Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin Drugs Money Market Wrap, where we talk about the biggest moves in the markets this weekend what's driving them. I'm Marrin Zumsat, Web editor at Large for Bloomberg UK Wealth.
I'm joined Stepic, senior reporter at Bloomberg and author of the Money Distilled newsletter.
Okay, John, We're going to start with the I Told you So section, And on Friday you wrote in your Money to Tell the newsletter about a number that you told everyone at the end of last year that you're watching, Fray Kefley, and the reason to watch it Fray Kefley has become very clear of the last few months. Right.
Yes, it was in the video share price. And the reason I was looking at the video share praise is because back then, before Tarloffs were even a twinkle in Donald Trump's I Will, I guess deploy Will, the most obvious thing that was driving us exceptionalism was the EA Bobble, And obviously the big pixe and shovel story of the EA Bobble was Nevidia. And I thought, well, if Nevidia goes down the Wii, that means the whole market's going down, and if it goes keeps going up the weed then
US exceptionalism is intact. And of course is down about thirty percent, maybe a bit less today, but thoughtyd percent.
Okay, exceptionalism not intact. And I just want to interrupt here briefly, and we're not going to talk about this because we are absolutely only talk about markets today, So obviously we cannot talk about a blackout in Spain and in Portugal and in a little bit of France and
what caused it. But I do want to draw your attention to the fact that in that same publication, when we were asked at the end of twenty twenty four what we thought might happen in twenty twenty five, my answer was that there'd be a lot more focused on national grids because they were designed for a few big, centrally located powerstations, not for thousands of dispritin distance renewable producers. They require upgrades or there is trouble ahead. So all I will say is, well, here we are.
I mean that is our proper told you, So I think that's that is a good one. And actually know what irony is Helen who asked us to answer those questions, was actually in Spain in Madrid yesterday in the depths of the blackout.
Well, she should have known. She should have known that that's what was going to happen. Anyway, almost there was when the bit on one number of index that you think is important for understanding the world in twenty twenty five, when you answered video share price, I answered, actually GDP
per capita in Argentina. So we're still watching that very closely, saying if what is happening there is working, Obviously the currency is tanking, so maybe it's not going perfectly, but well worth watching onwards, John, what is happening in markets?
One of the interesting things is the S and P five hundred is bouncing back. And one point that people have been making is that if you look back to before all the tide of stuff happened at the start of April, it's like the US stock market is down something like one or two percent in US dollar terms.
John, I think I just want to interrupt and say we've been making that point.
Yeah, we actually have made that point almost every week for a while.
We have been making the point that all this stuff has happened, all this craziness, all this talking, all this angst, all those is the end of America is also and in decease have literally barely budged volatile volatile. But if you didn't look at them for six months, a year, whatever, you would think nothing had happened, or even yeah, even a month. And that is the big question, because all this stuff is real, it's real. American exceptionalism has been
severely challenged. American valuations are still absurdly high. Gross stock valuations are still absurdly high. The American market is still absurdly concentrated. This makes no sense. And I interrupted you, and that's probably what you were going to say, right.
Oh yeah, And I think that's again. Well, I think the other thing is the yes, exceptions trade isn't just about equities low. It's also about the dollar. And whenever you look at what would have happened to somebody in the UK, if they've kept all their money in US equities,
then the story is a bit different. They're down something like fifteen percent since the actually not the start of the year, since they peaked in February, and so that is quite a lot chunkier than just the five percent off that you would be now if you were a
US dollar investor. And the other point is that it contrasts where the foots one hundred, which is for example, only down about two percent over the same period, the docks is actually up a little bit for pound investors because the pound a lot it's gone up against the
dollar is going down against the Euro a bit. So the point is basically, if you owned anything but US equities, then so far this year has been at worst mediocre and some whereas if you had had all your money in U S equities, it's been pretty catastrophic actually, because you know, fifteen percent down over the best part of three months is a bad return.
I suppose it's worth mentioning that that week dollar is a bit of a double whammy for anyone who is exporting to the US, because they've already got this tariff burden and now they've got this week dollar burden too, So early doesn't help.
Yeah, And I do think that it's gonna be interesting to see what happens over the next few months, because on the one hand, that is the whole point about the great rotation being more about other markets catching up with the US in that gap closing, but on the other hand, I mean is expensive, and it's kind of like if the tariff stuff, even if this stuff doesn't stay intact, I mean, you've already got ship mints between China and the US have dropped off, and inventories which
they stock up on stuff before the tariff's kicked in, but they're only going to last for so long. So at some point along the line, some kind of COVID style, oh my god, the shelves are empty in point is likely to happen, and it just so it depends on how everyone fudges around that and whether Trump backs down. But then you're kind of like, what was the point They're trying to rebalance everything in the first place. So
I don't know. I think there's a certain bit of everyone kidding themselves that this is going to be okay, because I think there's got to be more turbulence to come further down the road.
Yeah, and there's been an awful lot of buying on the dip because buying on the dip has always always worked historically, and even right now it looks like it's worked, right, looks like it's worked, but the market can trick you quite a lot with that sort of thing. And if we look at the straightforward fundamentals, if there's recession coming in the US and the whole Tarraf Balaba makes them
increasingly likely, and inflation coming in the US. By the way, it seems ridiculous to think that that valuation gap between the US and Europe should continue.
Yeah, and I mean I think it's also you can see there's an element that complacency in other areas as well help because another sort of thing that was rumbling in the background the last week or so I noticed was this sort of dispute between Pakistan and India. And on the one hand, that's this kind of thing that's happened between Indian and Pakistan a lot over time. It's not unusual, and so you can be forgiven for saying it will just be the same as it's always been,
and you effectively it's a buying opportunity. On the other hand, again, the sort of there like the willingness to go straight to that conclusion. So it gives you a sense that well, like no one is really taking on board the global geo politics has become rather more fractious and rather more splintered, and it's probably risky to think that it's just gonna be business as usual, and I don't. It's tricky because we all these geopolitical things are a little bit binary.
But it doesn't feel as if it almost feels as if there's an elementary i know, limbo in the markets at the moment where people are just well, let's just do what has always walked and for the time being that has been the sort of by the debt Truthe.
Yeah, well, I suppose the thing that we should probably say about this, and everyone's bored of us saying it so far? Is it when you go into an environment like this, when you go into a difficult environment, you might as well go into it holding inexpensive equities, equities that are not already priced for perfection. And that is going to be value stocks or value orientated investments, probably more in Europe than in the US. And value investing has had so long out of favor it's beginning to
get ridiculous. And we had value investing was all the thing right up for the g GFC, right, and then we turned into we all turned into growth investors with a little bit of value pop here and that, and that's been so long now everyone's forgotten that over the very long time. But at term it is value investing that tends to work best. And if you do accept that, then there are quite a lot of things out there that you can buy to sit out this difficult environment.
Yeah, I mean, I don't know if you've got this one, but we've got a note from Verdad Advisors the other day.
Oh, nice Dan, who we had on the podcast.
Yeah, his colleague Brian, Brian Tinoro. He was writing about European including the UK, European small caps and value small caps in particular, and his point was, I mean, because he's been watching the ETFs as well, and he noted it in the first quarter of this year, one of the big vanguard dtfs that covers Europe has so its biggest quarterly in flows in at least five years. So that's the sort of idea that money is definitely moving
out of the US and in Europe. But then he was also in the point that whenever the money first rotates, especially if it's quite a large amount of once, the fund managers tend to stick it all in the large caps first, and he's pointing that there's still massive kind of value in the small cap area and particularly again
then inentially microcap area as well. So his point is that if you are i'll sort of you know, value oriented, and you've got the time way to then that's the police to go all because that's been the money's going to tackle two. Next.
Yeah, well that does make complete sense. You know, an American investor pultubot of money out of America, hands it to a European fund manager. The first thing they're going to do is put it in a big liquid stuff and then gradually you'll get trickled down into the smaller companies. There's the allocation to large cab equities, which is a perfectly reasonable level, and then you start to trickle down. And of course where are the cheapest small caps pretty much in the world.
Well, I selected in the UK.
I think we've talked about this before. Some of the cheapest small caps in the world are yes, absolutely here and we've talked as well before, having we about the investment trust where you get a kind of you know, an endless double discount. You get a UK discount, trible discount, you got a UK discount, you get an investment trust discount, you get a small cap discount, and there is extraordinary value knocking around in that sector. Yeah.
And the other thing is, again, despite the fact that you know, the UK government need leaves a lot to be desired, and you know, the Chancellor's probably kind of screw lots of things up, hunting for taxes to plug various imaginary and or rather looking for taxes to plug lots of black holes and all that.
But I don't think they're imaginary. They're real.
Well they're real, yeah, but they.
Argue about who created them, but they're definitely very real.
The black holes are there, but they're not it's more that, I mean, they are unfillable. The way that they talk about them, and it's more about the fractions of a decimal point either way that they're sort of finagling over that is infury. And but the point is it's like I noticed this morn than UK mortgage rates are down the lowest they've been in quite some time. And also the UK build well yeah, I don't even don't even.
Listen to our podcast from earlier this week on how to buy the best house if you're going to buy a house. It's really really excellent set myself, very important if you're looking at those low Morges rates and going do you know what I'm going to.
Buy a house? Listen to our housing series before you go anywhere near the housing market. Definitely, Sorry, John, I interrupted you again. What were you going to say?
No, so Martket rates falled out FA, then consumers are going to have more money despite all the other stuff they've got to put up with this year. And also the UK is probable is well it is it's one of the countries that least is least exposed to whatever ends up happening with tariffs. So from a big picture, global investors don't pay that much attention to the politics a country. They just want a good excuse to tell
their clients why they're investing there. And actually the UK has the excuses lining up, you know, lower interest rates converting to you know, consumer kind of coming back, and then the big picture being immune to the tariffs basically, so you can see why inflous make head are we because the guy that's telling these clients that has got a story, know to evangelizer boot which they didn't have for the past you know it years.
Yeah, reminder that all market action is about stories. And I did actually on that very note, John get a note this morning from someone suggesting that we've been waiting for a catalyst forever for UK smaller mid caps to start moving, and it may be that the progress between the UK and the US on the making of a
trade deal could be that catalyst. Whose You know, UK smaller companies are straight but much more often than big companies, straightforward, simple businesses, and if they know where they are tariff wise, that maybe something that makes everyone go Okay, now we know where we are, we can buy these, excepting the cheap small caps. We live in a world of hope, don't we, John, I mean, we really do.
We do. Maybe this is the catalyst.
We are optimists.
We are such optimists.
People sometimes say that, you know when perma bears were pessimists, not so not so optimistic, fullish fansiastic about the future. Thanks for listening to this week's Marin Talks to Your Money Debrief. If you like our show, rate review, and subscribe wherever you listen to podcasts. Also be sure to follow me in John on x or Twitter at Marinus w and John Undersourced Epic. We are also both on LinkedIn,
where John is slightly more active than I am. This episode was produced by some Sadi production support and sound designed by Moses and Questions and comments on the show and all our shows are always welcome. Our show email is Marimoney at bloomberg dot net