Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Meron
Speaker 1: Talks Money Weekly round Up, our debrief on the biggest
Speaker 1: stories in markets and economics. I'm Maren Sum's Web editor
Speaker 1: at Large for Bloomberg UK Wealth.
Speaker 2: I'm jointed Staffake or my Stolle newsletter On senior reporter
Speaker 2: at Bloomberg.
Speaker 1: Right, John, and I would like you to know that
Speaker 1: this is not a bonus podcast. It is not an
Speaker 1: emergency podcast. It's just our normal Merin Talks Money Weekly Roundup.
Speaker 1: Right John, We are not panicked in anyway whatsoever.
Speaker 2: We are entirely calm.
Speaker 1: However, we are also going to keep this short and
Speaker 1: snappy because our producer would like to get it out
Speaker 1: before Donald Trump wakes up, so it's valid for at
Speaker 1: least half an hour.
Speaker 2: Also, Fair's decision. It's not a bonus sort on emergency podcast,
Speaker 2: but it is a rapid podcast.
Speaker 1: Not panicked, just rushing a little, right, So we should,
Speaker 1: I suppose set the scene because obviously there is only
Speaker 1: one big story now that we're panicked. But there is
Speaker 1: only one big story, which is the coming and going
Speaker 1: and coming and going of the tariff. So we're eight
Speaker 1: days on now from Liberation Day. How many trading days since? Then? Seven?
Speaker 1: We hang on, We're on the eighth trading day, up down, up, down,
Speaker 1: up down, odd things happening all over the plaze markets
Speaker 1: going down, down, down, down down. Then suddenly, yesterday six
Speaker 1: eighteen pm UK time, we find out that there is
Speaker 1: going to be a ninety day pause for most people,
Speaker 1: not for everybody. Obviously the ten percent stays and China
Speaker 1: gets one hundred and twenty five percent of tariffs. Now,
Speaker 1: this was amazing. Everything changed instantly. When the US market
Speaker 1: closed last night, the now's up but twelve percent. The
Speaker 1: SMP five hundred was up nine and a half percent.
Speaker 1: So that means that while they're both still down year
Speaker 1: to date, to look at them over a year and
Speaker 1: you wouldn't know that anything has happened. The NASDAK is
Speaker 1: now Bysibor closed last night up over six percent over
Speaker 1: twelve months, and the SMP was also up over twelve months.
Speaker 1: So if you were the kind of person who only
Speaker 1: looked at your portfolio once a year, and you chose
Speaker 1: last night to look at it, you would think that
Speaker 1: absolutely nothing had happened at all. Event you've probably be
Speaker 1: pretty pleased that you've got six percent over a year,
Speaker 1: given how expensive the US market was, right.
Speaker 2: It really is a good lesson in if you are
Speaker 2: on a long term investor and you are comfortable with
Speaker 2: your investment plan and you've thought it through, then looking
Speaker 2: at your portfolio relatively really is a sensible decision in
Speaker 2: terms of being able to sleep well at night in
Speaker 2: order the rest to I appreciate that would have been
Speaker 2: difficult if you pay any attention to the news at all.
Speaker 2: A lot of the time, it really is was just
Speaker 2: parking everything and staying calm. And that's the reason to
Speaker 2: make sure you've got your financial affairs and financial goals
Speaker 2: and or the whale markets are not doing things like this.
Speaker 1: God is so sensible. If I didn't have this job,
Speaker 1: I would have been trading manically for the last five
Speaker 1: days anyway. By mid morning today, and I'm sticking with
Speaker 1: mid morning because who knows what's going to happen. This afternoon,
Speaker 1: the footsoo was back up as well, five percent up,
Speaker 1: so back to the kind of evens on the year
Speaker 1: out of about two percent over twelve months. But also,
Speaker 1: and here's John, why you know, maybe you should trade
Speaker 1: this stuff. By mid morning this morning, sixteen forty one
Speaker 1: hundred stocks were up over ten percent. So if you
Speaker 1: spent yesterday afternoon making a night's list of cheap UK
Speaker 1: high yielding shares, you'd be really really happy today.
Speaker 2: Oh yeah, I mean this is the other thing I'll
Speaker 2: tell If you're buying individual stocks, then you should already
Speaker 2: have a watch list and an idea of what place
Speaker 2: would tempt you to buy these stocks. There's largest opportunities
Speaker 2: for people who did mice to stay calm and who
Speaker 2: had the kind of optionality of winning cash. And also
Speaker 2: anyone who's held a better the portfolio in gold would
Speaker 2: at least if it's something that'll look at on the
Speaker 2: downdees that wasn't collapsing.
Speaker 1: Actually, and that's lots very neatly into the we told
Speaker 1: you so section of this podcast. We told you so,
Speaker 1: We did tell you to always hold gold because it'll
Speaker 1: help you out the tough times. Anyway, So onner, what's
Speaker 1: going to happen next or what was kind of maybe
Speaker 1: going to happen next? You can have the fainted idea,
Speaker 1: But let's start with this question, John, is Trump winning?
Speaker 1: Did he blink? Did he fold? Or is this what
Speaker 1: he planned to do all along? I mean, you can
Speaker 1: tell a lot about the biases of every financial and
Speaker 1: political commentator out there by the way they've started their
Speaker 1: columns and their articles on this today. But when I
Speaker 1: look at it, I'm not sure I see anything particularly straightforward.
Speaker 1: I mean, the plan was always as I understood it,
Speaker 1: the idea was or worth to take action, mainly against China.
Speaker 1: And here we are. There are still massive teriffs ainst China,
Speaker 1: and everyone else still has a ten percent tariff. So
Speaker 1: the problem remains, this is still a huge global upheaval.
Speaker 1: It isn't over. It's not solved. These tariffs have to
Speaker 1: be paid. The supply chains that everyone has had on
Speaker 1: the go for the last couple of decades, and the
Speaker 1: shift doors of free trading environment that we've had on
Speaker 1: the go for the last eighty years, this is over.
Speaker 1: So whether Trump is called a pause and why he
Speaker 1: called that pause, the basic situation remains the same. We
Speaker 1: are at a massive turning point in global economic and
Speaker 1: political history, and those dislocations are going to change everything
Speaker 1: around us, and we can't tell quite how. Am I
Speaker 1: the mad one or is it the market.
Speaker 2: Nor You're right, certainly I agree both you.
Speaker 1: That means I'm right if we agree almost always together,
Speaker 1: we're right.
Speaker 2: Yeah, so yes, awfully yeah, because look, in terms of
Speaker 2: the tariff's on China, but at the point where the
Speaker 2: number actually doesn't matter, you've effectively declared a trade embargo.
Speaker 2: And that's a really big deal. I mean, obviously, nel
Speaker 2: Fi Ferguson came up with this term ki America for
Speaker 2: what had been going on in the last ten twenty
Speaker 2: years since the World Trade Organization that China was allowed
Speaker 2: into it, which is the idea that Americans bought cheap
Speaker 2: consumer goods from China and China invested in US treasuries.
Speaker 2: And clearly that that's gone. That's definitely gone unless there's
Speaker 2: some really an actual U turn. And as far as
Speaker 2: all the capitulation stuff goes, it's kind of down to
Speaker 2: your own bias. I can't see any Trump's mind, but
Speaker 2: what you can see is that he started ten days
Speaker 2: ago from what looked like an absolutely to most people,
Speaker 2: crazily thought through a way of putting on tariffs and
Speaker 2: then in a very aggressive position, and now he's retreated
Speaker 2: to where people thought he was going to be, except
Speaker 2: that actually I don't think anyone thought that. Behondred and
Speaker 2: twenty five percent tariffs or in China, and so actually
Speaker 2: he's further forward and his agenda then he would have
Speaker 2: been if he'd just gone straight for this ten days ago.
Speaker 1: Also, I mean, he did say that he wanted everyone
Speaker 1: to negotiate, and you look at it now and it
Speaker 1: does look like this big pile of chok and all
Speaker 1: has actually done that. Everyone's got their flat ten percent
Speaker 1: except famine Canada and Mexico and China, and pretty much
Speaker 1: everyone is coming to the table to negotiate him. When
Speaker 1: we're told that the fifty out of sixty odd countries
Speaker 1: are having a go, there was an EU tweaked yesterday
Speaker 1: saying how much they look forward to finding a way
Speaker 1: to get to zero tariffs with the US. Everyone's coming
Speaker 1: to the table. So maybe maybe we have the headline
Speaker 1: say maybe he's kind of winning.
Speaker 2: I wouldn't go so far as to say that yet,
Speaker 2: just because I don't know who this is going to unfold,
Speaker 2: and I don't nine to fall into the trap can
Speaker 2: of beas and things and where my own sympathies lie
Speaker 2: one way or the other part from anything else is
Speaker 2: American politics. I don't really have sympathies one direction or
Speaker 2: the other. But I do think this idea that Trump's
Speaker 2: an idiot, that's a waste of your time. If that's
Speaker 2: what your mentality is, then don't spend any more time
Speaker 2: thinking about this because you're not going to learn anything.
Speaker 2: The fact is the world has changed. China and America's
Speaker 2: kind of trade relationship has been severed, and America is
Speaker 2: now mix to impose a ten percent tax when every
Speaker 2: import that comes into the country, which is another thing
Speaker 2: that will be interesting to see how that unfolds. Now,
Speaker 2: there is one argument that this is effectively back door
Speaker 2: way of introducing that consumption tax in America. You can't
Speaker 2: do a VAT because obviously, you know Americans don't like
Speaker 2: taxes and fair play to them, So this is a
Speaker 2: way to impose a ten percent vaight. The looks as
Speaker 2: I was being paid for by exporters, and to whatever
Speaker 2: extent it is paid for by the exporters, that's a
Speaker 2: win for you as a country. But it is also
Speaker 2: a summer at least is going to be passed on
Speaker 2: to consumers. And I think that's it's really interesting we
Speaker 2: look at it because it also shows that the administration
Speaker 2: is aware that America has got a debt problem and
Speaker 2: they are going to try to address it in some way.
Speaker 2: Whether that walks or not is another matter. But the
Speaker 2: point is all of these imbalances have been lead knocked
Speaker 2: to in a moment like this.
Speaker 1: That's the absolutely key point. We've been talking about this,
Speaker 1: and I wrote about it a few weeks ago, effectively
Speaker 1: saying he's a catalyst, not a course. Of course, everything
Speaker 1: Trump does escalates, changes, shifts a direction to degree of
Speaker 1: where we're going here. But the fact remains that we've
Speaker 1: been gearing up for some kind of trade wall between
Speaker 1: the US and China for a long time now, and
Speaker 1: there's anger towards globalization, anger towards the inequalities or perceived
Speaker 1: inequalities driven by globalization has been underway for some time,
Speaker 1: and actually electorate after electorate after electorate has asked their
Speaker 1: leaders to do something about this, and of course have
Speaker 1: been roundly ignored. And I did right the other day
Speaker 1: that the tariffs are Americas brexiting. And I suppose you
Speaker 1: could say that we voted for Brexit, but our leaders
Speaker 1: are too to know what we wanted, what the UK wanted.
Speaker 1: With Donald Trump, they're kind of getting what they're asked for.
Speaker 2: Up until two thousand and eight, they kind of anger
Speaker 2: was papered over by rising house prices and kind of
Speaker 2: abundant credit, et cetera. And then whenever the financial crisis
Speaker 2: came along and everything blew up so sufficient people felt
Speaker 2: they were losing out from the system as it was
Speaker 2: to start getting angry about it. And it wasn't until
Speaker 2: twenty sixteen that people basically get fed up of business
Speaker 2: as usual, politicians promisingly changed things and not changing things.
Speaker 2: And that's whenever we got boats Brexit and Trump elected
Speaker 2: for the first time. Even there with voters taking quite
Speaker 2: radical action, nothing has been done fast enough for their liking.
Speaker 2: So this is a point where that's it. It's coming
Speaker 2: apoy so that Trump's actually just standing up and seeing
Speaker 2: the quiet part out loud as they see. And people
Speaker 2: don't like it because it upset it's the kind of
Speaker 2: establishment view and they're not used to someone speaking so
Speaker 2: undiplomatically putting said any personal qualities that Trump has or
Speaker 2: not hasn't. But the fact is some kind of big
Speaker 2: change is what people have been asking for and know
Speaker 2: they're going to get it, whether they'll EKO not like.
Speaker 1: It or not. I suppose we're supposed to talk about markets.
Speaker 1: So the key thing to talk about here is what
Speaker 1: on earth is going on in markets. We've talked before
Speaker 1: about the fall in US markets so far this year,
Speaker 1: sure related to things that Donald Trump's administration have said
Speaker 1: and done, but coming anyway, because if there's massive divergence
Speaker 1: in valuations between US markets and other markets, which we
Speaker 1: were told until readily recently was down to US exceptionalism,
Speaker 1: US perfection, everything always going right, AI, etc. And whether
Speaker 1: Trump or no, all those things would have begun to
Speaker 1: crumble over this year. So this is as much about
Speaker 1: that valuation problem than about anything else, and that valuation
Speaker 1: differential remains, so regardless of what happens next, it still
Speaker 1: makes sense to expect the US market to come off
Speaker 1: over the next year, two years, five years, whatever it is,
Speaker 1: until valuations return to some kind of norm because now
Speaker 1: we know that the US is not perfect. Well I
Speaker 1: think we knew it before, but apparently not everybody did.
Speaker 1: We know that exceptionalism never lasts that long, and we
Speaker 1: know that every time you hear anything like the word exceptionalism,
Speaker 1: you should immediately get out of whatever market it is.
Speaker 1: I mean, we were old enough to know that, right,
Speaker 1: So the simplest thing to say about this is that
Speaker 1: regardless of everything happening around US, US stock markets are
Speaker 1: still expensive. Other stock market's still off of value. And
Speaker 1: if you're moving into a difficult environment, why would you
Speaker 1: not want to hold the markets that start at the
Speaker 1: right price rather than the markets that started the wrong place.
Speaker 2: Yeah, definitely, and I think that's going to be whatever
Speaker 2: else happens. It's very obvious to the people who believed
Speaker 2: in US exceptionalism that use exceptionalism is now over. So yeah,
Speaker 2: I think it's you can expect capital to move out
Speaker 2: of the US, or rather, in relative terms, you can
Speaker 2: expect the rest of the world to catch up to
Speaker 2: the US. There's another interesting question over whether this is
Speaker 2: a time for having an element to home bias. We
Speaker 2: haven't seen it overtly yet, but this is the sort
Speaker 2: of environment in which capital controls are something that people
Speaker 2: will be looking at, and that's just worth considering. I
Speaker 2: don't know how extreme those controls might get, but well,
Speaker 2: now in a world where if globalization is rolling back
Speaker 2: or stalling or whatever, and more borders are going up
Speaker 2: in more friction is going up, then you want stuff
Speaker 2: to be nearer to you, and that includes your money.
Speaker 2: To an extent. I mean, I'm not saying you don't
Speaker 2: have a two percent money in the UK. But the
Speaker 2: point is, whatever you live, if you may want, you
Speaker 2: think about, actually, what are the implications of other countries
Speaker 2: to say that, actually we're going to put a tax
Speaker 2: or in their sort of tax on that, or your
Speaker 2: own country says if you don't keep money in the UK,
Speaker 2: for example, then it's going to be treated less favorably
Speaker 2: than if it does well.
Speaker 1: I mean, we know that we've talked about national capitalism
Speaker 1: on this podcast a lot with Russell Nathan You've been
Speaker 1: on several times, and this is a new era of
Speaker 1: exactly that where and the tariff is just one symptom
Speaker 1: of people wanting to retreat and protect their owner above
Speaker 1: above others. And of course we've heard in the UK
Speaker 1: endlessly about how our punchinesses are isorets, etcetera. Should be
Speaker 1: brought back to the UK and used to help build
Speaker 1: the rebuild the UK's infrastructure, and we're hearing that in
Speaker 1: other countries around the world. So this is a shift
Speaker 1: that combines nicely with the idea of some possibility of
Speaker 1: capital control. There's just a very different environment, very unfamiliar
Speaker 1: to everybody eighty years as man a trade war that
Speaker 1: there hasn't been this kind of sense of national capitalism
Speaker 1: for many decades either, So very very very hard to
Speaker 1: see how things can unfold from here, because of course,
Speaker 1: this kind of thing has never happened inside a global
Speaker 1: economy that is not just so globalized but also so financialized.
Speaker 1: Financialized is that a word? Yeah?
Speaker 2: Yeahs long enough.
Speaker 1: And that brings us back, of course to the bond market,
Speaker 1: which is the thing that apparently made Trump blink or
Speaker 1: not blink.
Speaker 2: Who knows boind market moves where interest? But beyond that,
Speaker 2: I meanly Norman seems to the way exactly what was
Speaker 2: driving it all as a thing called the basis trade
Speaker 2: in the US, which I'm not going to even try
Speaker 2: to explain because I basically don't know what it is.
Speaker 2: I will buy well, I.
Speaker 1: Will tell you what are Our colleagues and competitors over
Speaker 1: odd lots have explained this very well. So we will
Speaker 1: put in our show notes a link to what they
Speaker 1: have done, and you can go and see what the
Speaker 1: basis trade is there, rather than John and I are
Speaker 1: suffering through trying to explain it.
Speaker 2: Yes, I mean, but you can startly see as America's
Speaker 2: aldi basic leverage positions that blow up and then force
Speaker 2: things to get sold when you don't want to sell them.
Speaker 2: It's fair. I mean the puttly your boind yield went
Speaker 2: back to where it started to day by the end
Speaker 2: of the session. Yes, that they have once they're tile
Speaker 2: of stuff could changed. Boind markets had a problem, but
Speaker 2: I'm not sure of their actual disciplinary powers, especially all
Speaker 2: over some somewhere the US will be interesting to see.
Speaker 1: Yeah, I mean, it seems to me that the bond
Speaker 1: market business is simply a reminder to us of something
Speaker 1: that again we've talked about on this pod quite a lot.
Speaker 1: I don't need to remember. When we had Edward Chancellor
Speaker 1: on the main part as an interviewee. One of the
Speaker 1: things he said was that you should always worry about
Speaker 1: interest rates having been low for so long, and it
Speaker 1: would take ages to see where the problems are and
Speaker 1: the full consequences of the GFC and COVID, etc. Because
Speaker 1: these very low interest rates get into all the cracks
Speaker 1: and you never know where it's going to blow. And
Speaker 1: the fragilities in the system from our very very long
Speaker 1: low interest period remain remain, and there will be places
Speaker 1: where it will blow and we won't know where and how.
Speaker 1: And I think what's happened in the bondmarket over the
Speaker 1: last few days is a reminder that there are these
Speaker 1: fragilities built into the system that we can't identify until
Speaker 1: they go horribly wrong. Yeah.
Speaker 2: I think that's a really good way of putting that.
Speaker 2: People that always told me they can reduce liquidity and
Speaker 2: increased dependence on central banks generally, which has been a
Speaker 2: big problem. We spent a long time suppressing a lot
Speaker 2: of stuff, and that kind of needs to come somewhere eventually.
Speaker 2: And it looks like that's the point of what I.
Speaker 1: Know deep sigh or.
Speaker 2: Well, I mean, on the opposite markets wise, it's basically
Speaker 2: playing out as we'd expected it is. The rest of
Speaker 2: the world catches up with the US after using which
Speaker 2: the S and P. Five hundred is the only game
Speaker 2: in town. You own about of gold, you're own some
Speaker 2: catch to take advantage of the opportunities when they come about.
Speaker 2: You can look at the point side of your portfolio.
Speaker 2: You can look at that it's been basically what you
Speaker 2: need in terms of income, just kind of tax tree,
Speaker 2: how close to retirement you are et cetera, et cetera.
Speaker 2: You should be basically comfortable as long as you've thought
Speaker 2: things through and you're investing regularly.
Speaker 1: And as long as you understand I think at this
Speaker 1: point that you mustn't listen to markets. Yes, you never
Speaker 1: always been told markets contain all the information. Markets are
Speaker 1: very clever, markets are sending you messages. I'm not sure
Speaker 1: that markets have been sending us very accurate messages over
Speaker 1: the last week. So don't listen to market. Don't really
Speaker 1: know any more than you do. And also, I suppose
Speaker 1: we've talked again on this podcast. We've talked previously about
Speaker 1: how terrible forecasts are and how almost everybody's forecasts are
Speaker 1: almost always wrong. Forecasts are always wrong. They will be
Speaker 1: even more wrong, even more wrong than usual, for the
Speaker 1: next little while, because no one can begin to understand
Speaker 1: what would happen. Even if things stopped right now and
Speaker 1: stayed as they are, and we knew these were the
Speaker 1: teriff rates and that was that and there was no
Speaker 1: further change, it would be impossible to forecast what would
Speaker 1: happen with all the moving parts. But given that we
Speaker 1: know that everything is subject to more and more and
Speaker 1: more change and constant uncertainty, which, of course the Trump's
Speaker 1: usp this uncertainty that he creates around him. It's impossible
Speaker 1: to forecast everything, so that's important. And the final thing
Speaker 1: I want to say on this, the final thing is
Speaker 1: that you are so close, John, so close to your headline,
Speaker 1: the one that I know you're going to use at
Speaker 1: some point say thank you to Trump for your low
Speaker 1: mortgage rate name. Thank you to Trump.
Speaker 2: You're so close, so close it.
Speaker 1: As soon as UK rates come down, for whatever reason
Speaker 1: they come down, I guarantee John's going to use their
Speaker 1: headline definitely. Thanks for listening to this week's Merrin Talgs
Speaker 1: Money Debrief. Not a bonus, not an emergency, just a
Speaker 1: normal debrief. If you like our show, rate review, and
Speaker 1: subscribe wherever you listen to podcasts. Also be sure to
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Speaker 1: w and John Underscore Stepic. This episode was produced by
Speaker 1: Moses and Questions and comments on this show and all
Speaker 1: our shows are always welcome. Forecasts not so much. Our
Speaker 1: show email is Merror Money at Bloomberg dot net