Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Merrin
Speaker 1: Talks Money weekly roundup. Do you brief on the bigger
Speaker 1: stories in markets and economics? No shortage this week as usual.
Speaker 1: I am Maren Zum's Up, web editor at large for
Speaker 1: Bloomberg UK Wealth.
Speaker 2: I'm joined Step although the money distilled newsletters and senior
Speaker 2: Bloomberg reporter. Not really much talk.
Speaker 1: About this week, is it, John.
Speaker 2: Bit slow bit slow slow.
Speaker 1: Now, of course it's not slow at all. It's very
Speaker 1: very busy lot going on, all very exciting. We have
Speaker 1: had the Bank of England out making yet another decision
Speaker 1: on interest rates, and John, this one is interesting, right,
Speaker 1: I mean it's never that interesting, but it's more interesting
Speaker 1: than usual this time because while they have done what
Speaker 1: everyone thought they would do, they haven't done it with
Speaker 1: folk consensus.
Speaker 2: Yes, it's interesting and relative terms.
Speaker 3: Yeah, take a we can get deally well yeah we
Speaker 3: got so we got five way split, so five way,
Speaker 3: three ways five would be great, So three way split.
Speaker 3: So five people voted to cut by a quarter point,
Speaker 3: two people voted to cut by half a point, and
Speaker 3: two people voted to hold. And the reason that was
Speaker 3: the surprise is because basically they thought everyone would vote
Speaker 3: for a quarter point cut except for Swatty Dingra who's
Speaker 3: very very dubbish, and they thought she would vote for
Speaker 3: a half point cut. So as it turns out, having
Speaker 3: two people go on hold is actually quite hawkish, or
Speaker 3: you know, it makes it look as if the Bank
Speaker 3: of England, you know, it is kind of wanting to
Speaker 3: keep interest rates a bit higher for a bit longer
Speaker 3: than perhaps everyone had expected or maybe even hoped. I
Speaker 3: mean mollin in view like four point two five percent
Speaker 3: when inflations kicking around about three and Proyte about to
Speaker 3: go up to three and a half percent, seems you know,
Speaker 3: about the right level for interest rates. But equally, you
Speaker 3: know the kind of bombs falling out the oil market,
Speaker 3: so hopefully that means energy and ppetual places all come
Speaker 3: doing crete fast, So that will probably give a bit
Speaker 3: of cover for the Bank England then the next nine
Speaker 3: months or so to Cardie or and just gently can
Speaker 3: actually cutting interest rates.
Speaker 1: Yeah, and that's that's the general feel, isn't it that
Speaker 1: they'll be cut off to cutof for capital and the
Speaker 1: year three and a half percent or something like that.
Speaker 1: That is what everyone generally expects, and it's all based
Speaker 1: on the assumption that inflation will end up coming back
Speaker 1: to where it's supposed to be for reasons that noone knows,
Speaker 1: but nonetheless where it's supposed to be at around two
Speaker 1: percent in the medium term ish. So that's the expectation,
Speaker 1: and of course there's a million risks of that because
Speaker 1: everyone keeps saying we live in an increasingly uncertain world,
Speaker 1: with geopolitical conflict all around us and the ongoing uncertainty
Speaker 1: of Trump's tariffs all over the place. So actually, as
Speaker 1: I'm sure we often say on this podcast, and everyone
Speaker 1: says all that podcast, at the moment, no one has
Speaker 1: the faintest idea what's going to happen next.
Speaker 2: Yeah, I mean, to be fair, this is one it
Speaker 2: seems what I felt that the Bank England's actually it
Speaker 2: was an a bit of police and a more confident
Speaker 2: place today because it was talking about, well, actually, one
Speaker 2: of the reasons it's a three way splits is we
Speaker 2: don't know what's going to happen next, and I thought
Speaker 2: they were actually fairly straightforward about that. And I mean,
Speaker 2: actually it was the same with the FED. So the
Speaker 2: Federal Reserve was basically saying the same thing. We're not
Speaker 2: cutting interest rates. We don't know where things are going.
Speaker 2: We're sort of justifying this by looking at backwards data
Speaker 2: that isn't even up to date yet, but we don't.
Speaker 2: We just don't know what's going to happen next because
Speaker 2: of the whole Tariff's thing. And I think, yeah, I mean,
Speaker 2: I think it's more honest than everyone usually as, which
Speaker 2: has to be an improvement on what we normally get.
Speaker 1: I've just been reading one of Albert Edward's notes and
Speaker 1: he pointed me to was another note which is super interesting.
Speaker 1: I'm going to put it. I'm going to put the
Speaker 1: link in the show notes, but it's one of the
Speaker 1: few pieces that I've read so far which says that
Speaker 1: all of a sudden certainty is absolutely great. Thank goodness
Speaker 1: for it. It's about time that everyone accepted that the
Speaker 1: future is incredibly uncertain. And one of the difficult things
Speaker 1: about previous bubbles has been the idea of certainty. So
Speaker 1: when we had the Greens Bamput, for example, and everyone
Speaker 1: constantly believes that things will happen in the same way
Speaker 1: and in a very clear and straightforward way, and that
Speaker 1: is what leads people to take intense levels of excess risk.
Speaker 1: So if people accept that the future is uncertain, the
Speaker 1: price of money will be more normal and people will
Speaker 1: behave in a more normal, risk adjusted way. So this
Speaker 1: injection of uncertainty into markets and into the global economy
Speaker 1: could in that sense be seen as a good thing
Speaker 1: rather than a bad thing.
Speaker 2: Yeah, I think it's a really good thing. And I
Speaker 2: think that's a really good point, because you're one of
Speaker 2: the reasons that capital gets mess allocated is because people's
Speaker 2: assumptions are too comfortable. And one reason that momentum investment
Speaker 2: has done so well is because if something's been going up,
Speaker 2: then it might it will keep going up, is the belief.
Speaker 2: So it's kind of good for you know, value investment
Speaker 2: by neglected assets type attitude as well. But yeah, and
Speaker 2: it is good to recognize the uncertainty. Well, I mean
Speaker 2: suppose this is this is also the reason why it's
Speaker 2: so it's the fundamental problem we having central banks constantly
Speaker 2: setting interest rates in the way that they currently do
Speaker 2: as well. You know, I still think the idea of
Speaker 2: choose a number, make it you know, four percent, five
Speaker 2: five percent, four and a half percent, whatever, and just
Speaker 2: leave them there and then do what basically already happens.
Speaker 2: You know that the markets kind of decide the interest
Speaker 2: rate around that, and then you don't have to have
Speaker 2: like nine people in the room decide what the interest
Speaker 2: rates should be. Instead, you've got the entire you know,
Speaker 2: global financial markets to say that interest rates should be
Speaker 2: given various kind of bits of information from all that
Speaker 2: are in the world. So that would be that would
Speaker 2: be much better.
Speaker 1: Okay, John, So let's go back to markets. Markets. Let's
Speaker 1: go back and look at the US market, because we've
Speaker 1: talked about this a lot over the last few weeks
Speaker 1: about how extraordinary it is that after everything that's happened
Speaker 1: and all the extreme movements in the US markets over
Speaker 1: the last you know, in some weeks, you've seen record
Speaker 1: record movements up, record movements down, record numbers of days up, redctera, etcetera,
Speaker 1: all sorts of extraordinary things. But we end up roughly
Speaker 1: where we started. And we can also see that retail
Speaker 1: investors in the US and in the UK have been
Speaker 1: buying and buying and buying into the US market by
Speaker 1: the dip, by the dip, by the dip, by the dip,
Speaker 1: all the way through, which suggests there's an awful lot
Speaker 1: of market purchasements who are not recognizing the uncertainty and
Speaker 1: not recognizing the new approach to risk that ongoing uncertainty
Speaker 1: should mean that they take right. Yeah, and an awful
Speaker 1: lot of people who think that the correction is over.
Speaker 1: Much of it has been reversed and that's that. Whereas
Speaker 1: older hands like maybe you or me a mother, old
Speaker 1: people out there might say, but this is what bear
Speaker 1: markets do. This is what they do to you. They
Speaker 1: give you a sudden drop off, and then after a
Speaker 1: little while of everyone feeling a little pan panicky and
Speaker 1: some people telling it's selling too soon, they come back
Speaker 1: and you're like, oh, okay, I should never have sold
Speaker 1: by the dip. And that can happen five, six, seven
Speaker 1: times on the way down, and it can get you
Speaker 1: every time.
Speaker 2: And what is it like markets claim a wall or worry,
Speaker 2: but they go down a slope of hope. Yes, look
Speaker 2: at exactly. I mean, one thing would point is that
Speaker 2: obviously the dollar has dropped a lot in that time.
Speaker 2: So if you are out said the US, then actually
Speaker 2: you're still lost about ten percent in the last month.
Speaker 2: And I mean, that's one interesting comparison between this and
Speaker 2: between breaks is well, it's like most of the adjustment
Speaker 2: was felt in the currency rather than in any of
Speaker 2: the asset prices as such in domestic currency terms. But
Speaker 2: I think the other thing is people when I say
Speaker 2: one of the sort of like one of the the
Speaker 2: mainstream financial journalists that we like elsewhere, Mike Bird was
Speaker 2: to comment on this and Twitter at some point can
Speaker 2: being kind of asking about why as kind of retail
Speaker 2: investors kind of light piling back in buying the dip.
Speaker 2: And it's that thing where it's been so much the
Speaker 2: right thing to do the last fifteen years or so
Speaker 2: that it's no surprise that people have been trained into
Speaker 2: doing it. Is you know, BTFD has been absolutely the
Speaker 2: correct strategy to kind of follow. And there is also
Speaker 2: I guess that there's also that slight element of financial
Speaker 2: nihilism where it's that people have talked about where it's
Speaker 2: kind of like a bit like bitcoin and kind of
Speaker 2: holding bitcoin, and I hope it's just going to keep
Speaker 2: going up the same with the S and P five
Speaker 2: hundred is the only game in town, and so you know,
Speaker 2: you might as well put all your money in that
Speaker 2: you only have one tape attitude.
Speaker 1: Yeah, there's a new game in town. There's a new
Speaker 1: game in town.
Speaker 3: Right.
Speaker 1: There is one country out there, much derided by by
Speaker 1: investors across the world. No one is invested in this
Speaker 1: terrible market for a very very long time. But this country,
Speaker 1: this country has this week alone done two trade deals.
Speaker 2: Yes, not one, but too fantastic. It's like it's as
Speaker 2: if all of her breaks benefits of landing it once,
Speaker 2: just like that.
Speaker 1: Yes, yeah, and it is, of course the UK where
Speaker 1: you can buy shares on a massive discount to the
Speaker 1: US and quite a hefty discount to the globe as
Speaker 1: a whole. But suddenly with these trade deals, it's looking
Speaker 1: a little investable.
Speaker 2: Right yeah. And I don't think because we don't have
Speaker 2: to have the details of the but but yeah, I
Speaker 2: think from the point of view of the UK's pr
Speaker 2: if you like at then the day we've got a
Speaker 2: time when people are finally wobbling about US exceptionalism and
Speaker 2: they're thinking about where else can I invest? And you know,
Speaker 2: well that includes basically the rest of the world. The
Speaker 2: rest of the world has lacked the US. But one
Speaker 2: thing that you've got the UK does have going for
Speaker 2: it is that it's quite a familiar market and it
Speaker 2: has and it is cheap. So all we really need
Speaker 2: to do to nudge some of those global fund managers
Speaker 2: who don't actually pay that much attention to stuff is
Speaker 2: to get them thinking of the UK as actually that's
Speaker 2: kind of investable again. Although they've done a deal with
Speaker 2: the US, they've done a deal with India. You know,
Speaker 2: they can't be completely useless. Let's just you know, stick
Speaker 2: some money in there now. And I think that's that
Speaker 2: would really help because I don't know, if you saw
Speaker 2: the last numbers from Calisto and Financial, it's like again,
Speaker 2: I mean, I know there was a bit less money
Speaker 2: flowed out of the UK on a monthly basis, but
Speaker 2: that's like four years now of consecutive outflows except for
Speaker 2: late you know, I collect you but to do the
Speaker 2: capital gains tax changes, so it's something there can only
Speaker 2: be so much money left to come out.
Speaker 1: I mean, it's Christopher mill Or, that doesn't it. John
Speaker 1: The people who would like to mandate pension funds in
Speaker 1: the UK to invest in the UK equities, and I
Speaker 1: see that today. Ross Oltman, one of the old pension
Speaker 1: minister's former pension ministers today has suggestion has been that
Speaker 1: every twenty five percent of every new contribution into a
Speaker 1: pension fund, be it into an orderinal monitor into a
Speaker 1: twenty five percent of every new contribution should be obligated
Speaker 1: to invest in the UK or to be invested in
Speaker 1: the UK. And she sees that it's just perfectly reasonable
Speaker 1: on the basis that it goes in income tax free,
Speaker 1: and you can take out not quite twenty five percent anymore,
Speaker 1: but you know, twenty five percent tax free when you
Speaker 1: invest the fund, and of that, basically she sees this
Speaker 1: perpularly reasonable that twenty five percent of new contribution should
Speaker 1: go directly into the UK market. That's slightly more than
Speaker 1: some other people think, but nonetheless, this is now a
Speaker 1: very accepted idea that we are so close, so close
Speaker 1: to mandated investment in the UK as a payback for
Speaker 1: tax relief, and I we're just not going to take
Speaker 1: that much of that to turn a market that has
Speaker 1: been this uninvested in for so long around.
Speaker 2: Yeah, I agree. I think it's a shame that this
Speaker 2: has now become such a big talking point when if
Speaker 2: I'm one hundredercent honest, I think this would turn around
Speaker 2: naturally anyway, because the defined benefits selling that drove this
Speaker 2: in the first place is now basically done, and it's
Speaker 2: defined contribution pensions to or to enrollment pensions that are
Speaker 2: getting all the floors. And given that we're now moving
Speaker 2: out the USA performing everyone else, I think they're going
Speaker 2: to see money coming in the UK anyway. So but
Speaker 2: you know, at the end of the day, at this point,
Speaker 2: if you are someone who's going to investing in the UK,
Speaker 2: all of the regulatory as well as the fundamental backdrop
Speaker 2: is kind of point in your way. So I'm not
Speaker 2: gonna nork it.
Speaker 1: Yeah, yeah, okay, Well that's all good news.
Speaker 2: Is right, shieldless, But it's actually.
Speaker 1: Yeah, I mean I tried. I tried to bring you
Speaker 1: in there to end this whole thing on an optimistic
Speaker 1: note with you saying how marvelous was and hey, we're
Speaker 1: rushing out to stuff even more UK equities into into
Speaker 1: your step so that you could be the great beneficiary
Speaker 1: of the coming bull margin in the UK. But you
Speaker 1: fluffed it, John.
Speaker 2: I want to beat them to it before they forced
Speaker 2: me to.
Speaker 1: Okay, fair enough, fair enough, all right, Well, I think
Speaker 1: we will leave it there on a mildly optimistic note
Speaker 1: and we will come back to talk about the trade
Speaker 1: deal between the US and the UK in more detail
Speaker 1: next week. We haven't seen the details as we speak,
Speaker 1: so we're not going to bother you with our unformed
Speaker 1: views on it.
Speaker 2: Quite at will do that next week.
Speaker 1: Views next week. Thanks for listening to this week's Maren
Speaker 1: Talks Money Debrief. If you like our show, rate review,
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