Latest / Merryn Talks Money / Outbreaks of Reality: Markets Catch Up to the Warnings

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Outbreaks of Reality: Markets Catch Up to the Warnings · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Maren
• 0:18
  Speaker 1: Talks Money Market Wrap while we talk about the biggest
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  Speaker 1: moves in markets this week and what is driving them.
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  Speaker 2: I'm Marren Zumset, Web editor at Large for Bloomberg. You
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  Speaker 2: Go Wealth.
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  Speaker 3: I'm joined Stare Weic, senior report at the Bloomberg and
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  Speaker 3: al sort of them need distilled news.
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  Speaker 4: Later, said John, I'm reading the papers this morning, and
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  Speaker 4: I'm thinking about all the podcasts we've done over the
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  Speaker 4: last couple of years and how quite often we're going
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  Speaker 4: against mainstream views and talking about the stuff that maybe
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  Speaker 4: other people aren't mad for, et cetera.
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  Speaker 1: But looking at the newspapers this morning, it feels to
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  Speaker 1: me like everything is kind of going our way. Are
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  Speaker 1: the things that we expected to happen or happening, and
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  Speaker 1: other people are beginning to agree with us on things.
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  Speaker 1: So look, just let me read you a couple of
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  Speaker 1: the headlines that I'm filling out this morning.
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  Speaker 3: Right, cann't just see this Soon's warden.
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  Speaker 1: I know I'm worried too, and I don't know where
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  Speaker 1: we go next. Off everyone starts agreeing with us. Okay,
• 1:01
  Speaker 1: go ahead, here we go, attack on undersea cables could
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  Speaker 1: cause civil collapse. Defense grandees have told the Prime Minister
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  Speaker 1: he's running out of time to protect Breaken from catastrophic attack, etc. See,
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  Speaker 1: you know we had that. We talked about that year
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  Speaker 1: and a half ago with Pepper Malgram. Go back and
• 1:18
  Speaker 1: listening to that, everybody, these big Cold War topics and
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  Speaker 1: the things that Tea talked about, the war in space,
• 1:23
  Speaker 1: the war under the sea, the wars that you cannot see,
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  Speaker 1: and how interesting they are in handful of Mayle for
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  Speaker 1: our future. Imf urges us to deal with huge deficits
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  Speaker 1: sooner rather than later. As global jet two GDP rises
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  Speaker 1: hit one hundred percent. Now, we have been talking about
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  Speaker 1: that over and over and over. We'll come back to gold.
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  Speaker 1: But gold is the answer to those problems.
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  Speaker 2: But here's another one that I really like.
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  Speaker 1: Startup extracts lysium in Durham, the sum startup I know,
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  Speaker 1: hoping to extract battery metal from Brian's beneath Northeast England.
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  Speaker 1: Says it aims to produce twenty thousand tons a year
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  Speaker 1: within a decade. Now. We have talked endlessly on this
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  Speaker 1: podcast about the pyer men of need right about how
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  Speaker 1: we focus too much on things at the top, self vacuation,
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  Speaker 1: gender wars, culture bluff, and not enough down the bottom.
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  Speaker 1: Have we got enough of the fundamentals that make us
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  Speaker 1: society work? And we've talked a lot in particular about
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  Speaker 1: all these metals and how we were really serious about
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  Speaker 1: things like energy transition, et cetera, et cetera, would simply
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  Speaker 1: dig up bodmin more. Everyone laughs. And now what is
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  Speaker 1: not exactly bodmin more. But it's outside Durham. These things
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  Speaker 1: are actually happening. And here's another one that we might
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  Speaker 1: come back to. Financiers sound alarm on standards after collapse
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  Speaker 1: exposes riskier lending, riskier lending a private credit who could
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  Speaker 1: have got.
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  Speaker 3: Never never, and also also the fact that the money
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  Speaker 3: behind it is mostly common from banks.
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  Speaker 2: Yeah, fascinating.
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  Speaker 3: Well, there's the systemic angle.
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  Speaker 2: So this brings us back, John.
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  Speaker 1: Every single headline I've just read brings us back to gold. Yes,
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  Speaker 1: the anti anti crisis investment, the anti AI investment, the
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  Speaker 1: anti collapse of private credit investment, the anti everything.
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  Speaker 2: How that's mat right, Yeah?
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  Speaker 3: I think. Well, one thing I found interesting is the
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  Speaker 3: correlations that we usually see with gold have largely broken down,
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  Speaker 3: and so people are sort of flailing around for reasons
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  Speaker 3: to explain why it's going up. And I just kind
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  Speaker 3: of wrote a piece yesterday looking at the previous times
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  Speaker 3: that gold has that gold has become a bubble, So
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  Speaker 3: the end of the nineteen seventies and two thousand, between
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  Speaker 3: two thousand and eight and twenty eleven, it's pretty clear
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  Speaker 3: those were both times where everyone was basically freaked out
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  Speaker 3: about what looked like a pending collapse in the established
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  Speaker 3: world order. Like you know, the nineteen seventies, people often
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  Speaker 3: talk about the kind of British stay essentially being on
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  Speaker 3: the Vergie collapse, and some people have been talking about
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  Speaker 3: possibly kind of civil war. And then after two thousand
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  Speaker 3: and eight, obviously the financial system actually did collapse and
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  Speaker 3: was then put back together with kind of string and cellotape,
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  Speaker 3: which led to the problems that we have now. So
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  Speaker 3: I think that that's actually the best explanation overall for
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  Speaker 3: why gold is going up, and that at some point
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  Speaker 3: either this stuff will get fixed, at which point gold
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  Speaker 3: will go down and you'll probably wish you'd sold it
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  Speaker 3: at the top. But at the moment, it's still very
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  Speaker 3: hard to see what's on the horizon that could start
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  Speaker 3: that process of things getting fixed or reaching a more
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  Speaker 3: stable equilibrium. Again.
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  Speaker 1: Yeah, it feels like we need to see more of
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  Speaker 1: a crisis before the political will takes this kind of
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  Speaker 1: thing as seriously as we think they should. Or maybe
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  Speaker 1: they're taking it as seriously it should behind the scenes,
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  Speaker 1: just not in public.
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  Speaker 2: I don't know.
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  Speaker 3: I mean, I always trying to think about this this morning,
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  Speaker 3: and I mean taking it back to the UK. I mean,
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  Speaker 3: one of the points I think we've made here often
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  Speaker 3: is that the UK's fiscal situation is bad, but it's
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  Speaker 3: not desperate in relative terms. And the real problem at
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  Speaker 3: the moment is there's no sense that there's a pathway
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  Speaker 3: out of it that the government is willing to take.
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  Speaker 3: And by the government, I don't just mean this government,
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  Speaker 3: I mean the governments have not been I want to
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  Speaker 3: take if someone actually looks as if they're going to
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  Speaker 3: grasp that nettle, and if that person can then also
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  Speaker 3: get it past their own you know, backbenchers and the voters,
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  Speaker 3: and that I could see that that being a kind
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  Speaker 3: of turning point, or if it was even I mean,
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  Speaker 3: if it was happening in the US. I don't see
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  Speaker 3: it happening in the US. Right away. But there's no
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  Speaker 3: pressure really on the US to deal with this. But
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  Speaker 3: certainly yeah, in the UK, if if you've got a
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  Speaker 3: sense that there was a pathway forward that was going
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  Speaker 3: to actually work, then yeah, you know, maybe we could
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  Speaker 3: start to turn around.
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  Speaker 1: Yeah, but the grasping of that netle, I mean, we're
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  Speaker 1: going to have to get onto the budget in November.
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  Speaker 1: In this conversation, the grasping of the nettle involved not
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  Speaker 1: just increasing taxes on the rich whoever whoever they are.
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  Speaker 1: It involves cutting spending. And also, if you have to
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  Speaker 1: increase taxes, increasing taxes across the board, it has to
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  Speaker 1: involve putting out the basic rate of tax. Nothing else
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  Speaker 1: can work. Right, But what we're seeing at the moment,
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  Speaker 1: or the mood music coming out of the Treasury is
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  Speaker 1: not really about cutting spending and fiddle here or there.
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  Speaker 1: But that's not really what this conversation is about. It's
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  Speaker 1: more about the nonsense of those with broad shoulders, who,
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  Speaker 1: as we often say, are using their broad shoulders at
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  Speaker 1: the moment to carry their suitcases to Milan, or to
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  Speaker 1: encourage someone else to carry their suitcases to Milan. So
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  Speaker 1: you know, we know this is all coming and we
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  Speaker 1: can see it going back to one of our favorite
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  Speaker 1: topics in the housing market, which is pretty much certainly
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  Speaker 1: at the top end, completely static.
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  Speaker 2: Yeah.
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  Speaker 3: I mean that's the statistics on in London specifically that
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  Speaker 3: came out in the last kind of week or so
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  Speaker 3: just really staggered on. There was a lane in this
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  Speaker 3: report base I think is Molia. See in the basically,
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  Speaker 3: even if the land was free, is not economic to
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  Speaker 3: build in London just now because they will cost inflation,
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  Speaker 3: but also because there's no demand, because the demand has
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  Speaker 3: basically mostly been filled by investors because you need a
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  Speaker 3: lot of money to afford a property in London. So
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  Speaker 3: and even things like you know, cutting back or in
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  Speaker 3: the amount affordable housing or fiddling with they can have
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  Speaker 3: unnecessary new safety regulations that have been panic rushed down.
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  Speaker 3: Isn't can they do ithing about that?
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  Speaker 1: Yeah, this is the line from the report. Development costs
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  Speaker 1: are high, so it is unviable to build profitably in
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  Speaker 1: half of London areas under six hundred and fifty squab foot.
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  Speaker 1: This is even if the land is provided free and
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  Speaker 1: there are no planning obligations.
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  Speaker 2: Wow.
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  Speaker 3: Yeah, that's bond Culls.
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  Speaker 1: And I did speak to did speak to a planning lawyer.
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  Speaker 1: Relatively recently, he said that just nothing, nothing thing happening
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  Speaker 1: in central London, nothing at all early that.
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  Speaker 3: It's one of these things where you don't really know
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  Speaker 3: what to say to that, because clearly the property itself
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  Speaker 3: is unaffordable. But if you then you know, like no
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  Speaker 3: one can afford to buy realistically, But then if no
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  Speaker 3: one can afford to build more, then you're a very
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  Speaker 3: very strange kind of point. It doesn't seem economically rational.
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  Speaker 2: No, so two things have to happen.
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  Speaker 1: It needs to be made significantly cheaper to build houses,
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  Speaker 1: which means a bonfire of the regulations again as ever,
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  Speaker 1: land needs to become less expensive one way or another.
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  Speaker 1: But crucially, i'm one of the things that would be
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  Speaker 1: super helpful in the UK would be a rising as
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  Speaker 1: significant rise in real wages.
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  Speaker 3: Yeah, and I mean unfortunately real wages are starting to
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  Speaker 3: tunt flat again because wages are kind of slowly coming down,
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  Speaker 3: And even then the composition is very very very skewed
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  Speaker 3: and me and my own inflation's going back. Hopefully inflation
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  Speaker 3: should edge loorld towards the end of the year, as
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  Speaker 3: long as you don't get any more nasty surprises, which
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  Speaker 3: obviously is you know not.
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  Speaker 2: The one can Yeah.
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  Speaker 3: Yeah, history of nasty surprises is not great.
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  Speaker 1: Well with that in mind, John, actually I wanted to
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  Speaker 1: point to the other outbreak of the recognition of reality
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  Speaker 1: in the UK, and that is that if everyone should
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  Speaker 1: go and look at this video, and in fact we'll
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  Speaker 1: put a link in the show notes to the UK's
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  Speaker 1: big energy bosses talking to Parliamentary.
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  Speaker 2: Oh are you you've wet my schedule?
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  Speaker 3: I was actually I was thinking this would be one
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  Speaker 3: of your headlines.
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  Speaker 1: It was, but I meant to state at the beginning,
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  Speaker 1: but you know, I had so many headlines.
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  Speaker 2: I was live, live, live, the best for last.
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  Speaker 1: But this is a genuine outbreak of reality. Right. So
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  Speaker 1: you've got you've got the big bosses at the big
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  Speaker 1: energy companies in the UK and they are talking to
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  Speaker 1: the Parliamentary Energy Committee and talking about what they call
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  Speaker 1: the non commodity cost of energy. Now, anyone who's long
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  Speaker 1: time listening to this podcast will not be surprised by
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  Speaker 1: any of these things.
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  Speaker 2: Please do go back.
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  Speaker 1: And listen to some of the podcasts that we have
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  Speaker 1: recently done on energy prices in the UK and how
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  Speaker 1: they work. But the key point here is here is there,
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  Speaker 1: Rachel Fletcher's director of Regulation and Octopus Energy. If we
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  Speaker 1: continue on the path we are on, in all likelihood
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  Speaker 1: electricity prices are going to be twenty percent higher, even
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  Speaker 1: if wholesale prices half.
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  Speaker 2: Now the other.
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  Speaker 1: Representatives from suppliers MEDIFICCCTER who were that agreed with this
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  Speaker 1: because because it's just true that it is not the
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  Speaker 1: wholesale price of energy that is driving up electricity prices
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  Speaker 1: in the UK. And this has now been said very
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  Speaker 1: clearly by industry executives. So the idea that the government
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  Speaker 1: constantly puts out that high electricity prices in the UK
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  Speaker 1: are d a direct result of changes in gas prices
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  Speaker 1: is now being shown very definitively to be not the case,
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  Speaker 1: or certainly not the case according to energy bosses in
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  Speaker 1: the UK. So this is I think a really Christine shift.
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  Speaker 3: Yeah, it's someone's set the part that has been oddly
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  Speaker 3: quiet up until now out loud. I'm guessing it's because
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  Speaker 3: you know, at the end of the day, they're going
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  Speaker 3: to be the ones who are getting pummeled by politicians
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  Speaker 3: when it turns out that they can't meet promises that
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  Speaker 3: politicians made up on their behalf and it has been
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  Speaker 3: made up. I mean, this idea about the three hundred
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  Speaker 3: pound reduction in household bills, I mean, and that has
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  Speaker 3: never been tenable. And it's quite a striking example a
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  Speaker 3: you know, people kind of talk about how Rachel Reeves
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  Speaker 3: can't break the manifesto, pledge and income tax, et cetera.
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  Speaker 3: And then you know, they're allowed to just blatantly make
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  Speaker 3: something up like that, which I find and really not.
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  Speaker 3: I have not been partisan here.
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  Speaker 2: This is just.
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  Speaker 3: Misinformation and blatant, and I suspect it will continue to
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  Speaker 3: be repeated regardless of this, and I suspect we'll get
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  Speaker 3: lots of people in the comments for this particular podcast
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  Speaker 3: shifting the goalposts about you know, oh yeah, but if
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  Speaker 3: we invested X in the grid, it's only because we
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  Speaker 3: haven't done X, Y and Z, which would cost billions
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  Speaker 3: and billions or is going to cost billions and billions
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  Speaker 3: of pounds and get potent of bills. So I mean, yeah,
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  Speaker 3: there are lots of things. We're staying in the factory.
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  Speaker 3: Reality doesn't seem to put a dent in it. But
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  Speaker 3: at least this is coming from the people who actually
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  Speaker 3: now have a good reason to push back on this
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  Speaker 3: because they'll be the ones that take the flag when
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  Speaker 3: it turns out to be exactly as the stated.
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  Speaker 2: One of the things one of them says, is it.
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  Speaker 1: The way you could bring those electricity bills down is
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  Speaker 1: simply to put all those charges that come out of
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  Speaker 1: a variety of different types of regulation and political priority,
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  Speaker 1: to move those charges under the general tax bill and
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  Speaker 1: off electricity building. That would be a clearer way to
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  Speaker 1: do it. But you know, so I have to buy
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  Speaker 1: the money, right, doesn't matter how that works.
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  Speaker 3: Yeah, And I guess from at the moment is that
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  Speaker 3: the Chancellor is already struggling to know how to increase
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  Speaker 3: general taxation without havn't a had all the kind of
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  Speaker 3: indirect costs. So are very doubt that she's going to
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  Speaker 3: go for that unless she's looking for a quick way
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  Speaker 3: to bring down inflation, which you know, I mean, there's
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  Speaker 3: a there's an option there, but I don't know. I
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  Speaker 3: can't see that happen in the master.
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  Speaker 1: But it's interesting, isn't it, And that that suggests moving
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  Speaker 1: it onto the general bill, so then it would become
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  Speaker 1: another thing that came out of your tax revenues, and
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  Speaker 1: we're currently not recognizing that a very large part of
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  Speaker 1: your energy bill is effectively tax. If you were to
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  Speaker 1: look at it like that.
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  Speaker 3: Well, I'd say the other thing that people's sort of
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  Speaker 3: forgetting about the budget is that most of the forecasts
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  Speaker 3: at the moment assume, as they always do every year,
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  Speaker 3: that petrol tax is going to go back up and
• 13:42
  Speaker 3: line with the thing that was promised, you know whatever,
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  Speaker 3: fifteen years ago and has never actually been done. So
• 13:49
  Speaker 3: the assumption at the moment is that Rachel Reeves will
• 13:53
  Speaker 3: get ready they kind of the the tax holiday on
• 13:56
  Speaker 3: that that she soon put in and also increase it.
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  Speaker 3: So be interesting to see how she kind of deals
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  Speaker 3: with that particular issue as well. So you know, I
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  Speaker 3: can't see energy tax kind of going on top of
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  Speaker 3: that because you've alreadea people very angry about increasing increases
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  Speaker 3: in petrol prices. If she does to say that it
• 14:20
  Speaker 3: is taking me one fees the fuel tax, well, I.
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  Speaker 1: Suspect that whatever she chooses in this upcoming budget, there's
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  Speaker 1: going to be quite a lot of angry people either way,
• 14:29
  Speaker 1: and we will be at the forefront of that anger
• 14:31
  Speaker 1: right commenting on it the whole way through. Anyway, at
• 14:36
  Speaker 1: least things are going oh way, which is not necessarily
• 14:39
  Speaker 1: a good way, but they're going our way. Outbreaks of
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  Speaker 1: reality we approve of those. If you see any outbreaks
• 14:43
  Speaker 1: of reality around you, do let us know. Thank you
• 14:51
  Speaker 1: for listening to this week's Marendalk's Money Debrief.
• 14:53
  Speaker 2: You like us, your rate, review and subscribe whatever you
• 14:55
  Speaker 2: listen to podcasts.
• 14:56
  Speaker 1: Also be sure to follow me and John on ex
• 14:58
  Speaker 1: or Twitter. I'm at mariners w and John is John
• 15:01
  Speaker 1: underscoo Stepec.
• 15:03
  Speaker 2: This episode was produced by Somersadi. Sound designed by Blake
• 15:05
  Speaker 2: Mabels and Aaron Casper.
• 15:07
  Speaker 1: Questions and comments on the show and all our shows
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  Speaker 1: are always welcome. Our show emailer is Marimanie at Bloomberg
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