Bloomberg Audio Studios, Podcasts, Radio News.
Welcome to the Marin Talks Money Markets Wrap.
But we talked about the biggest moves in markets this week and what is driving them. I'm Maren thumbs At, Web Editor at Large at Bloomberg UK Wealth.
And I'm John Stevieg, Senior reported at Bloomberg and the author of the Money Distilled newsletter.
John Inflation. I'm slightly bored by talking about inflation.
We've now been talking about in replation relentlessly, you and me for wow twenty five years. Actually I mean more intensely for the last few it mentally, but nonetheless the conversation hasn't gone away.
We've had the UK inflation numbers. What did they say?
There's really isn't much the tale. It came in at three point four percent today, which was the same as last month. Last month it was meant to be two point five, but they got the wrong vehicle excise duty numbers.
It was actually three point four. The most semi interesting thing is that in about a year's time, if inflation is still above three percent, and it probably will be looking at the arithmetic, then will have been above target for almost five years, well almost five years non stop, nearly, and so you're kind of at the point where people are starting to think when inflation is always three percent or more, and that starts to influence their behavior, or
at least an economics area, it does. And so possibly the Bank of that will be at the back of the Bank of England's mind in terms of when it sets interest rates.
Yeah, although I suppose what should be at the back of the Bank of England's mind is the catastrophic failure of their policies.
I think that is always somewhere miles away at the back of the Bank of England's minds. In fact, possibly in a filing cabinet mark do not open less cognitive dissonance afflict you too heavily, and a long.
Long way away from the filing cabinet that says, how about we change that inflation target. Wouldn't three percent be a little better, because then we might not mess it up so badly it was going to be three percent?
Change the reality.
I think part of the point of financial repression, if you can even get a going, is to pretend that the inflation target is two percent but it's actually three percent. I think that I should maybe think of it.
Do you think do you think that the actual target is three percent?
Conspiracy theory alert, No, it's not a conspiracy. It's more just it would be helpful if it was three percent. We'd like it to be too but too hard. I mean the fact, I mean it was seeing a half percent nearly and they're still saying we want to cut rates. I mean, if they were that serious, or rather if they believed that their tools would push it down, then you would think they'd be talking about putting it up well than putting it down.
I don't well, I don't know.
I don't want to say one more thing about it all, but put out one more thought, which is that you know, we've talked about financial oppression, you and I so much over the years, and our wonderful regular guest ressud Apia comes on. He talks about financial oppression, and when we talk about financial repression, I keeping interest.
Rates but low the level of inflation. Obviously we haven't.
Got that, but we talk about that this idea that inflation behind and target for maybe a decade or something as a way to try and sort out the UK debt situation. But that predicated on controlling spending in the first place.
If you keep spending constantly going.
Up beyond what you can do with this type of mild financial oppression, it's kind of pointless anyway.
Yeah, And I mean that's a problem. And I think that's why I say with politics, you always need to hit a wall. At some point, there's going to be a pin point that did get hit in the seventies and so things changed, and I think probably something some model will have to happen. That's tame. No mother really like it or not.
It feels like it can't be that far off.
Debt to GDP one hundred percent ridiculous?
Do you remember the day?
Is not to keep harp on halving on about how long you and I've been talking, John, but do you remember the days when we used to consider a country to be all but bankrupt when it's GDP debt to GDP rose it was eighty percent?
Do you remember that?
Yeah?
I remember the deficit rule as well for the EU was like three percent. Deficit is getting.
There to dream UK politicians?
Yeah, yeah, right, anyway, on to more more interesting stuff than the sort of you know, slow motion crisis that one day won't be slow motion anymore.
And then we really will want to talk about it.
I wanted to talk about the latest Bank of America Global Fund Manager.
Survey just out for this month.
And this is kind of interesting because they asked the same questions every time, one of them being what do you expect the best performing as it to be over the next five years, And suddenly, instead of everyone going, oh, yeah, American equity is definitely always forever, fifty four percent of them have said international stocks. Only twenty three percent have sent have said US stocks. It's kind of a turn round. And this is not say, for example, by the way
that their portfolios will reflect what they have said. If they did, markets would be performing very, very differently because the flows out of view A securities would be so huge. But nonetheless it reflects a sense of change, right Yeah.
I mean, I love the Global Fund Manager survey. It comes with every mind and it's a really useful sense of market sentiment. And some of the elements of it, you know, you can trade against. You can say, oh, I'm going to take the contrarian view on this, But other bits probably liked like this one, and more indicative
of trend changes. It's kind of gratifying to see because we've been talking about how you know, basically we need flows to come out of the US, or at least not go into the US as much and start going everywhere else, and that would help the UK as well as all. You know, the other can neglect to global markets. So it's nice to see that in theory. At least fund managers do believe this.
Now.
They think it is time to go back into the vacation. They clearly think the US exceptionalism theme has kind of run its course. Are very barish on the dollar, which is probably the one area where I think the level of barishness implies that we could get a short term bounce back, but even then it's probably only like a short term thing rather than a longer term big shift.
Yeah, and then I'm looking at the biggest tail risks that they think there are out there, trade war triggers global recession. Is that a tail risk if everyone expects.
It, everybody thinks is kind of unlikely or wants to think it's unlikely.
I don't think.
I think we've been so long without a proper recession that people can't quite wrap their heads around the idea that there might be one. If you ask me which of the two outcomes, no recession or air recession. I had to bet on I wouldn't have high conviction, but it'd be more no recession because I think it's going to be more like inflation nominal GDP growth type of thing.
What if I gave you mild recession.
Yeah, but then I think mild recessions kind of like no recession and an inflationary because your economy is still growing, it's just not growing properly.
Fair enough.
If anyone's interested in whether there's going to be a recession or not, please listen to this week's Interview podcast on Friday.
There's a lot in.
There about whether recessions have been canceled completely. We will never see the like of the recessions of the previous century again.
Absolutely.
Oh he's really interesting.
Yeah.
Although, and we talked about, you know, one of the main things behind this idea that there won't be another recession is the idea that the capital cycle is different in an intangible economy.
But then I would still worry slightly about AI because.
The capex there has been massive. There's definitely a capital cycle there. But we'll come back to this another time. We'll come back to another time. The other bit I wanted to point out in the survey is what do you think is currently the most crowded trade? And the answer this is not what is the most crowded trade,
it's what people think the most crowded traders. And the answer there at the moment is long gold, which is the third month running that people have thought that other people are in a crowded trade.
Right, yeah, I mean the created trade questions are really interest in one when the b OFV thing, because when you look at it, it doesn't tell you much. This actionable or when they said, oh.
I don't know, I think it doesn't doesn't it tell you something. It tells you of.
People think that long gold is the most crowded trade, but only thirteen percent of people think that gold will be the best performing investment over the next five years.
See.
I look at that, and I think that means that they think that more money is in gold and really is, which suggests that gold might have.
Further to go.
Okay, yep, that's fair enough.
Maybe you would argue it the other way around. I don't know anyway.
I just think tricky looks if you look at well means if you look at it like long mic seven was the main thing that they thought was a created trade. But they thought that for about nearly like five years give or take. There was a couple of moments where they said, oh, everybody's too long chaining these equities in to what twenty twenty two that was. I guess that was when interestories were coming down. But so I don't I don't actually know how might kind of value that
particular discussion highs. But there's the first team that long gold has been seated as you know, the most created trade.
Yeah, well, third month in a row. We've got that chart.
We've got a child that goes back to October the fourteenth here, which tells us what people have thought the most crowded traded for a long time. I mean, you run through it, it's basically all America long dollar long asstack, long US tack long dollar long magnificant seven. And then they're brief little bits in there where for about five minutes people went long Chin equity is long crypto, etcetera, etcetera.
But in the end, this is basically for the last a decade, it's been all about America, and now suddenly.
It's about gold. I don't know what the signal is there, but it's definitely a signal.
Oh yeah, maybe it's maybe it is, Maybe it's people the accepted wisdom becomes the goals too expense so but you can not own it the same as it was with the US the US, but you can't not win it.
That would be fun for those of us who hold gold.
One more thing to mention briefly was that if it is true, if it is true that investors are beginning to believe that the US will not be the best performing place for for the next five years, and they really believe that the best place to be is either European equities, and I'm going to include you know, don't be upset listen as I'm going to include the UK equities inside the European for the purposes of this conversation, because I suspect that for a lot of big American investors are.
Kind of the same thing.
And we were talking last week about flows, or I was writing about flows last week anyway, and about how there are two you know, when you look at markets, you have to think about two things. Think about the fundamentals and evaluations long term what that means. But also more important than that in the short and medium term, you have to think about the flows. So this massive performance in the US has all been about piles of
money pouring in stock. Prices are about supply and demand in the end, and in the UK we have inking supply. We've talked about this a lot, right, We have and less companies being taken out private equity or just giving up the ghost altogether, mergers, et cetera. A lot of companies living that the market is really really shrunk. So we have a shrinking supply. If we get even the slightest real tickup in demand, we might see something really quite interesting happen.
Yeah, I think the the US has benefited so much, and as you pointed out, so much of the growth in the US market was don't the evaluations expined and rather than fundamentals getting better even though fundamentals were.
Good, fundamentals work out the last week, last we year, they have been good, but not unusually good, not uniqually good, much much the same as most other decades and the last one hundred of years of US history.
Yeah, and it's just a ploy relative to everyone else, average was better than what we all got, so it would be really interested. And the other thing I'd be really interested to see is, given the concerns of a private equity, if the train and the trend of de equitization actually starts to turn around again, or if that's
just not going to happen. I mean, there was one thing I wondered about private equity, and I don't know what your take us on this, but what if the volume money going into private markets is basically a functional passive making it no longer profitable to essentially be involved
in public markets and scrutinally putting people off. And what actually happens is that private markets start to move back towards being semi liquid, semi public, and we kind of get a weird suffcode where it comes back that way rather than you know, private equity blowing up or something and then everyone just going back to the old way of ipoing.
Yeah, that's real.
That's really interesting, And we should refer listeners back to the podcast earlier this week where we were talking about private acre but this idea of semi liquid private equity.
Products where you know, you could get your money out.
Twice a year, et cetera, which I think slightly defeats the whole objective. What we were always told was the most brilliant thing about private equity was its in liquidity, and that's where you get your your excess return from. And if you don't get access return from that way, do you get access return. But it is an interesting point that it could be that it comes back around
that way. And we've seen this the new exchange that we will be having in the UK as well, which is again in exchange for private companies, So it may
come back that way. But I still hope that we will see a return to public markets in that when the average investor looks at the fact that the returns from private equity and returns from public ocity are remarkably similar, surprise for them both being equity, but they can get their returns from the public markets at a lower cost and with significantly more transparency and with significantly more certainty
around the governance and compliance of the management. So I would have thought that might bring people back to the public markets. But again, you know, we'll see nothing about that in the Bank of America survey. I'm afraid probably you're going to add some questions in on that kind of thing. You call them, John, I shall I shall Thanks for listening to this week's Marrin Talks Money Debrief. If you like our show, rate to review and subscribe
wherever you listen to your podcast. Also, be sure to follow me on ex at marinessw and John at John Underscore Stepic. This episode was produced by Moses Anderman Samasadi. Questions and comments on this show and all our shows are always welcome. Our show email is Mirror Money at Bloomberg dot net