Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Maren Dorgs Money Market Wrap, where we talk about the biggest moves in the markets this week and what is driving them. I am Maren Zumset, Web editor at Large for Bloomberg, U Gay Wealth.
And I'm joined Stevic Senior, reported the Bloomberg and author of the Money Distiled newsletter.
Right John. In an effort to ramble less and be more specific and more precise about what we discussed, we have decided that we are going to tell you at the beginning you listen it what it is we are going to talk about. So today we are going to talk about gold. We're going to talk about the blind demand of the ECPTY market, and we are going to talk about bonds and inheritance tax.
Spcell for money.
That's fast, three whole topics.
Right.
Gold. So I was talking to Sebastian Line of Personal Assets Trust last night, right, And as you know, Personal Assets, it's a trust that we're both very fond of, but it always has a pretty big gold holding. And I was talking to them about that how much, why this amount, and how does this work? And he has this sort of base level of gold inside the trust about ten percent, and when things are worrying and difficult and inflationary and scary, he'll go up to maybe thirteen forty percent, and when
everything is kind of a girl to weight percent. And I was trying to get from him why it is that ten percent is his number, because you know, it's impossible to value right, it's impossible to know how much he should have in a portfolio. And he said, well, the key thing is that you need to have enough gold in your portfolio to make a difference when something goes wrong. So don't bother with one percent two percent.
This is meaningless nonsense, but not so much that when things are going right, your performance is really dragged down. And there's the kind of it's a subject to judgment. And he's landed on about ten. And there were a couple of people in our group and someone was like, oh, oh, you know my number is twenty and I think my number is maybe seven. Yeah, I don't know, I don't know.
There's a logic to that. Yeah, I mean it does make sense, and even and I got feeling like five feels like we'll look at the world does end, and five is not going to save you from March. But ten is enough.
It's real insurance.
Just to me, when you said twenty, they're like, kin, I wentz internally slightly because I thought in the twenties too much because in normal terms, everything else is going up and gold is kind of just sittting there. So that I mean ten to me feels kind of certainly in the ballpark of being correct.
Anyway, on the plus side, if you had had twenty in your portfolio when gold was five thousand, you've got a lot less now because we're back down below fourthy and three hundred, right.
Yep, exactly, Thank goodness for that.
You So, what's going on? What's going on there? We're always telling people to have some gold in their portfolios, and we were thrilled when five thousand dollars.
Ah.
Were looking at it now and going, this is a healthy correction. This is all this money you've lost, everybody. That's a good thing.
Yeah, I mean, look, to be honest, yes, I think that this is I think that's not a good thing.
That's a good thing.
To be fair. I remember, as we both were getting quite twitchy, I think we'd sort of mentioned maybe take some profits. But I do because I have been looking at I've been thinking, oh, well, look is this it? Have we taelp tipped over? Is this kind of you know, twenty eleven, twenty twelve again? But I just can't see it. I mean, one of the colleagues, Simon White, who does the Microscope column, wrote a good piece pointing out the Asian money is still buying and that's.
You know, are still buying. Yeah, quite the same scal as they were, but they're still buying.
Yeah. And so I think that a couple of things happened. There's momentum. Obviously everything got very excited without gold. Gold was briefly like the new baitcoin sort of thing. But all so, you know, we kind have had a paeri of inflations going up and people people stopped thinking interest rates are going to go down, started thinking they were going to go back up, and they haven't got quite as far as remembering that, you well, what if interest rates go up, don't go up fast enough to you know,
stop inflation from taking off. And again that's when you want some goldener portfolio. So I don't really and certainly obviously the debt picture hasn't got better, particularly not in the US so I don't see any fundamental things changing unlike you know, arguably they did in twenty eleven, twenty twelve. So yeah, basically I still.
Think yeah, yeah, So find your number with that.
Yeah, and you know, if you're feeling queasy, then then sell something you don't feel queazy.
Yeah, never feel queazy about your investments. Yeah, okay, on that subject, onto number two to me number two. See I'm signaling now Umber two su blind them on theirdo market. Now. One of the things that we've talked a so much over the last decade two decades. For those of you don't know, John and I've been working together a long time. Last couple of decades, the things have really been bothering
us has been the equitization. It's been the general shrinking of the equity market, of the absolute numbers of shares available to you to buy, and of the absolute numbers of companies that are listed. It's been a problem, and so the market has turned into of the last couple of decades, something from which investors extract money from companies been brought out by private equity. You take your cash
and you run from dividend payments from buy bags. You're huge rising buybacks across all markets, particularly in the US, right, And you can argue, and lots of people do. And it's hard to quantify, but that that shrinkage of supply has been one of the drivers behind the bill market for the last however many years. Right now, you take out supply demand today is the same, or goes up and up and up with auto enrollment in four O one case, what do you expect You expect a billmarket? Yeah?
Absolutely, is this entirely logical. It's just that nobody thinks about it because it's so abstract. Yeah, but actually the you know, it's like if suddenly there were like half the number of apples at your supermarket the cave. Yeah. And it's not because the apples are any bit, there's just fewer all of them.
Okay. And so look at what's happening now. We talked about this last week a bit, but we've got these huge IPOs SpaceX. I'll find out very soon how many shares I have been allocated in SpaceX, Space Eggs, Open Air, Open AI, and Thropic. And you know, these are huge, one hundreds of billions with these guys. But even if these ones weren't listening. There would be other companies we would be talking about with huge excitement because they're listening.
There are a huge number of IPOs coming through. And at the same time we're seeing a lot of the companies that would once have been doing buybags. I'm thinking of the hyper scalers exactary. We're very, very cache heavy and are now not cash heavy and are coming to market to look for money. Google Rose money raises money the other day, for example.
And not only lots of money, like eating five billion real money. That's the same what is space.
Suddenly we're in a new environment where instead of the investor you know, listeners, you and me John taking money out of the market. Thanks very much for the cash guys. Now we're being asked to put money into the market. The dynamic has changed. And at the same time, we're looking at private equity, aren't we and going do you
know what? We're not really sure about that performance record of yours and it's really is time that you lot started capitulating and selling that stuff off at the right price. And when you do, I wonder where they're going to sell it and is it going to come back into the public markets. So are we now moving into a new era, you know, back to the future era of the public markets being much more important again being the place where people actually come to raise lands amounts of money.
And are we beginning to see increasing supply both of absolute number of shares and absolute number of companies that we can all buy, not just at this very top end, but across the board, which is great I think for consparency, for liquidity, for wealth equality, for sharing in the growth. I mean, these all seem like good things to me.
It may mean possibly that annual performance across the board isn't quite so good because the supply dynamic changes back in the other direction, but that aside, there seems to me like a really good thing. Capital markets being used in the way that they were designed to be used.
That's a good thing. I mean, let's say it's the it's the purpose to capital markets. And it is also
interesting because it's not just about that. They can you know, the rush or the mega caps, the sort of I think you can argue the shift from public to private markets was for a number of things, but one was that private markets more much less hassle than public markets, especially after the dot com bubble and all the extra you know, compliance that you had to do, and I think that obviously, the big thing that's changed is way over the last kind of five years, certainly, is that
interest rates have shot up, so private capitals much had to come by It's much more expense, so the disparity is starting to close now. Obviously, the fact that equity prices have shot up also means the cost of equity capital is lower, so it's suddenly getting more attractive to do that then to borrow the money. But I you know, even if you kind of like that comes down again kind of equity markets come down again, you still get the issue that private markets are a kind of rather
constipated at the moment. Interest rates aren't going anywhere soon. And also there's a general move to make private markets more transparent and sort of like, I guess, a sort of address this kind of disparity between the compliance budding on private companies versus public companies, and the more you do that, I mean, even if it means dumping more on them rather than taking stuff as well be public.
And also the risk profile these companies as well. It's like if you've suddenly gone from being like, you know, a hyperscaler we'd like not a hyper a company with a massive moat that you just squat in, like like Google, and you just rake in the cash and it's all great, and then Ei comes along suddenly you're like, oh, man, if I want to sustain this mote and you spend a lot of money suddenly coming up against a lot
more competition. The truth is that your risk profile has changed, and on your risk profile changes, it makes far more sense for the company to raise capital and equity markets than it does in debt markets because in equity markets, all of the mugs that buy you are kind of like they're taking the same risk as you. They get the upside, but they also get the downside.
And its permanent capital. Yeah.
But as if you borrow the money off someone, they want to they want it now, and you don't, you know, have a choice. Of your risk profile as a company changes, then it makes more sense to go to the equity markets again. So yeah, no, I think.
First public markets are back.
Yeah, and that's that is a good thing.
We're almost on the same same subject here, yes, with the inheritance tax and bonds, because one of the things that one of the things that John and I've talked about, and I think everyone has heard us talk about it, Enderley, is how do you avoid inherited a tax? How can you get a way from having to pay a large part of your assets but not your assets because you'll be dead by them. But once you're dead, how can it be that you can lead more to your heirs
than you might have otherwise. And we're thinking about this idea that has been put about quite quite a lot over the last couple of months, right now being discussed more and more and more and more and more. For a government that really needs to raise a lot of money, how about doing it with a new type of bond, the proceeds of which are inheritance tax free, not just the proceeds, a whole lot. You stick your money into these bonds and when you diet goes to your tax
free and you could use that. We don't normally hypothecate in the UK, but you could use that to raise the money that we desperately need for defense.
Right this makes sense, it does. I mean, I think there's but here we are, yeah, we all exactly. I mean, I guess got to work with what we've got. But I think the benefits of this are that it would be politically popular, brings down the UK's costs to borrowing. You know, we do actually need the money for defense, so in this case, hypothecating it. Although I detest hypothication because obviously you know it's it's daft to say we're
going to need that set part. The point is we defense is basically it is a bottomless pit at the moment because we're crisis exactly. So it's acceptable. So I don't really see the difficulty. And again, okay, so perhaps it means the inherence tax take goes down a bit, but the inherence tax take is not that large. It's about fifteen billion a year. Say you trim it in half, but then you actually cut your cost of borrow, and you probably even that.
And the question of course is how much does it cut the cost of borrow? Oh yeah, And this is something that the John I were doing about before we started recording, and we were trying to think about it, and we're thinking about it in terms of aim listed stocks. Any smaller stock markets in the UK where small companies listed, and for a long time you could buy shares on
the market and they would be IHG free. That's not the case anymore that I was changed and now they're the rules of changing, and that it's twenty percent, so it's less a thing. But in its previous incarnation, people spent a lot of time trying to figure out how much to the premium of listed AIM stocks or AIM listed stocks should. I say, was purely down to IHT and I'm afraid we can't quite remember the numbers, but we're going to go away and look it.
Up, but specific ones one more because you want ones.
So it's hard to tell. But the key point is that people in the UK are so desperate to avoid inheritance tax that they would buy a portfolio of smaller companies on which they could conceivably have lost one hundred percent of their money in order to be able to have a go at not paying inheritance tax. So if they would do that, why would they not accept, you know, a couple of percentage points lower yield on a bond. Now they're going to get all of that money back.
I can't it's safe. I mean, I mean normal times, yeah, absolutely, But I mean this is the sort of thing where you could see not experiment with a zero coupoind yeah, and just see what happens, because it's still saving an awful lot of money. So I think the government would be daft not to go for it, because I don't. I'm struggling to see the downside. I must have met.
I love it. Do you think the government, you know, you're saying, you'd be daff not to do that.
We're going, well, Barrow is doff, Borrow is doff.
What do you think we're going to do now be less duffed? Yeah?
True, you can think a little bit. But it's very rare because something that is almost no downside. I mean, I don't know. I mean because even if people start saying, oh, it's a tax bunk for the wretch, it's like, well but wait a minute, the rich have been you know, we could call them patriotic bonds or something like that. I mean, it's not It feels like a kind of a no brainer that must.
Have met androotic bond, just not war bonds. Thanks John, Thanks see you next week with another three topics. Yes, thanks for listening to this week's Marrying Talks Money Debrief. If you like our show, rate review, and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on ex or Twitter at marinasw and John Underscore Stepic. This episode was produced by Samasadi, Product support and sound designed by Moses and Questions and comments on
this show and all our shows are always welcome. Our show emails Marimoney at Bloomberg dot net