Bloomberg Audio Studios, podcasts, radio news, John Mel do you remember how excited you were last week when inflation went down and it's you we need bit.
I was thrilled you were.
Well, this week the footsy one hundred has gone up and it'sy, we need bit and we have a new high. So how excited are you today?
Actually significantly more excited than I was last week.
You wait and you wait, and you wait, and finally the thing you've been wanting for happens. It kind of happens all the time, and stop markets should regularly hit new highs. Right, that was a normal stop market would hit the new high all the time. But I do want to say one thing before we go on to talk about how wonderful it is that the footy one
hundred it's finally going up. I do want to say that this is not a and you high and inflation adjusted terms, but that would have to get through about well well over nine thousand, nine one hundred and sixty eight. I calculated it just now. But you know, don't don't take my accuracy as say nine thy two hundred to make it to a reason a random But so we're not there yet. In real term, so of course we had have dividends along the way, so we mustn't be
two respondent. But nonetheless a new higher nominal terms is nice. Right do you feel, John, do you feel that there's a turning point of any kind here?
Actually I do a better, do you? I do a better? Yeah? I mean so like one of the things that I mean, from a purely technical point of view, when stuff makes new highs, it just tends to go in to make more new highs. You also get the sentiment issue of people noticing the oh wait, man, the UK is doing much better this year so far than the S and P, for example, And I mean that really is a bit
more significant, you know. You get the Magnificent seven have come off the boil a bit, and some people were panicking. Last week's the na's deck was down like one and a half percent. I was like, oh, the nurse DC never goes down. But you know, but going on nothing, Yes, no, I don't try being British for a while.
British. I'm telling you that is a job. This is not the first time that the footsie's done or right, right, I mean, there is a general view in the market that the US has always had this wonderful acceptionism about it, and that US markets automatically do better and American stocks automatically deserve a premium. But this isn't true. Is it actually quite a recent phenomenon.
It is recent, And I do think the other thing you often hear with the Footy one hundred is almost the sense that it hasn't gone anywhere since basically the dot com bust, because it was about seven thousand, nineteen
ninety nine. And the thing is, if you can actually look at the stats, because I looked at them this morning, if you if you did the choice to buy either UK stocks or US stocks after the dot com bubble bottomed out, so don about November two thousand and two or March two thousand and three, and then if you'd held until the top of the banking kind of mortgage bubble in mid two thousand and seven, the foot one hundred absolutely thrashed the S and P. It's actually spending
the dates. It's kind of like you get anything up to double the return, you know, so the foot say basically trebled in value, whereas the S and P just went up one hundred percent over that period. I mean that's including evidence. So you know it's and it's in you know, it's in whatever currency you want to choose. No pounds or US do all us. There's there's no
jiggery pokery here. The foot say UK stocks roundly beat US stocks during that period, and yes, it's because you know, we had lots of banks and minors whereas they had banks and kind of you know, shooting my staples and things like that. But you know, you would have been better off in the UK stock. So this is a relatively recent phenomenon and is mostly a post financial crash phenomenon. And to be fair, it's not just the UK. The
US is basically beaten everyone. I mean, that's not to say the UK hasn't been one of the the wast laggards, particularly in developing markets, but you really there is normal market that has come close to the US, even when the kind of obscure, kind of amusing market say yeah.
It's interesting. So the key thing that we'd like to think here is that this kind this kind of thing, the new high, even modern inflation and justice new high, does draw attention to us and does mean that people
might look over and go look at that. And we had Nick Train, a very well known UK fund manager, out earlier this week talking again about how incredibly cheap UK stocks are and saying we just need something to draw attention to it, something to make people realize that this is this is true, that there are fabulous opportunities here, that you have a once in a generational opportunity to
buy very high quality stocks at low prices. And his thought was that as soon as there's a very big takeover of a name on the on the UK market that is internationally known that has taken over because it is so cheap, that will turn all international investorized towards the UK. They will notice what's going on here and that once in a generational opportunity will be doubled up fairly quickly.
I think that's a really good point. I mean, you know, like this week, another foot two fifty stock was bought by a US rival. It's like our doors and window frames maker, and we actually saw a bid battle erupt
for hypnosis trust of all, you know. I mean, that's a troubled, troubled asset for a while there, and I think a lot of shared holders were probably relieved when they got you know, the below I p o prize bid from Concord I think it was, but then kind of Blackstone came in and offered more, and suddenly, you know, everyone's off to the races.
So I'm pretty thrilled to get out of that.
Yeah, I mean, cheapness well out eventually.
Interesting. Now listen on the on the zebrage cheapness I want to talk about. I'll not talk about my column this week.
Yes, I think you should, because this one.
Caused a lot, a lot of trouble. I mean, it's not like I go out of my way course problem. I go out of my way to course controversy on Twitter,
sorry X or anything like that. But this column. You know, I wrote a few weeks ago about how the problem with the UK house building market is that we build lots and lots of tiny, really rubbish houses, and our house builders are culpable there and I just like them intensely for building these horrible, horrible houses, although I accept the part of that is driven by regulation and planning
stuff all give than that. So I wrote about how awful tiny houses are, and then this week I thought I'd write another column about how absolutely brilliant tiny house but in a slightly different context. So looking around the coast of the UK and a particularly you know, some of the incredibly beautiful Scottish islands off the West coast, and some of the Welsh coast and the Cornish coast, and one of the extraordinary things about the coast of the UK is how probably unpopulated it, how few houses
there are, how few of us have holiday houses. And when you look at the stats for the UK relative to Europe, a very small number of people in the UK either own or have access to Are you not renting better access to a holiday home? We don't have the same cabin or the hucked culture that lots of Scandinavia has, for example, or the second home culture that
France has, for example. And our politicians just hate anyone having holiday homes or second homes, although obviously they all have them themselves, that they hate anybody else having them. So you constantly get a sort of barrage of insult and new tax I think, are colleague Marcus Ashworths worried about that a few weeks ago? And so I'd just like to make the case, and please everyone, go and read the column and tell me if you think I
made the case. Well, for us changing planning completely so that anyone, anyone build a nice little cabin and I repeat the word nice, you know, scandy wooden kind of thing anywhere across the UK where there's space for it self built. Let's get self built cabins going. So not fewer tiny houses, but more tiny houses. Are you in, John, Are you in?
I think it's a great idea. I think it would really walk and also it be a good stepping stone towards perhaps getting more self build fast houses as well if it were too. It strikes me as a good experiment. And you also, I mean, people pay like insane amounts of money for these little beach huts on the shore like a Dorset and all that, and they've got a space to boil. Okay, well you can't even sleep in them overnight. So I think you would.
Think there is demage that's demanded. And you know when people say, oh they couldn't, people don't want that. People couldn't possibly, you know, not enough people want to travel to the to the Hebrides, to go to these islands and to a little house, et cetera. I'm like, yeah, okay, well look at the price of a tiny little plot on one of these islands has planning. You'll pay one hundred grand plots plus for a tiny blood that doesn't
even run right down to the beach. That tells me those demand right.
No, absolutely, and I think I think.
There's information in those prices. Yeah.
The one thing would say is just clarify so you because I know that some readers will be sitting and they're going, oh my gosh, she wants to build those you know, the entire course, the pamblic shut or whatever. It's not. It's not that is this idea of sort of market driven sympathetic development because you can only use it for three months a year.
Four months exactly. Allowed to reside in it permanently, that would be wrong. So you're not allowed to use the infrastructure of the holiday area or the coach, you know, you don't get to use the schools or the hospital. Yeah, that kind of thing. So you just you know, so maybe you'd pay fifty percent council tax, probably allow the local councils to build the schools and hospitals that everyone else needs to use the people who live there permanently.
And then you take the proper houses and you say, do you know what this is going to come with the covenants they can only be sold onto locals, and that'd be very had for the people who paid five million pounds for a big house and say you know rock or something like that, but you know, too bad, and that would solve the problem of local people saying, well, these holidaymakers are driving up the prices of our houses and then they were for us to live and this
is destroying our community. So I think it's a bit of a win win. And interestingly, the as ever on things like this, the response has been completely down the middle, half of the people saying brilliant idea, let us do that, and half the people saying, why do you hate us? You know? Onwards, John Onwards. I know I didn't ask
our guest about this this weekend. We talked about all sorts of other things, but I know you suggested that we get Helen Thomas from Blonde Money on because you've led she was excellent and would be a great guest, and I think she she is. But why did you suggest we had her on?
Well, basically, ILL sent me oldly is the forodcast for what's going to happen election ways in the UK, And when I did, I thought God, that's pretty poinchy. Need to get you to discuss that. And I can't remember how much that you discussed in the actual podcast, but that this if you want a quick summary, she's basically saying she's going to step down before the election, call it in July, and it will probably be pay any moderant who takes over as the Prime minister during the
election period. And I thought July is a lot earlier than personally I was expecting an election. I thought they would string out for as long as possible, you know, and they wouldn't even get an interest straight cut before then. So yeah, so I thought it was pretty punchy.
Welcome to Merren Drugs Money the podcast and which people who know the markets explain the markets. I'm Merrin Sumset Web. It's my conversation with Helen Thomas of market commentary firm Belonde Money. Helen has I have a fifteen years experience working in a number of banks for funds. She's a CFA charter holder and says on the board of CFI UK. She also has political experience as an advisor the former Chaetom with the Exchequer George Osborne. And then thank you
so much for joining us today. It's really good to have you on.
Thank you very much. I'm delighted to be here.
Now let's start with what you've been writing about UK politics recently, and your most recent note is about the next election in the UK and one of the lines towards the end of the note that particularly leapt out at me was this suggestion that the whiskey and the revolver are already in Rischie Sunek's office. He knows what he has to do. What do you think it is that Rischie has to do?
Rischie seem like he's entering the world of least worst options. And this is because the Conservative Party is polling so badly that we're talking about extinction level events. But by the way, let me just stop one minute and say, the reason I started my business was to look at what actually is going to happen, to get away from the all hyperbole that people reading the newspapers about politics,
which just total noise. That is a nightmare for people in markets who just want to know what's going to happen. So when I talk about this, it's because of the very low level in the polls the Conservative Party are at back down to those post trust lows and what that will translate into in terms of seats tricky to calculate, but it's clearly now a bad situation, as we're seeing
from so many of the polls. So basically we're in a situation where the Conservative Party itself could be decimated and will it even survive as a political party.
More than decimated? Way more than decimating.
Yeah, it's yeah, just obliterated maybe is a better Wayeah. And so what that means, of course, when you're in politics, is where is the blame going to lie? And also what do the different political actors need from this situation, because there are people who want the Conservative parties to survive.
Maybe that's a surprise to some of the listeners, but there are and therefore they now need there for Rishisunak to be buried with the with this situation and in order to resurrect the party whichever direction they want to take it. And look, by the way, should also say it doesn't matter what I think, doesn't matter what you think. We're just going to say that these are the calculations that go on with politicians.
Yeah, can we just go back a little bit and talk about why things are so bad for Rissius Sink. He's put in place as a stability prime minister, the guy who was going to make everything look okay, and he is delivering a little bit on some of his pledgures. You can argue about whether it's down to him in any way whatsoever or his government that inflation has come down, but it has cause the price level has not come down, but the rate of price growth has come down, and
that still matters. Small boat crossings it down a bit. We can talk about GDP per ahead, which is awful, but GDP growth as a whole isn't so awful, So why is it quite this.
Bad for so A couple of things on this one is the economics, where if you look at a you gov question of which party is best placed to deal with the economy, and as you might expect, the Conservative Party is now below the Labor Party and has been for a while. But that actually started to get worse well before Richies, and that well before Liz Tross. It actually happened in twenty twenty one twenty two as inflation was rising. So the inflation shock has been extremely pernicious,
and not just here. President Biden's also facing this the US. Many other politicians are too. You said it there merin. The rate of change of prices is coming down, but prices are still higher. People still feel it. Perhaps it's slightly part of Richestynac's academic approach to life that the spreadsheet shows the numbers coming down and that looks good. But to people who fill up their car with petrol go to the shops, it still feels really quite bad.
They still remember it was nowhere near that much to fill your car up with petrol a few years back.
Time goes by and things should be beginning to feel a little bit better because wages arise in quite nicely, But nonetheless Rissiu Scenac's approval ratings does keep falling. Nothing seems to make them any better.
This is where you have to come into the politics of this and the man himself. By the way she declare that we were at university together at the same time as most people. I'm sorry, I'm another Oxford ppeist. I don't know what that qualifies before these days, but anyway.
But this it qualifies you for this.
But yeah, I suppose that's fair. But it means that the way that he became prime Minister was actually always going to be a problem for him because of course he was a loser in an election campaign against Liz Trust. Now it's just within the Tory Party membership, but he lost that campaign. This casts quite a long shadow. He never went to a vote with his MPs when he was up against Penny Mordant. People remember back to that period. They went in a bit of a rush to get
the Prime Minister sorted. They never actually had a round of voting. They just said Penny Morden said no, look, I'll pull out at this stage. We'll just get on with it. But what that means is you're never really sure who your enemies are. And so the key problem for issues here because he built a lot of enemies within his own party, of various different kinds. So it's not just got the opposition to worry about, and it's not just one group in his own party, for example,
the Trust sites. He has got all these other different elements who don't like the way he got there, don't like his focus on certain policies. You should just look at the vote that we've just had about banning the sale of cigarettes to people born after the year of two thousand and nine. Now that went through, but it went through on opposition votes. Half of Conservative MP's either
abstained or voted against it. That's quite something. Didn't get covered a lot because it feels like that maybe wasn't that consequential a vote, but he had half of his own party against that. And do the public care that much if they can't get a doctor's appointment or they're worried about getting on a train because there's a strike, or they're worried about the votes. The key point is he's not very good at the politics and the public know it well.
He's not regular the politics. And also there's really nothing he could do to improve matters in the time he's got left. When it comes to the economy, cott really doing anything about the NAT it's too late, anything about productivity, can't really do anything about the number of people who aren't in the workforce, etcetera, etcetera. There's very few things that he can really do with this time to turn things around, and that's been obvious for some time now.
The point is actually was that maybe not obvious when he took over. The parliament has to end in January twenty twenty five. People might be delighted to hear and so what was that that were two years? It's some of that stuff, the productivity stuff you've been talking about that a long time merin anyone following UK economy has. It's been a problem for a decade, if not more. But the other element to all of this is of course the trust period guilt crisis, because that changed the
whole narrative of what could be done. Neither the next labor government as looks likely, nor this one feels they can do anything because they're so constrained by obr by the markets. So we're in this you know, death spiral hesitates use that phrase. But it's quite difficult that taking over in the wake of all of that, As you say, a lot of these long term challenges would have been very hard to address. It was pretty much an impossible task.
But the one thing you can do as a leader is lead and inspire and give a vision, and it's been extremely hard to know what that vision is from this Prime minister.
I suppose one of the things that he has wanted is maybe not to be the vision guy, but there'd be the stability guy, and that's been a mistake.
Yeah, absolutely, But then that's the point about being a sort of technocrat. Yeah, this is an ongoing question, isn't it's oh sick of experts? Oh no, we want the experts. Ideally, you want a bit of both. You need the person at the LEC turn outside number ten Downing Street. It should have a really simple message. I don't know Blair Tony Blair's education education, education. People knew what that was, and then you need people around you to implement it, and it just failed on both fronts.
Okay, so we know he's got to go. I think pretty obvious to everybody that Rich is doing it. It's not going to be a prime minister for much longer, either either pre or post an election. Right, it is nearly over. So why is it taking so longer? He has all these enemies. It's perfectly clear that maybe he isn't the best person to lead into the next election. It's perfectly cleary certainly isn't going to be the prime
minister after the election. So if we know all these things, why is it taking so long for him to go?
Because the enemies need the method of dispatch to work in their favor. So this is where the politics comes into play, because there is clearly going to need to be a resurrection of the Conservative Party. There is a group that felt the trusts vision should come back. There is a group that feel it needs to be much more centrist and sort of address some of these migration issues and end the Nasty Party as may once called it.
Battle for the soul of the Conservative Party. But nobody wants to be the one to finally stab in the knife. And where's what's quite interesting this has been Nigel Farage because there's no doubt that Reform UK are doing well in the polls. They've got quite an important thing in any election campaign, which is momentum. That is absolutely crucial
in any election. Hermain is to have the momentum. And what's happened is because you said, it's all petered out a bit, which if you compare it to when the Brexit Party came into being, it was around four or five percent and within three months it was polling at twenty four percent on one of the poles, topping the poles.
It's certainly doable. But if you read interviews with Nigel Farage, she talks about how he doesn't want to be the man that actually vanquishes the Conservative party, because I think the quote is people are quite tribal. They remember this stuff. They may think he has some good vision of what party should be, but actually being the one to stick the knife in does not tend to go well with a person who does it. So it's kind of a
sequencing going on at the moment. There's like a kind of shadow boxing happening where everyone is waiting that now for Rishie Sunak to fall on his own sword, because if he falls on his own sword, then you know, they rush in to be the savior. They're not the ones who are actually brought him down, and so they're trying to make it clear to him it's in your own
interest to step us. And that's why I talk about the whisky and revolvers already in Downing Street and you're starting to see this come through with reports or we're thinking about maybe we could do an earlier election. We could go in fourth of July has been floated as a date rather than this thought it could be October November.
Okay, So let's say he does fall on his sword, who takes over? How does that work? I mean, obviously we're all in the world of guessing here. I'm not asking you to make clear, firm forecast, but now what looks the most likely.
No, we do, Merin, Actually we do, because we will always make a forecast. And if we're wrong, then that's a good chance to say why are we wrong? Where is the analysis wrong?
Now?
The person taking over has to have some claim to the position. So Penny Morden is in pole position by virtue of having come second to as she's Sunac last time round, also to the fact she has quite a lot of support amongst the local associations. Because here's the thing, and I know there's been lots of Vernon bogdenor who's professor of constitutional politics saying oh, it's a constitutional outrage if we had yet another prime minister, but they'd purely
be prime minister for the election campaign. And that means that actually some of the other names that have talked about, like the Kemy Badernos of this world, in some respects it's better for them to wait till after the election because paying Audent, for example, has a much lower majority than Kemy Baderock. There's a chance that actually Penny might not make it through that election commage on and keep a seat. So Kenny Badanock could not be tainted with
the loss and then pick it up afterwards. This is one of these nefarious calculations that politicians have to make. I always say, by the way, because I've worked in both politics and finance, that business people get very frustrated by this because business is about what works, but politics is about what sells, and you've got to remember who you're selling to, and that changing the team into an election campaign. Of course, the electorate the public at largely
like what is going on. But because it's an extinction level event, the Tories are talking to their own activists in the midst of it going so badly, the last thing you want is you're not gonna have people knocking on doors delivering leaflets, not feeling motivated to bother the god to ge those people up. So someone like Penny Morden, who herself wrote to the Telegraph and said she'd visited seventy local associations in the last year, is that kind of geeing up the base.
Keep an eye on Penny basically, yeah, And keep an eye on the possibility of Rishie's standing down in the next few weeks, Penny possibly replacing him and going into a general election in the beginning of July exactly.
That's our core scenario.
Now, okay, all right, let's get forward then, because I think we can then guess what happens, whoever might replaate Rissy's sunk or whether he decides to go for it himself. However that happens, we are most likely to end up with a labor government after that and kiss Damer's Prime minister. And very few people are negative about that scenario. Most people are fairly positive about that scenario. See it as a Hobstly we need change. How do you see it?
Just picking up on your point there about change, because I've been thinking thinking about this because change normally means massive enthusiasm and optimism of yeah, let's go for this person, right, this is the change. I think what people want is competence. Ironically, of course, as we've discussed, which you seem like we're supposed to liiver that, But they just want someone to get a grip of it, get your party in line, get things organized, and make things work. That's a minimum.
Before we've talked about trying to get growth and trying to.
Yeah, but that is change right now at the moment, nothing seems to work. It nothing seems to work. So anyone who can make something work that seems like very positive change, and the idea that stuff might work is about as optimistic as I'm prepared to be at the moment.
It is a bit like from a purely I don't know, political academic perspective, when you think about change, you tend to think about changes as a vote for something, whereas some of this support for labor is a vote against what we currently have. So that's interesting because it means that have people really thought about what a labor government will do, and they've done an extremely good job. I must say it's a very well disciplined campaign the Labor
Party of pursuing. They're keeping on the same song sheet. They're not scaring the horses with anything, particularly the markets on the economic and fine out side. But I would draw attention to Rachel Reeves's May's lecture, which might sound extremely dull, but is absolutely worth reading for giving a revelation to what Rachel Reeves really thinks about the economy.
Okay, what does Rachel Reeves really think? So more radical things than most people think. She thinks that it suspects.
Exactly what was quite amazing about the way that was brief to the newspapers is lots of people. Oh it's exactly the same as well. She see like, Oh, you're saying the same things. What's the difference. I'm actually going to just quote a bit of it if I might for one second. It's just a couple of lines Merin right.
So this is from Rachel Reeves's May's lecture. A model based on the pursuit of narrow based, narrowly shared growth with ever diminishing returns cannot produce adequate returns in growth and living standards, nor can it command democratic consent. Now, what she's saying there is capitalism is too narrow. We need to be broader about how we share the proceeds of growth. But the key part is right at the end,
nor can it command democratic consent. She's suggesting there, capitalism itself erodes democracy, it will blow up the system, and therefore socialism is the only way for the world to proceed. Now, some people may agree with that, some people may not.
Doesn't matter, But that's what she's set out in this Maize lecture of what she thinks, and it has some fairly radical implications because it means that, And she goes and talks a lot in the speech about we want to pay more money to people with high skills, but then she also says, we really want to give more money to people with lower skills, and in fact, we don't really care about money. We just want people to be happy, and we want workers and secure.
We want people to be secure.
Secure, yeah, which nothing bad can happen because if bad things happen, people won't take risks. And that's that's pretty radical. Now you're starting to say, oh, hang on a minute, So if I just go for a start a business, does that mean I'm bailed out whatever happens, which is pretty much the opposite of a capitalist approach, And so that's fairly Yeah, it's a pretty it's a pretty radical left wing approach. She quotes a lot of economists in there,
if you can bear to read all of it. I know it's difficult people to get through some of this stuff, but it's worth it because it's the first time we've really heard what she thinks, and she mentions a lot of fairly left wing economists in that piece.
Basically, we've been on a path to big and bigger government for quite a long time. And everything that she said suggests that we're on a path to even bigger government, and that there's many new organizations that are going to be set up. Aparently there's the Wealth Fund, there's a British Energy Group, and Skills England excely except that there's an endless list of new groups, new institutions set up.
Yeah, new government group.
Going to extend the reach of government into into pretty much everything. It's it's hard to see any way in which government as a whole can't get bigger and bigger under this resume.
Absolutely, and as I say, it's been a good job of trying to brief it out that it's not too frightening. And she makes throw away points about the fiscal rules. I will sie to the government's fiscal rules, except we will allow borrowing for investment purposes. Actually, that's quite Gordon Brown, and it's good bread. Initially doesn't sound maybe that scary,
but as we know with governments. Okay, so it suddenly becomes the case that you can classify something is oh no, that is borrowing from investment because it's going to do this, or we've teamed up with this organization to do that it's a bit like in Germany where they have all the debt rules and they try to keep a balanced budget.
But then oh, hang on a minute, We've got this fund over here and it's not on the balance sheet exactly, and it does borrow and it does do things, and it's one of those things where once the door is slightly open, you can just push it and ram in. More So, I think tax and spend is quite easy to see happen underneath that framework that we see in that Maize lecture.
But where do taxes go? How high can taxes in the UK go without getting to the point where it becomes a little self destructive. It feels to me like we're already knocking on that door with then I live in Scotland.
Yes exactly, this is a very good question. And till the pips squeak. As has been said in the past, one of the things we do know about this new labor government will be the vat on private school fees, which they I think are claiming will raise two billion pounds, which by the way, is a massive just drop in the ocean compared to the hundreds of billions that will borrowed or in COVID and the size of the deficit.
And possibly compared to how much it's going to cost to take all the children who leave private schools into the state sector.
This is it. You started to see already surveys of parents and analysis that suggests that far from raising anything best, it could be neutral or might even cost money. And that is that's obviously the point about these tax risers. So therefore, when I look at that policy as that being one of the few that we know about, it suggests to me when you say, where else could these
taxes come from? It could be some sort of a wealth tax, or of course it may not be branded as that, could be branded as a second home tax above a certain level. Or it's quite possible that you could start to see extra taxes coming in called something else.
Let's not shy away from this. Of course, the Conservative government introduced to health and social care levy, so you know what they're realizing, what they've spotted is the Overton window has shifted, and as you said, there is a bigger state.
It is bigger, and there are lots of spaces for wealth taxes. I mean everything from you know, whether you approve them or not, as by the pie. There's lots of places you can put in place in new wealth taxes. There's a CGT on private homes above a certain level, for example. Yeah, and we're already thinking things like double council tax on second terms, I mean that you can call it what you like, but it's a wealth tax, that's right exactly. We're seeing those throughout the structure of
the tax system. And then of course the capital gains tax, which is an unindexed to inflations and so is therefore automatic wealth tax. And what really have to do is put that up and you've got really a relatively high wealth tax.
They're all over the place exactly. So I just think, you know, we could expect to see more of the same, so that for markets it's going to be quite interesting actually in terms of global capital because of course these challenges facing the UK are not just restricted to the UK of Western Europe, somewhat in the US. But of course the US has been interesting in terms of actually having some growth, and where that seems to be coming from.
The difference that I see is they've had a huge amount of visa issuances in the US over the last two years. They've had a lot of immigration. Whatever you might think about, it does seem to be contributing to more growth and also slightly bearing down on inflation as that growth has come, which is why we've had a bit of a goldilocks period for the US economy in
last year. Whether it will last, we'll now see. But I can understand people getting very energized about the question of immigration because there is the concept, okay with pie might grow as immigrants become assimilated and w but then it might shrink if they are taking from the state more than they are giving. And I think this is
a huge topic in the UK. We've seen, of course, this Rwanda policy going on, and of it's quite clear that Rishie now thinks that another argument, by the way, for a summer election could be that election happens as the first flight leaves for a Wanda. But it's a hot button topic everywhere.
Yeah, I have the question, as we mentioned briefly earlier, it's all about GDP per head as opposed to just with GDP. It's all very well seeing GDP go up by a half percent here, a half percent there, one percent here, whatever. But if GDP per head is constant or falling and if while everything works on an income basis, but nonetheless we have a massive short of infrastructure as
our population grows. This is where the problems come in. Yeah, this is the essential population and you may have a short term boosted GDP, but that doesn't help you out, yeah in any way, with the hospitals, the roads, the schools.
This is where when talk about the Labor Party coming in, they are going to face an awful lot of challenges. And remember they've been out of government for a long time. Although they're getting advice from the Blair Brown period and there are plenty of advisors who are involved, actually getting into government is very different as the Conservatives are seen. And remember the Conservatives have just had they did have
a majority of eighty and they still struggled. So I know there will of course be the excitement that all Labor are in and they win a big majority. But just as the Conservative Party have struggled with the right wing, there will also be a left wing element to the Labor Party that says, wow, we've got this, we've got the mandate, let's do this stuff. And that could well cause tension for Keir Starmer as well. So it's going to be extremely difficult period for whoever I.
Always think it must be. Actually becoming prime minister must be one of the most disappointing things in the world. You spend so long working towards it. You have all these ideas, you spend the years criticizing other people and criticizing the economies are run, societies are run, politics a run, and etc. I could do it better. I could do it better. You get into number ten and you find, my god, it's so hard and you can't just say, let this happen, and it happened, because it's not like that.
You have much more limited power than you believe you have on the way in. It's only when you get there that you find out just how little power you really have over an economy, over a society, of rejustice system, et cetera.
Yeah, the leavers are really hard to find, and there isn't one that's marked click here, you'll get everything done. Absolutely No, it's a constant, that constant selling that I'm talking that I was talking about. They due to the electorate, they're doing it internally, they're doing it to the civil service. They're trying to get the project going. I should say by the way. That also applies in the US, and there's always and in fact even more so in the
US because of the separation of powers. In the UK, you've got the executive sits in the legislature. In the US, it's separate in terms of what the US president can actually do. They are severely constrained, even with the majority for their party in the other elements of Congress. One of the things I was found when you critical of Donald Trump was that he often seemed to be casting around for the leavers and failing abysmally to find them,
and then missing the ones he did have. He didn't seem to grab the power is even as best as he could. I want to make a really broad and important point about all of the world and the politics and what's going on right now, because sometimes people can
feel terribly upset, and I get it. But if we look at what we've gone through for these last four years, locked up at home, war on Europe, well, war in the Middle East, inflation for the first time in many people's lifetimes, if we weren't angry, what on earth is going on? Of course people are going to be furious, and then that means we should see radically different political parties,
emerging different kinds of leaders and huge political volatility. So actually, this current phase that we're going to go through now another spasm for the Tory Party. Then the Laby prjer come in and then it'll be difficult because they also need to grasp these big challenges. We're talking about at least a decade more of really dramatic political change across
the world, but particularly across anywhere with the democracy. And I'm mean kind of part of me is wildly excited and frightened at the same time, but it's what people in markets need to pay attention to. I'm afraid you're not going to be able to stop thinking about politics for a while.
Well that brings us to the next thing I was going to ask you, which is what does this mean for markets, and particularly for markets in the UK. I have conversation after conversation on this podcast about the awfulness of UK capital markets and what can possibly happen to get some flows starting to come back into the UK. And I suppose one hope might be all the change of government might make global investors say the UK looks like a place that might begin to reintegrate a little
with Europe and this kind of thing. So maybe the Brexit discount might begin to disappear and that just may start to come back to the UK. This could be one of the catalysts that we've been waiting for. Or is that too optimistic? Have a guest done last week who insisted that the Labor Party absolutely get it and will be very careful of like capital markets.
I think it's going to be a game of two halves. I think when they Labor Party get in by virtue of having one and having a majority and everyone being on board with that within the party at least to
start with, it's going to look good. It's going to look coherent and we are it looks quite clear that they will try and seek a more conciliatory link with Europe at least, so I would imagine, yes, some of that kind of optimism is quite well founded in the first sort of year or two of the Labor government and just some of the sort of uncertainty premium of the last few years of it just all looking like
a total shambles and a mess. Because the Labor Party will end up probably they'll do a fair few things to start with, but it'll be It's not the sort of thing that would frighten investors. I don't think the trouble will come when we talk about how they're not going to have any money to do anything. They face all the same challenges. Where's the growth going to come from? Where the productivity? And the temptation then to start on
some of those wealth taxes. I would imagine that might be quite perturbing for international investors.
But it's a couple of years at okay and interest rationing, inflation in the UK, where do you see them GOLEA, And now we're getting out of the tricky questions. We've done all the stuff.
Yeah, it's funny, isn't it? Because I always feel like we's seen Act a bit of a hedge fund punter on interest rates. I think that he's as much a guilt trader as anybody else, because I think he thought, oh great, we're going to get inflation down. We're going to get three rate cuts before I am an election brilliant,
and that's not going to happen. I mean, the big theme that we all have to come to terms with is inflation is going to be higher than it was in the fifteen to twenty years prior to the pandemic. It just is because the world is being redrawn. There's more inefficiencies as we go to a new equilibrium, and that just means that we hire inflation. So therefore all
else e Court interest rates should be higher. But I think it's clear that we're going to get a cut or two from the UK this year, a bit more the EU because they've got a bit more a bit lower growth, and a bit more consistency consensus, I should say, on the ECB. But of course the US. I looked at this alleged pivot that the FED made in December and I thought, what are they doing it now? This is odd. The data doesn't really seem to suggest that they need to do this. The market's been expecting cuts
all year, they never delivered them. Growth good, inflation is good. What's it what they are about? And I thought, the only thing can be this US election. In a way, I know they are politically independent, but they are appointed by a politicians and it would help Biden to have a couple of rate cuts before November. And now that Fed's in quite a sticky wicket because it's not going to be anything this month. It's got June, where yeah, okay,
maybe they'll have to do one or signal it. Then they've not got They've got two more meetings before the US election. And then once you get two plays, you start to look a bit too political. It's tricky for them.
Sorry, central Bank, the federal banking it's tricky.
Yeah, well, okay, a better answer, sorry, better and more coherent answer. The rate cuts that will come will make very little difference to actual economic conditions. There you go.
Yeah, this is the interesting. This is the interesting that John and I talk about a lot that you may get from these levels. You may get a cut here and a cut there, but absolutely the incorrect response to that would be to expect rate to keep falling back down to the low levels we've seen in the past. Any cut from here could be reversed, could stay there
for ages. We have to assume that something around four five percent is the norm, and you just see cuts around that cuts or rises around that level.
And I think in the sort of mid nineties period, and yeah, we have to all come to terms with the fact that was the aberration zero interest rates. Why is there this obsession that once you get up to the long term normal average would you go back down to zero.
Just yeah, all these efforts spent getting up, you want to stay up? Now. It's a last question, absolute last question. I promise this is the one we have to ask everybody at the end. If you're only allowed to invest in one asset class over the next ten years, and that asset class could only be bitcoin or gold, I might be digging bitcoin up a little by calling it an asset class. Hate mailed the usuler address. Wait do you one of those? Would you choose? Wow?
Just bitcoin or gold? Goodness means that's all all of the safe havens. Perhaps they might call it bitcoin.
Oh, tell us more.
And I say that as someone who does not understand it enough it wants to owns a little bit, has been learning a lot about it, has been learning about
cold storage and all this stuff. I think that there is a safe haven argument for bitcoin over gold in the technological era by saying that it exists virtually and not physically, because I think our future is virtual, not physical, So therefore something that's in the cloud is going to do better that can be moved around in the palm of your literally in a device the part of your hand will have more long term value than gold. But
I don't think I want either of them. Marrion, Sorry, oh okay, what do you want you to say?
Then? I'm opening the world to you. Oh okay, oh just you Normally I don't do this as you definitely don't want to either of them. What would you take? And said, I'm just I'm still only giving you one asset class for teny it.
Can I do US tech Stocks? You can? Too broad?
Now? Yeah, that's not too broad.
I was going to picture just one of them, and then I feel a bit like that's tricky because you know, you know, in video is doing very well at the moment, But is it's technology always going to be ahead of the curve?
Now?
I think we are. I think we're again taking a massive long term historical view of everything that's going on. We're in a technological revolution, just like the industrial revolution, and we've got to embrace it. It is. It is the future, and therefore you want to be on it. And where is all the where is all the advance happening? And it is the US?
So there you go, Okay, US tech Stocks is it? Thank you so much this week to do for my conversation with Helen I've got John Stuffic and also Bloomberg opinion columnist Adrian Wildbridge. And just before we get into our discussion about this week's interview, I want to let our listeners know that you are co hosting your own podcast, a new one, a series that just today called voter Nomics. You,
Stephanie Flanders know we're Stratton. You'll be coming together weekly having conversations about the elections taking place this year that is shaping the geoeconomic landscape. And this week's episode is a conversation with Neil Ferguson, absolutely something to look forward to.
We'll all be listening to that right onwards. John, I'm going to ask you first, because I always do, what did you think about this conversation with Helen which you suggested by the way, we had Helen on because you suggested we did, and I thought that was an all right suggestion.
Well, I'm glad to hear that. I know though, it was very interesting, and I thought, actually the idea that Vshi is going to step down of his own accord and then call someone election, it's quite a punchy call. And she did seem pretty comfortable to you know, put that out there. So I thought it was gonna work kind of talking about it, because if that happens, I mean, that's I I would. I mean that that that surprised me as an idea.
John. After we recorded that conversation, I had a couple of conversations with other people who think they're in the there well maybe are in the know, and they pretty much all said the same thing. Okay, so independent backup of that opinion, it's definitely floating around as a distinct possibility.
I mean, so, I mean, at the end of the day, I'm not plugged into Westminster, and there's, you know, a part of me that things the whole gossip side it kind of borden, but it is important, and I do
think that. I mean, if anything, I actually think your discussion about what will happen afterwards was it more interesting, because that's the idea that you know, labor getting and at the moment everyone seems to be kain comfortable with that and happy enough about it and assuming there's going to be something along the lanes of business as usual, but clearly when you look at the state of the
public finances, that's just not possible. There's got to be a change and the big Devin Steen label on the Tories is that the Tories at least have to pretend to be a law tax party, but as there's no such you know, kind of restriction when labor once they get in, I don't know why.
They bother with the pretense Adrian, let me bring in you and de fancy the idea of Penny more than just prime minister has that working fear.
I think it's a very interesting sort of question. I think a lot depends on what happens to the mayors in the in the local elections. I think if a bunch of counselors losing the local elections, people, you know, even if the number is very large, people think out, well, who cares about these local cancers. If you lose a big city, let's say Birmingham, then the party really does begin to panic. And I think that Rechi steps down
rather than having another act of regicide quite interesting. And I think if anybody were to replace him, I think Penny Morden would be a very very good choice in all sorts of ways. One is that she's you know, an attractive and articulate figure. She carried the sword extremely well during the during the coronation, which is no mean feat, you know, So it's a pretty important qualification for running the country these days.
Also, she.
Has a good feeling for the upper working class vote, the white working class vote. Her constituency, which is Portsmouth North, was a labor constituency before she took it over. She's converted it into a pretty solid majority at the moment, and nothing will be solid whenever the election comes, but up to now it's been pretty solid. She knows how to deal with that sort of version of the red
Wall down in the South. And she's a better retail politician and more attractive retail politician than Richie who is a very clumsy retail policy and a technocrat. So if I were a Tory wanting to save my seat, I'd rather have her than him. And also thinking from the national interest, the interests of the country, I think we are perhaps if things continue to go as they are with Rishi, looking at an absolute catastrophe for the Tory parties, for the Tory Party and a very big labor majority.
And I think a very big labor majority might be a very worrying thing. It would be a very worrying thing for the city. It might be a very worrying thing for Kirs Starmer, who might not want to have this huge pressure not only of expectations, but of MPs who will find it more and more difficult control than more of them there are.
But do you think that changing Prime Minister at this point, swapping Richie for Penny, it would make any difference to the result of the election. It kind of feels like it wouldn't.
I think that you can change the narrative a bit. I think at the moment, as long as it's Ritchi, its failure, it's the sort of sex frindses of these various MP's, it's whatever the latest story is. If you put a new person in the front, it's like it's like reviving a soap opera and you at least have a chance to change the story. And I think she's a better face for the party. Now you really forced bit of you know, to put money on the line, I'd say no, the Tory Party's finished, you know, it's
for the moment it is. People have made up their minds. But I think as a sort of hospital pass, i'd go for it.
With reform out there, with the Workers Party out there, is there any chance for hung Parliament. We naturally assume that there's going to be a massive labor majority simply because the toy is horrible, horrible state. But there are other parties.
Yeah, but it cannibalizes the Reform Party, cannibalizes the Tory votes, and the Tory vote is still going down and the Reform Party is still going up at the moment. So I think it is splitting the right. And again that's another reason why I think there is a there is a danger, if you want to look at it from that point of view, at least a possibility of a very substantial labor major. And what you might have is a very weird world in which you have a substantial
labor majority, just like in ninety seven. But in ninety seven you had a lot of enthusiasm, new labor, new beginning. You know, Tony Blair very good at his job. You'll have a substantial labor majority with no really having many expectations for them, boring Prime minister, expectations of things actually going pretty dismally, no money to spend, and so more of the same mood of despair, but with a different bunch of people to kick and complain about.
You say that it would all feel pretty dismal. But John and I were talking about this the other day. I'm thinking that possibly a large labor majority would make everyone feel mildly optimistic, largely because they don't quite understand what a very large laborjority would mean over the medium term, but just because there'd be the sense of something vaguely new and of stability. Yeah.
But if the person who's the front line of the act is Kars Starmer, it's hard just to get excited. Or can you get excited about Rachel Reeves or men of the rest of it. I don't think you can. And I think the Labor Party is going to go interpower with no money to spend a lot of expectations for fixing potholes and picked fixing hospital which they can't fulfill.
And if I were a sort of hyperactive left wing columnist, I'd be looking forward to a great future denouncing the Lay Party and saying they betrayed everything and that we should go back to a more Corbynite policy.
I'm afraid I mean that that is part of the problem. Connect very irresponsible. It's like, how do you keep the kind of file left on the under wraps once the then pos of course to keeping them shot up.
And you've got a restricted majority, you can give a lot of people jobs, which means money, which means you can basically afford to live in London. If you haven't got that, if you've got all these hungry people outside, well, the temptation to to to you know, go down the Owen Jones line is greater.
Okay, So what what do you think when you say this is dangerous and this is frightening. What is it that you are expecting policy wise in the early days that might scare horses.
Well, I think what's going to happen is that they will have pretty conservative macroeconomic policy that they will continue with a lot of the Tory policies that will create a lot of frustration. They'll have a bit of promises on fixing the National Health Service, fixing potholes and all the rest of that, which they won't have any money to do. They'll increasingly be tempted to engage in gesture or performative politics, which will I think solve no problems
and actually increase the potential for polarization and discontent. And I can see after not very long of a sort of basically inert Starmerish labor government, a surge in support for Corbynism and a surge in support for you know, anti work policies or whatever you want to call them. For our style is on the right, so you know, a dismal but more polarized Britain and I we're all going.
To be desperate to have Rishi back in six months.
Oh, we will say technocrat, a sensible guy. Can't we have something to learn that.
We were talking earlier in our introduction about the at the market you hires for the fifty one hundred, etcetera.
Is any optimism from either review that the assumed stability of a labor majority and perhaps a little more friendliness with the EU as I discussed with Helen might actually be good for the market, possibly bring some international investors back in or at least of the outflow from the UK, or perhaps another way, perhaps there'll be regulations that will prevent the outflows from the UK.
I just think that if you're looking around the world at the moment, the US is so dynamic and so tempting that I didn't see whether the UK would be attracting you when you could when you could go to the US instead.
I suppose that depends on whether the Trump baken in the.
V But I think Trump will be could be a huge boost in film States. I mean cutting capital, court corporation tax, cutting taxes, I think, deregulating quite a bit, rolling back a lot of green stuff. I think it will suck huge amounts of money and indeed talent from Europe, from Britain into the United States and make the boom
even bigger than it's already been. And you must remember the first two or three years of the last Trump administration, before COVID came and he started telling people to inject themselves with bleach. I mean, the economy was booming, you know, and business was saying, you know, he may be a nutter, but he's our nutter. And I can see that coming back.
More US exceptionalism then, basically.
Yeah, a slightly different kind and more acceptable acceptionalism from US to a bad kind. Agre John, thank you so much for joining us today. Thank you thanks for listening this week's Marin Talks Money. We will be back next week in the meantime. If you like us, sh rate, review and subscribe whereever you listen to your podcasts. And finally we have our show email, so I send along ideas, questions or comments to Merrin Money at Bloomberg dot net.
And if you have ideas on when Roshu's going to go and who the next Prime Minister will be, please do let us know. This episode was hosted by me Maren sumset Web. It was produced by some Asidi, additional editing by Blake Maple's Special thanks to Helen Thomas and of course to John Steppek and Abrian Wildridge