Latest / Merryn Talks Money / Trump's Tariff Threats and Central Banks, Gold's Surge, and US Equities

Transcript

Trump's Tariff Threats and Central Banks, Gold's Surge, and US Equities · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news, stage cough shakespare.
• 0:14
  Speaker 2: Just a few vocal warm ups. Welcome to the Merton
• 0:22
  Speaker 2: Talks Money weekly round up debrief for one of the
• 0:24
  Speaker 2: biggest stories in markets and economics. I'm joined Steppeck, senior
• 0:28
  Speaker 2: reporter and author of the Money Distilled newsletter. This week
• 0:31
  Speaker 2: I'm standing in for Merrin. Well, she's off in Dubai.
• 0:35
  Speaker 2: I no, she's not on holiday. In fact, she's recording
• 0:38
  Speaker 2: some very interesting conversations for the show, mostly with people
• 0:41
  Speaker 2: who've fled Britain for tax reasons. I'm only joking, but
• 0:44
  Speaker 2: maybe she is, which we will bring you in the
• 0:46
  Speaker 2: next few weeks. So with me instead of Merton is
• 0:49
  Speaker 2: our usual backup. Mister Marcus Ashworth, Welcome back. Mark is
• 0:54
  Speaker 2: good to be in the show again.
• 0:55
  Speaker 1: It's a pleasure to be here.
• 0:57
  Speaker 2: Yes, this week. This week, this week we had a
• 1:00
  Speaker 2: we had a trade war that lasted for a remarkably
• 1:03
  Speaker 2: short period of time.
• 1:04
  Speaker 1: Yeah, it lasted all of what twenty four hours, which
• 1:06
  Speaker 1: was a shame because as columnists, you know, we we
• 1:09
  Speaker 1: always queue up. We've got about fifteen stories, you know,
• 1:11
  Speaker 1: My god, what's going to happen to Malaysia with every
• 1:15
  Speaker 1: thing on the planet. But I managed to get one
• 1:17
  Speaker 1: in on Europe and that was that It's done.
• 1:19
  Speaker 2: So I know, I was hoping that you can have
• 1:22
  Speaker 2: my money distilled for the week out of this, but yes,
• 1:24
  Speaker 2: it was it was rather short left.
• 1:27
  Speaker 1: List.
• 1:28
  Speaker 2: What is this? Where does this remains your.
• 1:29
  Speaker 1: It's ropid, dope. It's like watching Muhammad Ali and you
• 1:32
  Speaker 1: know this is this is it will come and or
• 1:35
  Speaker 1: go or go hot or go cold, because this is
• 1:37
  Speaker 1: exactly what you know he controls the world with You
• 1:40
  Speaker 1: could admire it, if that's not the right you know,
• 1:44
  Speaker 1: to encourage him. But the point is that he's able
• 1:46
  Speaker 1: to turn it on turn it off. He's got quick
• 1:49
  Speaker 1: wins with Canada and Mexico. That's definitely not the end
• 1:51
  Speaker 1: of it. There will be more, even when they we
• 1:54
  Speaker 1: weaken or something changes and he wants something else. But
• 1:58
  Speaker 1: this is to my mind, all of this is masking
• 2:01
  Speaker 1: the control game, which is really divide and rule. Get
• 2:05
  Speaker 1: as much of the West behind him. That means Europe,
• 2:08
  Speaker 1: that means you know, obviously Canada, Mexico, et cetera. And
• 2:11
  Speaker 1: the end game is China. And so they're starting off
• 2:13
  Speaker 1: with ten percent, which is you know, and we saw
• 2:15
  Speaker 1: the response from President she which is ten percent on
• 2:19
  Speaker 1: US oil and gas and autos, which self respecting Chinese
• 2:22
  Speaker 1: person buys some American and indeed, you know, yes, well
• 2:26
  Speaker 1: it's done deliberately. I think this is pre planned, pre
• 2:28
  Speaker 1: organized with or with Chi. So I think there is
• 2:32
  Speaker 1: a bigger endgame here which will take some months and
• 2:35
  Speaker 1: possible years to play out.
• 2:37
  Speaker 2: But what is the end game in that case?
• 2:39
  Speaker 1: This is this is the whole you know, US versus China,
• 2:42
  Speaker 1: the two great hegemons and battling it out, and whether
• 2:45
  Speaker 1: it comes down to you know, Taiwan or whatever it
• 2:49
  Speaker 1: may be, this is the big, the big extensional battle.
• 2:51
  Speaker 1: And I think this is what Trump wants to do,
• 2:53
  Speaker 1: is to try and you know, he's got a number
• 2:55
  Speaker 1: of different agendas all running at the same time. It's
• 2:58
  Speaker 1: hard to keep up. But we saw him play a
• 3:01
  Speaker 1: very interesting card with Gaza. I think clearly Ukraine is
• 3:07
  Speaker 1: coming next, and then he'll turn around to Europe and
• 3:10
  Speaker 1: on the defense side, and I think that's something which
• 3:12
  Speaker 1: he wants to see someone will win Ukraine Russia wise,
• 3:16
  Speaker 1: in the sense of some enter the war certainly progress
• 3:19
  Speaker 1: towards it to the war and then he'll focus in
• 3:22
  Speaker 1: very much on Europe, firstly on defense, was is their
• 3:25
  Speaker 1: weakest link, and then from that he'll extract whatever else
• 3:28
  Speaker 1: it may be. And it could be as simple as
• 3:30
  Speaker 1: buying US banging things or LNG. You know, this is
• 3:35
  Speaker 1: the whole problem with the energy. It makes a lot
• 3:38
  Speaker 1: more sense to sell US gas into Europe, but long
• 3:42
  Speaker 1: term contracts of how the US have always played it,
• 3:44
  Speaker 1: Europe doesn't want to play that game. What it really
• 3:46
  Speaker 1: wants is to get nord Stream one and two back
• 3:49
  Speaker 1: up again. Nor Dream two could be set up within months,
• 3:53
  Speaker 1: and that's clearly where Germany is angling. And I think
• 3:56
  Speaker 1: he sees that lad and clear, and I think if
• 3:58
  Speaker 1: Europe are religion with him and literally try and go
• 4:02
  Speaker 1: straight back to the old game of getting cheap rushing gas,
• 4:05
  Speaker 1: you can see why they would want to do it.
• 4:06
  Speaker 1: But I don't think you'll let that happen. So there's
• 4:09
  Speaker 1: a battle to be fought with Europe. But as I said,
• 4:11
  Speaker 1: it's that's just a means to an end that the
• 4:13
  Speaker 1: end game is very much I think, to having some
• 4:16
  Speaker 1: form of either deal with China or very clearly the
• 4:19
  Speaker 1: world more united around Trump's it's against what they see
• 4:24
  Speaker 1: as the much bigger problem, which is China's influence everywhere.
• 4:28
  Speaker 2: And in terms of going back to what all this
• 4:30
  Speaker 2: actually means for the investors, I mean about the only
• 4:34
  Speaker 2: thing that seems obviously me since they started this year,
• 4:38
  Speaker 2: and I would throw a deep seak unt of this
• 4:39
  Speaker 2: as well. It's the fact that the US has kind
• 4:43
  Speaker 2: of been praised for perfection for a long time, and
• 4:47
  Speaker 2: it feels as if some of this volatility might you know,
• 4:52
  Speaker 2: spark at maybe I catch up trade, maybe the rest
• 4:55
  Speaker 2: of the world starts to do well finally, or is
• 4:57
  Speaker 2: it's just wishful thinking.
• 4:59
  Speaker 1: It's which thinking, And I think that's the basic point here,
• 5:02
  Speaker 1: is that the reason why the US is doing continuously
• 5:05
  Speaker 1: so well as it has genuine profitability. And you can
• 5:07
  Speaker 1: call because some of that possibly greedflation in the sense
• 5:11
  Speaker 1: of corporate margins are being increased and using high inflation
• 5:14
  Speaker 1: of various other different ways. But leaving that aside, you know,
• 5:17
  Speaker 1: the reason why the magnifsm seven are magnificence is because
• 5:20
  Speaker 1: the level of profitability from their monopolistic practices. Maybe, but
• 5:24
  Speaker 1: you know, they really have got strong profit grade and
• 5:28
  Speaker 1: foreseeable which is a different order of magnitude and anything
• 5:32
  Speaker 1: else in Europe really should we say Japan has yet
• 5:35
  Speaker 1: to really kick in its whole reform. That's a play
• 5:38
  Speaker 1: which is slightly separate, but but regards to you know,
• 5:41
  Speaker 1: the best shirt by far, it's it's still the US,
• 5:44
  Speaker 1: and that's why moneys keep on flowing into passive funds.
• 5:47
  Speaker 1: It's it's hard to break that cycle. It needs a
• 5:50
  Speaker 1: very big catalyst that may well come from trade walls
• 5:53
  Speaker 1: if they were to get out of hand. Because what
• 5:55
  Speaker 1: you do with with tarras's it's it's short term inflationary,
• 5:58
  Speaker 1: but it can be very great both destructive, and then
• 6:02
  Speaker 1: what happens You get a sort of squeeze on people
• 6:05
  Speaker 1: need more dollars because prices are going up essentially of tariffs,
• 6:09
  Speaker 1: and then you get the causation of the The cure
• 6:13
  Speaker 1: for a higher dollar is a higher dollar in the
• 6:14
  Speaker 1: sense is that you then get into a demand shock.
• 6:16
  Speaker 1: So a supply lack of dollars can turn into a
• 6:20
  Speaker 1: demand shock. Also to the downside, it carries on squeezes
• 6:24
  Speaker 1: to too much, which you've already had very painful last
• 6:28
  Speaker 1: few quarters. So I'm not saying there is a chance
• 6:31
  Speaker 1: for recovery in Europe and the UK particularly, but it's
• 6:34
  Speaker 1: it's going to be hard still to break the king
• 6:38
  Speaker 1: dollar trade, and that's we're seeing that in price of
• 6:42
  Speaker 1: commodities like gold certainly. So I mean a lot of
• 6:44
  Speaker 1: this is following through it in the moment Trump so far.
• 6:47
  Speaker 1: You can see it the way bond yells are being
• 6:50
  Speaker 1: very well actually after a very difficult time. Clearly people
• 6:54
  Speaker 1: are putting money to work in US troasuries and to
• 6:57
  Speaker 1: certainly send guilts and vers things like that. Which is
• 7:00
  Speaker 1: post Trump is that everyone's weighted until the inauguration. He
• 7:03
  Speaker 1: hasn't done anything too crazy. That tariff sort of wobble aside,
• 7:09
  Speaker 1: and that means that people will probably put a trade
• 7:13
  Speaker 1: on which is a safety trade, which is by bonds
• 7:17
  Speaker 1: more and equities will be less attractive. But still most
• 7:21
  Speaker 1: people have got their bets on sticking with those bets.
• 7:23
  Speaker 1: And until that changes, I think, you know, the stronger dollar,
• 7:26
  Speaker 1: the pretty robust US dock market, without necessarily gaining to
• 7:30
  Speaker 1: great new highs, will remain, and possibly some of the
• 7:34
  Speaker 1: scares over bonds will ebb and flow and reduce a
• 7:40
  Speaker 1: little bit as the Fed sees that US growth is
• 7:43
  Speaker 1: taping off a bit that's less Timner's coming through. Now
• 7:46
  Speaker 1: Biden's among the withers in that sense, and that means
• 7:48
  Speaker 1: that probably bonds will have a more comfortable year. But
• 7:51
  Speaker 1: still it's not a massive shift away from equities into bonds.
• 7:54
  Speaker 2: Just on that point, because I mean, one of the
• 7:57
  Speaker 2: few bets the good news, maybe the one very good news,
• 8:00
  Speaker 2: the Rachel Reeves has hide for a whale as the
• 8:04
  Speaker 2: UK gilts are kind of coming back quite significantly. Yields
• 8:09
  Speaker 2: are down sharply, and presumably that's just all part of
• 8:12
  Speaker 2: this global move, isn't it.
• 8:14
  Speaker 1: It is I think I think guilts have been a
• 8:17
  Speaker 1: real proxy for the major trade, which is, you know,
• 8:20
  Speaker 1: shorting US Treasury is worrying about deficits, and in the
• 8:23
  Speaker 1: fears of Trump et cetera, I think Trump's going to
• 8:25
  Speaker 1: be quite careful on the deficit. And that's certainly I
• 8:30
  Speaker 1: think the Biden era was he was more successful than
• 8:34
  Speaker 1: perhaps he should have been getting stimulus through, and we're
• 8:36
  Speaker 1: going to have a bit of a you know, a
• 8:39
  Speaker 1: down down draft of a stimlus wears off. I don't
• 8:42
  Speaker 1: think tax cut bill aside, which he seems to be
• 8:47
  Speaker 1: pushing towards the back of his agenda at the moment,
• 8:48
  Speaker 1: but he will get around to it, I think in
• 8:50
  Speaker 1: the next quarter for Trump. But they know there may
• 8:53
  Speaker 1: well be some good news on deficits. I think hedge
• 8:56
  Speaker 1: funds have been particularly playing the short bond trade and
• 9:01
  Speaker 1: that's been clearly semi unwound. I think long money, as
• 9:05
  Speaker 1: I said, is starting money to work in US treasuries
• 9:10
  Speaker 1: after waiting for the inauguration, but that trade has been
• 9:13
  Speaker 1: definitely you know, hedge funds have been I think borrowing
• 9:16
  Speaker 1: too much for the Bank of England, the repo facilities,
• 9:19
  Speaker 1: and they have been playing the short UK trade very
• 9:22
  Speaker 1: very aggressively, and I think therefore the short squeeze perhaps
• 9:25
  Speaker 1: it's going to clearly is playing out more in UK.
• 9:30
  Speaker 1: Guilt's doing better, and it's a possibility of the trend
• 9:32
  Speaker 1: may have broken between guilt yields and US yields. It's
• 9:35
  Speaker 1: wanted to keep an eye on. Is that Clearly guilts,
• 9:38
  Speaker 1: as I said, have been a you know, literally on
• 9:40
  Speaker 1: the naughty step for too long. And if anything, and
• 9:43
  Speaker 1: the bonds continue to do better and yields fall, I
• 9:46
  Speaker 1: think you should logically see as a high beat of
• 9:48
  Speaker 1: trade that as shorts get taken off, that guilts do better.
• 9:51
  Speaker 2: Yeah, And I mean obviously in the longerne that it's
• 9:54
  Speaker 2: also came of good news for the example of the
• 9:57
  Speaker 2: UK hosen market because the swaps where it's go back down.
• 10:02
  Speaker 1: It's too it's too marginal. And I think there's some
• 10:05
  Speaker 1: wider issues with higher taxes and a few other things
• 10:07
  Speaker 1: coming through. I think, well, we'll keep a lid on
• 10:10
  Speaker 1: on UK house price. I don't think it's gonna be
• 10:12
  Speaker 1: much love for the Bank of England sufficiently quick enough.
• 10:14
  Speaker 1: I think they will cut more over the course of
• 10:17
  Speaker 1: this year, and I think ill yours will will steadily
• 10:19
  Speaker 1: go down. But I think it's going to be a
• 10:20
  Speaker 1: modest effect rather than necessarily anything supercharged. But I mean,
• 10:25
  Speaker 1: you know, there's definitely you know, Reeves has an interesting
• 10:29
  Speaker 1: February because they calculate it, you know, for now on
• 10:34
  Speaker 1: after the banking and meeting. This next two weeks is
• 10:38
  Speaker 1: when they calculate the OBR, the sort of where guilt
• 10:41
  Speaker 1: yields are, and they use that number in March twenty six,
• 10:44
  Speaker 1: and that will determine how much he's breached her headroom
• 10:47
  Speaker 1: and what happens from that. We will see Mark twenty six.
• 10:50
  Speaker 1: So we've got some you know, interesting times ahead, but
• 10:52
  Speaker 1: Banking is getting it out of her way. But it's
• 10:55
  Speaker 1: just too like all our growth plans, they're all too
• 10:58
  Speaker 1: slow and not have to necessarily make unfortunately, you know,
• 11:02
  Speaker 1: the spending cuts and possibility tax measures coming in most
• 11:06
  Speaker 1: twenty six.
• 11:07
  Speaker 2: I'm curious here because obviously I've had a lot of
• 11:09
  Speaker 2: different views. Do you think that she well decide to
• 11:14
  Speaker 2: do more tax aakes for spending cuts in March because
• 11:17
  Speaker 2: obviously that's going that's politically, that's going to be really difficult.
• 11:23
  Speaker 1: Yeah. I mean, the thing is is that Starman and
• 11:25
  Speaker 1: Reeves are literally making enemies of whole sets of different
• 11:28
  Speaker 1: sets of people, and they're quite careful. They might be
• 11:30
  Speaker 1: doing the same for their own backbench, but they're the
• 11:33
  Speaker 1: easiest ones to you. With such a massive majority, they
• 11:36
  Speaker 1: can and so far very very tightly controlled ranks of backbenches,
• 11:42
  Speaker 1: unlike the Tories and the previous governments. So uh in
• 11:46
  Speaker 1: that sense, I think welfare spending cuts, particularly on disability,
• 11:51
  Speaker 1: but it is the most obvious in year, you know,
• 11:55
  Speaker 1: definite reducing measures she can do, which is cut government
• 11:57
  Speaker 1: spending and welfare spending is the same, the easiest politically,
• 12:01
  Speaker 1: but it's the simplest and quickest ones you could probably do.
• 12:05
  Speaker 1: Will there be further tax rises, absolutely, but I think
• 12:08
  Speaker 1: that will probably wait until October November budget, which will
• 12:13
  Speaker 1: be pretty unpleasant, I suspect for the average person.
• 12:19
  Speaker 2: Yeah, yeah, that's what I'm thinking. Oh great, okay, just
• 12:22
  Speaker 2: what I think just before before we go, can't ignore
• 12:26
  Speaker 2: one of the show's favorite topics, which is the gold place,
• 12:29
  Speaker 2: which is hit. I steally really quite aggressively hit I
• 12:34
  Speaker 2: new hi this week. I mean, I'm just looking at
• 12:36
  Speaker 2: the Bloomberg termine here on this up over tundred and
• 12:39
  Speaker 2: seventy doors and they only just breached two eight hundreds
• 12:43
  Speaker 2: for the first time a couple of days ago. Are
• 12:45
  Speaker 2: you any theories on this one?
• 12:48
  Speaker 1: Yeah, I've been thinking of the World Girl counsel on it.
• 12:50
  Speaker 1: But you to report this week, and you know, in
• 12:54
  Speaker 1: essence it's central bank buying again in December, and that
• 12:58
  Speaker 1: the big es central bank will be China done that
• 13:02
  Speaker 1: for certain, but it's more than likely it's the biggest
• 13:05
  Speaker 1: bar continues to be the biggest bar, and that is
• 13:08
  Speaker 1: that is the Chinese by by retail or indeed official buying.
• 13:13
  Speaker 1: So yeah, I mean, it's an ongoing trend and it
• 13:16
  Speaker 1: doesn't seem like it's stopping. You know, you could argue
• 13:19
  Speaker 1: world sort of disruption and trade fears and all the
• 13:22
  Speaker 1: rest of the taro stuff, which may may prove ultimately
• 13:24
  Speaker 1: to be less fierce and than someone worried about. But
• 13:28
  Speaker 1: it's not going away. And goal seems to have clearly
• 13:34
  Speaker 1: a momentum, and I think three thousand is evidently going
• 13:37
  Speaker 1: to go at some point, and there's no reason why
• 13:39
  Speaker 1: necessarily wouldn't carry on. So you know, the trend is
• 13:43
  Speaker 1: your friend at the moment until some thing changes. The
• 13:46
  Speaker 1: world alsoppen comes a calmer, quite a more beautiful place.
• 13:49
  Speaker 1: No evidence that's going to be done. And gold I
• 13:53
  Speaker 1: have no real understanding why it's carry on going why
• 13:55
  Speaker 1: they continue to buy at the highest levels ever. But
• 13:58
  Speaker 1: you know, if any in the world worries about something,
• 14:02
  Speaker 1: and it only requires one constituency to be requiring safety,
• 14:06
  Speaker 1: security and a sort of ready day fund or outside
• 14:09
  Speaker 1: of their own country, then that's why gold goes up
• 14:12
  Speaker 1: and everything. That's what's happening.
• 14:13
  Speaker 2: I mean, one of the theories of it, I think
• 14:16
  Speaker 2: Charlie Morris over the artist Polkse has written but this
• 14:19
  Speaker 2: a bit is the kind of theory because the correalation
• 14:23
  Speaker 2: between gold and coins and interest rates is basically broken.
• 14:28
  Speaker 2: And part of that may be that people are starting
• 14:33
  Speaker 2: to worry a bit about suffering credit risk.
• 14:36
  Speaker 1: I don't really buy that story, but I mean, I
• 14:39
  Speaker 1: think it's more that you know, for instance, China has
• 14:42
  Speaker 1: worries about its dollar exposure and induce its own currency
• 14:46
  Speaker 1: and maybe is transferring assets. There is some chat that
• 14:49
  Speaker 1: the insurance companies in China can indeed start now allowed
• 14:54
  Speaker 1: to put gold on the balance sheets, and that's a
• 14:56
  Speaker 1: new constituency of buyers. Whether that's why they would want
• 15:00
  Speaker 1: to do it. The all time highs on me, but
• 15:03
  Speaker 1: there you go. Maybe there's there's a bit of an
• 15:04
  Speaker 1: asset allocation shifts going there. And indeed it's just you know,
• 15:08
  Speaker 1: retail demand behind it. As I said, if you know,
• 15:11
  Speaker 1: if you're worried about loss of capital or return of capital,
• 15:15
  Speaker 1: then you would buy. You don't care so much to
• 15:17
  Speaker 1: a turn on it. You just want to make sure
• 15:19
  Speaker 1: you've got something. And if the property game is not
• 15:22
  Speaker 1: the way to go, then gold is the is the
• 15:24
  Speaker 1: obvious alternative. So, as I say, it's just quite some
• 15:27
  Speaker 1: one part of the world wealth is at risk and
• 15:31
  Speaker 1: it can get into gold, and it will do. And
• 15:33
  Speaker 1: that's in the history you know, of the world, isn't
• 15:35
  Speaker 1: it so? And bitcoin, for what a reason is you know,
• 15:38
  Speaker 1: isn't quite as extractive at the moment that it was,
• 15:40
  Speaker 1: But that will change next week probably, the honest anser,
• 15:44
  Speaker 1: I don't know, and I don't think anyone else does,
• 15:47
  Speaker 1: and I don't think any correlation with bonds or anything
• 15:49
  Speaker 1: else bitcoin you name it, with gold makes any sense
• 15:52
  Speaker 1: at all.
• 15:52
  Speaker 2: So so long story short, just stick with the momentum trade.
• 15:56
  Speaker 1: If you own gold, there's no reason to sell it.
• 15:59
  Speaker 1: As I've managed to miss out on the last thousand dollars,
• 16:02
  Speaker 1: I will continue not to buy it.
• 16:04
  Speaker 2: So it's always a good strategy, right. Well, look, thanks
• 16:09
  Speaker 2: very much, Marcus. I really appreciate your time as always,
• 16:13
  Speaker 2: and I'm sure we'll get you on next time. Marn's
• 16:16
  Speaker 2: get setting around global tax savings.
• 16:19
  Speaker 1: My pleasure.
• 16:26
  Speaker 2: Thanks for listening to this week's Merton Talks Money dpri
• 16:29
  Speaker 2: If you like our show, rate review and subscribe wherever
• 16:31
  Speaker 2: you listen to podcasts. This episode is produced by Summer,
• 16:34
  Speaker 2: Sadie and Moses and am sound designed by Maples and
• 16:38
  Speaker 2: special thanks to Marcus Ashwaff and As always, questions and
• 16:41
  Speaker 2: comments on this show and all our shows are very welcome.
• 16:44
  Speaker 2: The show email is Merion Money at Bloomberg dot net.
• 16:48
  Speaker 2: Thanks