Latest / Merryn Talks Money / The Lights Are Flashing Red for America --And Amber for the UK

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The Lights Are Flashing Red for America --And Amber for the UK · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Merin
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  Speaker 1: Talks Money Weekly round up, our debrief on the biggest
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  Speaker 1: stories and markets and economies. I'm Maren sum Zet, web
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  Speaker 1: Editor at Large for Bloomberg UK Wealth, and.
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  Speaker 2: I'm joined Stepic, senior reporter and author of the Money
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  Speaker 2: Distilled newslater.
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  Speaker 1: John, you've been away. It's kind of an outrage. Earlier
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  Speaker 1: in the week, I actually had to talk to other people.
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  Speaker 2: I think that this is bad because I know you've
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  Speaker 2: got deep rooted social anxiety so.
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  Speaker 1: Much, so much so I had to talk to two
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  Speaker 1: other Bloomberg reporters. They were They were quite good. Actually
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  Speaker 1: we talked about not as good as you, not as
• 0:48
  Speaker 1: good as you.
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  Speaker 2: Talked about goodness.
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  Speaker 1: I know. We talked about the car finance scandal, yet
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  Speaker 1: another misselling scandal in the UK. Did you listen back
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  Speaker 1: to that one? It was quite interesting.
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  Speaker 2: I did think it's a fascinating story and the I
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  Speaker 2: mean to me, the risk of this one is that
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  Speaker 2: it just keeps getting bigger, and I do wonder at
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  Speaker 2: what point the line will actually be drawn under it,
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  Speaker 2: because this latest court case in particular, has you've talked about,
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  Speaker 2: has the potentially extended to virtually any credit agreement that
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  Speaker 2: anyone's ever bought through any form of broker Yeah.
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  Speaker 1: Well, anything with an undisclosed commission of any kind. I mean,
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  Speaker 1: initially it was just about people adding a couple of
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  Speaker 1: percentage points on the interest, right, But there are lots
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  Speaker 1: of other ways to charge people without them necessarily noticing.
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  Speaker 1: So if it takes in all that, yeah, takes in everything,
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  Speaker 1: and that's pretty bad news for the providers, right, and
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  Speaker 1: we're talking about very big bills.
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  Speaker 2: Well, certainly something that's going to hang over these companies.
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  Speaker 2: And I mean I think, you know, obviously we can't
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  Speaker 2: talk about individual stocks necessarily, but I think that if
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  Speaker 2: anyone's interested in that sector, then that's the sort of
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  Speaker 2: thing that they need to be paying attention to. The
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  Speaker 2: one hand, you know, perhaps some of the highest estimates
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  Speaker 2: won't be what happens, and then that means that some
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  Speaker 2: of these companies might actually be, you know, trading relatively cheaply,
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  Speaker 2: like when know, whatever, when a big scandal hits and
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  Speaker 2: you know that there's an amount of money to be
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  Speaker 2: paid and then everyone's trying to work out is it
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  Speaker 2: going to be this much? Is it going to be
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  Speaker 2: you know, ruinous or not, but equally, you know, it's
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  Speaker 2: also a kind of threat because obviously is what happened
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  Speaker 2: with PPI is it started out thinking it was one
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  Speaker 2: thing and fairly minor, and then it turned into you know,
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  Speaker 2: the kind of biggest consumer redress scheme ever.
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  Speaker 1: Yeah, and we took on that on the last part
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  Speaker 1: about the extraordinary ounds of money that ended up chucking
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  Speaker 1: into the consumer market, which is kind of key, right,
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  Speaker 1: And I said that, I said that a lot of
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  Speaker 1: it went into the car market, is it. That's kind
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  Speaker 1: of amazing if you find that kind of secularity funny,
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  Speaker 1: which by kind.
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  Speaker 2: Of too Absolutely, Yeah, the irony is wonderful. I mean.
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  Speaker 2: The only other thing is somebody pointed out to me
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  Speaker 2: is that with PPI that was basically just cream for
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  Speaker 2: the banks. It was not a product that was of
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  Speaker 2: any use, and getting rid of it didn't what isn't
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  Speaker 2: a massive issue. The one thing we you know, changing
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  Speaker 2: this is I think the legal system and the government
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  Speaker 2: et cetera, and the regulator just the need to be
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  Speaker 2: quite careful about what it then means for the provision
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  Speaker 2: of credit because if you make it too you know,
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  Speaker 2: too dangerous, if you like to offer consumers credit. Then
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  Speaker 2: you know you've potentially got a massive impact on you know,
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  Speaker 2: the car market, et cetera, et cetera. I mean, I'm
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  Speaker 2: sure that probably won't happen, but it wouldn't be the
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  Speaker 2: first time that overzeales regulation has you know, got in
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  Speaker 2: the way of the UK economy. Do anything ever, anything.
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  Speaker 1: Ever, that's quite right, And as we also discussed, there's
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  Speaker 1: an awful lot of people who may get a pair
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  Speaker 1: of from this. We have i'm fid the entire production
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  Speaker 1: team and and us we have checked to see if
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  Speaker 1: that's going to be us, but sadly none of us
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  Speaker 1: so far. So far, I think we're in line for pairs,
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  Speaker 1: so that's disappointing. But there are many, many, thousands of
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  Speaker 1: people who will get a pair. And one of the
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  Speaker 1: things I said the other day, that'd be really nice
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  Speaker 1: for Rachel Reeves, who's having a real bummer of a
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  Speaker 1: time at the moment. Absolutely nobody, nobody is pleased about
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  Speaker 1: her budget at all. CBI this week looks like about
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  Speaker 1: half company surveys say that they're going to cut jobs.
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  Speaker 1: Lots of people are saying that they're going to have
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  Speaker 1: to put up prices. Almost nothing is working out for
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  Speaker 1: her at all. So the idea that there might be
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  Speaker 1: billions and billions and billions of pounds shoved from the bank.
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  Speaker 1: So I don't think she likes very much because you
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  Speaker 1: know who does into consumers pockets so they can go
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  Speaker 1: out and spend even if they're newly unemployed as a
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  Speaker 1: results of her budget probably feels nice.
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  Speaker 2: What's the fun of when fold tax almost thought? Or
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  Speaker 2: was it cue for the people as you called it?
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  Speaker 1: Yeah, people's cwy.
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  Speaker 2: I mean, I think what's really troubling, and I think
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  Speaker 2: what's probably worrying businesses as well, underneath the fact that
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  Speaker 2: obviously employer and I is an immediate expense to them,
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  Speaker 2: is the fact that all of this has been done
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  Speaker 2: and absolutely nothing has been restructured or redesigned or made easier.
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  Speaker 2: And I think that if a government's been incapable of
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  Speaker 2: doing that in its first budget of a five year term,
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  Speaker 2: then that really really boats extremely badly for the next
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  Speaker 2: four years worth of budgets, because all of the hard
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  Speaker 2: choices are only going to get politically harder rather than easier,
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  Speaker 2: the closer you get to at an election.
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  Speaker 1: Yeah, And this is interesting because she is telling us
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  Speaker 1: that she's made the hard choices already that the next
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  Speaker 1: budget won't be anything like this. There won't be another
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  Speaker 1: budget like the first one, No more tax risers for
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  Speaker 1: the next four years. She keeps selling us. But of course,
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  Speaker 1: you know, we kind of thought she said that before
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  Speaker 1: and that turned out not to be true. So there
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  Speaker 1: we are. So it's very hard for people to look
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  Speaker 1: forward and feel kind of calm uncertainty that I think
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  Speaker 1: a lot of people believed they were promised before the election,
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  Speaker 1: you know, so you get we've talked a lot. Let's
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  Speaker 1: go back to the stock markets, so we're supposed to
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  Speaker 1: talk about ed. We talked a lot before the election
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  Speaker 1: about how actually certainty and calmness would be a great
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  Speaker 1: thaying for the UK market, and suddenly, you know, obviously
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  Speaker 1: the UK market has been has been very cheap, partly
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  Speaker 1: based on uncertainty, political insecurity and general confusion about where
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  Speaker 1: the country's going. And there was a view that once
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  Speaker 1: you know where the country's going, once things are settled,
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  Speaker 1: once you've got a government in with a solid majority
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  Speaker 1: sort of stuff out, then that would be a huge
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  Speaker 1: boost to the UK stock market. But that hasn't happened,
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  Speaker 1: of course, because it hasn't even been a honeymoon period here,
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  Speaker 1: not even that. All we've got now is is we
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  Speaker 1: might know the direction we're going in, but it doesn't
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  Speaker 1: look like a good one, and we're still pretty uncertain
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  Speaker 1: about exactly how bad it's going to be. So all
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  Speaker 1: these things we used to say, well, you know, maybe
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  Speaker 1: the UK is cheap because of all this uncertainty, and
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  Speaker 1: you and I were cheap. That pretty clear that it
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  Speaker 1: was cheap. Eventually it will go up when things are
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  Speaker 1: a little clearer, And it doesn't feel quite like that anymore,
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  Speaker 1: does it.
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  Speaker 2: It doesn't unfortunately. I mean you're still at the end
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  Speaker 2: of the day's stocks are still cheap. You know, they're
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  Speaker 2: still inexpensive. You probably still see deal activity. Got an
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  Speaker 2: email on mindbox this morning from I think it's Paul
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  Speaker 2: Marriage over it. I can't remember I can't remember the front,
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  Speaker 2: but the sorry.
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  Speaker 1: Yeah.
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  Speaker 2: He was pointing out that, you know, you still get
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  Speaker 2: signs the private equity buyers, the trade buyers are all interested,
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  Speaker 2: so we might still get you know, companies being kind
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  Speaker 2: of picked off, you know, like like low hanging fruit
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  Speaker 2: from a tree. But at the same time, I'm still
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  Speaker 2: getting emails from you know, Peel Hunt saying the you know,
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  Speaker 2: trying to talk up the prospects of the AIM market
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  Speaker 2: and how it's all going to be okay, And you
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  Speaker 2: can still see that there a lot of these analysts
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  Speaker 2: who had the you know, who had their eggs in
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  Speaker 2: the basket of the labor government being nice to the city,
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  Speaker 2: are still trying desperately a cling to that. And it's
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  Speaker 2: very clear if you're not invested in that, that they're not.
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  Speaker 2: I mean, they don't care about the AIM market accepting
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  Speaker 2: as much as if you look at the number of
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  Speaker 2: farmers who also own AIM stocks, you might be able
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  Speaker 2: to target the inherit in stacks side of things better
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  Speaker 2: than it's currently being targeted. So yeah, I mean, the
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  Speaker 2: government is not going to save the stock market, so
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  Speaker 2: something else is going to need to do that. And
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  Speaker 2: I think that a lot of people have lost faith
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  Speaker 2: that it's actually feasible for anything, you know, for the
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  Speaker 2: market itself to do that.
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  Speaker 1: Okay, so we don't know that something else is going
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  Speaker 1: to be but let's stick with this idea of uncertainty.
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  Speaker 1: So at least if you buy the UK market, all
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  Speaker 1: that uncertainty becomes cheape. You go to the US and
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  Speaker 1: In my excellent new newsletter last weekend, I pointed out
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  Speaker 1: that the US market is only been this expensive two
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  Speaker 1: percent of the time it's recorded history. This is a
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  Speaker 1: really really expensive market. Obviously, there's cheap things knocking around
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  Speaker 1: that knocking around in the market as well. And if
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  Speaker 1: you listen to our podcast on Friday with Barry Norris,
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  Speaker 1: which is also excellent by the way, coming on Friday morning,
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  Speaker 1: there's a lot of discussion in there about the ways
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  Speaker 1: you can get into the US market on the cheap.
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  Speaker 1: But the key thing here is that what is happening
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  Speaker 1: in the US is also incredibly uncertain. You know, we
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  Speaker 1: have lots of promises from the Trump and the people
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  Speaker 1: who will be in from Donald Trump and from the
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  Speaker 1: people who will be in his administration about what they
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  Speaker 1: think they want to do, what they expect to do,
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  Speaker 1: what they promise to do, but of course we can't
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  Speaker 1: really be sure that anything those things will happen. We
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  Speaker 1: don't know if the tariffs will happen. We don't know
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  Speaker 1: if the tax cuts will happen or not happen. We
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  Speaker 1: don't really know what will happen with employment law, with immigration,
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  Speaker 1: with regulations. We don't know if there will be more
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  Speaker 1: anti trust stuff on the on the big tech companies,
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  Speaker 1: et cetera, et cetera. There's a huge amount of uncertainty
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  Speaker 1: in that market as well. It's just in that market
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  Speaker 1: you're paying an increase radibly high price for uncertainty.
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  Speaker 2: Yeah, and it is instantly an excellent newsletter by way
• 10:06
  Speaker 2: our duel to go out and sign up for.
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  Speaker 3: It, linking the show notes Yes, but I mean no,
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  Speaker 3: I mean absolutely the uncertainty is coming at a state price,
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  Speaker 3: and I'm supposed the main thing that stands being the
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  Speaker 3: US market at the moment is that a has been
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  Speaker 3: going up for so long and has been expensive for
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  Speaker 3: so long that people have largely just thrown in the towel.
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  Speaker 2: Even people who are pro valuation now hedge it all
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  Speaker 2: the time by saying, you know, okay, you know, example,
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  Speaker 2: the cape ratio or whatever is not a market time
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  Speaker 2: in too. And I can see why because yeah, I mean,
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  Speaker 2: I'm just not as if. I mean, got an argument
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  Speaker 2: that we've made before that the US is very expensive,
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  Speaker 2: but you know, it still hasn't kind of fallen off
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  Speaker 2: its perch. And I suppose the other thing is partly
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  Speaker 2: the nature of the uncertainty It's like here, we're uncertainly
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  Speaker 2: about what will happen, but we're fairly convinced that the
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  Speaker 2: government itself is not especially market friendly, whereas the uncertainty
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  Speaker 2: and the Trump direction is more kind of ecstatic euphoria
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  Speaker 2: about how how much better can things get? You know,
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  Speaker 2: elo and Musk is going to absolutely decimate they kind
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  Speaker 2: of get public sector and get ridy all the the
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  Speaker 2: useless ones product of it. He's going to boom the new
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  Speaker 2: Treasury secretary somehow going to cut the deficit. Okay, do
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  Speaker 2: you know what I mean? So it's all it really
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  Speaker 2: is kind of like everything's going to be amazing, And yeah,
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  Speaker 2: I mean that's euphoria as well. I mean everything about
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  Speaker 2: America screams this is overpriced. But it's hard to stand
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  Speaker 2: in the way of that big American steam roller.
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  Speaker 1: But this is also a good time, I think. And
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  Speaker 1: I have mentioned this before on this podcast, and I
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  Speaker 1: will mention it again. There is no research at all
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  Speaker 1: that tells us that there is a direct correlation between
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  Speaker 1: GDP growth and stock market growth. That doesn't exist. You
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  Speaker 1: might look back and say, for the last ten years
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  Speaker 1: or so, the UK economy has been growing, and so's
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  Speaker 1: the market, and I might say to that, well, maybe
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  Speaker 1: that not a result of GDP growth pushing up the
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  Speaker 1: stock market, is actually a result of a very loose
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  Speaker 1: fiscal and monetary policy pushing up everything. It's not quite
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  Speaker 1: the same thing. There's an awful lot of research that
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  Speaker 1: shows you there is no connection at all over the
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  Speaker 1: long term between GDP growth and stock market growth. In fact,
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  Speaker 1: there's even one one study ever looking at the other
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  Speaker 1: day that shows exactly the opposite, GDP up stop markets down.
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  Speaker 1: So looking at all the things that might happen in
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  Speaker 1: a Trump economy and saying this is going to lead
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  Speaker 1: to very fast growth does not translate automatically to that's
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  Speaker 1: going to be great for a very very expensive stock market.
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  Speaker 1: It doesn't usually work like that.
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  Speaker 2: Yeah, No, I mean that's and that's absolutely fear. And
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  Speaker 2: then in fact and the other things when you do
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  Speaker 2: talk about it like that or case of the main
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  Speaker 2: be a relationship between GDP growth and the stock market,
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  Speaker 2: but it is a relationship between starting valuations and long
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  Speaker 2: term returns. And so the one thing you can say
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  Speaker 2: is that everything else pretty much if I particularly the
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  Speaker 2: UK and emerging markets is cheap and the US is
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  Speaker 2: as you say, within two percent of it's you know this,
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  Speaker 2: It's never it's only this expensive two percent of the
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  Speaker 2: time throughout its history. So that doesn't bode well for
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  Speaker 2: future returns.
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  Speaker 1: Now, But then here we are, John, We've been wrong
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  Speaker 1: on this before. You never know when the turn is
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  Speaker 1: going to come. And if you're too early to sit
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  Speaker 1: around looking stupid year after year after year, depressing old world.
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  Speaker 2: Yes, I feel judged, but this is why you hedge
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  Speaker 2: your best. Absolutely sessify. You're diversified by viewpoint and as
• 13:45
  Speaker 2: well as by you know assets, so not what's own
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  Speaker 2: some America, even if you think it's too expensive.
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  Speaker 1: Yeah. Thanks for listening to this week's Marin Talk's Money Debrief.
• 13:59
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