Latest / Merryn Talks Money / Silver’s Surge, Oil’s Bounce, London Flat Prices and the Quiet Gilt Rally

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Silver’s Surge, Oil’s Bounce, London Flat Prices and the Quiet Gilt Rally · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
• 0:18
  Speaker 2: Welcome to the Merton Talks Money and News Roundup, where
• 0:21
  Speaker 2: we talk about the biggest moves in the markets this
• 0:23
  Speaker 2: week and what's driving them. I'm Join Stebick, senior editor
• 0:26
  Speaker 2: at Bloomberg and author of the award winning Money Distilled newsletter,
• 0:30
  Speaker 2: and enjoining me this week while Merton is visiting the
• 0:32
  Speaker 2: Mothership in New York is Marcus Ashworth. Marcus is a
• 0:35
  Speaker 2: Bloomberg opinion columns with deep expertise in European markets and
• 0:38
  Speaker 2: born markets, and he's also a regular contributor to the show.
• 0:42
  Speaker 2: Hi Marcus, my pressure is ever for all that I've
• 0:47
  Speaker 2: just been talking about your expertise in European markets and Gilks.
• 0:51
  Speaker 2: I thought first we could start with the rather good
• 0:53
  Speaker 2: priests that you wrote with Stewart. This week's Stuart Trout
• 0:56
  Speaker 2: on London and London house prices and what's been going
• 1:00
  Speaker 2: ann London.
• 1:00
  Speaker 1: Flats are cheap, cheap for a reason.
• 1:04
  Speaker 3: I actually started off this premise this to write on
• 1:07
  Speaker 3: a flat i'd seen in Fulham, one bed flat lease
• 1:11
  Speaker 3: looked in reasonable conditions, perfect little bolt hole, Pierre, a
• 1:14
  Speaker 3: tear start a flat.
• 1:16
  Speaker 1: What you want to call it.
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  Speaker 3: It was on for three hundred and seventy thousand. I thought, wow,
• 1:20
  Speaker 3: that is a bargain in context of where Fulham normally is.
• 1:23
  Speaker 3: It was a reasonable road and exactly where it was for.
• 1:26
  Speaker 2: All of our lessoners say them twenty five Fulham is
• 1:29
  Speaker 2: a nace but London.
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  Speaker 1: La not Chelsea. Alose people Chelsea show they actually live
• 1:35
  Speaker 1: in Fulham.
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  Speaker 2: Yea.
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  Speaker 3: So it's got football club and it's got the King's
• 1:39
  Speaker 3: Road and then and the Fulham Road as well, which
• 1:42
  Speaker 3: are the nice bits of Chelsea, but the other end
• 1:43
  Speaker 3: of it. Nonetheless, it was a first time I've seen
• 1:47
  Speaker 3: I would say, an apartment in in London which in
• 1:50
  Speaker 3: the nicest area of London, which is I would say, wow,
• 1:53
  Speaker 3: that is a reasonable price. As it happens, as a
• 1:56
  Speaker 3: bit misdeed, it was up up for this thing called
• 1:58
  Speaker 3: modern method of auction. I said, she had to book
• 2:01
  Speaker 3: a big deposit down which you may not get back
• 2:03
  Speaker 3: to bid on it. So it's a little bit of
• 2:04
  Speaker 3: a trap that one. So we decided not to lead
• 2:07
  Speaker 3: on that. I digress. Anyways, as we as we went
• 2:10
  Speaker 3: into the sort of look at is London actually cheap papers?
• 2:13
  Speaker 3: It's come down so much over twenty percent in the
• 2:16
  Speaker 3: last few years, really since twenty fourteen fifteen, when that
• 2:18
  Speaker 3: sort of London grad Russian sort of influx, you know,
• 2:23
  Speaker 3: turned and finally stopped pushing London prices up ridiculously, you know,
• 2:27
  Speaker 3: post the global financial crisis, which I can never really understand.
• 2:30
  Speaker 3: But then all of a sudden it hasn't really performed
• 2:32
  Speaker 3: very well indeed, and recently it's got a lot worse
• 2:33
  Speaker 3: than non don flight. A lot of other reasons why
• 2:36
  Speaker 3: I think landlords have been selling because of where as
• 2:39
  Speaker 3: we go in the article, lots of pressures on that
• 2:42
  Speaker 3: sort of side of the investment market. So is London
• 2:47
  Speaker 3: cheap Well, there's a lot of other reasons behind it,
• 2:49
  Speaker 3: which you can read the article regards of cladding and lease
• 2:52
  Speaker 3: hold problems, also the coming up Printers' Rights Act, which
• 2:56
  Speaker 3: is going to make it much harder again for landlords.
• 2:58
  Speaker 3: But the basic point here is that London is much
• 3:02
  Speaker 3: more affordable than it was, but it's still relatively expensive
• 3:05
  Speaker 3: to the rest of the country because if you go
• 3:08
  Speaker 3: back to that twenty fourteen fifteen period I mentioned it
• 3:11
  Speaker 3: with London was the most expensive ever anything in the
• 3:14
  Speaker 3: UK market, and it's outperformans the rest of the UK,
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  Speaker 3: and it had never been at such an extreme, So
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  Speaker 3: it's just correcting back from where it got overpriced. And
• 3:21
  Speaker 3: I think it's probably a little bit more to go
• 3:23
  Speaker 3: in London. But if you got a long time horizon,
• 3:26
  Speaker 3: I think you know there is potential into bias market
• 3:29
  Speaker 3: you could probably pick up a relative bargain if you
• 3:31
  Speaker 3: can one afford and not looking to make an instant
• 3:35
  Speaker 3: gain and whatever. So yeah, in that sense, there's there's
• 3:38
  Speaker 3: some promise there. But the reason why London is unperformed
• 3:41
  Speaker 3: is there's as we go in quite some detail in
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  Speaker 3: the article, there are very good reasons why apartments, particularly
• 3:46
  Speaker 3: in London. And once that really caught me from the
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  Speaker 3: Hampton survey is that one in seven people selling a
• 3:52
  Speaker 3: flat in London at the moment are doing it at
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  Speaker 3: a loss.
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  Speaker 2: Yeah, and that's a norminal loss loss.
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  Speaker 1: Let alone.
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  Speaker 3: You know, you actually look at prices since the start
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  Speaker 3: of the century in inflation terms, you know, UK property
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  Speaker 3: hasn't really gone anywhere. It's not actually quite the success story.
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  Speaker 3: Everyone thinks, put money in property and you can't go wrong.
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  Speaker 3: Buy in London, a global city. The other thing which
• 4:13
  Speaker 3: didn't make the edit was the UBS Property Bubble index
• 4:18
  Speaker 3: they have for city major cities around the world. London
• 4:20
  Speaker 3: has now dropped sixteenth. The top is Miami, Tokyo Zerich
• 4:25
  Speaker 3: as mean the most expensive potential bubble isious but London
• 4:29
  Speaker 3: is now in the low risk category, down from what
• 4:31
  Speaker 3: was previously in high and it's number sixteenth out of
• 4:34
  Speaker 3: you know, maybe twenty twenty five global cities should be
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  Speaker 3: so well to the city, so it's in international terms
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  Speaker 3: is looking good value. I just think on the ground
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  Speaker 3: buying in London at the moment there's comes with a
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  Speaker 3: lot of problems and I think until you see the
• 4:48
  Speaker 3: effect of the Renters Right Act bill coming through in
• 4:50
  Speaker 3: practice in May that maybe towards the end of the year,
• 4:54
  Speaker 3: then it might be worth considering. But definitely take your time.
• 4:57
  Speaker 2: Would you review death whatever so slightly if you're to
• 5:00
  Speaker 2: be a fostering bio as a home or in a
• 5:04
  Speaker 2: duela rather than aligned lot.
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  Speaker 3: Even more it's the first time by as I said,
• 5:09
  Speaker 3: you really need to do all your research, particularly on
• 5:12
  Speaker 3: anything which is in the tower block or in some
• 5:15
  Speaker 3: form of high rise building or might have clouding issues,
• 5:18
  Speaker 3: because what we found increasingly is that a lot of
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  Speaker 3: valuers won't value it. A lot of insurers well insured,
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  Speaker 3: and a lot of lenders won't lend against particularly sold properties.
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  Speaker 3: And also we've found quite a considerable effect on very
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  Speaker 3: high and increasingly increasing where above inflation service charges. So
• 5:37
  Speaker 3: there are a lot of things. But having said that,
• 5:39
  Speaker 3: if you in this particular far I was talking about,
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  Speaker 3: but initially was in a terraced house. It was the
• 5:43
  Speaker 3: ground floor sort of built that way of a tear.
• 5:47
  Speaker 3: Otherwise terraced house that has less issues day sorts of things.
• 5:50
  Speaker 3: Maybe yeah, in the right places, but take time. Definitely
• 5:52
  Speaker 3: no rush, don't need to worry about it. But a
• 5:55
  Speaker 3: mortgage rates coming away as well, So this keeps starting
• 5:58
  Speaker 3: starting a lookout, but take time.
• 6:00
  Speaker 2: And don't forget the man talks money.
• 6:02
  Speaker 1: Golden rule.
• 6:02
  Speaker 2: Don't touch lease hold by a ten foot bastball. You
• 6:05
  Speaker 2: can find more about that one in the previous discussion,
• 6:09
  Speaker 2: or on house places you can if you go to
• 6:12
  Speaker 2: whatever you get your podcasts and look for their CDs
• 6:15
  Speaker 2: on buying homes, you'll find lots to talk about there.
• 6:18
  Speaker 2: I mean, one thing I did want to ask you
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  Speaker 2: was obviously so London flats, yeah, down about twenty percent
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  Speaker 2: London houses krying our flat ish the rest of the
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  Speaker 2: country trend is a.
• 6:32
  Speaker 3: Trend nationally, and detached houses are doing better than terrorist houses, terrests,
• 6:37
  Speaker 3: hows are doing better than flats. It's just the bigger
• 6:39
  Speaker 3: you are, you know, that's the post pandemic sort of
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  Speaker 3: rushed the country type effect still sort of filtering through
• 6:44
  Speaker 3: or have filtered through, and London in particular has done
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  Speaker 3: very bad. At least hold us again. We got a
• 6:49
  Speaker 3: lot of details why at least holds of being problems
• 6:50
  Speaker 3: in our article grammarents onwards your name as old rafter,
• 6:54
  Speaker 3: different different issues, but you know that's it's it's the
• 6:57
  Speaker 3: effect which you can avoid. Have to buy an apartment
• 6:59
  Speaker 3: in in a tablot. You can buy elsewhere. But the
• 7:01
  Speaker 3: point is that you know no doubt about it. At
• 7:05
  Speaker 3: the moment, apartments or do we say super urban dwellings
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  Speaker 3: have been underperforming and London is more exaggerate than anywhere else.
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  Speaker 2: Yeah, no, it's there's an interesting subject, so yeah, look at,
• 7:17
  Speaker 2: look at because maybe at some point on maybe your
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  Speaker 2: opportunity time invite to their speaks news. Obviously, the most
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  Speaker 2: exciting area has been the commodities plcious males and oil
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  Speaker 2: as well oil, which is commonly cheap or has been
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  Speaker 2: for a long time. So what do you think is
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  Speaker 2: driven all that well?
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  Speaker 3: When obvious the risk of the of the closing of
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  Speaker 3: sus Canal and the Straits of Hor moves, and what
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  Speaker 3: whether Iran fights back blows up Iraqi oil infrastructure, and
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  Speaker 3: you know other other areas around blocking ship and some
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  Speaker 3: se Saudi and the UE and and and Qatar, et cetera.
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  Speaker 3: So at the moment, I don't think that's that likely.
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  Speaker 1: And I think.
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  Speaker 3: Oil's had a bit of a recovery because it's been
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  Speaker 3: so over sold and so everyone thinks it's going down
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  Speaker 3: and clearing my eye, I've read it about myself, but
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  Speaker 3: I mean the point is that if when markets don't
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  Speaker 3: go down and everyone's expecting to go down, the only
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  Speaker 3: other way they're going to do is reverse sharply and
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  Speaker 3: have a short squeeze. And I think that's what's happening
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  Speaker 3: in oil at the moment. So I don't think oil
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  Speaker 3: will go much higher than it is now unless there
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  Speaker 3: is a proper geopolitical event, which is you know, not solvable.
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  Speaker 3: But I think Trump at the moment it looks like
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  Speaker 3: he's watching waiting. If things were to change dramatically, and
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  Speaker 3: it will and looked like lasting. Then maybe oil can
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  Speaker 3: go higher, but I don't think it will last very long.
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  Speaker 3: And I think well D.
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  Speaker 1: Just lower most commodities.
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  Speaker 3: I am more bullish on You know, we've obviously seen
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  Speaker 3: silver going through to the moon and beyond thinks lap
• 8:45
  Speaker 3: the moon several times, you know, making gold.
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  Speaker 1: Look like a laggard.
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  Speaker 3: I think that's reaching a blow off top probably around here.
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  Speaker 3: It's certainly not level to get in at whether or
• 8:57
  Speaker 3: not more trim some profits. If you have, then then fine,
• 9:00
  Speaker 3: be time to get back into silver and gold. But
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  Speaker 3: I don't think that move has ended. It's just it's
• 9:03
  Speaker 3: probably a little bit two hour.
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  Speaker 1: Skis on this.
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  Speaker 2: Did you reader calling Cameron Crazies piece yesterday or Cameron
• 9:10
  Speaker 2: Kris I can't pronounce his name, but he's one of
• 9:13
  Speaker 2: the terminal only kind of guys. Mic He wrote a
• 9:18
  Speaker 2: really good piece Yester about silver, and he was essentially
• 9:20
  Speaker 2: looking at what happens whenever silver, whenever the gold silver
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  Speaker 2: ratio changes this dramatically in such a short space at time,
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  Speaker 2: and basically pretty much across the bold. A year from now,
• 9:34
  Speaker 2: silver is down about fifty odd percent, So I thought
• 9:37
  Speaker 2: that was quite interesting. He min used to put some
• 9:39
  Speaker 2: some numbers on what happens when you get this speed
• 9:42
  Speaker 2: of change with silver relative to gold, and he's generally
• 9:46
  Speaker 2: not particularly pretty.
• 9:48
  Speaker 3: Yeah, I mean I'm a bit skeptic on the oil
• 9:50
  Speaker 3: gold ratio silver gold ratio that I think they're one
• 9:53
  Speaker 3: of these things that should a guy. But now more
• 9:55
  Speaker 3: on that, and we put too much store on them.
• 9:57
  Speaker 3: You end up getting badly wrong if you're not careful. Well,
• 10:00
  Speaker 3: you know, silver does have industrial uses more than gold has,
• 10:03
  Speaker 3: and in the context of what's future technologies of those
• 10:07
  Speaker 3: things in increasing one and there is an obvious short supply,
• 10:10
  Speaker 3: and that's why it's been squeezed, you know, Nelson, Bunker Hunt,
• 10:14
  Speaker 3: come back, all its forgiven type stuff, you know. But
• 10:17
  Speaker 3: you know, beyond that, this is a speculative tool, as
• 10:19
  Speaker 3: is gold. I don't think there's these are fundamental investment cases.
• 10:22
  Speaker 3: They are just speculation. You can call it the dollar
• 10:25
  Speaker 3: debasement trade. You could blame the Trump you can fed independence,
• 10:29
  Speaker 3: whatever excuse you want to do. I don't believe in
• 10:31
  Speaker 3: any of them. But this is a speculative tool and
• 10:34
  Speaker 3: people are trading it for volatility. Please look at it
• 10:38
  Speaker 3: in that context. And you know, if you want to
• 10:40
  Speaker 3: dabble and small amount, that's up to you at your
• 10:41
  Speaker 3: own risk. But don't expect this to be fundamentally backed
• 10:44
  Speaker 3: by anything on the ground.
• 10:46
  Speaker 2: You know, basically arguing that gold is just physical bitcoin, well.
• 10:51
  Speaker 1: It has increasingly become that way.
• 10:53
  Speaker 3: I mean, I obviously what's happened, if you want to
• 10:55
  Speaker 3: put a particular instance, is when the oh fact, the
• 10:58
  Speaker 3: Office for FOREIG Assets Control, the US Treasurer decided to
• 11:01
  Speaker 3: seize Russia's external foreign exchange reserves, and that has spooked China.
• 11:08
  Speaker 3: Every sort of bad or semi bad or vaguely lootwarm
• 11:13
  Speaker 3: you know, international Central Bank or whatever it may be,
• 11:16
  Speaker 3: has the side of that, perhaps they might have a
• 11:17
  Speaker 3: little bit more gold, and it's come self perpetuating. And
• 11:20
  Speaker 3: now we're seeing retail and the funds coming in. You know,
• 11:23
  Speaker 3: they were actually net sellers for most of the last
• 11:25
  Speaker 3: year or two. So you know, whether China is still
• 11:29
  Speaker 3: buying at the moment. We never really know the truth.
• 11:31
  Speaker 3: But for sure, the only one thing you need to
• 11:33
  Speaker 3: know about gold, there's somewhere bad in the world, and
• 11:36
  Speaker 3: someone needs to make sure their money is safe, and
• 11:38
  Speaker 3: they need to get their money out of whichever country
• 11:40
  Speaker 3: they're in. The only real way you can guarantee it
• 11:43
  Speaker 3: is leaving a side bitcoin for the moment is gold
• 11:46
  Speaker 3: and that's why you know, gold, silver, platinum, et cetera
• 11:48
  Speaker 3: have their moment in the sun. And this is how
• 11:51
  Speaker 3: close to the sun, how icarus like they are becoming worry.
• 11:55
  Speaker 2: Yeah, that's the Chogian dollar equation. So what with the
• 12:12
  Speaker 2: next of the commodity space, because obviously Conickel and corpor well, I.
• 12:16
  Speaker 3: Mean they're goinging the more fundamental reasons. So I mean,
• 12:17
  Speaker 3: look at the US economy is going to grow over
• 12:20
  Speaker 3: five percent on an analyzed basis and call a four
• 12:23
  Speaker 3: and looks momentum looks strong. Not that too bad a
• 12:26
  Speaker 3: number out of the UK this week, but compared to
• 12:29
  Speaker 3: the US, it's just like we literally got the handbrake
• 12:31
  Speaker 3: on and nail to the floor and they're roaring away again.
• 12:34
  Speaker 3: So in that context, there is industrial demand. You know,
• 12:37
  Speaker 3: China is clearly picking up a long last and the
• 12:40
  Speaker 3: rest of Asia is doing pretty well as well. So
• 12:42
  Speaker 3: I mean, look at the Japanese stock market, look at career,
• 12:44
  Speaker 3: all these various areas. So you know, industrial commodities and
• 12:48
  Speaker 3: certainly industrial metals and the various other different parts of
• 12:51
  Speaker 3: the even softs and various other parts of the commodity
• 12:54
  Speaker 3: world are set fair. I think, not saying this is
• 12:56
  Speaker 3: the right time to buy. I'm sure there'll be better opportunities,
• 12:58
  Speaker 3: but I think the trend is fairly for you know,
• 13:00
  Speaker 3: That's why glen Core Rio Tinto makes sense. You know,
• 13:03
  Speaker 3: when you start seeing M and A, you know that
• 13:06
  Speaker 3: the people are at seeing a Rosia future. So you know,
• 13:09
  Speaker 3: do you know.
• 13:09
  Speaker 2: Any thoughts who the commodities raising places of commodities may
• 13:13
  Speaker 2: affect inflation, because obviously one of the big risks this
• 13:16
  Speaker 2: year is that inflation is steackier or nastier or more
• 13:20
  Speaker 2: surprising than anyone.
• 13:22
  Speaker 1: Yeah, I'm not a.
• 13:22
  Speaker 3: Big fan of that theory, and I'm not as surprised
• 13:25
  Speaker 3: as someone you start seeing material out of performance in inflation.
• 13:29
  Speaker 3: I mean you can, you can cast suspersion on the
• 13:31
  Speaker 3: US data, but I'm not so sure you can quite
• 13:33
  Speaker 3: as much to some people are trying to that can't
• 13:35
  Speaker 3: see any good going out of it. But US inflation
• 13:37
  Speaker 3: beat UK inflation is clearly beating and will continue to beat.
• 13:41
  Speaker 3: Euroinflation notably weaker. So I think there's enough disinflation and
• 13:48
  Speaker 3: perhaps coming from China as well as it exports whatever
• 13:52
  Speaker 3: it wants as quickly, as cheap, as much as it can.
• 13:55
  Speaker 3: I think some commodity inflation can be breathed in and
• 13:59
  Speaker 3: not they have a material effect.
• 14:01
  Speaker 1: Overall, we will see.
• 14:03
  Speaker 3: Obviously the one to watch probably the easiest one to
• 14:06
  Speaker 3: look at food inflation. You're seeing that through some of
• 14:08
  Speaker 3: the food inflation, particularly in the UK, has actually been
• 14:11
  Speaker 3: driven by minimum wage rises. And that's sure, it's nothing
• 14:14
  Speaker 3: to do with food at all, It's just the delivery
• 14:16
  Speaker 3: of food. But nonetheless all these things I think are
• 14:19
  Speaker 3: mostly passing through. But you know, we are going to
• 14:22
  Speaker 3: be much more vigilant on inflation rightly, so the effects
• 14:25
  Speaker 3: of that blindness from central banks post the pandemic and
• 14:30
  Speaker 3: all the massive stemas they put in which and then
• 14:32
  Speaker 3: of course the effect of Ukraine on energy costs are
• 14:36
  Speaker 3: still with us, and that's that it hasn't quite got
• 14:38
  Speaker 3: out of the system yet. But I think broadly the
• 14:42
  Speaker 3: trend is to my mind, is down and I think
• 14:44
  Speaker 3: will underperform in inflation expectations, particularly in Europe and the UK.
• 14:50
  Speaker 3: I'm less confident in the US, but as I said,
• 14:51
  Speaker 3: think the strength economy there and you know, whatever the
• 14:55
  Speaker 3: effects of something more interesting things going on the FED,
• 14:58
  Speaker 3: which we'll see I'm not as apocalyptic, and some are
• 15:02
  Speaker 3: about sort of central bank independence and whatever that may be.
• 15:05
  Speaker 3: I think they dramatically are underperformed. Their right to be
• 15:09
  Speaker 3: independent is should be sacrificed. But they need to get
• 15:13
  Speaker 3: a better performance to make it worthwhile and justify their
• 15:15
  Speaker 3: existence and than where they are, and mandates probably need
• 15:18
  Speaker 3: to change.
• 15:18
  Speaker 2: But that's the other story. Well maybe we'll do that
• 15:22
  Speaker 2: an now day. But so going on from that, when
• 15:25
  Speaker 2: the question of U kidd giddy gilts because well this
• 15:29
  Speaker 2: is interesting because I think a lot of our listeners
• 15:31
  Speaker 2: will be if they, if they do watch the guilt market,
• 15:35
  Speaker 2: will be looking at it and saying it will why
• 15:38
  Speaker 2: our interest rates going down, or yields or in government
• 15:42
  Speaker 2: points going down. We spent a lot of last year and.
• 15:44
  Speaker 3: Awful we can say that is it guilts are the
• 15:49
  Speaker 3: lowest yield over year.
• 15:50
  Speaker 2: Less since twenty twenty four.
• 15:52
  Speaker 1: Yeah, I mean it's extraordable market.
• 15:55
  Speaker 2: I mean will be given that we spent most of
• 15:57
  Speaker 2: the last year. Also the little.
• 16:03
  Speaker 3: Awful politics earlier this week about cunning Weez a cunning
• 16:08
  Speaker 3: plan which he's done twice already, and this is now
• 16:11
  Speaker 3: the third iteration, which is reducing the overall duration of
• 16:15
  Speaker 3: the type of debt that the UK Treasury sells. Call
• 16:17
  Speaker 3: it weighted average maturity or duration. It's the time value
• 16:20
  Speaker 3: of what's been dead. So a thirty year bond as
• 16:23
  Speaker 3: opposed to ten year bond has more sort of market
• 16:26
  Speaker 3: impact and risked for the market to take it down. However,
• 16:31
  Speaker 3: on the latest plan is to start issuing many more
• 16:34
  Speaker 3: T bills which are at the moment one three and
• 16:36
  Speaker 3: six month IOUs, which you know you buy them at
• 16:41
  Speaker 3: say ninety eight and they mature at a hundred. You
• 16:43
  Speaker 3: don't get a coupon like you might do on a guilt.
• 16:45
  Speaker 3: There's a different tax treatment to them that's not as
• 16:47
  Speaker 3: favorable as it can be on particularly very low coupon guilts,
• 16:50
  Speaker 3: which we have mentioned before. But nonetheless this is a
• 16:53
  Speaker 3: bit of a backwater. It's controlled by certain big institutions
• 16:56
  Speaker 3: who like basically said, it's their cash flow. They buy them,
• 16:59
  Speaker 3: hold them, the mature they're by the next one, and
• 17:01
  Speaker 3: it sort of never really sees the light of day.
• 17:04
  Speaker 2: But with a great idea traditional pity cash ten.
• 17:07
  Speaker 3: Yeah, and it's it's it's sort of a long standing
• 17:10
  Speaker 3: feature of the market that it's never really been up
• 17:11
  Speaker 3: to much and it's just I guess I said of backwater. However,
• 17:15
  Speaker 3: it wouldn't be great to like the US Treasury, which
• 17:17
  Speaker 3: issues a fifth of its debt in bill format out
• 17:21
  Speaker 3: they go out to two years to be fairs, so
• 17:22
  Speaker 3: there's one year bills and two year bills, et cetera,
• 17:24
  Speaker 3: and get more liquidity in the front end, which would
• 17:26
  Speaker 3: be good for the Hall, the bank if anyone wants
• 17:27
  Speaker 3: to run its its whole balance sheet down, so they
• 17:29
  Speaker 3: want to move out of long daily bonds into sort
• 17:31
  Speaker 3: of short daily repo. There's a bill market there as
• 17:33
  Speaker 3: well with liquidity. Won't that be good for everyone and
• 17:36
  Speaker 3: make it a bit more like the US, I guess.
• 17:39
  Speaker 3: But more importantly, it will reduced the cost of borrowing.
• 17:43
  Speaker 3: So a T bill yields about say three point eight percent,
• 17:45
  Speaker 3: whereas a longer day to guilt can yield at least
• 17:48
  Speaker 3: four point eight or even whatever. So this is a
• 17:51
  Speaker 3: wheeze the real reason behind it. And don't forget about
• 17:54
  Speaker 3: issues of stable coins for cryptail and all this sort
• 17:57
  Speaker 3: of nonsense about you know, helping out this that the other.
• 18:01
  Speaker 3: It will have some beneficial effects clearly for retail investors
• 18:04
  Speaker 3: who want to put money safely, can't get better than
• 18:06
  Speaker 3: the government cold quality. You know, why wouldn't you be
• 18:09
  Speaker 3: able to put these in your ices or put them
• 18:11
  Speaker 3: in your pension or what have you, or but hold
• 18:13
  Speaker 3: them out right, you know there will be some different
• 18:16
  Speaker 3: income tax on that, So there is compelling if they
• 18:19
  Speaker 3: really sort out and make the corporate bond market also,
• 18:22
  Speaker 3: they're going to change on journually of the nineteenth to
• 18:24
  Speaker 3: make it much more open for investors to buy new
• 18:27
  Speaker 3: issues or say Mark suspensers or a tesco issuing and bond.
• 18:30
  Speaker 3: The moment, the minimum they can buy a corporate on
• 18:32
  Speaker 3: is one hundred thousand, which basically excludes purchab retail investors
• 18:37
  Speaker 3: now in Marks suspenses one issue bond, one pound increment
• 18:42
  Speaker 3: or one thousand pound increment they can do. If you
• 18:44
  Speaker 3: combine that with allowing retail investors' access to take tea
• 18:47
  Speaker 3: bills as well, all of a sudden you have a
• 18:50
  Speaker 3: much better environment, much more competition in the banks, which
• 18:52
  Speaker 3: is both a good and a bad thing, and for
• 18:55
  Speaker 3: national savings investment in SNI and premium bonds, all that
• 18:58
  Speaker 3: sort of stuff. But there's enough liquidity out there, the
• 19:00
  Speaker 3: banks would definitely buy these tables on their own pension funds,
• 19:03
  Speaker 3: petty cash, you name it. If you start using the
• 19:06
  Speaker 3: repo markets, you know, hedge funds and clateral into derivatives,
• 19:10
  Speaker 3: margin blah blah blah. It's a good thing. The reason
• 19:13
  Speaker 3: why it's been done is highly cynical. She just wants
• 19:15
  Speaker 3: to the cost of one hundred and ten billion a
• 19:17
  Speaker 3: year that we pay in debt interest. She wants to
• 19:19
  Speaker 3: get that down. Sometimes cynical ployees are also have some
• 19:23
  Speaker 3: benefits to it. I think this is one of them.
• 19:25
  Speaker 3: The other reason, which by kills.
• 19:27
  Speaker 2: Let me just sent it off for one saying, so
• 19:29
  Speaker 2: basically what she's doing is reducing the long term date crash,
• 19:35
  Speaker 2: which is low yielding. And that's so basically there's there's
• 19:37
  Speaker 2: there's a far fewer ten and thirty year gilts, and
• 19:42
  Speaker 2: that means that well, maybe not the same, that's right,
• 19:45
  Speaker 2: And that means that the next link it's supplying the
• 19:48
  Speaker 2: mind matter.
• 19:49
  Speaker 3: It's absolutely she's already dramatically reduced the long end supply,
• 19:53
  Speaker 3: particularly inflation link bonds, by more than two thirds actually,
• 19:57
  Speaker 3: and indeed longer dated guilts there's a lot less issuance
• 20:00
  Speaker 3: coming through, it's going in and we call the belly
• 20:02
  Speaker 3: of the curve the sort of fire to ten year
• 20:04
  Speaker 3: part where a lot of international investors and foreign central
• 20:06
  Speaker 3: banks by guilts happily. So by adding more liquidity in tables,
• 20:10
  Speaker 3: it's just further extends this trade. She says, you've done
• 20:13
  Speaker 3: it twice already. This will be a third time. It's
• 20:15
  Speaker 3: a consultation document, but it's clearly going to happen, so that, yeah,
• 20:19
  Speaker 3: it's a car shuffle trick for the average type of bond.
• 20:23
  Speaker 3: She sells too much shorter dated therefore it's cheap of
• 20:26
  Speaker 3: for her and in theory takes pressure off the long
• 20:28
  Speaker 3: end of the guilt yields fall further.
• 20:30
  Speaker 1: Huzzah.
• 20:31
  Speaker 2: What is the don't say there for any in terms
• 20:34
  Speaker 2: of you know, like presumably okay, some people we talking
• 20:37
  Speaker 2: about it all over RESK and that it means you're
• 20:40
  Speaker 2: more exposed to shot down moves and interest rates. But
• 20:44
  Speaker 2: how much of an issue is that in practice?
• 20:47
  Speaker 1: Do you think?
• 20:48
  Speaker 3: Okay, the UK has a much longer weighted average maturity
• 20:52
  Speaker 3: his death than almost any other country in the world
• 20:54
  Speaker 3: because we had these huge demands of are ridiculous pension
• 20:56
  Speaker 3: rules which required pension funds to buy very very long
• 20:58
  Speaker 3: dated guilts, which we happily sold them ad nauseum. And
• 21:02
  Speaker 3: it all working brilliantly well until yeals jumped as inflation zoomed,
• 21:07
  Speaker 3: and it all fell apart, and even the Oxen and
• 21:08
  Speaker 3: Cambridge pension funds blew up. So we have an average
• 21:13
  Speaker 3: job for about say thirteen years. It was above fifteen
• 21:16
  Speaker 3: not so long ago. We are already reducing it heavily,
• 21:19
  Speaker 3: but say the US treasury has got say seven years,
• 21:22
  Speaker 3: Germany's got eight, so we are we've got plenty of
• 21:25
  Speaker 3: room to go before we are not much longer than
• 21:27
  Speaker 3: al Still, the risk here is as exactly as you say,
• 21:31
  Speaker 3: of interest rates with a jump, or we find it
• 21:33
  Speaker 3: harder to fund the in shorter dates. This would leave
• 21:36
  Speaker 3: us vulnerable. But I think there is a plenty of
• 21:39
  Speaker 3: room to go still there. But we didn't need to
• 21:41
  Speaker 3: be too extreme on this. But I think she's pushing
• 21:43
  Speaker 3: the envelope to be sall on whatever. So that is
• 21:46
  Speaker 3: clearly a risk. And you know, we have to be
• 21:48
  Speaker 3: careful that we're not doing too much of one thing
• 21:52
  Speaker 3: and we're not leaving ourselves exposed whereby we haven't funded
• 21:54
  Speaker 3: the across the Yelk curve and kept liquidity importantly across
• 21:58
  Speaker 3: all parts of the your curve, so everyone can fund
• 22:01
  Speaker 3: and bear mine, you know, more liquidity. And the longer
• 22:03
  Speaker 3: round is better for corporates as well because they can
• 22:05
  Speaker 3: issue off back of these gild benchmarks and they can
• 22:08
  Speaker 3: raise money a longer dates as well. So it's a
• 22:10
  Speaker 3: bit of balance I think so far as a sort
• 22:13
  Speaker 3: of concious positive welcome to this idea with a knowing
• 22:17
  Speaker 3: eye of what the real reason is great.
• 22:20
  Speaker 2: I feel we can never be too soundy Cod here
• 22:21
  Speaker 2: at Merland Talks Money ex wellble thanks again for joining us,
• 22:25
  Speaker 2: Marcus as much appreciated, and I should we'll have you
• 22:27
  Speaker 2: in plenty more times in the coming weeks and months.
• 22:30
  Speaker 2: As far as my wire, my pleasure. Thanks for listening
• 22:38
  Speaker 2: to this week's Merlton Talks Money debrief. If you like
• 22:40
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• 22:43
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• 22:58
  Speaker 2: Sadi