how much, why this amount,
Speaker 1: and how does this work? And he has this sort
Speaker 1: of base level of gold inside the trust about ten percent,
Speaker 1: and when things are worrying and difficult and inflationary and scary,
Speaker 1: he'll go up to maybe thirteen forty percent, and when
Speaker 1: everything is kind of a girl to weight percent. And
Speaker 1: I was trying to get from him why it is
Speaker 1: that ten percent is his number, because you know, it's
Speaker 1: impossible to value right, it's impossible to know how much
Speaker 1: he should have in a portfolio. And he said, well,
Speaker 1: the key thing is that you need to have enough
Speaker 1: gold in your portfolio to make a difference when something
Speaker 1: goes wrong. So don't bother with one percent two percent.
Speaker 1: This is meaningless nonsense, but not so much that when
Speaker 1: things are going right, your performance is really dragged down.
Speaker 1: And there's the kind of it's a subject to judgment.
Speaker 1: And he's landed on about ten. And there were a
Speaker 1: couple of people in our group and someone was like, oh, oh,
Speaker 1: you know my number is twenty and I think my
Speaker 1: number is maybe seven. Yeah, I don't know, I don't know.
Speaker 2: There's a logic to that. Yeah, I mean it does
Speaker 2: make sense, and even and I got feeling like five
Speaker 2: feels like we'll look at the world does end, and
Speaker 2: five is not going to save you from March. But
Speaker 2: ten is enough.
Speaker 1: It's real insurance.
Speaker 2: Just to me, when you said twenty, they're like, kin,
Speaker 2: I wentz internally slightly because I thought in the twenties
Speaker 2: too much because in normal terms, everything else is going
Speaker 2: up and gold is kind of just sittting there. So
Speaker 2: that I mean ten to me feels kind of certainly
Speaker 2: in the ballpark of being correct.
Speaker 1: Anyway, on the plus side, if you had had twenty
Speaker 1: in your portfolio when gold was five thousand, you've got
Speaker 1: a lot less now because we're back down below fourthy
Speaker 1: and three hundred, right.
Speaker 2: Yep, exactly, Thank goodness for that.
Speaker 1: You So, what's going on? What's going on there? We're
Speaker 1: always telling people to have some gold in their portfolios,
Speaker 1: and we were thrilled when five thousand dollars.
Speaker 2: Ah.
Speaker 1: Were looking at it now and going, this is a
Speaker 1: healthy correction. This is all this money you've lost, everybody.
Speaker 1: That's a good thing.
Speaker 2: Yeah, I mean, look, to be honest, yes, I think
Speaker 2: that this is I think that's not a good thing.
Speaker 1: That's a good thing.
Speaker 2: To be fair. I remember, as we both were getting
Speaker 2: quite twitchy, I think we'd sort of mentioned maybe take
Speaker 2: some profits. But I do because I have been looking
Speaker 2: at I've been thinking, oh, well, look is this it?
Speaker 2: Have we taelp tipped over? Is this kind of you know,
Speaker 2: twenty eleven, twenty twelve again? But I just can't see it.
Speaker 2: I mean, one of the colleagues, Simon White, who does
Speaker 2: the Microscope column, wrote a good piece pointing out the
Speaker 2: Asian money is still buying and that's.
Speaker 1: You know, are still buying. Yeah, quite the same scal
Speaker 1: as they were, but they're still buying.
Speaker 2: Yeah. And so I think that a couple of things happened.
Speaker 2: There's momentum. Obviously everything got very excited without gold. Gold
Speaker 2: was briefly like the new baitcoin sort of thing. But
Speaker 2: all so, you know, we kind have had a paeri
Speaker 2: of inflations going up and people people stopped thinking interest
Speaker 2: rates are going to go down, started thinking they were
Speaker 2: going to go back up, and they haven't got quite
Speaker 2: as far as remembering that, you well, what if interest
Speaker 2: rates go up, don't go up fast enough to you know,
Speaker 2: stop inflation from taking off. And again that's when you
Speaker 2: want some goldener portfolio. So I don't really and certainly
Speaker 2: obviously the debt picture hasn't got better, particularly not in
Speaker 2: the US so I don't see any fundamental things changing
Speaker 2: unlike you know, arguably they did in twenty eleven, twenty twelve.
Speaker 2: So yeah, basically I still.
Speaker 1: Think yeah, yeah, So find your number with that.
Speaker 2: Yeah, and you know, if you're feeling queasy, then then
Speaker 2: sell something you don't feel queazy.
Speaker 1: Yeah, never feel queazy about your investments. Yeah, okay, on
Speaker 1: that subject, onto number two to me number two. See
Speaker 1: I'm signaling now Umber two su blind them on theirdo market. Now.
Speaker 1: One of the things that we've talked a so much
Speaker 1: over the last decade two decades. For those of you
Speaker 1: don't know, John and I've been working together a long time.
Speaker 1: Last couple of decades, the things have really been bothering
Speaker 1: us has been the equitization. It's been the general shrinking
Speaker 1: of the equity market, of the absolute numbers of shares
Speaker 1: available to you to buy, and of the absolute numbers
Speaker 1: of companies that are listed. It's been a problem, and
Speaker 1: so the market has turned into of the last couple
Speaker 1: of decades, something from which investors extract money from companies
Speaker 1: been brought out by private equity. You take your cash
Speaker 1: and you run from dividend payments from buy bags. You're
Speaker 1: huge rising buybacks across all markets, particularly in the US, right,
Speaker 1: And you can argue, and lots of people do. And
Speaker 1: it's hard to quantify, but that that shrinkage of supply
Speaker 1: has been one of the drivers behind the bill market
Speaker 1: for the last however many years. Right now, you take
Speaker 1: out supply demand today is the same, or goes up
Speaker 1: and up and up with auto enrollment in four O
Speaker 1: one case, what do you expect You expect a billmarket? Yeah?
Speaker 2: Absolutely, is this entirely logical. It's just that nobody thinks
Speaker 2: about it because it's so abstract. Yeah, but actually the
Speaker 2: you know, it's like if suddenly there were like half
Speaker 2: the number of apples at your supermarket the cave. Yeah.
Speaker 2: And it's not because the apples are any bit, there's
Speaker 2: just fewer all of them.
Speaker 1: Okay. And so look at what's happening now. We talked
Speaker 1: about this last week a bit, but we've got these
Speaker 1: huge IPOs SpaceX. I'll find out very soon how many
Speaker 1: shares I have been allocated in SpaceX, Space Eggs, Open Air,
Speaker 1: Open AI, and Thropic. And you know, these are huge,
Speaker 1: one hundreds of billions with these guys. But even if
Speaker 1: these ones weren't listening. There would be other companies we
Speaker 1: would be talking about with huge excitement because they're listening.
Speaker 1: There are a huge number of IPOs coming through. And
Speaker 1: at the same time we're seeing a lot of the
Speaker 1: companies that would once have been doing buybags. I'm thinking
Speaker 1: of the hyper scalers exactary. We're very, very cache heavy
Speaker 1: and are now not cash heavy and are coming to
Speaker 1: market to look for money. Google Rose money raises money
Speaker 1: the other day, for example.
Speaker 2: And not only lots of money, like eating five billion
Speaker 2: real money. That's the same what is space.
Speaker 1: Suddenly we're in a new environment where instead of the
Speaker 1: investor you know, listeners, you and me John taking money
Speaker 1: out of the market. Thanks very much for the cash guys.
Speaker 1: Now we're being asked to put money into the market.
Speaker 1: The dynamic has changed. And at the same time, we're
Speaker 1: looking at private equity, aren't we and going do you
Speaker 1: know what? We're not really sure about that performance record
Speaker 1: of yours and it's really is time that you lot
Speaker 1: started capitulating and selling that stuff off at the right price.
Speaker 1: And when you do, I wonder where they're going to
Speaker 1: sell it and is it going to come back into
Speaker 1: the public markets. So are we now moving into a
Speaker 1: new era, you know, back to the future era of
Speaker 1: the public markets being much more important again being the
Speaker 1: place where people actually come to raise lands amounts of money.
Speaker 1: And are we beginning to see increasing supply both of
Speaker 1: absolute number of shares and absolute number of companies that
Speaker 1: we can all buy, not just at this very top end,
Speaker 1: but across the board, which is great I think for consparency,
Speaker 1: for liquidity, for wealth equality, for sharing in the growth.
Speaker 1: I mean, these all seem like good things to me.
Speaker 1: It may mean possibly that annual performance across the board
Speaker 1: isn't quite so good because the supply dynamic changes back
Speaker 1: in the other direction, but that aside, there seems to
Speaker 1: me like a really good thing. Capital markets being used
Speaker 1: in the way that they were designed to be used.
Speaker 2: That's a good thing. I mean, let's say it's the
Speaker 2: it's the purpose to capital markets. And it is also
Speaker 2: interesting because it's not just about that. They can you know,
Speaker 2: the rush or the mega caps, the sort of I
Speaker 2: think you can argue the shift from public to private
Speaker 2: markets was for a number of things, but one was
Speaker 2: that private markets more much less hassle than public markets,
Speaker 2: especially after the dot com bubble and all the extra
Speaker 2: you know, compliance that you had to do, and I
Speaker 2: think that obviously, the big thing that's changed is way
Speaker 2: over the last kind of five years, certainly, is that
Speaker 2: interest rates have shot up, so private capitals much had
Speaker 2: to come by It's much more expense, so the disparity
Speaker 2: is starting to close now. Obviously, the fact that equity
Speaker 2: prices have shot up also means the cost of equity
Speaker 2: capital is lower, so it's suddenly getting more attractive to
Speaker 2: do that then to borrow the money. But I you know,
Speaker 2: even if you kind of like that comes down again
Speaker 2: kind of equity markets come down again, you still get
Speaker 2: the issue that private markets are a kind of rather
Speaker 2: constipated at the moment. Interest rates aren't going anywhere soon.
Speaker 2: And also there's a general move to make private markets
Speaker 2: more transparent and sort of like, I guess, a sort
Speaker 2: of address this kind of disparity between the compliance budding
Speaker 2: on private companies versus public companies, and the more you
Speaker 2: do that, I mean, even if it means dumping more
Speaker 2: on them rather than taking stuff as well be public.
Speaker 2: And also the risk profile these companies as well. It's
Speaker 2: like if you've suddenly gone from being like, you know,
Speaker 2: a hyperscaler we'd like not a hyper a company with
Speaker 2: a massive moat that you just squat in, like like Google,
Speaker 2: and you just rake in the cash and it's all great,
Speaker 2: and then Ei comes along suddenly you're like, oh, man,
Speaker 2: if I want to sustain this mote and you spend
Speaker 2: a lot of money suddenly coming up against a lot
Speaker 2: more competition. The truth is that your risk profile has changed,
Speaker 2: and on your risk profile changes, it makes far more
Speaker 2: sense for the company to raise capital and equity markets
Speaker 2: than it does in debt markets because in equity markets,
Speaker 2: all of the mugs that buy you are kind of
Speaker 2: like they're taking the same risk as you. They get
Speaker 2: the upside, but they also get the downside.
Speaker 1: And its permanent capital. Yeah.
Speaker 2: But as if you borrow the money off someone, they
Speaker 2: want to they want it now, and you don't, you know,
Speaker 2: have a choice. Of your risk profile as a company changes,
Speaker 2: then it makes more sense to go to the equity
Speaker 2: markets again. So yeah, no, I think.
Speaker 1: First public markets are back.
Speaker 2: Yeah, and that's that is a good thing.
Speaker 1: We're almost on the same same subject here, yes, with
Speaker 1: the inheritance tax and bonds, because one of the things
Speaker 1: that one of the things that John and I've talked about,
Speaker 1: and I think everyone has heard us talk about it, Enderley,
Speaker 1: is how do you avoid inherited a tax? How can
Speaker 1: you get a way from having to pay a large
Speaker 1: part of your assets but not your assets because you'll
Speaker 1: be dead by them. But once you're dead, how can
Speaker 1: it be that you can lead more to your heirs
Speaker 1: than you might have otherwise. And we're thinking about this
Speaker 1: idea that has been put about quite quite a lot
Speaker 1: over the last couple of months, right now being discussed
Speaker 1: more and more and more and more and more. For
Speaker 1: a government that really needs to raise a lot of money,
Speaker 1: how about doing it with a new type of bond,
Speaker 1: the proceeds of which are inheritance tax free, not just
Speaker 1: the proceeds, a whole lot. You stick your money into
Speaker 1: these bonds and when you diet goes to your tax
Speaker 1: free and you could use that. We don't normally hypothecate
Speaker 1: in the UK, but you could use that to raise
Speaker 1: the money that we desperately need for defense.
Speaker 2: Right this makes sense, it does. I mean, I think
Speaker 2: there's but here we are, yeah, we all exactly. I mean,
Speaker 2: I guess got to work with what we've got. But
Speaker 2: I think the benefits of this are that it would
Speaker 2: be politically popular, brings down the UK's costs to borrowing.
Speaker 2: You know, we do actually need the money for defense,
Speaker 2: so in this case, hypothecating it. Although I detest hypothication
Speaker 2: because obviously you know it's it's daft to say we're
Speaker 2: going to need that set part. The point is we
Speaker 2: defense is basically it is a bottomless pit at the
Speaker 2: moment because we're crisis exactly. So it's acceptable. So I
Speaker 2: don't really see the difficulty. And again, okay, so perhaps
Speaker 2: it means the inherence tax take goes down a bit,
Speaker 2: but the inherence tax take is not that large. It's
Speaker 2: about fifteen billion a year. Say you trim it in half,
Speaker 2: but then you actually cut your cost of borrow, and
Speaker 2: you probably even that.
Speaker 1: And the question of course is how much does it
Speaker 1: cut the cost of borrow? Oh yeah, And this is
Speaker 1: something that the John I were doing about before we
Speaker 1: started recording, and we were trying to think about it,
Speaker 1: and we're thinking about it in terms of aim listed stocks.
Speaker 1: Any smaller stock markets in the UK where small companies listed,
Speaker 1: and for a long time you could buy shares on
Speaker 1: the market and they would be IHG free. That's not
Speaker 1: the case anymore that I was changed and now they're
Speaker 1: the rules of changing, and that it's twenty percent, so
Speaker 1: it's less a thing. But in its previous incarnation, people
Speaker 1: spent a lot of time trying to figure out how
Speaker 1: much to the premium of listed AIM stocks or AIM
Speaker 1: listed stocks should. I say, was purely down to IHT
Speaker 1: and I'm afraid we can't quite remember the numbers, but
Speaker 1: we're going to go away and look it.
Speaker 2: Up, but specific ones one more because you want ones.
Speaker 1: So it's hard to tell. But the key point is
Speaker 1: that people in the UK are so desperate to avoid
Speaker 1: inheritance tax that they would buy a portfolio of smaller
Speaker 1: companies on which they could conceivably have lost one hundred
Speaker 1: percent of their money in order to be able to
Speaker 1: have a go at not paying inheritance tax. So if
Speaker 1: they would do that, why would they not accept, you know,
Speaker 1: a couple of percentage points lower yield on a bond.
Speaker 1: Now they're going to get all of that money back.
Speaker 2: I can't it's safe. I mean, I mean normal times, yeah, absolutely,
Speaker 2: But I mean this is the sort of thing where
Speaker 2: you could see not experiment with a zero coupoind yeah,
Speaker 2: and just see what happens, because it's still saving an
Speaker 2: awful lot of money. So I think the government would
Speaker 2: be daft not to go for it, because I don't.
Speaker 2: I'm struggling to see the downside. I must have met.
Speaker 1: I love it. Do you think the government, you know,
Speaker 1: you're saying, you'd be daff not to do that.
Speaker 2: We're going, well, Barrow is doff, Borrow is doff.
Speaker 1: What do you think we're going to do now be
Speaker 1: less duffed? Yeah?
Speaker 2: True, you can think a little bit. But it's very
Speaker 2: rare because something that is almost no downside. I mean,
Speaker 2: I don't know. I mean because even if people start saying, oh,
Speaker 2: it's a tax bunk for the wretch, it's like, well
Speaker 2: but wait a minute, the rich have been you know,
Speaker 2: we could call them patriotic bonds or something like that.
Speaker 2: I mean, it's not It feels like a kind of
Speaker 2: a no brainer that must.
Speaker 1: Have met androotic bond, just not war bonds. Thanks John,
Speaker 1: Thanks see you next week with another three topics. Yes,
Speaker 1: thanks for listening to this week's Marrying Talks Money Debrief.
Speaker 1: If you like our show, rate review, and subscribe wherever
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