Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Marrin Drugs
Speaker 1: Money Market's Wrap, where we talk about the biggest moves
Speaker 1: in the markets this week and what is driving them.
Speaker 1: I'm Marin Zum's, a Web editor at Large for Bloomberg.
Speaker 2: UK Wealth, and I'm joined Stevic, Senior report at Bloomberg
Speaker 2: and the author of the multi award winning Money Distilled newsletter.
Speaker 1: And the audience rolls their eyes as one.
Speaker 2: That's what I like to hear.
Speaker 1: Ah Now, John listen, I was supposed to be talking about
Speaker 1: the biggest moves in the markets, and this week there
Speaker 1: really is one. I know you watched Silver very closely.
Speaker 1: You love silver, and it's sixty dollars. Sixty dollars is
Speaker 1: what's happening.
Speaker 2: It was funny because earlier today I was looking at
Speaker 2: it and I was like, oh, my goodness, silver's above
Speaker 2: sixty dollars announce And it was also it was actually
Speaker 2: me and my wife's twenty fifth went anniversary this year.
Speaker 1: Oh is that silver?
Speaker 2: It was silver eye. And the thing is I bought
Speaker 2: or something silver for the anniversary and it was back
Speaker 2: in the first half of the year and I realized
Speaker 2: that silver has basically doubled since I bought that anniversary presence,
Speaker 2: and then I wonder how I can ask her if
Speaker 2: we can pull it.
Speaker 1: She's probably done it already.
Speaker 2: Jump that's roightly. I was like, oh, your here's looking nice. Ah,
Speaker 2: that'll be wow.
Speaker 1: Trust me, if you bought something nice, you got a
Speaker 1: lot more for it than you had.
Speaker 2: Maybe not, but yees. So it's been quite the suge
Speaker 2: for silver, and obviously gold to the Great Year as well.
Speaker 2: But yeah, Silver's just the one that keeps blowing my
Speaker 2: mind slightly because it's never been above fifty dollars announced
Speaker 2: for a sustained period of time, and now it seems
Speaker 2: to be.
Speaker 1: Oh, that'd be fat. Gold never been about four thousand
Speaker 1: dollars for a sustame period of time, So we're all
Speaker 1: in the zone here.
Speaker 2: Well this is true. But silver's get that thing where
Speaker 2: it actually did hit fifty or nearly hit fifty and
Speaker 2: ninety far back is innineteen eighty and you always think, okay,
Speaker 2: now we're going to come to the point where it
Speaker 2: all collapses. But it seems we're in a new paradigm,
Speaker 2: and basically I think that's because we are back to
Speaker 2: inflationary environment, and it keeps gradually driveling into the market's
Speaker 2: consciousness that this isn't just going to go away, this
Speaker 2: is the new normal for the foreseeable future. Really that
Speaker 2: the backdrop is more of an inflation risk than a
Speaker 2: deflation risk.
Speaker 1: Okay, this controversy that isn't there, and there's some people
Speaker 1: at that who think we're moving into a new deflationary environment.
Speaker 1: But you and I were natural inflation is somewhere because
Speaker 1: we can't see any way out of the global DT problem.
Speaker 2: I think there are individual things that could happen to
Speaker 2: trigger bouts of deflation, and obviously every session is sort
Speaker 2: of deflationary. But I think the overall where we are
Speaker 2: it dictates that politics is going to be inflationary, and
Speaker 2: I think that is fundamentally why I would expect more
Speaker 2: inflation going forward rather than less. And I do think
Speaker 2: that one issue or one problem at the moment is
Speaker 2: that governments are simultaneously so governments are very indebted. They're
Speaker 2: aware at some level that the best way to get
Speaker 2: rid of the debt is to have nominal GDP growth
Speaker 2: which is high, so that you you know, even if
Speaker 2: real GDP growth is low, it doesn't matter. The main
Speaker 2: thing is that you're growing fast enough to pay back
Speaker 2: the debt faster than it's building up.
Speaker 1: Yeah, well they just speA clear real GDP matters to
Speaker 1: real people people.
Speaker 2: Yeah, we'll talk just government. Yeah, how the government can
Speaker 2: soft default on its debt basically, so encouraging a higher
Speaker 2: level inflation is a good thing for them, put their
Speaker 2: point of view. At the same time, they know the
Speaker 2: cost of living a noise voters, and I think the
Speaker 2: trade off there is, and we're already starting to see
Speaker 2: it is going to be something basically price controls. Not
Speaker 2: over price controls necessarily, but more and more things slipping
Speaker 2: in Like I mean, like for example, Rachel Reeves freezing
Speaker 2: the kind of the train tickets and the budget and
Speaker 2: various other kind of minor moves that are short tail
Speaker 2: moves to make inflation look lower than as for the
Speaker 2: next year, say like the Bank of England thinks it
Speaker 2: will cut about half a percentage point off headline inflation.
Speaker 2: But that's only for next year.
Speaker 1: But it's interesting, isn't it. Because one thing we do
Speaker 1: know about price controls is that they don't work.
Speaker 2: Yeah, they don't work.
Speaker 1: Longirl, you can't make prices stay down. And there was
Speaker 1: a very interesting article by old friend of the podcast,
Speaker 1: Simon French a little while ago, I don't know if
Speaker 1: you read it, where he explained that the problem with
Speaker 1: the UK is it one of the many problems with
Speaker 1: the u K is it effectively runs a system of
Speaker 1: price controls across the economy. Everything is controlled one way
Speaker 1: or another.
Speaker 2: Yeah, and it's extremely striking. Now, I think you know,
Speaker 2: it's been going on for a while, but like so
Speaker 2: many things at Index, and I think in the wages
Speaker 2: market particularly, they kind of just rolentless rise in the
Speaker 2: minimum wage specifically. And you do also have the benefits
Speaker 2: system kind of playing a big part in this, but
Speaker 2: a less clear one. But you've almost we've almost kind
Speaker 2: of simultaneously put a floor under wages, but it's so
Speaker 2: high that it's putting a cap or on wages at
Speaker 2: the other end of the spectrum. So really the relationship
Speaker 2: between reward and effort is being being very disrupted, and
Speaker 2: that's extremely bad for productivity because people's incentives are not
Speaker 2: designed properly.
Speaker 1: Yeah, so are effectively our wage and price controls baking
Speaker 1: fleshing in rather than the other way around.
Speaker 2: Yeah, which is really bad. So there's so many things
Speaker 2: that need to be unwound and dismantled if we want
Speaker 2: to get the UK back into a good place. But
Speaker 2: I don't say that happening any time soon.
Speaker 1: And you wrote this week when you were writing about
Speaker 1: central banks and interest rates and political pressure to keep
Speaker 1: right down and obviously we feel that in the US,
Speaker 1: not seeing that in the US, and there's a lot
Speaker 1: of political pressure in the UK as well to keep
Speaker 1: right slow even though we feel there is this inflationary backdrop. Yeah.
Speaker 2: I mean it was interesting because Rachel Reeves was in
Speaker 2: front of the Treasury Select Committee yesterday of the day before.
Speaker 2: The whole point was about the budget, and they run
Speaker 2: up to the budget, but one of the Conservative MPs
Speaker 2: in the Select Committee asked her a question that you know,
Speaker 2: she wasn't particularly keen on, and then she kind of
Speaker 2: laughingly pointed to the fact that they'd managed to have
Speaker 2: five interest rate cuts under the Labor government, as if
Speaker 2: that was an achievement of the government. And it is
Speaker 2: this thing where you've got the government realizing that it
Speaker 2: wants interest rates to go down and having pinned its
Speaker 2: kind of reputation on creating an environment in which the
Speaker 2: bank of anyone can cut rates, and even if it's
Speaker 2: doing nothing else, that's there's an element of pressure there
Speaker 2: on the management of the central bank to meet the
Speaker 2: government's expectations regardlessly you know which government is that it's
Speaker 2: all part of the state apparatus. Ultimately, an independence is
Speaker 2: really just you know, it's just a fig leaf.
Speaker 1: It's a mirage.
Speaker 2: Yeah, exactly, So you're always whenever you've got even get
Speaker 2: politicians don't built like that. I mean, obviously Trump is
Speaker 2: very overt about it. You know, it's like, I think
Speaker 2: the FED cut into streets by a quarter point yesterday,
Speaker 2: and he just puts it a tweet immediately the equivalent
Speaker 2: in a tweet saying that this is a waste of time,
Speaker 2: you know how it was useless and you know, I
Speaker 2: can't wait to get somebody proper running this thing. And
Speaker 2: so that's very overt. But the same sort of pressure
Speaker 2: is there from kind of across the board.
Speaker 1: Mm hmm. And you also mentioned in the same piece
Speaker 1: or but that you talk fair energy and oil press.
Speaker 1: We both we both read the same article, didn't we
Speaker 1: have the gab cal daily on one are Today's contrarian
Speaker 1: trades and one of the contrarian trades that you could
Speaker 1: take at the moment is oil, and that it's been
Speaker 1: sort of remarkable how cheap oil is stayed all the
Speaker 1: way through this year.
Speaker 2: Oil started the year around about eighty and it's down
Speaker 2: to almost sixty now, And I mean, I think you've
Speaker 2: got to think about how much that's also played into
Speaker 2: the fairly calm inflationary environment this year, because one thing
Speaker 2: you can usually say for sure is oil going up
Speaker 2: is inflationary. In the longer run, it's deflation because it
Speaker 2: acts as a tax. But in terms of your headline prices,
Speaker 2: you know they're going to go up with the oil
Speaker 2: prices going up, because that feeds through everything else. So
Speaker 2: I think that that, Yes, I think one of the
Speaker 2: surprises for next year might be oil coming back more
Speaker 2: sharply than anyone expects in the moment, because everyone's talking
Speaker 2: about who there's a supply glut. And also I was
Speaker 2: looking at that piece and I thought it was an
Speaker 2: interesting piece. But of the four contrarian trades he suggested,
Speaker 2: I definitely thought the energy was the most kind of
Speaker 2: paling one because you can see how it could happen
Speaker 2: more dreadily than the other ones.
Speaker 1: He suggested, we need to get somebody on to talk
Speaker 1: at length about the possibility of a new commodity Supersnycher.
Speaker 1: We're going to do that, and then I'll talk about
Speaker 1: the commodities, but spectrum as a whole. We haven't done
Speaker 1: that phrases, so stand by we'll be doing that in
Speaker 1: January or February. But the last thing I want to
Speaker 1: talk about today was Howard Marx. We have had on
Speaker 1: the podcast before and he writes these great letters and
Speaker 1: another one out this week, and this is about the
Speaker 1: AI bubble or not? Is there a bubble? Isn't there
Speaker 1: a bubble? Did you read the note? I read it briefly,
Speaker 1: but you know I did read.
Speaker 2: Yeah. I thought it was It was good. It was
Speaker 2: very sensible, which is always slightly galling because you want
Speaker 2: something it'll be yeah. But I don't know. I think
Speaker 2: if if Marx is kind of coming out and seeing
Speaker 2: because he does noise bubbles at the dot com bubble
Speaker 2: and at the you know, the financial crisis bubble, he
Speaker 2: wasn't like, what's it coming forward? It wasn't particularly equivocal.
Speaker 2: You could read it and say the stuff he wrote
Speaker 2: then and say, no, he's saying this is a bubble
Speaker 2: and it's probably in the bus quite soon. Where there's
Speaker 2: this one. He's very much more equivocal, And that's one
Speaker 2: reason I kind of thought, well, he's a weird one,
Speaker 2: because simultaneously it doesn't feel as if we've got quite
Speaker 2: enough frenzy. Everyone's a bit too skeptical still about it.
Speaker 1: Not in California. Oh yeah, and we heard a lot
Speaker 1: of skeptical stuff. But people who are people who are
Speaker 1: in the bubble are really in the bubble. Yeah. Yeah,
Speaker 1: she's the optimistic, incredibly excited, vaguely worried about the you know,
Speaker 1: existential threats at the end of the world and the
Speaker 1: possible sentience of AI and that kind of thing, but
Speaker 1: generally very very excited.
Speaker 2: Well yeah, I mean, yeah they are, and that's true, and.
Speaker 1: Yeah, maybe maybe how it's been having lunch in California.
Speaker 1: One of the things he says things, he says it
Speaker 1: is worth mentioning, is it? He says, you know, in
Speaker 1: every bubble, people say this time, it's different, and then
Speaker 1: the rest of us say, it's never different. It's never different.
Speaker 1: But a small percentage of the time it is different,
Speaker 1: maybe twenty percent of the time it really is different,
Speaker 1: and you're gonna look at AI and say to you
Speaker 1: know what, this kind of is different. Products exist, people
Speaker 1: buy them, Revenues are going up, maybe not quite enough,
Speaker 1: but you know it exists, it can make money. There's
Speaker 1: a path to profitability for real.
Speaker 2: Yeah, I mean, I think that's so true. I'm not
Speaker 2: sure that even means it's different. There's time more. I mean,
Speaker 2: the Internet was different and it didn't money, but it
Speaker 2: was still a bubble. I think, I mean, I do.
Speaker 2: I think it's maybe checkular at this point to tan
Speaker 2: and look at the bits of it that are definitively bubbles,
Speaker 2: because I mean, obviously in the vedeas that kind of
Speaker 2: the pexx and shovels stop and everyone's actually it's only
Speaker 2: going up twenty percent this year, having gone up about
Speaker 2: two hundred percent last year. But you don't have the
Speaker 2: same sort of stocks that were around in the dot
Speaker 2: com boom, at least not they don't have the profile.
Speaker 2: There's not a lot of companies kind of suddenly coming
Speaker 2: that we fleeky sounding EI products that are then going
Speaker 2: to the moon. But then again, a lot of that's
Speaker 2: maybe in the private credit area where we are not
Speaker 2: looking so much you're not looking, so I sally, Yeah.
Speaker 1: Well, I suppose the thing that he does say that
Speaker 1: the thing that worries me, and we've talked about before,
Speaker 1: is that, you know, until very recently, all of the
Speaker 1: investment in AI came from cash. Yeah it was, it
Speaker 1: was it was equity cash flow, but not anymore. Now
Speaker 1: there's a lot of debt in here, and that changes
Speaker 1: the whole dynamic. I think in the back to private credit,
Speaker 1: there's a lot of debt knocking around in the big
Speaker 1: AI companies. Now we've seen that compression of credit spreads
Speaker 1: as well, which suggests that people are very much aware
Speaker 1: at the level of debt that the big AI companies
Speaker 1: are coming on now. I mean, as Mark says, that
Speaker 1: doesn't have to be a problem. It's not a good
Speaker 1: thing or a bad thing in itself. It just comes
Speaker 1: down to how much day you have, the quality of
Speaker 1: the answers, the cash flaws you're lending again, and all
Speaker 1: that kind of thing. But nonetheless, it's a shift from look,
Speaker 1: we've got a part of cash. We made a part
Speaker 1: of cash because we're a great tach companies, so we're
Speaker 1: going to spend on this new thing to this new
Speaker 1: thing is so competitive and requires so much money that
Speaker 1: we no longer have enough catch and we're going to
Speaker 1: go borrow a big part of money. It's a big change. Yeah,
Speaker 1: and it's relatively recent.
Speaker 2: And it is also really your peaque Yeah. And I
Speaker 2: am noticing more articles even when the Bloomberg say actually
Speaker 2: and generally just talking about the role of the banks
Speaker 2: in funding things that sound very much like the sorts
Speaker 2: of products that ended up getting them any trouble in
Speaker 2: two thousand and eight. So, you know, lots off balance
Speaker 2: sheet stuff that looks as if the risk is all
Speaker 2: on one group of people, but fundamentally, if it does
Speaker 2: blow up, you're the one that's going to own it.
Speaker 2: And I don't know how long it takes before, you know,
Speaker 2: Significant risk transfers or SRTs are kind of you know,
Speaker 2: featuring the equivalent of a kind of whoever Robert Peston
Speaker 2: is these days, sort of like report on the BBC.
Speaker 2: But it does it does feel as if we are
Speaker 2: are nudging towards something like that. You know, whether it'll
Speaker 2: ever get to that point is a slightly separate issue,
Speaker 2: but I do, Yeah, there is I think there is
Speaker 2: a problem with visibility in this particular bubble that we
Speaker 2: certainly bugged that you certainly didn't have in the dot
Speaker 2: com bubble because all of that funding was done through
Speaker 2: I p os.
Speaker 1: Yeah, that was much more transparent.
Speaker 2: What about his bit on jobs, Did you read the
Speaker 2: PS because almost felt.
Speaker 1: As if, no, I didn't read that bit.
Speaker 2: Well, No, I almost felt as if because I'd say
Speaker 2: one thing I found a little bit disappointing. But the
Speaker 2: memo is that obviously he's a credit guy, and I
Speaker 2: was kind of hoping he would say more about the
Speaker 2: credit side up beyond you know, okay, well that's not
Speaker 2: always a bad thing, and that it's all getting a
Speaker 2: bit speculative. But I don't know, you know, where we
Speaker 2: are on the cycle. But the thing he was talking
Speaker 2: about and maybe and actually, to be fair, this probably
Speaker 2: does lean into perhaps he's seeing it as being too different,
Speaker 2: was kind of stressing about basically the number of job
Speaker 2: losses that it's going to cause, you know, it's going
Speaker 2: to kind of wipe out whole tiers of industry and
Speaker 2: the end what will happen, And he was sort of
Speaker 2: making I mean, it's an argument you've heard before from
Speaker 2: other people, But the idea is that we'll live in
Speaker 2: I can almost tech feudalism where you can get Silicon
Speaker 2: Valley millionaires and then everyone else is on universal basic
Speaker 2: income or you know something like that.
Speaker 1: Yeah, well, I do accept that this is the kind
Speaker 1: of thing that happens slowly and then incredibly fast. So
Speaker 1: you know, we're in the foothills of the whole. How
Speaker 1: many jobs can AI do? Whill it take your job?
Speaker 1: How many jobs will it take? And everyone's going, oh,
Speaker 1: that haven't really happened yet. You know, a bit of
Speaker 1: an increase in the productivity of customer services representatives, bit
Speaker 1: of this, bit of that, but it's not a flood yet,
Speaker 1: but there will come a point when it's much quicker. Yeah,
Speaker 1: and it's maybe not that far off. But we're not
Speaker 1: going to talk about that because it's only Christmas.
Speaker 2: Yea, let's not put it down on the readers before Christmas.
Speaker 2: We don't. We don't normally do that.
Speaker 1: Not, No, we don't do that.
Speaker 2: Keep calling your readers, sorry, your listeners.
Speaker 1: Yeah, listeners. And it's so John anders On something positive
Speaker 1: you read earlier this week about how everything was just
Speaker 1: fine in the guilts market.
Speaker 2: Say, yeah, let's wait to the local elections. But between
Speaker 2: now and then, there's probably not going to be many
Speaker 2: kind of firewoks in the coat market. And I say
Speaker 2: this year that actually were on it felt like that
Speaker 2: way out. But the goats goats had can like ten
Speaker 2: years that end in rough in fact a little bit
Speaker 2: below with your ten year yield is roughly a bit
Speaker 2: below where it started you're at. So overall, for all that,
Speaker 2: it's been a kind of fairly grim and chaotic year politically.
Speaker 2: You know, all the hype about the guilts market has
Speaker 2: company nothing. And I think given that the UK still
Speaker 2: has one of the highest base rates, in fact it
Speaker 2: is the high space rate and the developed world at
Speaker 2: this point, they're still room for the Bank England to
Speaker 2: come down. And if it turns out that the economy
Speaker 2: is even worse than expected next year, then maybe the
Speaker 2: Bank England comes down a little bit more than everyone's expecting.
Speaker 2: So that would probably mean that kind of guilty would
Speaker 2: to go down a bit, and therefore gilts perform okay
Speaker 2: next year.
Speaker 1: So here we are straight into the dynamic that you
Speaker 1: and I've worked with for so many years. Bad news
Speaker 1: is good news, excellent economy suffers, and your guilt too fine.
Speaker 1: So let's end on that. That's a cheery note.
Speaker 2: Shall we Yeah, I'd say marry Christmas. But there's more,
Speaker 2: at least one more of these, isn't it before we raie?
Speaker 1: No one's getting No one's getting off that lightly. It's
Speaker 1: only the eleventh. Thanks for listening to this week's Maren
Speaker 1: Talks Money, Marcus Dee Brief. If you like a show,
Speaker 1: rate review, and subscribe where ever you listen to podcasts,
Speaker 1: Also be shure follow me and John on ex or Twitter.
Speaker 1: I'm at marins w and John is John Underscore Stepic.
Speaker 1: This episode was produced by Summersidi and Moses and