Latest / Merryn Talks Money / Rachel Reeves’s Tears Move Markets and the AstraZeneca Wake-Up Call

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Rachel Reeves’s Tears Move Markets and the AstraZeneca Wake-Up Call · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
• 0:13
  Speaker 1: Talgs Money Market Wrap, where we talk about the biggest
• 0:15
  Speaker 1: moves in the markets this week and whilst driving them.
• 0:18
  Speaker 1: I'm Maren Thum's op web editor at Large for Bloomberg
• 0:20
  Speaker 1: UKA Wealth.
• 0:21
  Speaker 2: And I'm Joined Stovik, senior reporters from Bloomberg and author
• 0:23
  Speaker 2: of the Money to Still newsletter.
• 0:25
  Speaker 1: We've got another person for our list, haven't we, John,
• 0:27
  Speaker 1: The people who we have to refer to only by
• 0:29
  Speaker 1: putting poor in front of their name, And here we
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  Speaker 1: are poor Rachel Reeves wed They Yeah, we're speaking on Wednesday,
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  Speaker 1: the second, by the way, and we've just been watching,
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  Speaker 1: as we.
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  Speaker 3: Say, poor Rachel Reeves a bit tearful.
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  Speaker 1: In parliament and things really not going well for her
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  Speaker 1: pound down yields up Not good, is it, John?
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  Speaker 2: No, it's very massy and obviously the bike growing to
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  Speaker 2: This is the last night, as in Tuesday evening the
• 0:58
  Speaker 2: government had to pull its welfare Benefits Bill, which was
• 1:02
  Speaker 2: meant to save five billion pounds and that was basically
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  Speaker 2: the kind of last hope for Rachel Reeves to come
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  Speaker 2: anywhere close to meeting her fiscal rules, and so by
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  Speaker 2: this morning she was complete sorry, and.
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  Speaker 1: We should we should say that, we should say to
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  Speaker 1: come anywhere close because it was already a kind of
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  Speaker 1: rubbish bill. But it wasn't saving very much. It wasn't
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  Speaker 1: saving nearly enough. It wasn't a root and branch for reform.
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  Speaker 1: It was just a clip here and a clip there.
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  Speaker 1: It was never good enough. But not even that with
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  Speaker 1: that huge majority, this government couldn't even get that through.
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  Speaker 2: Yeah, and I mean there's definitely fair criticisms of the bill.
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  Speaker 2: I suspect that the majority of people who voted against
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  Speaker 2: the are not thinking about those particular criticisms. And it
• 1:47
  Speaker 2: does need a sort of rooten branch reform to make
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  Speaker 2: it work much more cheaply, and also, you know, from
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  Speaker 2: a fair inness point of view. But basically it was like,
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  Speaker 2: it's basically the third kind of budget related to you
• 2:01
  Speaker 2: turn that they've had, you know, dorees the inheritance tax
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  Speaker 2: sort of semi u turn. There was the winter fuel payments,
• 2:08
  Speaker 2: which they had completely you turn on. So this is
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  Speaker 2: the third big one that's also the most embarrassing because
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  Speaker 2: I mean, you know, it's been very badly managed. You know,
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  Speaker 2: there were plenty of points of which they could have
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  Speaker 2: pulled this, which would have been less embarrassing, and instead
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  Speaker 2: of being treated to the site of the PM running
• 2:25
  Speaker 2: around trying to convince the rebels, making all sorts of
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  Speaker 2: promises and then still not getting it over the line.
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  Speaker 2: And that kind of means that very obviously to anyone
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  Speaker 2: with eyes, the chancellor's kind of position is untenable. You know,
• 2:42
  Speaker 2: the October budget is going to be a big deal,
• 2:43
  Speaker 2: and the October budget has to stick, it has to
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  Speaker 2: land whatever's in it, and so she can't be the
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  Speaker 2: one to deliver it. So at this point in time
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  Speaker 2: she hasn't you know, resigned, but I mean her time
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  Speaker 2: in that role now surely has to be numbered in
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  Speaker 2: thought these if not oils rather than you know, weeks
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  Speaker 2: on months, is some people maybe thought about a week ago.
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  Speaker 1: Interesting and given how well useless she's turned out to
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  Speaker 1: be in this role. Although I would say, as we've
• 3:12
  Speaker 1: said before, I can't really see what anyone could do
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  Speaker 1: in this role. It feels like this age of entitlement
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  Speaker 1: somehow has to just end badly. There's no easy way
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  Speaker 1: out of this. There's nothing that a chancellor can do realistically,
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  Speaker 1: particularly not a labor chancellor. With this group of backbenches,
• 3:26
  Speaker 1: nothing anyone could realistically do to turn things around at
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  Speaker 1: this point. But nonetheless you'd think they're given that she
• 3:33
  Speaker 1: hasn't done a great job, but perceived to have done
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  Speaker 1: a great job. Her going because we I'm pretty certain
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  Speaker 1: that she will be going would be kind of good
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  Speaker 1: for guilt markets and kind of you know, maybe good
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  Speaker 1: for the pound.
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  Speaker 3: Everyone would go, well, there'll be somebody better.
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  Speaker 1: But the awful thing that the markets are telling us
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  Speaker 1: is that nobody believes that there is somebody better.
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  Speaker 3: Is that fair?
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  Speaker 2: Yeah, I mean the problem is and again I mean weirdly,
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  Speaker 2: this is something that isn't is kind of common knowledge
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  Speaker 2: that this is the most if you want to call it,
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  Speaker 2: this right wing configuration possible for the labor government that's
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  Speaker 2: empowered just now. So whoever you get, and whatever configuration
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  Speaker 2: you get, it's going to be more left wing, more
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  Speaker 2: inclined to spend money, more inclined to try and you know,
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  Speaker 2: basically buck the markets, which which won't mark because that's
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  Speaker 2: kind of not how it works. And I guess it's
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  Speaker 2: probably it's not just Rachel Reeves. I don't think markets
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  Speaker 2: are just worried about who will replace Rachel reeves. The
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  Speaker 2: fact is that the Prime minister's authority has been just
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  Speaker 2: irreparably damaged by this. So you are back to the
• 4:40
  Speaker 2: position where you're basically back to the position that we
• 4:43
  Speaker 2: were in. Are not far off the position we were
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  Speaker 2: in just after kind of Liz trusts or even journalist trusts,
• 4:50
  Speaker 2: where markets are losing confidence in the country's ability to
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  Speaker 2: be governed and don't know what's coming next. And the
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  Speaker 2: only reason we haven't had an actual crisis is because
• 5:01
  Speaker 2: we don't actually don't have the same conditions as we
• 5:03
  Speaker 2: did under Let's trust, which was you know, the Bank
• 5:06
  Speaker 2: of England doing rampant kind of q T at the
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  Speaker 2: same time, and also massive leverage having been built up
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  Speaker 2: by pension funds. Basically, there isn't Aldi isn't a problem anymore.
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  Speaker 2: We'd already have kind of blown out by now. I
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  Speaker 2: think if Aldi was still there.
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  Speaker 3: It's also third world, doesn't it.
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  Speaker 1: Do you remember that bit when the Labor government first
• 5:25
  Speaker 1: got in, when everyone said, oh, the grown ups are
• 5:28
  Speaker 1: in the room, welcome the stability.
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  Speaker 3: I think we felt for that ourselves a bit. John.
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  Speaker 3: We didn't. We thought they do all kinds of stuff.
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  Speaker 3: We didn't like, but we at least thought they did
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  Speaker 3: it in a stable.
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  Speaker 1: Environment and that that would somehow be good for the
• 5:38
  Speaker 1: UK stock market, good for the bond market, et cetera.
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  Speaker 1: And instead of which here we are and all that
• 5:43
  Speaker 1: muttering about how everything is going to be fine in
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  Speaker 1: the UK.
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  Speaker 3: The market is going to rhyme. It has it has
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  Speaker 3: the market so well.
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  Speaker 1: But but but but but Astra Zeneca, Yeah, which you've
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  Speaker 1: written about this week.
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  Speaker 2: Yeah, And then we feel that that's not actually directly
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  Speaker 2: related to but there certainly wonn't help. So there was
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  Speaker 2: a news story.
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  Speaker 1: It's absolutely it's not related to it, but it's part
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  Speaker 1: of the whole story of the dysfunction of the UK.
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  Speaker 3: You know this.
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  Speaker 1: Of course it's not directly rated to what's happening with
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  Speaker 1: Riche or Reason and k Stamas right now, but it's
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  Speaker 1: related to the fact that people look at our market,
• 6:18
  Speaker 1: look at our economy, look at everything, and go, this
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  Speaker 1: is a dysfunctional state that should not be valued in
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  Speaker 1: the same way as some other states, which is miserable.
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  Speaker 1: And now we have one of our largest companies, one
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  Speaker 1: of our most well known globally UK companies, Astra Zancre,
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  Speaker 1: and you wrote about it this morning, saying it accounts
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  Speaker 1: for over seven percent, over seven percent of the whole
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  Speaker 1: FOOTZ one hundred and now they're muttering about leaving for
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  Speaker 1: the US, not just muttering it.
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  Speaker 2: Well, yeah, I mean so this was important the teams,
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  Speaker 2: and it's you know, it's one of those reports that
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  Speaker 2: is confunded by multiple sources, which was donalism speak for
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  Speaker 2: we couldn't get anyone to actually put them the multiple sources,
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  Speaker 2: you know, I mean, yeah, of course the time about
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  Speaker 2: the real question is whether they're talking about loudly enough
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  Speaker 2: to act on it. But the fact that it's been
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  Speaker 2: reported like this, the fact that whenever the rumor came
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  Speaker 2: out yesterday afternoon, Astrozenica's share price kind of jumped by
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  Speaker 2: three percent. I mean, that's a real kind of slap
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  Speaker 2: in the face. The idea that like people in London
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  Speaker 2: are thinking, yeah, it'd be a great idea if you
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  Speaker 2: left and kind of you know, went over the US.
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  Speaker 2: I mean, you can see why they would want to
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  Speaker 2: do it. There's been long standing irritations they're not kind
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  Speaker 2: of the question marks over the regulatory environment in the UK.
• 7:37
  Speaker 2: Obviously Trump's tariffs are an issue, because that would make
• 7:41
  Speaker 2: you think I say, maybe it'd be better if we
• 7:44
  Speaker 2: were listed in the US, and then that might make
• 7:47
  Speaker 2: things more politically easy over there. But absolutely the other
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  Speaker 2: issue is that the governance here has been so unpredictable
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  Speaker 2: for such a long time now that you know, I mean,
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  Speaker 2: the thing I was thinking about even before this morning happened.
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  Speaker 2: I was thinking, well, somebody had said on Twitter after
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  Speaker 2: this story broke, if I was Rachel Reeves, I'd be
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  Speaker 2: phone in Pascal story or rate now and ask them
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  Speaker 2: what his concerns are. And I was thinking, yeah, but
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  Speaker 2: piscal would be well within his rates to turn that
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  Speaker 2: down to chl and say, yeah, but you know you're
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  Speaker 2: seeing all these things now, how Dan know you're going
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  Speaker 2: to be the customer services person in the job, you know,
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  Speaker 2: by the end of the week. And so it's kind
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  Speaker 2: of is that inconsistency That's another issue.
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  Speaker 1: But it's also be within his rights to say it's
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  Speaker 1: not like any of this is new. All the problems
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  Speaker 1: with the UK stock working a well known Lord John,
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  Speaker 1: We've been writing and talking about this, but I mean
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  Speaker 1: years at this point, there is no new information here.
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  Speaker 1: A good Chancellor, as we've said from the very beginning
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  Speaker 1: of her being in the job. A good Chancellor would
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  Speaker 1: have been on this immediately, trying to find ways to
• 8:53
  Speaker 1: improve the environment for the UK store market. And the
• 8:56
  Speaker 1: obvious way to do that, of course, as we say
• 8:58
  Speaker 1: over and over, is to get red of stand duty
• 9:00
  Speaker 1: or that very leaf, bring it somewhere near did global norms.
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  Speaker 1: That would have been the obvious and immediate thing to
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  Speaker 1: do to send a signal to the world that we
• 9:08
  Speaker 1: are open for business, instead of which we sent signal
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  Speaker 1: after signals saying that actually, do you know what, we're
• 9:12
  Speaker 1: kind of closed close, actually completely close, totally close, and
• 9:15
  Speaker 1: then chaos. By the way, we haven't even got a
• 9:17
  Speaker 1: bandwidth to think about whether you should listen here or not,
• 9:20
  Speaker 1: because we're kind of busy infighting.
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  Speaker 2: Yeah, And look, that is the frustration, because I mean,
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  Speaker 2: one of the reasons that we gave the new government
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  Speaker 2: something of the benefit of the doubt is because whenever, yeah,
• 9:31
  Speaker 2: we did, and whenever they came in, the UK economy
• 9:34
  Speaker 2: was pointed in the right direction. And before the election
• 9:37
  Speaker 2: they were talking as if they were kind of pleased
• 9:39
  Speaker 2: about that, that they take that on board and that
• 9:41
  Speaker 2: they were going to run with it. And as soon
• 9:44
  Speaker 2: as they came in they embarked on a punishment budget,
• 9:48
  Speaker 2: which was basically in order. They kind of scorched earth
• 9:51
  Speaker 2: and you know, take advantage of the lingering kind of
• 9:56
  Speaker 2: sense sense that LED's trusts and the Tories high somehow
• 10:00
  Speaker 2: blowing up the economy and they kind of wanted to
• 10:03
  Speaker 2: imprint that fiscal responsibility or in the rival party, so
• 10:09
  Speaker 2: basically settling old scores from field twice. They'll feeling a
• 10:12
  Speaker 2: bit kind of like annoyed that the Tories have done
• 10:14
  Speaker 2: the same thing in twenty ten. But instead what they
• 10:17
  Speaker 2: did is they they screwed themselves, you know they we
• 10:21
  Speaker 2: could be in a much better position right now if
• 10:23
  Speaker 2: I hadn't been for the tactics that have been deployed
• 10:26
  Speaker 2: in the last year. I firmly believe that. And you're right,
• 10:29
  Speaker 2: should the scrapstamp duty because it costs like three and
• 10:32
  Speaker 2: a half billion a year. That's all it makes, which is.
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  Speaker 1: Buttons, and we know what it does to our market. Listen,
• 10:41
  Speaker 1: while she's still in place, there's one more thing I'd
• 10:43
  Speaker 1: like to be cross with ritual Raves about. I mean,
• 10:44
  Speaker 1: it will be nice for a battle and she's gone tomorrow.
• 10:47
  Speaker 1: The day after end of the week, when I read it,
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  Speaker 1: But anyway, before she goes is one more thing I
• 10:51
  Speaker 1: want want to talk about, which is private equity. And
• 10:54
  Speaker 1: one of the things that she has discussed at length
• 10:56
  Speaker 1: is this idea that a pension funds will be obliged
• 11:01
  Speaker 1: to put a certain amount of money into UK private
• 11:04
  Speaker 1: companies or project private projects at least and I don't
• 11:08
  Speaker 1: know if you saw this, that was an article on
• 11:10
  Speaker 1: the Wall Street Journal Competition Alert about a letter written
• 11:15
  Speaker 1: by US politician at least Stefanick asking for an investigation
• 11:19
  Speaker 1: into Harvard's financial disclosures to their bondholders, and which he's
• 11:23
  Speaker 1: really talking about in this letter, which we'll put in
• 11:25
  Speaker 1: the show notes actually a link to it. What she's
• 11:28
  Speaker 1: really talking about in this letter is asking for a
• 11:30
  Speaker 1: good look at the percentage of the assets that Harvard
• 11:34
  Speaker 1: has that are tied up in private equity funds and
• 11:37
  Speaker 1: the extent to which those funds are overvalued.
• 11:40
  Speaker 3: And one of the things she.
• 11:41
  Speaker 1: Says is that perhaps just maybe the real, real, realizable
• 11:45
  Speaker 1: value of those assets is likely far below stated values.
• 11:48
  Speaker 1: Now I looked at that at around the same time
• 11:51
  Speaker 1: that I started reading a note sent to us by
• 11:53
  Speaker 1: Dan from Verdad.
• 11:54
  Speaker 3: We've met him on before, excellent podcasts. Go back and
• 11:56
  Speaker 3: listen to that.
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  Speaker 1: Of you haven't everybody he's sent around a note saying
• 12:00
  Speaker 1: that they've had a look comparing ron will want to
• 12:03
  Speaker 1: complain about their methodology. So again I'll put that link
• 12:06
  Speaker 1: in the show notes. Go and look at it yourself.
• 12:08
  Speaker 1: Comparing companies are owned by private equity with SMP five
• 12:11
  Speaker 1: hundred companies, and here's the data. SMP five hundred companies
• 12:16
  Speaker 1: pay one percent of their revenues out and interest. They
• 12:19
  Speaker 1: pay an interest rate with around four percent on their debt.
• 12:22
  Speaker 1: They have ebitdown margins of twenty five percent, free cashflow
• 12:26
  Speaker 1: margins of nine percent. For PE companies those numbers of
• 12:30
  Speaker 1: four percent, eight percent, seven percent, and two percent. So overall,
• 12:35
  Speaker 1: what we're saying here is that private equity owned companies
• 12:37
  Speaker 1: are smaller. We know that bit, they're more leveraged, they
• 12:40
  Speaker 1: pay higher interest rates, and they have much lower margins
• 12:43
  Speaker 1: than public companies. Yet yet private equity fund management firms
• 12:50
  Speaker 1: want you to pay more for these companies than you
• 12:53
  Speaker 1: would for a listed company. Now that would work, That
• 12:56
  Speaker 1: would be fine to a degree if they will growing very,
• 13:01
  Speaker 1: very significantly faster than listed companies, right, very significantly fast.
• 13:06
  Speaker 3: But guess what.
• 13:09
  Speaker 1: The PE companies that come out invert out data are
• 13:12
  Speaker 1: growing in revenue terms at about the same speed as
• 13:16
  Speaker 1: S and P five hundred companies, So you haven't even
• 13:19
  Speaker 1: got the growth. So you look at that and you
• 13:21
  Speaker 1: don't have to wonder anymore why it's so hard for
• 13:24
  Speaker 1: private equity companies to exit at the moment. They can't
• 13:26
  Speaker 1: get rid of these things to listed companies because they
• 13:29
  Speaker 1: know all this stuff and they certainly can't list them
• 13:31
  Speaker 1: at the kind of price that they want to list them.
• 13:34
  Speaker 1: And then, of course, as you and I know that
• 13:36
  Speaker 1: if you really want to buy small and the liquid companies,
• 13:39
  Speaker 1: you can do that like way way cheaper with the
• 13:42
  Speaker 1: added bonus chucked into free of daily market and market
• 13:44
  Speaker 1: and possibly even from transparency. Yeah, you can buy list
• 13:47
  Speaker 1: of small counts.
• 13:48
  Speaker 3: Why wouldn't you.
• 13:50
  Speaker 1: I was talking to Alec Cutler, who we've had again
• 13:52
  Speaker 1: we've had on the podcast before about this earlier, and
• 13:55
  Speaker 1: he's like, it's just branding, literally branding. Private equity has
• 14:00
  Speaker 1: incredibly successful branding campaign and managed to make people believe
• 14:05
  Speaker 1: that a small, illiquid, slow growing small cap is worth
• 14:09
  Speaker 1: more when you can't find out anything about it than
• 14:12
  Speaker 1: it is when you can.
• 14:13
  Speaker 2: Well, it's basically you're paying a premium for going behind
• 14:15
  Speaker 2: the velvet rope. That's it. It's like a members club.
• 14:20
  Speaker 2: And do you know what I love best about private equity?
• 14:23
  Speaker 2: It was the way that they managed to turn the
• 14:27
  Speaker 2: illiquidity issue into a premium by saying that it was
• 14:31
  Speaker 2: basically a behavioral bonus. So that because you didn't know
• 14:36
  Speaker 2: what it was worth, and because you couldn't sell any
• 14:37
  Speaker 2: time you wanted, that meant you should pay more for
• 14:40
  Speaker 2: private equity because it would stop me from doing something stupid.
• 14:43
  Speaker 2: I thought that was stagger and that that was the
• 14:46
  Speaker 2: best sort of like the most amazing prices. Forming rationale
• 14:52
  Speaker 2: was turning that argument on its head. It was just
• 14:54
  Speaker 2: spectacular work.
• 14:56
  Speaker 1: And maybe, just maybe, just maybe those private pretty companies
• 15:01
  Speaker 1: will be eventually listed. We will have a pile of
• 15:04
  Speaker 1: IPOs at the right price. It'll all be very interesting,
• 15:09
  Speaker 1: our markets will expand again, and we'll be back on track.
• 15:12
  Speaker 1: That's with no help from Rachel Reeves, but it could
• 15:15
  Speaker 1: happen that way, right.
• 15:16
  Speaker 2: Yeah, So, so what you're saying is on buy an
• 15:19
  Speaker 2: aim tracker.
• 15:20
  Speaker 1: Yeah, But all I would say, John, is it whenever
• 15:23
  Speaker 1: anybody on any podcast or in any interview starts a
• 15:26
  Speaker 1: sentence with well, what you're saying is almost always that
• 15:30
  Speaker 1: person is not saying that.
• 15:34
  Speaker 3: That's my experience.
• 15:37
  Speaker 2: That's that's the closest thing a caveat you're never going
• 15:41
  Speaker 2: to get in this podcast.
• 15:42
  Speaker 3: That's that's good, It really is anyway.
• 15:46
  Speaker 1: Anyway, Okay, all eyes on Rachel Reeves and we'll be
• 15:48
  Speaker 1: back to talk about this.
• 15:50
  Speaker 3: More next week.
• 15:51
  Speaker 2: Thanks John, Thanks me.
• 15:58
  Speaker 1: Thanks for listening to this week's Marin Talks Money Debrief.
• 16:00
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