Latest / Merryn Talks Money / Time To Consider Investing in German Companies and What About That 'Trump Put'?

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Time To Consider Investing in German Companies and What About That 'Trump Put'? · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
• 0:17
  Speaker 1: Talks Money weekly round up, our debrief on the biggest
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  Speaker 1: stories in markets and economics. I'm Merin Sum's web editor
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  Speaker 1: at large for Bloomberg UK.
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  Speaker 2: Wealth, and I'm joined Stoviks, senior port and author of
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  Speaker 2: the Money Distilled newsletter.
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  Speaker 1: John Exciting Times. I'm an exciting Times all round. But
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  Speaker 1: this week we have a guest, and not just any guest, Butjmen.
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  Speaker 1: We are both great fans of John, author's senior editor
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  Speaker 1: for Market and opinion columnist at Bloomberg. He also has
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  Speaker 1: a brilliant daily newsletter, Points of Return, which I read
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  Speaker 1: avidly and plagiarize, and so does John. Of course, John
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  Speaker 1: with chief Markets commentary at the FT, where he and
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  Speaker 1: I first met, and he is the author of the
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  Speaker 1: Fearful Rise of Markets.
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  Speaker 2: John.
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  Speaker 3: Welcome, Well, it's great to be here. I nearly my
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  Speaker 3: pink shirt from an FT alumni gathering. I guess it's
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  Speaker 3: delight to hear your voicing in May.
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  Speaker 1: Now listen John, before John, John Orthur's I ask you
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  Speaker 1: some questions. I just want to give our John John
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  Speaker 1: staffagant opportunity to do something that actually he can do
• 1:18
  Speaker 1: more often than you'd think, and that is to take
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  Speaker 1: part in the I Told you So section of this podcast, John.
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  Speaker 3: Ah, yeah, yeah, you see.
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  Speaker 2: I'm actually slightly embarrassed to say this in front of
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  Speaker 2: join authors, because I know that he would never do
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  Speaker 2: anything in his crass or a hostage to fortune. There's
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  Speaker 2: making predictions in the newsletter. But so mid December, just
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  Speaker 2: after Donald Trump had appeared on the cover of Time
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  Speaker 2: magazine and rang the bell in the New York Stock Exchange,
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  Speaker 2: I tentatively suggested that there would probably be a ten
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  Speaker 2: percent correction within three months on the US market, and
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  Speaker 2: lo and be old, we're here.
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  Speaker 3: We supplaud for that.
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  Speaker 2: Thank you, thank you, thank you.
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  Speaker 3: This did look like a crescendo of sentiment. I mean
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  Speaker 3: it felt a little bit that way, but you were
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  Speaker 3: too nervous to say well, I was too nervous to
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  Speaker 3: say so at the time. But yes, that was a
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  Speaker 3: crescendo of sentiment.
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  Speaker 1: John got the timing right, whereas I've just spent the
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  Speaker 1: last five years proticting a ten percent correction in any second. Now,
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  Speaker 1: So John, John, when does one because he got the
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  Speaker 1: timing rights, Well, do I actually say, why didn't you
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  Speaker 1: actually say I told you so. It'll make you feel
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  Speaker 1: so good.
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  Speaker 3: God, just let me I told you so. There we go.
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  Speaker 1: Well then feels good, right, John John Al says that
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  Speaker 1: isn't me. Yeah, you have had a ringside seat. I
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  Speaker 1: gather that you've been in Frankfurt recently. Tell us all
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  Speaker 1: about it.
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  Speaker 3: Yes, this was very lucky last week because there was
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  Speaker 3: an ECB meeting. Because I hadn't been to Germany since
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  Speaker 3: the pandemic. I thought, as I was on this side
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  Speaker 3: of Atlantic anyway, this was a good opportunity to catch
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  Speaker 3: up in Frankfurt. So I arrived Tuesday night and new
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  Speaker 3: likely next chancellor Mets and the Social Democrats have just
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  Speaker 3: announced looking to borrow an extra nine hundred billion euros.
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  Speaker 3: And that, yeah, Wednesday and Thursday where some of the
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  Speaker 3: most remarkable days of my career. In that obviously, your
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  Speaker 3: average German financier is not exactly given to overstatement. These
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  Speaker 3: aren't voluble, excitable people. And they were saying, without you know,
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  Speaker 3: without any kind of cynicism or sarcasm, that this might
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  Speaker 3: even be bigger than the fall of the Berlin Wall,
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  Speaker 3: that this was a complete total paradigm changer. You could
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  Speaker 3: forget all the research that had this from a couple
• 3:43
  Speaker 3: of people say, just don't ignore my research for the
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  Speaker 3: last year or so. It's it's inoperative. So it is
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  Speaker 3: that big of a deal. There's there's there's two elements
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  Speaker 3: to it. One is and this is something I'm British myself.
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  Speaker 3: I certainly know I have a particular reaction to some
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  Speaker 3: of the things JD. Vans has said in the last
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  Speaker 3: few weeks, but in Germany it hits very much more
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  Speaker 3: painfully still. And I think the combination of what he
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  Speaker 3: said at the Munich conference and the way he bullied
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  Speaker 3: Voladimir Zelenski and I didn't know. I couldn't find anybody
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  Speaker 3: who thought anything other than the way they treated as
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  Speaker 3: Zelenski was disgraceful. It just seemed to be a completely
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  Speaker 3: uniform reaction among often generally quite politically conservative and more
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  Speaker 3: generally small sy conservative people that the US had just
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  Speaker 3: very plainly broken broken off, that they could no longer
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  Speaker 3: trust them, and in some ways that was it's even
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  Speaker 3: more of a compact that's been broken in their perception
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  Speaker 3: than was broken when the wall came down, which ended
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  Speaker 3: this division of the country and all those other exciting
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  Speaker 3: things and then when it comes to financially, which is
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  Speaker 3: why all these I was talking to barely had any sleep,
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  Speaker 3: and where they were so excited. You know, you know,
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  Speaker 3: the bundmarket has been telling Germany for years that it
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  Speaker 3: can borrow more, and indeed that it should borrow more.
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  Speaker 3: It's the only major advanced economy that isn't borrowing enough
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  Speaker 3: that anybody could possibly say with a straight face, isn't
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  Speaker 3: borrowing enough. And most of these people had sort of
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  Speaker 3: again it was like, well, of course it'd be fantastic
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  Speaker 3: if the East reunited in the same way. Of course
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  Speaker 3: it would be nice if Germany actually borrowed some money
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  Speaker 3: and did away with this debt break. But it was
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  Speaker 3: almost regarded as an academic possibility that economists would lord
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  Speaker 3: would say was a good idea, but that was never
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  Speaker 3: going to happen. And somehow or other, just the extremity
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  Speaker 3: of the you know, the words and actions of Donald
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  Speaker 3: Trump and JD. Vance in the space of a couple
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  Speaker 3: of weeks really did does seem to have sparked as
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  Speaker 3: big as shit in the paradigm, as as anything said
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  Speaker 3: anything we saw when the wall came down. I mean,
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  Speaker 3: I mean, if you'd like to talk about the more
• 6:07
  Speaker 3: marketing things they related to it. We've got lots of
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  Speaker 3: thoughts on that as well, but that was my main
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  Speaker 3: human reaction.
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  Speaker 1: That reaction is great, but we would definitely like to
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  Speaker 1: hear about the market reactions. You know, said the amount
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  Speaker 1: of time that American exceptionalism and now we see the
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  Speaker 1: huge burst of money about it and pour into Germany
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  Speaker 1: at the same time as America is pulling back. Exceptionalism
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  Speaker 1: is really about money. Are we about to move into
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  Speaker 1: a decade or two of German exceptionalism or European exceptionalism.
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  Speaker 3: Not being as not being quite as bold as John Steppeck.
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  Speaker 3: I'm not going to predict that with total confidence. There
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  Speaker 3: are some interesting parallels though, in terms of you and
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  Speaker 3: I being boring and talking about value all the time.
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  Speaker 3: There is this fascinating combination that outside of the Magnificent
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  Speaker 3: Seven and the US more or less, the whole planet
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  Speaker 3: has looked like a fairly decent value but Germany in particular,
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  Speaker 3: so the German economy is not doing anything great, but
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  Speaker 3: a lot of the big German companies they're on a
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  Speaker 3: smaller scale, but they're actually generating profits as nicely as
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  Speaker 3: they ever did. So if you buy the stock, you
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  Speaker 3: find that that the pees are still very, very generous.
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  Speaker 3: So if you look at what's happened to I had fun.
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  Speaker 3: This was in one of the recent newsletters. European value
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  Speaker 3: has outperformed US growth if you believe MSCI, by thirty
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  Speaker 3: seven percent since Christmas Eve, so less than three months.
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  Speaker 3: There is this sudden sense of Okay, it's time to
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  Speaker 3: look for value. There was the catalyst that that value
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  Speaker 3: guys always want suddenly r particularly in Germany. Germany happens
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  Speaker 3: to be where there are a lot of absolutely value
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  Speaker 3: stocks where you really can put some kind of evaluation,
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  Speaker 3: fundamental valuation on them because it's all stuff, it's all
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  Speaker 3: equipment and things they make. And so you've seen this
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  Speaker 3: very dramatic rise. Now you've got to be careful comparing
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  Speaker 3: the Magnificent seventh phenomenon and the you know, the AI
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  Speaker 3: with dot Com, because dot Com really was absurd and
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  Speaker 3: this may turn out to be absurd. But in terms
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  Speaker 3: of the valuations, I don't think it's it is something
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  Speaker 3: qualitatively different. But if you look this was a chart
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  Speaker 3: I think it was Andy Lapthorne of Sockgen, who's one
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  Speaker 3: of my favorite quant analysts, brought to my attention, and
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  Speaker 3: then I reconstructed it in about thirty seconds on the
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  Speaker 3: on the Bloomberg. So really it was genuinely he hadn't
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  Speaker 3: done any If you look at the stocks chemicals sector
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  Speaker 3: relative to the S and P five hundred information technology sector,
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  Speaker 3: from March two thousand until the global financial crisis, chemicals
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  Speaker 3: outperforms US TECH by about four hundred five hundred percent.
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  Speaker 3: They went, they traveled, Tech was down still about forty
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  Speaker 3: to fifty percent by the time you get to the crisis.
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  Speaker 3: By the turn of this year, they had given all
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  Speaker 3: of that back and US tech had finally matched US
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  Speaker 3: European chemicals companies. It would have been better off is
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  Speaker 3: BASF than Microsoft. Well, I'm not sure about BOSF RRIS.
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  Speaker 3: You would have been better off in BASF than a
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  Speaker 3: tech US TECH index for most of the last twenty years,
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  Speaker 3: twenty five years. So is there a precedent for when
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  Speaker 3: money finally is jolted into moving when there is this
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  Speaker 3: big catalyst, boring German companies making you far more money
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  Speaker 3: than sexy American tech companies. Yes, there is. That was
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  Speaker 3: a seven or eight year rally. If you were a
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  Speaker 3: bit late, never mind you still it's it's a it's
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  Speaker 3: a nice perfect, you know, diagonal, upward sloping line, and
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  Speaker 3: that you know there was room for more as you
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  Speaker 3: as you piled in, and you go on about this
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  Speaker 3: as much as I do. These German stocks started really cheap,
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  Speaker 3: and the concern for years has been that their value traps.
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  Speaker 3: But again, these are things that make stuff. They're not
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  Speaker 3: as intangible as you know that you do have something
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  Speaker 3: to grab hold of here. They are worth something. They've
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  Speaker 3: got these big factories. So anyway that I I'm inherently
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  Speaker 3: careful about being too positive. And there are lots of
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  Speaker 3: things that you know, the history of large European power
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  Speaker 3: rearmaments isn't good, shall we say it's not? So? There
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  Speaker 3: are plenty So in answer to the question what could
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  Speaker 3: possibly go wrong? I think we know there are some
• 10:57
  Speaker 3: pretty scary answers to that question. But cautiously, yes, I
• 11:02
  Speaker 3: am quite a believer. In terms of the sentiment, the
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  Speaker 3: sheer excitement combined with the absolute financial logic that's been
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  Speaker 3: there for years, this is quite interesting.
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  Speaker 1: Yeah, And I suppose one thing says that the money
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  Speaker 1: has barely started to move. I mean it doesn't you
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  Speaker 1: think about the weight of money that has gone into
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  Speaker 1: the US market over the last decade, and then the
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  Speaker 1: constant removal of money from Europe and UK markets. It
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  Speaker 1: really doesn't take much of a cheft for things to
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  Speaker 1: really start moving as.
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  Speaker 3: A scene and has begun. Take ten percent out of
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  Speaker 3: your mag seven ETF and put it into a stocks
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  Speaker 3: industrial's ETF and that will move things very quickly. Yes,
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  Speaker 3: the cemetery as well.
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  Speaker 2: Between you know, we've we've lived in a world where
• 11:47
  Speaker 2: almost everyone's been told but intangibles and digital and everything
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  Speaker 2: being clean. It's the same sort of thing that ed
• 11:53
  Speaker 2: coin me goes on a boot with the material world
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  Speaker 2: thesis and so having that sort of perfect between stuff
• 12:01
  Speaker 2: and you know, digitization, it's actually quite It's just another
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  Speaker 2: one of those fun market things that you see all
• 12:08
  Speaker 2: the time.
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  Speaker 3: And nobody has ever mentioned anything about whether AI could
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  Speaker 3: help rhyne metal, which is up something like six hundred percent,
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  Speaker 3: you know to the biggest German arms manufacturer. We know why,
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  Speaker 3: but nobody's suggested, well, with AI they can improve their
• 12:23
  Speaker 3: profitability bits. Maybe they can bit I don't know, but
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  Speaker 3: it's this is just completely external to any great risk
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  Speaker 3: about the whole AI play.
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  Speaker 2: Oh yeah, and also I mean we've seen the I
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  Speaker 2: think that's is the other thing, because people get weirdly
• 12:39
  Speaker 2: sort of scared whenever a ton comes and they'll have
• 12:43
  Speaker 2: a mester ton And then you say, oh, yeah, no,
• 12:45
  Speaker 2: but remember that the take bubble has lasted for about
• 12:48
  Speaker 2: ten years so but actually probably just very near the
• 12:51
  Speaker 2: beginning of a secular trend, rather than you know, okay,
• 12:55
  Speaker 2: we've already messed because Bee Systems is up you know,
• 12:57
  Speaker 2: x percent or whatever in the last six months. So no,
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  Speaker 2: I think.
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  Speaker 3: It's all it's all.
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  Speaker 2: Part of a wider kind of rotation as well. But
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  Speaker 2: it's interesting now you need these catalysts to make these
• 13:10
  Speaker 2: things kick off, because it's you know, we've been talking
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  Speaker 2: about for quite a long time, the US has looked
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  Speaker 2: expensive for ages and ages and ages. But at that
• 13:19
  Speaker 2: point where something happens to change the politician's behavior, that
• 13:24
  Speaker 2: then catalyzes the shifting flows that you need to see.
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  Speaker 2: But things really striking you saying that about the actual
• 13:31
  Speaker 2: sensation on the when the market floor in Frankfurt, rather
• 13:35
  Speaker 2: than you know, because from here you can see it's
• 13:37
  Speaker 2: a big deal. But it hadn't occurred to make the
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  Speaker 2: idea about the Germans feeling or we thought we were
• 13:43
  Speaker 2: being the good guys by not spending money on defense,
• 13:46
  Speaker 2: and now you're criticizing this for not spending enough, and
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  Speaker 2: that sort of message has finally got through to them.
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  Speaker 1: And currently leave us back to markets briefly and back
• 13:57
  Speaker 1: to the US market. We all believe, actually not all
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  Speaker 1: of us, but some people believed that there was a
• 14:04
  Speaker 1: Trump put and that after the S and P five
• 14:07
  Speaker 1: hundred and fall a certain amount that's even to John's
• 14:10
  Speaker 1: forecast level. Yes, some would do something to make it stop.
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  Speaker 1: Because he feels that he is judged buy the stock market.
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  Speaker 1: It's a measure of his success, certainly was in his
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  Speaker 1: first term. Has something changed, sir?
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  Speaker 3: I think the way he has continued with tariffs and
• 14:29
  Speaker 3: been as erratic with them has scared quite a number
• 14:34
  Speaker 3: of people that just that the mattra with Trump in
• 14:38
  Speaker 3: the markets has been look at what he does rather
• 14:40
  Speaker 3: than he says, so he can say as many outrageous
• 14:43
  Speaker 3: things as he likes. Basically, the first time around, he
• 14:45
  Speaker 3: was a fairly orthodox George W. George H. W. Bush
• 14:49
  Speaker 3: style conservative Republican did things the can Chamber of Commerce liked,
• 14:54
  Speaker 3: with a few exceptions, but broadly speaking, in terms of
• 14:56
  Speaker 3: what he actually did that was kind of what he
• 14:59
  Speaker 3: was and what he's doing at the moment is absolutely
• 15:02
  Speaker 3: not that about, you know it complete might might have
• 15:07
  Speaker 3: need the word conservative applied to it in some different
• 15:11
  Speaker 3: meaning of the word, but other than that, this is
• 15:12
  Speaker 3: just not not what he did before at all. So
• 15:17
  Speaker 3: I think that did's some damage to the assumption. I
• 15:21
  Speaker 3: think the fact that he started with tariffs at a
• 15:25
  Speaker 3: point when the conversation on taxes hasn't really even started
• 15:30
  Speaker 3: and where they're beginning to realize this is actually going
• 15:33
  Speaker 3: to be pretty tricky to get through Congress because the
• 15:36
  Speaker 3: Democrats badly need this to fail. Obviously they are completely
• 15:40
  Speaker 3: entitled to say no, and the Republicans have no wiggle
• 15:45
  Speaker 3: room at all. So it's from triumphalism to realizing, well,
• 15:49
  Speaker 3: hang on, he hasn't even started doing this, and that's
• 15:52
  Speaker 3: in large part because this is one of the things
• 15:55
  Speaker 3: that's actually going to be difficult to do. Then there
• 15:57
  Speaker 3: was the realization will actually extending the TCGA the big
• 16:02
  Speaker 3: tax cuts from isn't the seventeen Sorry, isn't a tax cut.
• 16:07
  Speaker 3: It's avoiding the tax hike because they expire and then reverse,
• 16:12
  Speaker 3: and then making more cuts from there is going to
• 16:15
  Speaker 3: be really difficult unless you can find some good cuts
• 16:18
  Speaker 3: to the budget. Most sensible people look at the way
• 16:23
  Speaker 3: that Elon Musk is going about his business and do
• 16:26
  Speaker 3: not gain confidence. Obviously, there is an awful lot of
• 16:31
  Speaker 3: waste to be taken out of the federal budget. Surely
• 16:35
  Speaker 3: that must be true. Very few people who have a
• 16:38
  Speaker 3: good understanding of management would think that the way that
• 16:41
  Speaker 3: Elon Musk is currently going about it is the right way.
• 16:44
  Speaker 3: So there's this combination of factors that once you actually
• 16:49
  Speaker 3: see what he's doing, has changed perception. And then on
• 16:53
  Speaker 3: the issue of the put itself, I think it's quite interesting.
• 16:57
  Speaker 3: In some ways this is gain theory. But you've I've
• 17:00
  Speaker 3: seen a number of figures on the the pro Trump
• 17:06
  Speaker 3: right arguing that there shouldn't be a put and that
• 17:10
  Speaker 3: in fact, Donald Trump is about shaking up globalization and capitalism.
• 17:16
  Speaker 3: And the companies that have benefited the most and whose
• 17:20
  Speaker 3: stocks are up the most from globalization are the Magnificent Seven,
• 17:23
  Speaker 3: are the big the companies that make up the bulk
• 17:25
  Speaker 3: of the S and P. And the fact that some
• 17:30
  Speaker 3: people have assets but most of Trump's voters don't means
• 17:34
  Speaker 3: that this is stoked inequality, and so no, Donald Trump
• 17:39
  Speaker 3: actually wants the stock market to go down this time,
• 17:42
  Speaker 3: even though he passionately wanted it to go up last time.
• 17:44
  Speaker 3: I doubt that because so many Americans have four oh
• 17:47
  Speaker 3: one ks and iras and know very quickly if things
• 17:51
  Speaker 3: are going wrong with it, because you get monthly statements.
• 17:53
  Speaker 3: I think that's a little bit like the effect that
• 17:55
  Speaker 3: variable rate mortgages had in the UK for a long time,
• 17:59
  Speaker 3: that politicians need to be somewhat nervous about doing something
• 18:03
  Speaker 3: that takes the stock market down because it will make
• 18:05
  Speaker 3: people feel poorer instantly, in the same way that raising
• 18:08
  Speaker 3: interest rates would make anybody with a house feel poorer instantly.
• 18:13
  Speaker 3: So I question how far to take it, And it's
• 18:17
  Speaker 3: possible that this is just oh sorry. One other point
• 18:20
  Speaker 3: is he does need to get everything done inside two years,
• 18:23
  Speaker 3: because you assume they will lose the house next the
• 18:26
  Speaker 3: end of next year. And there is also this belief that,
• 18:30
  Speaker 3: and this is a perfectly sensible one, actually, that there
• 18:33
  Speaker 3: is a window during which you can blame Biden. Plainly,
• 18:36
  Speaker 3: very little that he has done would be showing up
• 18:38
  Speaker 3: an economic aggregates. Yet you have a few more months
• 18:41
  Speaker 3: in which you can say well, this is just cleaning
• 18:43
  Speaker 3: up Joe Biden's mess, So there isn't there is. Those
• 18:47
  Speaker 3: are valid sort of political strategic arguments for really going
• 18:52
  Speaker 3: for it early, being prepared to suffer a bigger S
• 18:56
  Speaker 3: and P sell off than you otherwise might have done.
• 18:58
  Speaker 3: And and it's like game theories, and it's like a
• 19:00
  Speaker 3: commitment strategy. So we'll see plainly, as the marketers began
• 19:05
  Speaker 3: to fool, people have re examined their belief in the
• 19:08
  Speaker 3: Trump put and have come up with reasons to be
• 19:11
  Speaker 3: nervous about it.
• 19:12
  Speaker 1: Yeah, thank you, John, We will see what happens next.
• 19:15
  Speaker 1: You any predictions to leave us with.
• 19:16
  Speaker 3: Kind of guessing that you want I think you want
• 19:18
  Speaker 3: the other Jobby.
• 19:19
  Speaker 1: Look, if you could come up with the prediction, we'll
• 19:21
  Speaker 1: have you on. We told you so.
• 19:27
  Speaker 3: The latest University of Michigan survey finds this. They very
• 19:31
  Speaker 3: handily started eight years ago. They started dividing everything by partisanship,
• 19:37
  Speaker 3: so they would give you the data that independents, Republicans,
• 19:41
  Speaker 3: and Democrats reported. And obviously this is because the political
• 19:47
  Speaker 3: identifications now trumped all other aspects. The annual inflation rate
• 19:54
  Speaker 3: expected by Democrats over the next twelve months is I
• 20:00
  Speaker 3: think it did actually top five percent. Forgive me if
• 20:03
  Speaker 3: I'm wrong. It's certainly surged up to a very high number.
• 20:08
  Speaker 3: And the average inflation rate expected by Republicans, I'm absolutely
• 20:12
  Speaker 3: certain certain I remember that this number is exactly zero.
• 20:18
  Speaker 3: The average Republican thinks that inflation is going to be
• 20:22
  Speaker 3: abolished over the next twelve months. My prediction is that
• 20:27
  Speaker 3: that isn't going to happen, that that's wrong, That inflation
• 20:31
  Speaker 3: will be positive over the next twelve months. And I'm
• 20:35
  Speaker 3: really quite happy to book my champagne supper now to
• 20:38
  Speaker 3: celebrate those peer I think you'll find.
• 20:41
  Speaker 1: I didn't offer you a champagne supper. I offer you
• 20:43
  Speaker 1: the obituary. Really come back on the podcast. Thank you
• 20:48
  Speaker 1: very very much for that and thanks for joining us.
• 20:50
  Speaker 3: Really good to have you on.
• 20:54
  Speaker 1: Thanks for listening to this week's Marriage Dogs, Money dat
• 20:56
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• 20:59
  Speaker 1: listen to pods all.
• 21:00
  Speaker 3: They made sure to follow me and John.
• 21:02
  Speaker 1: On x or Twitter at marinas w and John Underscore Stepics.
• 21:06
  Speaker 1: Also John Author's at John Orthors. This episode was produced
• 21:10
  Speaker 1: by Summersaudi and Moses and Production Sport and sound designed
• 21:13
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