Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marin Talks Money Market Round Up, where we talk about the biggest moves in markets this week and what's driving them. I'm Marrin Sumset, web Editor at Large for Bloomberg UK Wealth and as ever, I am joined by John Ttepek, senior award at Bloomberg and author of the award winning money Distilled News. Let me absolutely clear for people who've only joined us relatively recently, that I too have many, many awards, many.
Awards, probably more itally.
Yeah. Anyway, well listen, there's only one topic this week, John, and we haven't got long today, so we're just going to dive right into it. We are Yolo to Halo, right.
You to HELLR. This is great. Tell me what those we know were your law stands for? But what does HALO stand for?
Okay?
You always you only live once by? Is heavy assets?
Heavy assets, low obsolescence? Wish said, stop chucking this stuff out at the endless acronyms anway, This one comes from JP Morgan.
I think Halo, doesn't it? I think so now everyone.
Is claiming it just like everyone. Do you remember when we invented the phrase physical bitcoin gold. The next thing we knew everyone was using it without any approbutional that's what's happening, analyst over at JP Morgan with Halo. So what's happening is that people are looking around and going, gosh, you know, we're paying an awful lot for hope when it comes to things related to AI software companies, et cetera, et cetera. We prefer not to pay so much for
hope anymore. We've prepared birthday for real stuff. So we're going to dumple that software and AI related nonsense and we're going to buy oh, I don't know, mines metals. Any company that can show already invested in its infrastructure and that that infrastructure is going to continue to work long term. Is that a reasonable summary.
Yeah, I think that's a reasonable summary. And I think it's interesting partly because it's that the market really has latched onto this in the last month or so. Because first we had AI you know, Anthropic releasing all of those software products and really hitting some of the big
names very very hard. And then this weekend a company called Sutrini Research to just do you know, just the research notes released sort of this apopcalyptic but basically sci fi scenario about how AI could trigger an economic doom spiral. And certainly, regardless of whether it actually caused the cell offer, if it was something else, it certainly got the blame for a significant sale off on Monday. So it sort of shows you how jittery everyone is about this.
I would I suppose it doesn't really matter in the end, what sparks the sell off is it? I mean, if you have an improvement for a particular group of stocks, they're very expensive. In the end, they'll stop being things. And it can be triggered by it pretty much anything under the sun. And maybe it was triggered by this note maybe not. But you know, once you once you get once everything becomes more emotional than fact based, then
this always happens. In the run up to this, we've listened to endless stories about AI which are being very positive. You know, the spread of AI will increase productivity across the board, It will increase everybody's earnings, it will it will add to the US dominance of global stock markets and the global knowledge economy, et cetera, et cetera. And now we find now we find that in factor, AI
kind of eats itself a little. And so in fact, when knowledge goes from being very expensive to as a result of the evolution of AI to going to be from very expensive to being either completely free or very cheap, who wants to be in the knowledge economy. You don't want to be in the knowledge economy. You want to be in the well, the infrastructure and the real stuff economy that backs up the knowledge economy.
Yeah, and I guess it's nice the thing, because it's easier to rather than what play the winners and losers, you just go straight for the things that aren't going to be affected or it was going to be affected, because everyone needs more electricity basically. And that makes a lot of sense, I mean, and that's a really good point of evaluations because I was looking just before we came on, you know, stocks like in UK listed stocks like Experience, an l S and relics that all got
hit hard by the initial kind of software panic. And yeah, one of the things she sort of realizes that, I mean, they were all trading on pees of you know, high thirties and forties and you're you know, they're now down sort of like twenties which is more reasonable ish, but you know that those were very high multiples. So a lot of it is about people going, oh, hold on a minute, I'm paying this might be a good company, but that is a hell of a lot to be
paying for it anyway. So yeah, so that point about this being an excuse as much as anything else is kind of very fair, I think.
So, John, It's postially about that. It's partially about this idea that if you've relied on expensive knowledge to support your valuation and now knowledge may not be as valuable after all. It's partly that, but it's also about the shift from asset light to acid heavy. Right. We've always looked at these companies historically AMAS and Google, Meta, etc. As being incredibly asset light companies. They don't have to spend big money to build an infrastructure to produce their product.
That's not a thing, and so they've always been very, very high cash flow companies. And now they're looking around and going, well, actually, these are beginning to look like really so asset heavy companies. They've really got to invest in energy and power, and you know, there's just a lot of money pouring into what comes behind the spread
of AI. So we've gone from asset light to acid heavier, and you don't pay as much for asset heavy companies, and you don't pay as much for companies that are constantly having to invest as you do for companies that are simply cash flow machines.
Yeah, especially because this is speculative asset investment. Ultimately, you know, it's one thing if BP tondre and says, oh, we find a lot of oil, and if we spend as much and we get the oil, there's them are going
to make that as much money. But these guys are saying, Okay, there's an uncertain amount of AI required and it's going to be of uncertain profitability, but we're still going to splodge a trilli nod dollars on building the capacity because we're pretty sure that it's going to work out at some point. So that's you know, that's the sort of future that I feel needs quite a high discountry applied to it, and I think the market's kind awakened up
to that. And then I mean, and then there is the deeper worry about where's all this money coming from and how much of it is in the private market
rather than the public market. Obviously, that's not so much the case for the hyperscalers, but for all the kind of little companies that are on the side of this, A lot of them are raising money via private credit in various other ways, and it's not that clear how much of that there is, or where the choke points are or where the vulnerabilities are, which is, you know, yet another reason to be mildly kind of wary of what's going on there.
Do you think, John, this is also partly about interest rates.
I think it's very much about interest rates. A lot of it is about I guess the market still going through this wake up process of having got used to being at zero percent interest rates from twenty ten up to right up to twenty twenty one, starting to take that for granted, and not quite realizing that the normalization in twenty twenty two was permanent. We'll not going back to zero percent. And I think it's taking a good few years for the market to start to really begin
to acknowledge that and prace it. And actually, I mean this is part of the process of pricing that in a higher interest rate environment, the Hope stocks, the Eyolo stocks just aren't as attractive.
Yeah, it's just amazing how long this has taken, isn't it. I mean, I suppose we. I don't think either of us really believed that the transition period, the bit when people would go asly interest rates aren't going back to zero, They're going to knock around three four percent, and I need to change the way I invested in direct result of that. I thought that would be a six month process, but it's not. It's years.
I think it's partly I think momentums are really powerful fact and not also think that the longer something's going on, the harder it is for pure to change the minds. I think also it was happening in twenty twenty two, but then EI gave everyone an excuse to go back
to the old way of thinking. And that is interesting because I mean, when chat GPT came out, it was cool, it could make up a little poor for they and stuff like that, but it was very much kind of a toy, whereas now it is really pretty impressive what it can do. Even as someone who is like as I said, not skeptical but hardly an early adopter, I
can see the value in it. But of course, as that's going on and it's evolved, it's alto getting to the point where people are going, Okay, I mean, what if this destroys all of these businesses that we previously thought we're either going to benefit from it or you know, use it to you know, leverage there, you know their IP or whatever. So no, it is It's been a really interesting process, and all I can see is the markets just on that efficient compared to what we might have thought.
I know we think they are and they aren't. Now. Listen, one more thing, I wanted a point towards. There's a little report came to me today from Pamea Laberium about the start of the day, and the question is why do people invest in expensive stocks? Which I think you and I've talked about a lot. Why why do you invest in these expensive things? You can see they're expensive if you know what happens when you invest in expensive stuff, et cetera, et cetera. Anyway, he's written about this. Why
is it that that people continue to do this? And the answer is they like owning expensive stocks because they have lottery like payoffs. They are fully aware the stock is expensive, but they invest in it anyway because they think the share price will go up even further, and no amount of data will convince them otherwise.
How's that a lottery like payoff?
Well, because every now and then one of them will go up a lot more.
I feel that argument is used for everything. It's used for white people invest in in stocks as well, and that makes more sense there because to me it's like, well, you get a bout of wine and a Thosan chat of making any money and deploy can you get shot? You know? Otherwise? But that that doesn't sound like a good reason for buying.
So there's the reasons given.
Perceived safety, yes, safety in numbers, prayerfully.
Yes, supremacy. I'm buying the best stock stock and please see please see my column on that from last week. This does not work. And then but the majority of people say perceived lottery because you might go up a lot more.
Nice, that's why the market is not efficient. Yeah, I was going to read that studying. I'll go and read that studying more detail.
Because I will. I will send it to you. In fact, i'll tell you what. I will also pop it onto the show notes. I know we always say we do that, we often forget, but we're not going to forget today. We'll actually do that now, Listen. This was always going to be a very short podcast, so I'm going to finish it there, but asking one question for you John
before we close. Based on this whole idea of moving from soft stuff to hard stuff, how many different metals do you think are required to make one server?
I'm going to just take a ryandom guess at twelve thirty thirty thirty.
So why would you pay more? Why would you pay more for a share in a company that needs desperately to have those or the company that, in an environment of relative supply shortage, produces those metals.
I'm trying saying if I could even name sightly metals, that's a different challenge.
I have not got time for you sitting there naming all the metals that you learned about in chemistry at school today. That's not happening.
I'll make a great podcast.
No, it totally wouldn't. But you know, challenge, challenge for listeners. Challenge for listeners. John. I'm going to close this now, but John is now going to sit here and think to himself about thirty metals and we'll do this together. John, we got five minutes, but the rest of you once I close this think to yourself, how many metals can you name? How many metals can you name? It's really very important. Thanks for listening to this week's Marin Talks
Money debrief. If you like us, show, rate, review and subscribe. Where have you listened to? Podcast? And keep sending questions or comments to Marror Money at Bloomberg dot net. You can also follow me at Marinus w on X and John at John Underscore step Back. This episode was hosted by me Marin sum Set Web. It was produced by
verses And and Summer Sadi. Now we would be fascinated to know how many metals you can name without looking it up, So let us know on Twitter where you got to, and we will let you know where we got to.