WEBVTT - The UK's Trade Deals: A Turning Point?

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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 weekly roundup. Do you brief on the bigger

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<v Speaker 1>stories in markets and economics? No shortage this week as usual.

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<v Speaker 1>I am Maren Zum's Up, web editor at large for

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<v Speaker 1>Bloomberg UK Wealth.

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<v Speaker 2>I'm joined Step although the money distilled newsletters and senior

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<v Speaker 2>Bloomberg reporter. Not really much talk.

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<v Speaker 1>About this week, is it, John.

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<v Speaker 2>Bit slow bit slow slow.

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<v Speaker 1>Now, of course it's not slow at all. It's very

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<v Speaker 1>very busy lot going on, all very exciting. We have

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<v Speaker 1>had the Bank of England out making yet another decision

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<v Speaker 1>on interest rates, and John, this one is interesting, right,

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<v Speaker 1>I mean it's never that interesting, but it's more interesting

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<v Speaker 1>than usual this time because while they have done what

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<v Speaker 1>everyone thought they would do, they haven't done it with

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<v Speaker 1>folk consensus.

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<v Speaker 2>Yes, it's interesting and relative terms.

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<v Speaker 3>Yeah, take a we can get deally well yeah we

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<v Speaker 3>got so we got five way split, so five way,

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<v Speaker 3>three ways five would be great, So three way split.

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<v Speaker 3>So five people voted to cut by a quarter point,

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<v Speaker 3>two people voted to cut by half a point, and

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<v Speaker 3>two people voted to hold. And the reason that was

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<v Speaker 3>the surprise is because basically they thought everyone would vote

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<v Speaker 3>for a quarter point cut except for Swatty Dingra who's

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<v Speaker 3>very very dubbish, and they thought she would vote for

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<v Speaker 3>a half point cut. So as it turns out, having

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<v Speaker 3>two people go on hold is actually quite hawkish, or

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<v Speaker 3>you know, it makes it look as if the Bank

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<v Speaker 3>of England, you know, it is kind of wanting to

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<v Speaker 3>keep interest rates a bit higher for a bit longer

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<v Speaker 3>than perhaps everyone had expected or maybe even hoped. I

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<v Speaker 3>mean mollin in view like four point two five percent

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<v Speaker 3>when inflations kicking around about three and Proyte about to

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<v Speaker 3>go up to three and a half percent, seems you know,

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<v Speaker 3>about the right level for interest rates. But equally, you

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<v Speaker 3>know the kind of bombs falling out the oil market,

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<v Speaker 3>so hopefully that means energy and ppetual places all come

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<v Speaker 3>doing crete fast, So that will probably give a bit

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<v Speaker 3>of cover for the Bank England then the next nine

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<v Speaker 3>months or so to Cardie or and just gently can

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<v Speaker 3>actually cutting interest rates.

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<v Speaker 1>Yeah, and that's that's the general feel, isn't it that

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<v Speaker 1>they'll be cut off to cutof for capital and the

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<v Speaker 1>year three and a half percent or something like that.

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<v Speaker 1>That is what everyone generally expects, and it's all based

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<v Speaker 1>on the assumption that inflation will end up coming back

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<v Speaker 1>to where it's supposed to be for reasons that noone knows,

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<v Speaker 1>but nonetheless where it's supposed to be at around two

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<v Speaker 1>percent in the medium term ish. So that's the expectation,

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<v Speaker 1>and of course there's a million risks of that because

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<v Speaker 1>everyone keeps saying we live in an increasingly uncertain world,

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<v Speaker 1>with geopolitical conflict all around us and the ongoing uncertainty

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<v Speaker 1>of Trump's tariffs all over the place. So actually, as

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<v Speaker 1>I'm sure we often say on this podcast, and everyone

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<v Speaker 1>says all that podcast, at the moment, no one has

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<v Speaker 1>the faintest idea what's going to happen next.

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<v Speaker 2>Yeah, I mean, to be fair, this is one it

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<v Speaker 2>seems what I felt that the Bank England's actually it

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<v Speaker 2>was an a bit of police and a more confident

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<v Speaker 2>place today because it was talking about, well, actually, one

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<v Speaker 2>of the reasons it's a three way splits is we

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<v Speaker 2>don't know what's going to happen next, and I thought

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<v Speaker 2>they were actually fairly straightforward about that. And I mean,

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<v Speaker 2>actually it was the same with the FED. So the

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<v Speaker 2>Federal Reserve was basically saying the same thing. We're not

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<v Speaker 2>cutting interest rates. We don't know where things are going.

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<v Speaker 2>We're sort of justifying this by looking at backwards data

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<v Speaker 2>that isn't even up to date yet, but we don't.

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<v Speaker 2>We just don't know what's going to happen next because

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<v Speaker 2>of the whole Tariff's thing. And I think, yeah, I mean,

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<v Speaker 2>I think it's more honest than everyone usually as, which

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<v Speaker 2>has to be an improvement on what we normally get.

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<v Speaker 1>I've just been reading one of Albert Edward's notes and

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<v Speaker 1>he pointed me to was another note which is super interesting.

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<v Speaker 1>I'm going to put it. I'm going to put the

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<v Speaker 1>link in the show notes, but it's one of the

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<v Speaker 1>few pieces that I've read so far which says that

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<v Speaker 1>all of a sudden certainty is absolutely great. Thank goodness

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<v Speaker 1>for it. It's about time that everyone accepted that the

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<v Speaker 1>future is incredibly uncertain. And one of the difficult things

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<v Speaker 1>about previous bubbles has been the idea of certainty. So

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<v Speaker 1>when we had the Greens Bamput, for example, and everyone

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<v Speaker 1>constantly believes that things will happen in the same way

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<v Speaker 1>and in a very clear and straightforward way, and that

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<v Speaker 1>is what leads people to take intense levels of excess risk.

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<v Speaker 1>So if people accept that the future is uncertain, the

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<v Speaker 1>price of money will be more normal and people will

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<v Speaker 1>behave in a more normal, risk adjusted way. So this

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<v Speaker 1>injection of uncertainty into markets and into the global economy

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<v Speaker 1>could in that sense be seen as a good thing

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<v Speaker 1>rather than a bad thing.

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<v Speaker 2>Yeah, I think it's a really good thing. And I

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<v Speaker 2>think that's a really good point, because you're one of

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<v Speaker 2>the reasons that capital gets mess allocated is because people's

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<v Speaker 2>assumptions are too comfortable. And one reason that momentum investment

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<v Speaker 2>has done so well is because if something's been going up,

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<v Speaker 2>then it might it will keep going up, is the belief.

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<v Speaker 2>So it's kind of good for you know, value investment

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<v Speaker 2>by neglected assets type attitude as well. But yeah, and

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<v Speaker 2>it is good to recognize the uncertainty. Well, I mean

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<v Speaker 2>suppose this is this is also the reason why it's

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<v Speaker 2>so it's the fundamental problem we having central banks constantly

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<v Speaker 2>setting interest rates in the way that they currently do

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<v Speaker 2>as well. You know, I still think the idea of

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<v Speaker 2>choose a number, make it you know, four percent, five

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<v Speaker 2>five percent, four and a half percent, whatever, and just

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<v Speaker 2>leave them there and then do what basically already happens.

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<v Speaker 2>You know that the markets kind of decide the interest

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<v Speaker 2>rate around that, and then you don't have to have

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<v Speaker 2>like nine people in the room decide what the interest

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<v Speaker 2>rates should be. Instead, you've got the entire you know,

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<v Speaker 2>global financial markets to say that interest rates should be

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<v Speaker 2>given various kind of bits of information from all that

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<v Speaker 2>are in the world. So that would be that would

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<v Speaker 2>be much better.

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<v Speaker 1>Okay, John, So let's go back to markets. Markets. Let's

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<v Speaker 1>go back and look at the US market, because we've

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<v Speaker 1>talked about this a lot over the last few weeks

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<v Speaker 1>about how extraordinary it is that after everything that's happened

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<v Speaker 1>and all the extreme movements in the US markets over

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<v Speaker 1>the last you know, in some weeks, you've seen record

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<v Speaker 1>record movements up, record movements down, record numbers of days up, redctera, etcetera,

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<v Speaker 1>all sorts of extraordinary things. But we end up roughly

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<v Speaker 1>where we started. And we can also see that retail

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<v Speaker 1>investors in the US and in the UK have been

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<v Speaker 1>buying and buying and buying into the US market by

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<v Speaker 1>the dip, by the dip, by the dip, by the dip,

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<v Speaker 1>all the way through, which suggests there's an awful lot

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<v Speaker 1>of market purchasements who are not recognizing the uncertainty and

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<v Speaker 1>not recognizing the new approach to risk that ongoing uncertainty

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<v Speaker 1>should mean that they take right. Yeah, and an awful

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<v Speaker 1>lot of people who think that the correction is over.

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<v Speaker 1>Much of it has been reversed and that's that. Whereas

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<v Speaker 1>older hands like maybe you or me a mother, old

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<v Speaker 1>people out there might say, but this is what bear

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<v Speaker 1>markets do. This is what they do to you. They

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<v Speaker 1>give you a sudden drop off, and then after a

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<v Speaker 1>little while of everyone feeling a little pan panicky and

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<v Speaker 1>some people telling it's selling too soon, they come back

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<v Speaker 1>and you're like, oh, okay, I should never have sold

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<v Speaker 1>by the dip. And that can happen five, six, seven

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<v Speaker 1>times on the way down, and it can get you

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<v Speaker 1>every time.

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<v Speaker 2>And what is it like markets claim a wall or worry,

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<v Speaker 2>but they go down a slope of hope. Yes, look

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<v Speaker 2>at exactly. I mean, one thing would point is that

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<v Speaker 2>obviously the dollar has dropped a lot in that time.

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<v Speaker 2>So if you are out said the US, then actually

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<v Speaker 2>you're still lost about ten percent in the last month.

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<v Speaker 2>And I mean, that's one interesting comparison between this and

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<v Speaker 2>between breaks is well, it's like most of the adjustment

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<v Speaker 2>was felt in the currency rather than in any of

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<v Speaker 2>the asset prices as such in domestic currency terms. But

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<v Speaker 2>I think the other thing is people when I say

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<v Speaker 2>one of the sort of like one of the the

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<v Speaker 2>mainstream financial journalists that we like elsewhere, Mike Bird was

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<v Speaker 2>to comment on this and Twitter at some point can

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<v Speaker 2>being kind of asking about why as kind of retail

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<v Speaker 2>investors kind of light piling back in buying the dip.

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<v Speaker 2>And it's that thing where it's been so much the

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<v Speaker 2>right thing to do the last fifteen years or so

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<v Speaker 2>that it's no surprise that people have been trained into

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<v Speaker 2>doing it. Is you know, BTFD has been absolutely the

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<v Speaker 2>correct strategy to kind of follow. And there is also

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<v Speaker 2>I guess that there's also that slight element of financial

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<v Speaker 2>nihilism where it's that people have talked about where it's

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<v Speaker 2>kind of like a bit like bitcoin and kind of

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<v Speaker 2>holding bitcoin, and I hope it's just going to keep

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<v Speaker 2>going up the same with the S and P five

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<v Speaker 2>hundred is the only game in town, and so you know,

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<v Speaker 2>you might as well put all your money in that

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<v Speaker 2>you only have one tape attitude.

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<v Speaker 1>Yeah, there's a new game in town. There's a new

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<v Speaker 1>game in town.

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<v Speaker 3>Right.

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<v Speaker 1>There is one country out there, much derided by by

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<v Speaker 1>investors across the world. No one is invested in this

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<v Speaker 1>terrible market for a very very long time. But this country,

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<v Speaker 1>this country has this week alone done two trade deals.

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<v Speaker 2>Yes, not one, but too fantastic. It's like it's as

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<v Speaker 2>if all of her breaks benefits of landing it once,

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<v Speaker 2>just like that.

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<v Speaker 1>Yes, yeah, and it is, of course the UK where

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<v Speaker 1>you can buy shares on a massive discount to the

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<v Speaker 1>US and quite a hefty discount to the globe as

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<v Speaker 1>a whole. But suddenly with these trade deals, it's looking

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<v Speaker 1>a little investable.

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<v Speaker 2>Right yeah. And I don't think because we don't have

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<v Speaker 2>to have the details of the but but yeah, I

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<v Speaker 2>think from the point of view of the UK's pr

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<v Speaker 2>if you like at then the day we've got a

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<v Speaker 2>time when people are finally wobbling about US exceptionalism and

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<v Speaker 2>they're thinking about where else can I invest? And you know,

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<v Speaker 2>well that includes basically the rest of the world. The

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<v Speaker 2>rest of the world has lacked the US. But one

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<v Speaker 2>thing that you've got the UK does have going for

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<v Speaker 2>it is that it's quite a familiar market and it

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<v Speaker 2>has and it is cheap. So all we really need

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<v Speaker 2>to do to nudge some of those global fund managers

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<v Speaker 2>who don't actually pay that much attention to stuff is

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<v Speaker 2>to get them thinking of the UK as actually that's

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<v Speaker 2>kind of investable again. Although they've done a deal with

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<v Speaker 2>the US, they've done a deal with India. You know,

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<v Speaker 2>they can't be completely useless. Let's just you know, stick

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<v Speaker 2>some money in there now. And I think that's that

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<v Speaker 2>would really help because I don't know, if you saw

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<v Speaker 2>the last numbers from Calisto and Financial, it's like again,

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<v Speaker 2>I mean, I know there was a bit less money

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<v Speaker 2>flowed out of the UK on a monthly basis, but

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<v Speaker 2>that's like four years now of consecutive outflows except for

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<v Speaker 2>late you know, I collect you but to do the

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<v Speaker 2>capital gains tax changes, so it's something there can only

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<v Speaker 2>be so much money left to come out.

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<v Speaker 1>I mean, it's Christopher mill Or, that doesn't it. John

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<v Speaker 1>The people who would like to mandate pension funds in

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<v Speaker 1>the UK to invest in the UK equities, and I

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<v Speaker 1>see that today. Ross Oltman, one of the old pension

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<v Speaker 1>minister's former pension ministers today has suggestion has been that

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<v Speaker 1>every twenty five percent of every new contribution into a

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<v Speaker 1>pension fund, be it into an orderinal monitor into a

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<v Speaker 1>twenty five percent of every new contribution should be obligated

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<v Speaker 1>to invest in the UK or to be invested in

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<v Speaker 1>the UK. And she sees that it's just perfectly reasonable

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<v Speaker 1>on the basis that it goes in income tax free,

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<v Speaker 1>and you can take out not quite twenty five percent anymore,

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<v Speaker 1>but you know, twenty five percent tax free when you

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<v Speaker 1>invest the fund, and of that, basically she sees this

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<v Speaker 1>perpularly reasonable that twenty five percent of new contribution should

0:12:03.480 --> 0:12:05.839
<v Speaker 1>go directly into the UK market. That's slightly more than

0:12:05.880 --> 0:12:08.200
<v Speaker 1>some other people think, but nonetheless, this is now a

0:12:08.320 --> 0:12:11.520
<v Speaker 1>very accepted idea that we are so close, so close

0:12:11.760 --> 0:12:15.760
<v Speaker 1>to mandated investment in the UK as a payback for

0:12:15.840 --> 0:12:18.040
<v Speaker 1>tax relief, and I we're just not going to take

0:12:18.160 --> 0:12:22.000
<v Speaker 1>that much of that to turn a market that has

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<v Speaker 1>been this uninvested in for so long around.

0:12:25.520 --> 0:12:31.520
<v Speaker 2>Yeah, I agree. I think it's a shame that this

0:12:31.679 --> 0:12:34.160
<v Speaker 2>has now become such a big talking point when if

0:12:34.160 --> 0:12:37.000
<v Speaker 2>I'm one hundredercent honest, I think this would turn around

0:12:37.160 --> 0:12:41.800
<v Speaker 2>naturally anyway, because the defined benefits selling that drove this

0:12:42.160 --> 0:12:45.080
<v Speaker 2>in the first place is now basically done, and it's

0:12:45.080 --> 0:12:48.200
<v Speaker 2>defined contribution pensions to or to enrollment pensions that are

0:12:48.240 --> 0:12:50.960
<v Speaker 2>getting all the floors. And given that we're now moving

0:12:51.000 --> 0:12:54.160
<v Speaker 2>out the USA performing everyone else, I think they're going

0:12:54.160 --> 0:12:58.000
<v Speaker 2>to see money coming in the UK anyway. So but

0:12:58.160 --> 0:13:01.080
<v Speaker 2>you know, at the end of the day, at this point,

0:13:01.160 --> 0:13:03.199
<v Speaker 2>if you are someone who's going to investing in the UK,

0:13:03.760 --> 0:13:06.720
<v Speaker 2>all of the regulatory as well as the fundamental backdrop

0:13:06.800 --> 0:13:09.280
<v Speaker 2>is kind of point in your way. So I'm not

0:13:09.320 --> 0:13:09.920
<v Speaker 2>gonna nork it.

0:13:10.520 --> 0:13:13.760
<v Speaker 1>Yeah, yeah, okay, Well that's all good news.

0:13:16.960 --> 0:13:19.880
<v Speaker 2>Is right, shieldless, But it's actually.

0:13:20.320 --> 0:13:22.080
<v Speaker 1>Yeah, I mean I tried. I tried to bring you

0:13:22.160 --> 0:13:24.680
<v Speaker 1>in there to end this whole thing on an optimistic

0:13:24.760 --> 0:13:27.840
<v Speaker 1>note with you saying how marvelous was and hey, we're

0:13:27.920 --> 0:13:32.880
<v Speaker 1>rushing out to stuff even more UK equities into into

0:13:32.920 --> 0:13:34.679
<v Speaker 1>your step so that you could be the great beneficiary

0:13:34.720 --> 0:13:36.520
<v Speaker 1>of the coming bull margin in the UK. But you

0:13:36.920 --> 0:13:37.640
<v Speaker 1>fluffed it, John.

0:13:38.040 --> 0:13:40.400
<v Speaker 2>I want to beat them to it before they forced

0:13:40.400 --> 0:13:40.640
<v Speaker 2>me to.

0:13:41.280 --> 0:13:44.760
<v Speaker 1>Okay, fair enough, fair enough, all right, Well, I think

0:13:44.800 --> 0:13:49.280
<v Speaker 1>we will leave it there on a mildly optimistic note

0:13:49.480 --> 0:13:52.400
<v Speaker 1>and we will come back to talk about the trade

0:13:52.440 --> 0:13:54.680
<v Speaker 1>deal between the US and the UK in more detail

0:13:54.720 --> 0:13:56.760
<v Speaker 1>next week. We haven't seen the details as we speak,

0:13:56.800 --> 0:13:58.720
<v Speaker 1>so we're not going to bother you with our unformed

0:13:58.760 --> 0:13:59.400
<v Speaker 1>views on it.

0:13:59.520 --> 0:14:01.880
<v Speaker 2>Quite at will do that next week.

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<v Speaker 1>Views next week. Thanks for listening to this week's Maren

0:14:12.000 --> 0:14:14.320
<v Speaker 1>Talks Money Debrief. If you like our show, rate review,

0:14:14.360 --> 0:14:17.120
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0:14:17.120 --> 0:14:19.480
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0:14:19.640 --> 0:14:22.720
<v Speaker 1>w and John underscore Stepek. This episode was produced by

0:14:22.760 --> 0:14:25.400
<v Speaker 1>Moses and Questions and comments on the show and all

0:14:25.440 --> 0:14:28.040
<v Speaker 1>our shows are always welcome. Our show email is merin

0:14:28.080 --> 0:14:30.480
<v Speaker 1>Money at Bloomberg dot net