Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Maren Talks Money Market Wrap. What we talk about the biggest moves in markets this weekend? What is driving them? I am Maren zum Zet, Web Editor at Large for Bloomberg UK Wealth.
And I'm join Stoic, Senior Reports and author of them Money Distilled newsletter.
Right, John, the bullmarket is back big time. We don't even need to bother talking about what's happening in the Middle East or what is not happening in the Middle of the East. We have no idea. We're just going to leave it there.
But it doesn't care. It doesn't care.
The market literally doesn't care. Market doesn't care about anything except for what at the moment, it's earning numbers, right shall We having an amazing earning season, and everyone you talk to you he just says, well, this is just the most massive of bull markets. And it has to be because everybody has some kind of earning surprise. And now we're moving into a proper melt up situation. And this is all marvelous, ai tastic.
And no one can get enough compute.
I can't get enough computer.
Just no compute anywhere Christy does not compute. Yeah, no, so anyway, we could just repeat words of each other.
But it's amazing you tell us about that. He's going.
It's just like the Nasdak is up eleven percent since the Iran war kicked off. So I know we weren't going to mention it, but it's just one of those things where you get okay. So clearly the Baer case is not being made here. And I thought it was interesting that the magazine cover indicator has once again paid off just so dramatically.
Well magazine would John, which magazine would that be?
It does sound tongue in cheeking poor old economists, but it's not. I mean, the reason the economist walks well for this is because the economist is the voice of the closest thing you get to, the crossover between mainstream and business news, so biggest audience for that kind of thing. So when you see something on the cover that's related to markets, then it just it must be in the price. It can't not be in the price because by definition
everyone already knows it. And when it comes to the oil market, the econmans has got particularly strong form because one of the most famous covers they ever did was back in the late nineties when they did a cover that was kind of the headline was drowning in Oil, and the idea was basically that the oil price was never going to go up again, and basically that was the bottom forever, the lowest price the oil ever got
to until that time. It went negative in you know, twenty twenty, and so on last week they came out with a cover saying basically, you people are crazy. The oil price is far too low. And of course since that cover came out, the oil price is down by ten percent. So it's just brilliant for kind of just building for kind of contrarian positioning, but particularly on oil for some reason.
Well, they may yet be right, you know, inn trees have been masking and aful lot of potential supply problems, so you know, we may see another hike in the old price coming and things may change in the Middle East. I mean, who knows, who knows, but you're right the magazine cover. When I was looking this morning again, I wanted to look back and actually double check when it was that BusinessWeek had that covered the number the one and what we would remember it obviously, but death of
Equities it was. Remember that that was nineteen seventy nineteen seventy nine, just before inflation got kicked and everything went into massive, massive balls. So always worth looking at at magazines anyway, did.
You not just one of our things one of my favorite parts of trivia general what year Business Week launched nineteen twenty nine?
Yeah, that would have been my guess. Yeah, wow, brilliant. Although you know what, I have very little moral high ground here because you remember when Money Week, the magazine I was launched, ediitor.
Of launched.
Nineteen ninety nine was our trial issues and the first couple came out in early two thousand. Although we were very very bearish on the dot com komboom we are where we're beurish people, but nonetheless that that's when it launched. But that was because that was the time when people were prepared to finance and financial magazine. Because everyone was interested in markets and money and finance. Everyone wanted more and more information, so that's when people were prepared to
put up the money. So Britain it was the same in nineteen twenty nine. People are to put up the money for Business Week in a way they wouldn't have been able to otherwise, And I think, just to be clear, you know, business weeks still exists, and money.
Weeks still exists.
You know you can survive these things exactly. Things survivable. Anyway, Back to earnings, Back to earnings. Everything that you will have received in the last couple of days, John, and every single thing that I have received in the last couple of days is all about all about earnings and how everything is fine, and how s and P five hundred earnings are going to This is a good one.
I can't remember who this came from. S and P five hundred earnings growth about to break out on the upside of a ninety year annal.
Wow.
Wow, you know, it's not just big take, it's not just big AI across the board. Across the board, we're seeing earnings surprises. So it's all marvelous. So from the point of view of most people looking at this, they're like, well, you know, stop, prizes are based on expected forward earnings. Expected for WOD earnings are great, so everything is absolutely fine.
I did see one, I'm kind one which pointed out that given what's going on with earnings, the peg ratio, so the forward pe which is divided by long term long term earning growth is down to only just over one. And back in the old days, we used to say if the peg ratio was one, everything was fine. So there you go, everything is fine unless earnings growth expectations are wrong.
Yeah, I think I think we can run this. Why not, No, just just say yeah, we'll get out there and buy go go, go crazy guys, not yourself.
So although also looking back, I was looking back because you know, you look at it and you think, well, is this the end of the sixties, Is this like the seventies? Is it possible that, in fact, earning's growth was really great just before everything went wrong in the nineteen seventies. And guess what, Yeah, yeah, yeah, here we
are rhyming away, rhyming away. So the whole thing behind this time is different because record high earnings same in the nineteen sixties, coming into the nineteen into nineteen sixty nine, record high earnings coming into nineteen seventy, earnings fell back. Inflation starts to take off towards the end of the nineteen sixties, and then you move into this environment in the nineteen seventies where, by the way, earnings kept rising rising.
Ears was so triple during the nineteen seventies, but the market as a whole, the US market went absolutely nowhere in that whole decades. Of course, you lot to book part of money.
In real terms, it was massively the eighties, wasn't it. The pee bit was the bit that.
Went through, So you know, the earnings can't save you when sentiment turns and when inflation turns. Was kind of my point. You've been writing about something much more interesting, and I want to talk about that because regular listeners and readers will remember the challenge set to me by
our colleagues in America, and was it last year? Wasn't it at the end of last year to go out and buy a single share in Ai so that I would have it when the great IPOs came and it turned out it was impossible to buy sharing Ai, which open Ai, which I think I'm hotly grateful really, but there you have views on those IPOs, John Well, I'd.
Just say it's really interesting because one of the things that I think it's easy to forget is that stock markets, like any other market, the supply, the overall supply of stuff actually motels. And it was actually really convenient because a colleagues Simon Waite will following the kind of very very serious side of the business. He's the kind of he writes a column called Microscope, which I think only
goes to the terminal subscribers. But he was writing about share buybacks, and he was making the point that share buybacks are the biggest source in the US market of equity coming out of the market of de equitization, and on an annual basis, simply going back to you know, two thousand, there's only been three years in which the net equity supply, as in the amount of new equity hitting the market, actually was positive. And those years were two,
two thousand and nine, and twenty twenty. So clearly all bad years for the market are all crashy years. And one of the points he was making was that this year we're sort of expected to have records shared buybacks, but share buybacks that are announced very rarely actually are followed through on. So you can't guarantee that we're going to get this number of buybacks. And what were you know, all of the you know, investment and all the rest
of the companies are doing. Chances are that perhaps these buybacks are disappoint So then I was thinking on top of this, we've got just an absolute flood of mega
cap IPOs coming in the summer. So SpaceX is the obvious one, but then obviously there's veryousai companies, and then there's you know, lots of other stuff we'll probably be hoping to get out of the door, Like if SpaceX launches and it's really you know, successful, then there'll be a que out of the door for all this stuff that the private equity guys have you know, been trying to offload with no success. And so what I thought was interesting is we compare this to two two thousand.
In two thousand, people often say they're not there isn't a trigger for the dot com bubble bursting, But actually the the obvious one to point to is the fact there was an awful lot of IPOs and then the people who were the founders of those companies and employees of those companies they had to have they had to hold their shares for six months and then and then as soon as the six months was up, they all were like, I'm getting out of here, and they sold off.
And actually that's when Sir John Templeton did what was probably the best shot trade like in history off the back of this thing. He made like a billion dollars by knowing when these IPO lockups were up and just betting across a load of them the market was going
to collapse, and he absolutely coined it. Most of us are not him, but yes, So it's a long story short that I'm wondering what will happen when a flood of equity kind of hits a market that is currently hungry for it, but then maybe in six months time is getting a bit of indigestion. And then on top of that, you're getting some some marked to market values for assets that previously been privately held. And at first
it might be okay, but Toular SpaceX goes well. But if it all starts to wilt, then all of these kind of like private companies that are still being held by these you know, by these funds that are struggling, they're already struggling. They're gonna have to turn them around and say, actually, this isn't worth as much as we'd kind of hoped it was going to be worth. And all other clients are going to be sitting the going actually, sorry, guys,
we're kind of done with this. Now you've had like five or six years of stuff going through the pipeline, and it's not getting any better. We want our money back. So I'm wondering if you kind of get an end to the kind of endless extend and pretend on the private asset side as well at that point, maybe that's the bear case. I don't know, it's the most convincing bear scenario working come up with at the moment.
Well, it is because it's happened before, hasn't it. Yeah, And let's go back. Have you looked at any of the other big bear markets to see if there's one of those big supply surgers before them all?
I mean that's a good point. I mean I haven't because I guess two thousand and seven I kind of think of as being something completely different. I mean, you usually see big deals being done before bear markets, but I went I said, most cases, they're not so much are triggered as a symptom. Yeah, everyone's got really over excited.
But is this sort of big can I equity supply I think is quite a significant thing in two thirsds differently when it stands out to me, have you seen any others that may be similar?
Well, I haven't, but I think it's worth looking at. I think we'll offer this to one of our one of our professional listeners for free. You know, please go out and do the analysis for us and get back to us and let us know, because that would work a lot better for us than having to do it ourselves, right.
John, Definitely, definitely, and you give them something to do, definitely.
Right. What else have you been looking at this week? I mean we're just for just so you know, listeners, John and I are talking on the day of the UK Council elections and Scottish and Welsh elections, so we can't talk about the things that we really want to talk about today. You know, we're distracting ourselves with this AI bubble nonsense when in fact, of course we really want to talk about the UK bond market and stuff like that, but just not today.
Well someprise, it'd be kind because I think have looked to this week was the UK bord market, and I guess with that it's not so much. I mean, the political uncertainty obviously adds little fresh songs to all of that, but I think there's a more fundamental issue, which is the UK is very inflation prone and we talked about this before because of really because of poor governance over a very long period of time and bad policy making.
And as Andy Haldane said on the podcast, you know a couple of weeks ago, there's enough a lot of potential in the economy that could be unlocked just by improving the policy making. And the unfortunate thing is to me, I think obviously we don't know what will happen as they're going to the polls. But whatever happens, either k Stamer steps down or he doesn't, and whoever places will probably be within the same level of badness. You know, maybe one of them might be slightly better, one of
them might be significantly worse. But there's not you know, we're still getting have the same kind of approach that if it's not walking, you need you either slap a place control that a new law or as opposed to maybe if we sit back, I can go out of the way, you know, and let it kind of energy supply be more rationally produced, you know, and will uply not see et cetera, et cetera. So I think we may be stuck with poor policy making at least until the next general election.
Yeah, I mean, it's interesting mentioning price controls because price controls, and we've discussed before, they just pop up all over the place now, and that brings us back to thinking about how inflation develops and how long it could last.
I mean, it's very unusual in economies that have had higher and expected higher than expected inflation for four or five years or whatever, as we have had, as and as they have had in the US, by the way, for inflation just to put itself together and come back
to target just like that. That's really very unusual, and particularly I would say unlikely in a political environment when the appetite to keep inflation low is kind of gone, the appetite to constrain spending, the appetite to look at the source of inflation, which in the UK's cases is all sorts of things, but out of control spending, endless price controls, less regulation, minimum wages and all this kind
of thing. They're all embedded, and it's almost impossible to imagine a new government coming in and saying, actually, do you know what, let's stop covering everything up with price controls of various sorts and let's get to the bottom of inflation. That's not going to happen.
Yeah, I mean it's I guess there's that whole thing, But there's not been any any voter base now for getting ready inflation. And I guess it's just the UK.
By the way, I mean, I think that's at this point it's a Western issue. There is no there is no appetite anywhere for dealing.
With the core of the problem of all the countries. Actually, the UK's at least it's theoretical fiscal pathway is actually pretty good compared to a lot of them in the You know that's nonsense, John, Yeah, yeah, but at least or not not at least, but at least discussion about it.
Any one believes it. If anyone believed it, would guilt guild hells be so high.
Well, I mean that's true a lot, But I mean the only thing I would say, but get yours in wild a function of inflation rather than panicking about the deficit connected. Yeah, but the things we've got this inflation has consistently been about one percentage point higher than anywhere else. So if you want a real interest rate from a guilt you have to charge that people who issue it
kind of more to compensate for that. And I mean, yes, that's you know, you can argue the inflation is partly because we've never had kind of brilliantly controlled public finances, but a lot of it also comes down to the kind of price control side of things that we were
talking about. Whereas, yes, so even even if we had, you know, kind of much healthier looking public finances, would still be getting charge of the premium because had inflation is still higher than it should be an incomparable kind of economies. I think something like CPI's averaged three percent since twenty ten, yeah, you know, ten years of that was the most disinflation in the decade you know, we've ever had.
Yeah, So I mean that's that's what I mean when I say it's difficult to imagine it going back to two percent. And this is the whole idea that, oh, you know, people's expectations is still anchored, are they?
Are they? Though I don't place a lot of stocking expectations, I must admit, just because I think it's if you put too much stock in expectations, then that always encourages politicians to think that they can somehow wrestle control of the narrative just by talking rather than acting. But people's expectations usually reflect an underlying reality, which is stuff is just getting more and more Expensivelessly.
You expect what you just had in the mayor r Yeah, okay, well that was another optimistic chat, John. I enjoyed that. Only we could do a depressing podcast when Mark is it hitting new hires all around us and there's a possibility of a peace deal in the Middle East on the on the table, it's we've got to try harder on the optimism. Maybe some more optimistic guests would be a good thing. We'll get that Eddie id back on again. I think, yeah, yeah, I think we better leave it there.
Thank you, John, Thanks Mail, thanks.
For listening to this weeks Marin Talks Money Debrief. If you like our show, rate review, and subscribe whereever you listen to podcasts. This episode was produced by Moses andm and Summersadi. As always, questions and comments on this show and all our shows are welcome. Our show email is Merimney at Bloomberg dot net.