Latest / Merryn Talks Money / Euro Chaos, London's Shrinking Exchange, and the Cult of US Stocks

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Euro Chaos, London's Shrinking Exchange, and the Cult of US Stocks · Merryn Talks Money

• 0:03
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
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  Speaker 2: Welcome to the Merton Talks Money weekly roundup, debrief and
• 0:23
  Speaker 2: the biggest stories in markets and economics this week. I'm
• 0:26
  Speaker 2: joined Stevieck, senior reporter and author of the Money Distilled newsletter.
• 0:30
  Speaker 2: I'm standing in for Merion this week. If you haven't
• 0:33
  Speaker 2: yet signed up for a new newsletter, then please do
• 0:36
  Speaker 2: so and with me. Is it's becoming traditional? Is Marcus Ashworth,
• 0:41
  Speaker 2: Bloomberg opinion columnist and market's veteran. I think is the
• 0:46
  Speaker 2: best way to describe them. And Marcus, nice to see
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  Speaker 2: you again.
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  Speaker 1: Love to see you.
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  Speaker 3: Right.
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  Speaker 2: So it's actually been a really busy week already and
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  Speaker 2: it's only Wednesday afternoon. So I thought you've been writing
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  Speaker 2: a lot about the European Central Bank and the euro
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  Speaker 2: in general recently, and obviously this week we've got the
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  Speaker 2: pending collapse on lately, pending collapse with the French government.
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  Speaker 2: Who do you see all this clear note for the
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  Speaker 2: Eurozone generally, and I guess the ural cudrency specifically, because
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  Speaker 2: we've kind of talked about whether it's going to go
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  Speaker 2: to partity with the dollar or not, and you know,
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  Speaker 2: home much that actually marks to an average UK investa.
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  Speaker 4: Well, I think for the first you think you know
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  Speaker 4: a lot, it's a lot of bad stuff is priced
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  Speaker 4: into the Euro already we're at one oh five. Basically,
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  Speaker 4: if it was going to go to parity, I'm not
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  Speaker 4: saying you would have already got there. But the problem
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  Speaker 4: with the eras has nothing to actually support it. If
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  Speaker 4: the dollar decides to rally further, which it may well do,
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  Speaker 4: then the era has no defense. It's not in control
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  Speaker 4: of its own destiny. Having said that, it's at one oh five,
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  Speaker 4: it's not at one, So you know, a lot of
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  Speaker 4: bad us is priced in. I don't think the French
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  Speaker 4: crisis is really that much of a crisis. They don't
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  Speaker 4: do it as well as we do over here. Certainly
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  Speaker 4: we did a couple of years ago. If the government
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  Speaker 4: were to collapse, and I think Barney is right to
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  Speaker 4: call the bluff of the pen here, so I wouldn't
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  Speaker 4: be surprised to see him survive. It doesn't matter if
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  Speaker 4: he survives. It doesn't really matter if it collapses either
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  Speaker 4: because probably with no elections allowed to be had till
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  Speaker 4: next June July, then mackrole just reappoint Barnier or someone
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  Speaker 4: else with a different name but same sort of agenda.
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  Speaker 4: We'll come back in the government can still function in effect, Yes,
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  Speaker 4: they won't be able to do much change from where
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  Speaker 4: we are. I think Brussels, who could be the big
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  Speaker 4: problem they wanted to be, are not going to be.
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  Speaker 4: And that's very fundamental to hear. You know, they want
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  Speaker 4: to get the French budget deficit down, which is the
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  Speaker 4: real problem. It's at six six and a half seven,
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  Speaker 4: whatever it may be in reality, they want it basically
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  Speaker 4: at three. Italy has a similar problem. But Italy's was
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  Speaker 4: high but is coming down and carry on going down. Said,
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  Speaker 4: the focus is on France, but they know they've learnt
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  Speaker 4: not to push too hard, and they know that the
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  Speaker 4: French government's trying its best and is a lot of
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  Speaker 4: things are in its way. So that said, I think
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  Speaker 4: that there is ever bad economic news on the way
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  Speaker 4: for Europe and pretty much every context. I do think
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  Speaker 4: there is a serious problem in Germany as well, So
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  Speaker 4: in that sense, I think Germany has got to get
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  Speaker 4: out of its own way, lift its debt break Then
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  Speaker 4: they can do it domestically, why can't they do it
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  Speaker 4: in the center the whole capital markets Union. Another round
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  Speaker 4: of a big stimulus, as a Maria Dragi has recently
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  Speaker 4: proposed in September the bunch of things it needs to do.
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  Speaker 4: The European Central Bank next week is meeting on Thursday.
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  Speaker 4: It's a quarterly review that's almost certainly going to cut
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  Speaker 4: twenty five basis points. I don't think they'll cut fifty,
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  Speaker 4: but I expect a bit like our Bank of England
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  Speaker 4: governor today came out and said four more rate cuts
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  Speaker 4: next year.
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  Speaker 1: My lord?
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  Speaker 4: Is that what they call forward guidance. It's extraordinary. Do
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  Speaker 4: I think the Guard will do something similar? No, but
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  Speaker 4: I think she needs to make it very clear that
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  Speaker 4: it's quite likely that every every meeting, not every other meeting,
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  Speaker 4: but every meeting, there will be another twenty five basis
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  Speaker 4: point cards. I don't think they'll go fifty. I think
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  Speaker 4: they may discuss fifty, but from that I think they
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  Speaker 4: will instead decide to go instead of doing quarterly bigger
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  Speaker 4: moves that they'll do meeting by meeting. Is that going
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  Speaker 4: to change in in thear future. No, but the crisis
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  Speaker 4: in France's is not going to change much at the moment,
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  Speaker 4: and I don't think Germany is going to get out
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  Speaker 4: of so weird until the next it's it's elections in February.
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  Speaker 1: That'll take a while.
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  Speaker 4: They need two thirsd majority of the bunner Stag.
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  Speaker 1: But the great thing about Europe is.
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  Speaker 4: That however bad it looks, however terrible looks, they always
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  Speaker 4: at the last moment bend their rules, change their rules,
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  Speaker 4: do what needs to be done.
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  Speaker 2: See. I remember when the Greek crisis happened, obviously about
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  Speaker 2: fifteen years ago, not that old. Well, I know I
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  Speaker 2: don't look it, but you know, as I use Gian
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  Speaker 2: two thousand.
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  Speaker 4: Obviously, are we thinking Thermopoli Hill or you're talking two thousand.
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  Speaker 2: Yeah, they said, did ease trap all over again? Back
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  Speaker 2: then I was probably in the more you'droskept it camp
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  Speaker 2: and that thinking the uro was going to break up
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  Speaker 2: at some point because of us all in contradictions.
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  Speaker 4: I think we all, I remember discussing with you at
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  Speaker 4: the times we all need to beat up on the
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  Speaker 4: on the eras we thought it was incongruous, and they haven't.
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  Speaker 4: They slam got around to capital markets or banking union,
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  Speaker 4: by the way, but you know the point is is
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  Speaker 4: that they can share. They braized eight hundred billion after
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  Speaker 4: the pandemic stuff. I think they're going to have to
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  Speaker 4: do something similar again, labeling it in defense or nets
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  Speaker 4: era or whatever else they want to chuck in for
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  Speaker 4: good luck. But they need another a big fiscal boost,
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  Speaker 4: and that's the key. You can't cut inter straights on
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  Speaker 4: your own. Doesn't work. They tried that for ten years
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  Speaker 4: post the Greek crisis and whatever, and it didn't do
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  Speaker 4: anything for it. They had negative fifty basis points and
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  Speaker 4: no growth and nothing happened. However, one part fiscal stimulus
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  Speaker 4: eight hundred billion off the pandemic, all of a sudden
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  Speaker 4: they got runaway inflation. But my lord, doesn't work. And
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  Speaker 4: I think they've shown that, and that's exactly unfortunate I
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  Speaker 4: have happened.
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  Speaker 1: Again.
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  Speaker 2: It does feel as low that the the toning point
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  Speaker 2: for Europe as a whole will be when Germany, one
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  Speaker 2: wey or the other gives up on having a hard
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  Speaker 2: curtncy and uh, you know Spartzer no budget deficit basically,
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  Speaker 2: because that was always the stecond point, wasn't it. I mean,
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  Speaker 2: does it feel as it feels to me, is if
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  Speaker 2: Germany could be a tipping point, which it actually says,
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  Speaker 2: you know, okay, we are going to start spending because
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  Speaker 2: the current economic model has basically broken the.
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  Speaker 4: Pretty much has basically shown a little bit of leg
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  Speaker 4: He's he said he's wouldn't rule it out, but he's
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  Speaker 4: certainly not going to campaign for it.
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  Speaker 1: He's not that stupid.
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  Speaker 4: As I said, they need a two thirds majority of
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  Speaker 4: the Bunderstag, so it's likely going to be some form
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  Speaker 4: of grand coalition with probably with the CDU CSU and
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  Speaker 4: also probably the SBD.
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  Speaker 1: Ironically what we shall see.
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  Speaker 2: Obviously French markets specifically have done very badly since the
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  Speaker 2: political stuff kicked off. I mean I was, I was
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  Speaker 2: looking at the lanes on the chart, and up until
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  Speaker 2: you know, the middle of the year, everyone was running
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  Speaker 2: together the UK, Germany, France, Spain all up a bit
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  Speaker 2: roughly the same amoment Italy rather than Spain. And then
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  Speaker 2: after that the political stuff kicked off. France really has
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  Speaker 2: taken a harm on. It's only one percent this year
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  Speaker 2: and total de Ton terms versus like eighteen nineteen twenty
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  Speaker 2: percent for the rest of them.
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  Speaker 4: A couple of reasons behind that. Luxuries had a real
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  Speaker 4: good whacking in China, and that's obviously a lot of
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  Speaker 4: part of the cat carr on. You know what's kept
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  Speaker 4: the Dack's doing better is the thrill full stocks principally
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  Speaker 4: SAP because it's the any it company tech company in
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  Speaker 4: that sense software in Europe Ryan Mattal and Zeeman's energy
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  Speaker 4: winter buying stuff. So the Germans have had a few
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  Speaker 4: big stocks keeping it doing better. But France has gone nowhere.
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  Speaker 4: As you said, it's a relative and the performance, but
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  Speaker 4: hasn't lost money necessarily, Like as you look at the bonds,
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  Speaker 4: everyone's sort of screaming shouting about it, but reality, French
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  Speaker 4: shields have fallen. They were as high as three three twenty.
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  Speaker 4: They certainly had a look above three fairly recently. They're
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  Speaker 4: now down at two ninety two to ninety one. So
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  Speaker 4: it's just that. Of course they'll say the last three
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  Speaker 4: months we've had French shields of fall only two basis points.
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  Speaker 4: They're basically unchanged. Whereas you know, German yields have dropped
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  Speaker 4: fifteen people have rushed into Germany flight to quality and
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  Speaker 4: the relatively looking France looks worse. But the truth is
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  Speaker 4: that their cost of funding has gone down.
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  Speaker 2: Oh yeah, that makes sense. So basically storming their teacup,
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  Speaker 2: that's what we all ate tea here. The other thing
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  Speaker 2: that's been in the news of lot is London's shrinking
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  Speaker 2: stock market.
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  Speaker 1: The best stock market in the world. You mean, yes, it's.
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  Speaker 2: The best stop mark in the world. People can't get
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  Speaker 2: enough of it. We can't keep up with the mind
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  Speaker 2: too much.
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  Speaker 1: Stop already. Yeah, it may shock you just think that.
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  Speaker 4: To hear me say that, I'm actually not quite as
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  Speaker 4: pessimistic as everyone else on good old Bligie. And the
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  Speaker 4: reason why is, Look, we can cut stamp duty, which
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  Speaker 4: is one of the highest in the world. Yes, we
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  Speaker 4: can get out of our own way with the Financial
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  Speaker 4: Conduct Authority, which is starting to show some signs almost
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  Speaker 4: have been sensible. I'm not going to go too far here,
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  Speaker 4: but they realize that they've overdone it. The current government
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  Speaker 4: is actually quite aware of what the FCA's reputation is
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  Speaker 4: in the city. You know, we need to let the
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  Speaker 4: banks be a little bit more breathing in some animal spirits.
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  Speaker 4: And that's exactly the contrast you can draw between Europe,
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  Speaker 4: the UK and then to the States, where the States
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  Speaker 4: have been far more pragmatic about it.
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  Speaker 1: So we can cut.
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  Speaker 4: Stamp duty, I think we can look at shean potentially
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  Speaker 4: coming which would dramatically alter that picture of companies delisting.
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  Speaker 4: The delisting thing is not necessarily all bad two reasons. One,
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  Speaker 4: everywhere the rest of Europe is losing listings as well,
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  Speaker 4: not just US. Yeah, everywhere's going to the States. It's
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  Speaker 4: just a global trend until I'm what sure will come
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  Speaker 4: on to them until it stops.
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  Speaker 2: But even stays, the aplays in the States is done,
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  Speaker 2: isn't it. I mean they've held big declaim in lessons
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  Speaker 2: to so private has also taken an awful lot of
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  Speaker 2: business that would have been.
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  Speaker 1: The private equity model. Is is definitely changing.
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  Speaker 4: It was basically by turn it around five years IPO
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  Speaker 4: move on. Yeah, now that model has very much gone
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  Speaker 4: to just tried so only it doesn't sort of work
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  Speaker 4: as in fact, there's too much risk. Basically, there's too
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  Speaker 4: much volatility into the listing that's made less attractive.
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  Speaker 2: So let's jump to the world's most successful stock market. Finally,
• 10:26
  Speaker 2: and I don't know if you read it, but our
• 10:27
  Speaker 2: mutual friend Simon White in the office there put together
• 10:32
  Speaker 2: a piece for terminal subscribers basically talking about how the
• 10:36
  Speaker 2: US stock market has pretty much never been this overvalued
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  Speaker 2: on certain metrics like ownership is within a sliver of
• 10:47
  Speaker 2: its all time highs. Everyone's extremely optimistic. You look at
• 10:53
  Speaker 2: the cape, you look at the price to book, you
• 10:54
  Speaker 2: look at everything else. And I know you've been able
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  Speaker 2: to say this for a long long time, but how
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  Speaker 2: much longer can this US performance carry on for?
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  Speaker 4: If anyone tells you, then the answer that they are
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  Speaker 4: lying all right now, Simon, as you know, does detail
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  Speaker 4: better than anyone, and he's gone into every single metric
• 11:14
  Speaker 4: and we all sort of know this, we feel it anyway,
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  Speaker 4: but it's just put some some sort of hard facts
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  Speaker 4: behind suppositions. But yes, sir, if you look on I've
• 11:23
  Speaker 4: read about this as well a few times that US
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  Speaker 4: stocks are close to three quarters of the entire world
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  Speaker 4: capitalization of stock markets, and you know, yes, no, the
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  Speaker 4: US tech story. I think the dollar is very into
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  Speaker 4: linked with if something breaks, it doesn't matter if it
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  Speaker 4: breaks in the stock market first, or it breaks the currency,
• 11:44
  Speaker 4: or indeed the Fed starts cutting into straits a little
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  Speaker 4: bit more aggressively, which then weakens the dollar, which then
• 11:49
  Speaker 4: all of a sudden for foreigners, you know, being the
• 11:52
  Speaker 4: dollar is going to start being less attractive, which means
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  Speaker 4: they might start reallocating back their own markets. Or elsewhere
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  Speaker 4: a trickle will become a storm. But until then, there
• 12:02
  Speaker 4: is no alternative to the dollar, to US stock markets,
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  Speaker 4: to even if you look at the returns of some
• 12:08
  Speaker 4: of the best hedge funds around the world, they're not
• 12:10
  Speaker 4: beating the S and p you know, not even close
• 12:12
  Speaker 4: most of them. And these are top top best pods
• 12:15
  Speaker 4: of you know, this and that and the other. And
• 12:17
  Speaker 4: that's quite extraordinary, is that literally thementum in there is everything.
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  Speaker 4: When that momentum will stop, I have absolutely no idea,
• 12:25
  Speaker 4: and until such time there's nothing else you can do.
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  Speaker 4: But essentially, you know, I guess stay with it because
• 12:30
  Speaker 4: there is no alternative immediately obvious that you want to go,
• 12:33
  Speaker 4: Oh my lord, it's you de to have to buy Europe.
• 12:35
  Speaker 4: So I don't know what turns first the dollar. I
• 12:37
  Speaker 4: think Trump is going to be dollar negative. I think
• 12:40
  Speaker 4: he wants in just for it to come down.
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  Speaker 1: We know that.
• 12:42
  Speaker 4: I think he wants the dollar to come down. That's
• 12:43
  Speaker 4: a very important point. I don't think the market's pricing
• 12:46
  Speaker 4: and yet that's the big I don't think tariffs are
• 12:51
  Speaker 4: going to be either one, particularly as revolutionary as people fear,
• 12:55
  Speaker 4: but they are. They're going to be deflationary. I think
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  Speaker 4: inflation in the States is coming down regardless because the
• 13:00
  Speaker 4: shelter component it's finally going to it's finally turning lower.
• 13:03
  Speaker 4: Not the fedness you look at that, but growth is strong.
• 13:07
  Speaker 4: The Atlanta Fed GDP now is forecast is looking at
• 13:09
  Speaker 4: some now costs, looking at some like three core of four.
• 13:14
  Speaker 1: Yeah, how can you not be in stakes?
• 13:15
  Speaker 3: Yes, well money in letting on my own this point, No,
• 13:20
  Speaker 3: I wouldn't know that, But then I have managed for
• 13:23
  Speaker 3: the entireted in my careers, miss the US stock market running, So.
• 13:27
  Speaker 1: What do I know?
• 13:29
  Speaker 2: Well, if you can't beat them, join them. Basically came
• 13:32
  Speaker 2: to the same conclusion that I was writing the boot
• 13:34
  Speaker 2: simon to PC earlier this week. There's no point in
• 13:36
  Speaker 2: standing in front of the steam roller. I just don't
• 13:38
  Speaker 2: have one hundred percent money in the s and P
• 13:40
  Speaker 2: five hundred is you know the occasional Tech talk advice
• 13:44
  Speaker 2: Colin will tell you well on that note, Thanks pretty much,
• 13:48
  Speaker 2: Marcus really appreciated that, and thanks everyone for listening this
• 13:57
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