WEBVTT - Are Public Markets Back? 

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

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<v Speaker 1>Dorgs Money Market Wrap, where we talk about the biggest

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<v Speaker 1>moves in the markets this week and what is driving them.

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<v Speaker 1>I am Maren Zumset, Web editor at Large for Bloomberg,

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<v Speaker 1>U Gay Wealth.

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<v Speaker 2>And I'm joined Stevic Senior, reported the Bloomberg and author

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<v Speaker 2>of the Money Distiled newsletter.

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<v Speaker 1>Right John. In an effort to ramble less and be

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<v Speaker 1>more specific and more precise about what we discussed, we

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<v Speaker 1>have decided that we are going to tell you at

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<v Speaker 1>the beginning you listen it what it is we are

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<v Speaker 1>going to talk about. So today we are going to

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<v Speaker 1>talk about gold. We're going to talk about the blind

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<v Speaker 1>demand of the ECPTY market, and we are going to

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<v Speaker 1>talk about bonds and inheritance tax.

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<v Speaker 2>Spcell for money.

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<v Speaker 1>That's fast, three whole topics.

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<v Speaker 2>Right.

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<v Speaker 1>Gold. So I was talking to Sebastian Line of Personal

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<v Speaker 1>Assets Trust last night, right, And as you know, Personal Assets,

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<v Speaker 1>it's a trust that we're both very fond of, but

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<v Speaker 1>it always has a pretty big gold holding. And I

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<v Speaker 1>was talking to them about that how much, why this amount,

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<v Speaker 1>and how does this work? And he has this sort

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<v Speaker 1>of base level of gold inside the trust about ten percent,

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<v Speaker 1>and when things are worrying and difficult and inflationary and scary,

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<v Speaker 1>he'll go up to maybe thirteen forty percent, and when

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<v Speaker 1>everything is kind of a girl to weight percent. And

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<v Speaker 1>I was trying to get from him why it is

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<v Speaker 1>that ten percent is his number, because you know, it's

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<v Speaker 1>impossible to value right, it's impossible to know how much

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<v Speaker 1>he should have in a portfolio. And he said, well,

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<v Speaker 1>the key thing is that you need to have enough

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<v Speaker 1>gold in your portfolio to make a difference when something

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<v Speaker 1>goes wrong. So don't bother with one percent two percent.

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<v Speaker 1>This is meaningless nonsense, but not so much that when

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<v Speaker 1>things are going right, your performance is really dragged down.

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<v Speaker 1>And there's the kind of it's a subject to judgment.

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<v Speaker 1>And he's landed on about ten. And there were a

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<v Speaker 1>couple of people in our group and someone was like, oh, oh,

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<v Speaker 1>you know my number is twenty and I think my

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<v Speaker 1>number is maybe seven. Yeah, I don't know, I don't know.

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<v Speaker 2>There's a logic to that. Yeah, I mean it does

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<v Speaker 2>make sense, and even and I got feeling like five

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<v Speaker 2>feels like we'll look at the world does end, and

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<v Speaker 2>five is not going to save you from March. But

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<v Speaker 2>ten is enough.

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<v Speaker 1>It's real insurance.

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<v Speaker 2>Just to me, when you said twenty, they're like, kin,

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<v Speaker 2>I wentz internally slightly because I thought in the twenties

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<v Speaker 2>too much because in normal terms, everything else is going

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<v Speaker 2>up and gold is kind of just sittting there. So

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<v Speaker 2>that I mean ten to me feels kind of certainly

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<v Speaker 2>in the ballpark of being correct.

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<v Speaker 1>Anyway, on the plus side, if you had had twenty

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<v Speaker 1>in your portfolio when gold was five thousand, you've got

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<v Speaker 1>a lot less now because we're back down below fourthy

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<v Speaker 1>and three hundred, right.

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<v Speaker 2>Yep, exactly, Thank goodness for that.

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<v Speaker 1>You So, what's going on? What's going on there? We're

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<v Speaker 1>always telling people to have some gold in their portfolios,

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<v Speaker 1>and we were thrilled when five thousand dollars.

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<v Speaker 2>Ah.

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<v Speaker 1>Were looking at it now and going, this is a

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<v Speaker 1>healthy correction. This is all this money you've lost, everybody.

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<v Speaker 1>That's a good thing.

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<v Speaker 2>Yeah, I mean, look, to be honest, yes, I think

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<v Speaker 2>that this is I think that's not a good thing.

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<v Speaker 1>That's a good thing.

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<v Speaker 2>To be fair. I remember, as we both were getting

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<v Speaker 2>quite twitchy, I think we'd sort of mentioned maybe take

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<v Speaker 2>some profits. But I do because I have been looking

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<v Speaker 2>at I've been thinking, oh, well, look is this it?

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<v Speaker 2>Have we taelp tipped over? Is this kind of you know,

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<v Speaker 2>twenty eleven, twenty twelve again? But I just can't see it.

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<v Speaker 2>I mean, one of the colleagues, Simon White, who does

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<v Speaker 2>the Microscope column, wrote a good piece pointing out the

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<v Speaker 2>Asian money is still buying and that's.

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<v Speaker 1>You know, are still buying. Yeah, quite the same scal

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<v Speaker 1>as they were, but they're still buying.

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<v Speaker 2>Yeah. And so I think that a couple of things happened.

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<v Speaker 2>There's momentum. Obviously everything got very excited without gold. Gold

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<v Speaker 2>was briefly like the new baitcoin sort of thing. But

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<v Speaker 2>all so, you know, we kind have had a paeri

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<v Speaker 2>of inflations going up and people people stopped thinking interest

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<v Speaker 2>rates are going to go down, started thinking they were

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<v Speaker 2>going to go back up, and they haven't got quite

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<v Speaker 2>as far as remembering that, you well, what if interest

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<v Speaker 2>rates go up, don't go up fast enough to you know,

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<v Speaker 2>stop inflation from taking off. And again that's when you

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<v Speaker 2>want some goldener portfolio. So I don't really and certainly

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<v Speaker 2>obviously the debt picture hasn't got better, particularly not in

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<v Speaker 2>the US so I don't see any fundamental things changing

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<v Speaker 2>unlike you know, arguably they did in twenty eleven, twenty twelve.

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<v Speaker 2>So yeah, basically I still.

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<v Speaker 1>Think yeah, yeah, So find your number with that.

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<v Speaker 2>Yeah, and you know, if you're feeling queasy, then then

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<v Speaker 2>sell something you don't feel queazy.

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<v Speaker 1>Yeah, never feel queazy about your investments. Yeah, okay, on

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<v Speaker 1>that subject, onto number two to me number two. See

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<v Speaker 1>I'm signaling now Umber two su blind them on theirdo market. Now.

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<v Speaker 1>One of the things that we've talked a so much

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<v Speaker 1>over the last decade two decades. For those of you

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<v Speaker 1>don't know, John and I've been working together a long time.

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<v Speaker 1>Last couple of decades, the things have really been bothering

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<v Speaker 1>us has been the equitization. It's been the general shrinking

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<v Speaker 1>of the equity market, of the absolute numbers of shares

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<v Speaker 1>available to you to buy, and of the absolute numbers

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<v Speaker 1>of companies that are listed. It's been a problem, and

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<v Speaker 1>so the market has turned into of the last couple

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<v Speaker 1>of decades, something from which investors extract money from companies

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<v Speaker 1>been brought out by private equity. You take your cash

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<v Speaker 1>and you run from dividend payments from buy bags. You're

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<v Speaker 1>huge rising buybacks across all markets, particularly in the US, right,

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<v Speaker 1>And you can argue, and lots of people do. And

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<v Speaker 1>it's hard to quantify, but that that shrinkage of supply

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<v Speaker 1>has been one of the drivers behind the bill market

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<v Speaker 1>for the last however many years. Right now, you take

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<v Speaker 1>out supply demand today is the same, or goes up

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<v Speaker 1>and up and up with auto enrollment in four O

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<v Speaker 1>one case, what do you expect You expect a billmarket? Yeah?

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<v Speaker 2>Absolutely, is this entirely logical. It's just that nobody thinks

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<v Speaker 2>about it because it's so abstract. Yeah, but actually the

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<v Speaker 2>you know, it's like if suddenly there were like half

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<v Speaker 2>the number of apples at your supermarket the cave. Yeah.

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<v Speaker 2>And it's not because the apples are any bit, there's

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<v Speaker 2>just fewer all of them.

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<v Speaker 1>Okay. And so look at what's happening now. We talked

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<v Speaker 1>about this last week a bit, but we've got these

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<v Speaker 1>huge IPOs SpaceX. I'll find out very soon how many

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<v Speaker 1>shares I have been allocated in SpaceX, Space Eggs, Open Air,

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<v Speaker 1>Open AI, and Thropic. And you know, these are huge,

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<v Speaker 1>one hundreds of billions with these guys. But even if

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<v Speaker 1>these ones weren't listening. There would be other companies we

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<v Speaker 1>would be talking about with huge excitement because they're listening.

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<v Speaker 1>There are a huge number of IPOs coming through. And

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<v Speaker 1>at the same time we're seeing a lot of the

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<v Speaker 1>companies that would once have been doing buybags. I'm thinking

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<v Speaker 1>of the hyper scalers exactary. We're very, very cache heavy

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<v Speaker 1>and are now not cash heavy and are coming to

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<v Speaker 1>market to look for money. Google Rose money raises money

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<v Speaker 1>the other day, for example.

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<v Speaker 2>And not only lots of money, like eating five billion

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<v Speaker 2>real money. That's the same what is space.

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<v Speaker 1>Suddenly we're in a new environment where instead of the

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<v Speaker 1>investor you know, listeners, you and me John taking money

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<v Speaker 1>out of the market. Thanks very much for the cash guys.

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<v Speaker 1>Now we're being asked to put money into the market.

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<v Speaker 1>The dynamic has changed. And at the same time, we're

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<v Speaker 1>looking at private equity, aren't we and going do you

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<v Speaker 1>know what? We're not really sure about that performance record

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<v Speaker 1>of yours and it's really is time that you lot

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<v Speaker 1>started capitulating and selling that stuff off at the right price.

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<v Speaker 1>And when you do, I wonder where they're going to

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<v Speaker 1>sell it and is it going to come back into

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<v Speaker 1>the public markets. So are we now moving into a

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<v Speaker 1>new era, you know, back to the future era of

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<v Speaker 1>the public markets being much more important again being the

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<v Speaker 1>place where people actually come to raise lands amounts of money.

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<v Speaker 1>And are we beginning to see increasing supply both of

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<v Speaker 1>absolute number of shares and absolute number of companies that

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<v Speaker 1>we can all buy, not just at this very top end,

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<v Speaker 1>but across the board, which is great I think for consparency,

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<v Speaker 1>for liquidity, for wealth equality, for sharing in the growth.

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<v Speaker 1>I mean, these all seem like good things to me.

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<v Speaker 1>It may mean possibly that annual performance across the board

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<v Speaker 1>isn't quite so good because the supply dynamic changes back

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<v Speaker 1>in the other direction, but that aside, there seems to

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<v Speaker 1>me like a really good thing. Capital markets being used

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<v Speaker 1>in the way that they were designed to be used.

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<v Speaker 2>That's a good thing. I mean, let's say it's the

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<v Speaker 2>it's the purpose to capital markets. And it is also

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<v Speaker 2>interesting because it's not just about that. They can you know,

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<v Speaker 2>the rush or the mega caps, the sort of I

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<v Speaker 2>think you can argue the shift from public to private

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<v Speaker 2>markets was for a number of things, but one was

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<v Speaker 2>that private markets more much less hassle than public markets,

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<v Speaker 2>especially after the dot com bubble and all the extra

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<v Speaker 2>you know, compliance that you had to do, and I

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<v Speaker 2>think that obviously, the big thing that's changed is way

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<v Speaker 2>over the last kind of five years, certainly, is that

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<v Speaker 2>interest rates have shot up, so private capitals much had

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<v Speaker 2>to come by It's much more expense, so the disparity

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<v Speaker 2>is starting to close now. Obviously, the fact that equity

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<v Speaker 2>prices have shot up also means the cost of equity

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<v Speaker 2>capital is lower, so it's suddenly getting more attractive to

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<v Speaker 2>do that then to borrow the money. But I you know,

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<v Speaker 2>even if you kind of like that comes down again

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<v Speaker 2>kind of equity markets come down again, you still get

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<v Speaker 2>the issue that private markets are a kind of rather

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<v Speaker 2>constipated at the moment. Interest rates aren't going anywhere soon.

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<v Speaker 2>And also there's a general move to make private markets

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<v Speaker 2>more transparent and sort of like, I guess, a sort

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<v Speaker 2>of address this kind of disparity between the compliance budding

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<v Speaker 2>on private companies versus public companies, and the more you

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<v Speaker 2>do that, I mean, even if it means dumping more

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<v Speaker 2>on them rather than taking stuff as well be public.

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<v Speaker 2>And also the risk profile these companies as well. It's

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<v Speaker 2>like if you've suddenly gone from being like, you know,

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<v Speaker 2>a hyperscaler we'd like not a hyper a company with

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<v Speaker 2>a massive moat that you just squat in, like like Google,

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<v Speaker 2>and you just rake in the cash and it's all great,

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<v Speaker 2>and then Ei comes along suddenly you're like, oh, man,

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<v Speaker 2>if I want to sustain this mote and you spend

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<v Speaker 2>a lot of money suddenly coming up against a lot

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<v Speaker 2>more competition. The truth is that your risk profile has changed,

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<v Speaker 2>and on your risk profile changes, it makes far more

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<v Speaker 2>sense for the company to raise capital and equity markets

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<v Speaker 2>than it does in debt markets because in equity markets,

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<v Speaker 2>all of the mugs that buy you are kind of

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<v Speaker 2>like they're taking the same risk as you. They get

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<v Speaker 2>the upside, but they also get the downside.

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<v Speaker 1>And its permanent capital. Yeah.

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<v Speaker 2>But as if you borrow the money off someone, they

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<v Speaker 2>want to they want it now, and you don't, you know,

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<v Speaker 2>have a choice. Of your risk profile as a company changes,

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<v Speaker 2>then it makes more sense to go to the equity

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<v Speaker 2>markets again. So yeah, no, I think.

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<v Speaker 1>First public markets are back.

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<v Speaker 2>Yeah, and that's that is a good thing.

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<v Speaker 1>We're almost on the same same subject here, yes, with

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<v Speaker 1>the inheritance tax and bonds, because one of the things

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<v Speaker 1>that one of the things that John and I've talked about,

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<v Speaker 1>and I think everyone has heard us talk about it, Enderley,

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<v Speaker 1>is how do you avoid inherited a tax? How can

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<v Speaker 1>you get a way from having to pay a large

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<v Speaker 1>part of your assets but not your assets because you'll

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<v Speaker 1>be dead by them. But once you're dead, how can

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<v Speaker 1>it be that you can lead more to your heirs

0:11:20.320 --> 0:11:23.240
<v Speaker 1>than you might have otherwise. And we're thinking about this

0:11:23.400 --> 0:11:25.760
<v Speaker 1>idea that has been put about quite quite a lot

0:11:25.880 --> 0:11:28.079
<v Speaker 1>over the last couple of months, right now being discussed

0:11:28.120 --> 0:11:29.720
<v Speaker 1>more and more and more and more and more. For

0:11:29.760 --> 0:11:32.600
<v Speaker 1>a government that really needs to raise a lot of money,

0:11:33.120 --> 0:11:36.040
<v Speaker 1>how about doing it with a new type of bond,

0:11:36.360 --> 0:11:40.000
<v Speaker 1>the proceeds of which are inheritance tax free, not just

0:11:40.000 --> 0:11:41.880
<v Speaker 1>the proceeds, a whole lot. You stick your money into

0:11:41.920 --> 0:11:44.280
<v Speaker 1>these bonds and when you diet goes to your tax

0:11:44.320 --> 0:11:46.839
<v Speaker 1>free and you could use that. We don't normally hypothecate

0:11:46.920 --> 0:11:49.600
<v Speaker 1>in the UK, but you could use that to raise

0:11:49.600 --> 0:11:52.880
<v Speaker 1>the money that we desperately need for defense.

0:11:53.000 --> 0:11:55.679
<v Speaker 2>Right this makes sense, it does. I mean, I think

0:11:55.720 --> 0:11:59.480
<v Speaker 2>there's but here we are, yeah, we all exactly. I mean,

0:11:59.600 --> 0:12:01.640
<v Speaker 2>I guess got to work with what we've got. But

0:12:02.160 --> 0:12:03.760
<v Speaker 2>I think the benefits of this are that it would

0:12:03.760 --> 0:12:07.760
<v Speaker 2>be politically popular, brings down the UK's costs to borrowing.

0:12:09.120 --> 0:12:11.400
<v Speaker 2>You know, we do actually need the money for defense,

0:12:11.480 --> 0:12:15.199
<v Speaker 2>so in this case, hypothecating it. Although I detest hypothication

0:12:15.840 --> 0:12:18.640
<v Speaker 2>because obviously you know it's it's daft to say we're

0:12:18.640 --> 0:12:20.880
<v Speaker 2>going to need that set part. The point is we

0:12:21.000 --> 0:12:24.200
<v Speaker 2>defense is basically it is a bottomless pit at the

0:12:24.200 --> 0:12:31.880
<v Speaker 2>moment because we're crisis exactly. So it's acceptable. So I

0:12:31.920 --> 0:12:36.000
<v Speaker 2>don't really see the difficulty. And again, okay, so perhaps

0:12:36.160 --> 0:12:38.400
<v Speaker 2>it means the inherence tax take goes down a bit,

0:12:38.720 --> 0:12:41.640
<v Speaker 2>but the inherence tax take is not that large. It's

0:12:41.679 --> 0:12:45.360
<v Speaker 2>about fifteen billion a year. Say you trim it in half,

0:12:45.440 --> 0:12:47.280
<v Speaker 2>but then you actually cut your cost of borrow, and

0:12:47.320 --> 0:12:49.280
<v Speaker 2>you probably even that.

0:12:49.559 --> 0:12:51.440
<v Speaker 1>And the question of course is how much does it

0:12:51.520 --> 0:12:54.040
<v Speaker 1>cut the cost of borrow? Oh yeah, And this is

0:12:54.080 --> 0:12:55.680
<v Speaker 1>something that the John I were doing about before we

0:12:55.679 --> 0:12:57.719
<v Speaker 1>started recording, and we were trying to think about it,

0:12:57.800 --> 0:13:00.840
<v Speaker 1>and we're thinking about it in terms of aim listed stocks.

0:13:00.360 --> 0:13:03.839
<v Speaker 1>Any smaller stock markets in the UK where small companies listed,

0:13:03.880 --> 0:13:06.520
<v Speaker 1>and for a long time you could buy shares on

0:13:06.600 --> 0:13:08.559
<v Speaker 1>the market and they would be IHG free. That's not

0:13:08.640 --> 0:13:10.400
<v Speaker 1>the case anymore that I was changed and now they're

0:13:10.520 --> 0:13:14.040
<v Speaker 1>the rules of changing, and that it's twenty percent, so

0:13:14.080 --> 0:13:18.000
<v Speaker 1>it's less a thing. But in its previous incarnation, people

0:13:18.000 --> 0:13:20.240
<v Speaker 1>spent a lot of time trying to figure out how

0:13:20.320 --> 0:13:23.439
<v Speaker 1>much to the premium of listed AIM stocks or AIM

0:13:23.480 --> 0:13:26.280
<v Speaker 1>listed stocks should. I say, was purely down to IHT

0:13:26.400 --> 0:13:28.560
<v Speaker 1>and I'm afraid we can't quite remember the numbers, but

0:13:28.559 --> 0:13:29.640
<v Speaker 1>we're going to go away and look it.

0:13:29.600 --> 0:13:35.240
<v Speaker 2>Up, but specific ones one more because you want ones.

0:13:35.320 --> 0:13:37.640
<v Speaker 1>So it's hard to tell. But the key point is

0:13:37.679 --> 0:13:40.840
<v Speaker 1>that people in the UK are so desperate to avoid

0:13:40.840 --> 0:13:45.679
<v Speaker 1>inheritance tax that they would buy a portfolio of smaller

0:13:45.720 --> 0:13:48.120
<v Speaker 1>companies on which they could conceivably have lost one hundred

0:13:48.120 --> 0:13:50.360
<v Speaker 1>percent of their money in order to be able to

0:13:50.400 --> 0:13:53.320
<v Speaker 1>have a go at not paying inheritance tax. So if

0:13:53.360 --> 0:13:56.640
<v Speaker 1>they would do that, why would they not accept, you know,

0:13:56.720 --> 0:14:00.880
<v Speaker 1>a couple of percentage points lower yield on a bond.

0:14:00.960 --> 0:14:02.719
<v Speaker 1>Now they're going to get all of that money back.

0:14:02.840 --> 0:14:07.239
<v Speaker 2>I can't it's safe. I mean, I mean normal times, yeah, absolutely,

0:14:07.280 --> 0:14:08.520
<v Speaker 2>But I mean this is the sort of thing where

0:14:08.520 --> 0:14:12.559
<v Speaker 2>you could see not experiment with a zero coupoind yeah,

0:14:12.679 --> 0:14:15.440
<v Speaker 2>and just see what happens, because it's still saving an

0:14:15.440 --> 0:14:19.760
<v Speaker 2>awful lot of money. So I think the government would

0:14:19.800 --> 0:14:21.880
<v Speaker 2>be daft not to go for it, because I don't.

0:14:22.000 --> 0:14:24.880
<v Speaker 2>I'm struggling to see the downside. I must have met.

0:14:25.520 --> 0:14:27.960
<v Speaker 1>I love it. Do you think the government, you know,

0:14:28.000 --> 0:14:29.520
<v Speaker 1>you're saying, you'd be daff not to do that.

0:14:29.800 --> 0:14:32.200
<v Speaker 2>We're going, well, Barrow is doff, Borrow is doff.

0:14:32.240 --> 0:14:33.560
<v Speaker 1>What do you think we're going to do now be

0:14:33.640 --> 0:14:34.880
<v Speaker 1>less duffed? Yeah?

0:14:35.560 --> 0:14:38.040
<v Speaker 2>True, you can think a little bit. But it's very

0:14:38.160 --> 0:14:41.080
<v Speaker 2>rare because something that is almost no downside. I mean,

0:14:41.120 --> 0:14:43.520
<v Speaker 2>I don't know. I mean because even if people start saying, oh,

0:14:43.560 --> 0:14:45.280
<v Speaker 2>it's a tax bunk for the wretch, it's like, well

0:14:45.280 --> 0:14:47.560
<v Speaker 2>but wait a minute, the rich have been you know,

0:14:47.600 --> 0:14:50.040
<v Speaker 2>we could call them patriotic bonds or something like that.

0:14:50.160 --> 0:14:52.720
<v Speaker 2>I mean, it's not It feels like a kind of

0:14:52.760 --> 0:14:54.120
<v Speaker 2>a no brainer that must.

0:14:53.960 --> 0:14:57.800
<v Speaker 1>Have met androotic bond, just not war bonds. Thanks John,

0:14:57.880 --> 0:15:01.400
<v Speaker 1>Thanks see you next week with another three topics. Yes,

0:15:07.480 --> 0:15:09.880
<v Speaker 1>thanks for listening to this week's Marrying Talks Money Debrief.

0:15:09.920 --> 0:15:12.360
<v Speaker 1>If you like our show, rate review, and subscribe wherever

0:15:12.360 --> 0:15:15.040
<v Speaker 1>you listen to podcasts. Also, be sure to follow me

0:15:15.120 --> 0:15:18.240
<v Speaker 1>and John on ex or Twitter at marinasw and John

0:15:18.360 --> 0:15:22.640
<v Speaker 1>Underscore Stepic. This episode was produced by Samasadi, Product support

0:15:22.640 --> 0:15:25.400
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0:15:25.400 --> 0:15:28.120
<v Speaker 1>this show and all our shows are always welcome. Our

0:15:28.120 --> 0:15:30.280
<v Speaker 1>show emails Marimoney at Bloomberg dot net