Latest / Merryn Talks Money / Plunging UK Markets, What's Reeves Moment, and the ESG Rollback

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Plunging UK Markets, What's Reeves Moment, and the ESG Rollback · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Merrin
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  Speaker 1: Jokes Money weekly round up debrief on the biggest stories
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  Speaker 1: in markets and economics. I'm Merrin Sum's that web editor
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  Speaker 1: at large for Bloomberg UK Wealth, and.
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  Speaker 2: I'm joined Stepe Money to Stilled newsletter author and senior reporter.
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  Speaker 1: Happy New Year, John.
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  Speaker 2: Did you have a nice Christmas?
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  Speaker 1: Yes?
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  Speaker 2: It was, it was fine.
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  Speaker 1: Thank you.
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  Speaker 2: Did it tell you.
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  Speaker 1: Anything about the coming year?
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  Speaker 2: Actually, weirdly enough, not really. This was one of those
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  Speaker 2: years where I didn't feel there was any real change over.
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  Speaker 2: I mean, obviously it's a useful period of poise and
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  Speaker 2: reflection and all that stuff, but I feel it's just
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  Speaker 2: more more of the same. Yeah, same problems that we
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  Speaker 2: left behind in December are back in January.
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  Speaker 1: Strangely, the same problems, maybe different solutions.
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  Speaker 2: Yes, actually that's true.
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  Speaker 1: That is true, and we will come to that. I'll
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  Speaker 1: tell you what I learned during my holidays that in
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  Speaker 1: future I'm going to fly on British airways as little
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  Speaker 1: as possible, as little as possible, and I'm definitely not
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  Speaker 1: going to long hold on British airways if I can
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  Speaker 1: avoid it. I wrote a bit before before we left
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  Speaker 1: about luxury travel. Do you remember that about the rise
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  Speaker 1: and rise and luxury travel and why it is that
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  Speaker 1: lower income and lower wealth people are traveling in a
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  Speaker 1: much more luxury way and to more interesting bizarre places
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  Speaker 1: in the matter before and we're all like, that's just
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  Speaker 1: the experienced economy. I met someone who runs a travel
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  Speaker 1: company in South Africa who explained it to me, and
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  Speaker 1: he explained it like this, social media has changed the
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  Speaker 1: net press and value of travel.
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  Speaker 2: That's really interesting, isn't it.
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  Speaker 1: So when you travel now, you're not just having the experience,
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  Speaker 1: You're using the experience to give yourself status and conversational
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  Speaker 1: value years into the future.
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  Speaker 2: So it's basically the attention the economy. Yes, that's brilliant.
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  Speaker 2: I said that that is really interesting.
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  Speaker 1: Really interesting. That's what I learned. That's where I lond
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  Speaker 1: and I'm going to pick that up in future because
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  Speaker 1: I've been talking a lot about luxury travel and why
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  Speaker 1: it is that this is happening. And when I was
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  Speaker 1: asked by one of our colleagues at the end of
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  Speaker 1: last year what number we should be watching to tell
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  Speaker 1: us what might be happening coming into this year, I
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  Speaker 1: said we should be watching the number of seats that
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  Speaker 1: are sold at full price in first class cabins, because
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  Speaker 1: luxury travel is an indicator of so many things that
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  Speaker 1: are going on around the world. And this, this, this,
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  Speaker 1: the way this was explained to me makes it even
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  Speaker 1: more interesting. So we're going to watch this very carefully.
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  Speaker 1: What else does social media increase the net present value of.
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  Speaker 2: I think that's a really interesting wea, you'll look at
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  Speaker 2: the world? No, we should. Yeah, they're definitely going to
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  Speaker 2: think more.
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  Speaker 1: About it, absolutely, so keep that in mind. And I
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  Speaker 1: won't tell you who explained it to me like that
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  Speaker 1: because he won't want me do. But it was very interesting.
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  Speaker 1: He says some other interesting things too. Anyway, moving on
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  Speaker 1: from that, we have to talk about guilty yeller, don't
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  Speaker 1: we yeah, trus Yeah, we do. We do.
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  Speaker 2: Started year and the guilt yields have now, particularly long
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  Speaker 2: term guilt yields have rocketed to rock. Yeah, rocketed is
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  Speaker 2: probably fair, to the point where they're now at the
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  Speaker 2: high thirty years yields are the highest they've been since
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  Speaker 2: the late n eighteen nineties. You know. So Tony Blair
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  Speaker 2: was the Prime minister at this point. Happy day, happy days, No,
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  Speaker 2: not really that's a joke. And the tenure, the tenure
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  Speaker 2: is now sitting at like four point eight percent this morning,
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  Speaker 2: and that's like well up from you know whatever it
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  Speaker 2: was kind of like six months ago. And basically it's
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  Speaker 2: not it isn't just the UK. This is so kind
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  Speaker 2: of a response to yields in the US going up.
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  Speaker 2: And actually there was a chap in Bloomberg TV yesterday
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  Speaker 2: Tossed and Slock from Apollo Advisors, a Polo Global Management,
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  Speaker 2: and he was saying that the US is potentially facing
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  Speaker 2: the Liz Trust moment because of the kind of volatility.
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  Speaker 1: Is actually it is global recognition exactly.
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  Speaker 2: I was just saying, she's nice to supplant Leman Brothers.
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  Speaker 2: As they kind of go to metaphor for carnage. We
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  Speaker 2: used to say a Leman Brothers moment is coming, and
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  Speaker 2: it's a Liz Trust moment. I mean, I feel that,
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  Speaker 2: as you say, kind of like posterity. The one problem
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  Speaker 2: is that if it carries on like this in the UK,
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  Speaker 2: she might be supplanted by Rachel Reeves quite quite rapidly
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  Speaker 2: as moment a reaction, Yes, a Reves reaction, that'd be
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  Speaker 2: quite good. Also, Liz was a lettuce. Rachel could be
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  Speaker 2: romaine or maybe a rocket quickly rock it rocket? Yeah,
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  Speaker 2: you know this salad?
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  Speaker 1: Do you rock something that lasted a bit longer than
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  Speaker 1: the lettuce? Because she's been around any longer than the letters? Yeah, ye,
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  Speaker 1: a long time in the bridge.
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  Speaker 2: Yeah, I mean the promise. It just doesn't have the alliteration,
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  Speaker 2: does it anyway? Anyway, Yes, that's a good point. I
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  Speaker 2: don't know my salad cell by day, which we explain
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  Speaker 2: it domestics.
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  Speaker 1: About this anyway, moving on, moving on, this means quite
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  Speaker 1: a lot of not very good things, die. I mean,
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  Speaker 1: the first thing we should say, actually is that, you know,
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  Speaker 1: we've been saying for a while, interest rates are not
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  Speaker 1: going back to where they were. Prepare for her interest
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  Speaker 1: rates indefinitely. We're back to four percent plus. We're not
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  Speaker 1: going below. And you need to organize your life around that.
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  Speaker 1: And that impacts for everything from your mortgage rate to
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  Speaker 1: your investment, to the way equity markets will move, etc.
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  Speaker 1: But for Rachel Reeves. So I guess we might as
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  Speaker 1: well move straight on to calling poor Rachel. It takes
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  Speaker 1: away all her physical head room plus a bit makes
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  Speaker 1: things look quite nasty. Means it's going to be more
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  Speaker 1: borrowing ahead. Means it's going to be more spending cuts ahead,
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  Speaker 1: and we will come to this in later podcast. Means yes,
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  Speaker 1: you guessed that your taxes are definitely going up a
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  Speaker 1: little more or maybe a lot more.
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  Speaker 2: I mean she has kind of trapped or because she
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  Speaker 2: said that she wasn't going to break the fiscal rule
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  Speaker 2: that that was you know, I read lane and she
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  Speaker 2: also said she wasn't going to have these taxes, and
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  Speaker 2: she at this point she can't do both. So I mean,
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  Speaker 2: what harms end up doing neither? And we can you know,
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  Speaker 2: talk about what tax rises might be coming in spring
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  Speaker 2: if this says indeed the case. It is that issue
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  Speaker 2: of I think the biggest risk in twenty twenty five
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  Speaker 2: and generally, and it doesn't it's not just the UK.
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  Speaker 2: Is that to an extent, I feel that markets have
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  Speaker 2: been kind of kidding themselves on a bit over the
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  Speaker 2: last two years and still not accepting that this is
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  Speaker 2: the new normal. And I think that twenty twenty five
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  Speaker 2: is the year that we're going to see that actually
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  Speaker 2: in bed in the consciousness. And that's the reason why
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  Speaker 2: I suspect that this is the year that we'll see
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  Speaker 2: minimum ten percent correction in US markets, but honestly, my
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  Speaker 2: gut feeling is it'll probably be more like a bird market.
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  Speaker 1: It's just hard to see with American valuations at this level.
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  Speaker 1: And by the way, listen to Friday's podcast on this
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  Speaker 1: because I've got a great guess and we're going to
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  Speaker 1: talk about valuations a lot. But with valuations at this
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  Speaker 1: level and yields rising at the speed, it's very hard
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  Speaker 1: to see how the most expensive in the US can
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  Speaker 1: carry on like this. It's very hard to see how,
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  Speaker 1: for example, private equity can carry on with evaluations they
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  Speaker 1: have at the moment, etcetera. There's a lot that feels
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  Speaker 1: like it it should change as yields stick at these
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  Speaker 1: levels and are currently still rising.
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  Speaker 2: Right, Yeah, absolutely. I mean the other interesting private equity
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  Speaker 2: specifically is I kind of want on if they will
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  Speaker 2: crum a pipeline IPOs And actually I suppose the other
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  Speaker 2: interesting thing in that front is maybe you don't care
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  Speaker 2: where you lest it, if you just want to get
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  Speaker 2: it off your books.
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  Speaker 1: At some point you've got to get it off. And
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  Speaker 1: when those things aren't coming to IPO, then then we
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  Speaker 1: will find out whether the valuations which they were on
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  Speaker 1: private equity books were correct or not, And then we'll
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  Speaker 1: find out what happens when you buy a company, jam
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  Speaker 1: it full of debt, rip out the dividends, and then
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  Speaker 1: try and flog it onto that So then greater ful
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  Speaker 1: we'll see what actually happens. Then too, down on private equity,
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  Speaker 1: maybe we'll come back to that, But listen Toohn. The
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  Speaker 1: other thing that we've talked about over the years is
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  Speaker 1: how an awful lot of the things that we've seen
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  Speaker 1: round us, ESG, DEI, et cetera, our luxury goods, luxury
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  Speaker 1: goods from a very low interest time. And we're beginning
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  Speaker 1: to see changes in that area as well. There's a
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  Speaker 1: lot of backing off from DEI. There's a lot of
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  Speaker 1: backing off from ESG. And interestingly we saw this week
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  Speaker 1: JP Morgan being one of the latest banks to leave
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  Speaker 1: the net zero banking Alliance. And I remember when I
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  Speaker 1: wrote that Bookshare Power a couple of years ago, they
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  Speaker 1: listed all the organizations that the big fund management companies
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  Speaker 1: had signed themselves up to, you know, hams ringing them
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  Speaker 1: and locking themselves in so that there were limited actions
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  Speaker 1: that they could take outside their membership to all these
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  Speaker 1: these groups. And this is one of those climate groups
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  Speaker 1: that was on that list, and now they've basically all
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  Speaker 1: left it, right, Bank of Americans left it, Wells Fargo's
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  Speaker 1: City Group, Gold and Sex, they all left this group.
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  Speaker 1: So there's there's a big rolling back from ESG. And
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  Speaker 1: then of course also the interest was Metters moved yesterday
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  Speaker 1: to say that they're getting rid of their politically biased
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  Speaker 1: store I'm using Mark Zuckerberd's word here, politically biased fact checkers. Yeah.
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  Speaker 2: I mean, I think that's truly interesting because it feels
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  Speaker 2: like I'm actually I'm saying earlier that it's almost like
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  Speaker 2: a rollback of overly pushy compliance culture. So you've got
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  Speaker 2: all of these companies that if essentially voluntarily, as you say,
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  Speaker 2: sort of hamstrung themselves by you know, bringing in things
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  Speaker 2: like kind of apparently independent fact checkers, by signing themselves
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  Speaker 2: up for again voluntary disinvestment organizations. And now that's starting
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  Speaker 2: to get wound back, and I'm quite interested to see
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  Speaker 2: whether that actually becomes part of a bigger pushback against
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  Speaker 2: the box ticking culture that we've had in place. I mean,
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  Speaker 2: actually for even before two thousand and eight, but certainly
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  Speaker 2: after two thousand and eight. The compliance team became the
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  Speaker 2: most important person in the Financial Services office, and to
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  Speaker 2: an extent, that metastasized everywhere to the point where HRB
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  Speaker 2: was the most important function. And I like to think
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  Speaker 2: that a higher interest rate environment is going to start
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  Speaker 2: exactly make people focus on what's actually what.
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  Speaker 1: My And it's interesting. And I wrote in one of
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  Speaker 1: my newsletters before Christmas about this rollback from ESG and
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  Speaker 1: how even if funds aren't ESG funds these days, because
• 10:13
  Speaker 1: because the ESG Department has such power in so many
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  Speaker 1: fund management companies, everyone's in ESG fund and so you know,
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  Speaker 1: it'll be interesting to see how that rollback happens. With
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  Speaker 1: that in mind, I'm talking about the end of the
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  Speaker 1: era of financial and social and hr litery product. There's
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  Speaker 1: a report that I just got out today from BCA researcher.
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  Speaker 1: We both look at quite a lot, don't we like
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  Speaker 1: b B and that the reporter title climate change and Stocks.
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  Speaker 1: Some like it hot And the basic message is that
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  Speaker 1: mankind today is convinced that global woman bad for economic
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  Speaker 1: growth of corporate earnings and for humanity at large. And
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  Speaker 1: they say, well, you know, maybe it's not a positive
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  Speaker 1: for humanity in the very long run. But in fact,
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  Speaker 1: global growth and corporate earnings will not be affected inside
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  Speaker 1: most investors timelines in any way whatsoever. So the message
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  Speaker 1: er BCA, do let me know if I'm misrepresenting you here,
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  Speaker 1: But as far as I can see, what you're saying
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  Speaker 1: is ignore climate change when it comes to investing, and
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  Speaker 1: do not let climate change considerations force you to make
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  Speaker 1: any changes whatsoever to the weight of equities inside your
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  Speaker 1: strategic acid allocation because it doesn't make any difference.
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  Speaker 2: That's kind of obvious. I mean, it's not even I
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  Speaker 2: don't think that should even be a controversial thing to say.
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  Speaker 2: Oh no, I'm sure it is, But I mean the
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  Speaker 2: fact that they're saying it now also kind of points
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  Speaker 2: to what we were just talking about, you know, the
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  Speaker 2: feeling able to say these things which lots of his
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  Speaker 2: viewers common says, but which were somewhat stifled during the
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  Speaker 2: period we are you know, to say that was deemed
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  Speaker 2: as akin to saying we should say all the forests
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  Speaker 2: on fire. You know, it's these two very different things,
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  Speaker 2: and the reality is that, yeah, the most people's time horizon,
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  Speaker 2: it's not going to affect it. I mean, obviously does
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  Speaker 2: the whole energy sector is a definite matup because we've
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  Speaker 2: got policies that would actually you know, damage and ability
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  Speaker 2: to have cheaper energy. But again, hopefully that will start
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  Speaker 2: to get rolled by.
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  Speaker 1: Yes, we're talking again on yet another day John, where
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  Speaker 1: there's very little wind. Yeah, and the risk of blackouts
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  Speaker 1: in the UK is higher than it normally so and I.
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  Speaker 2: Don't know, I don't want to go back to the
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  Speaker 2: nineteen seventies.
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  Speaker 1: Oh, come on, you liked sitting around with candles, tell
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  Speaker 1: us stories of wondering if it come back on time
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  Speaker 1: to have a ball.
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  Speaker 2: The next day it was only five. I couldn't hold
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  Speaker 2: a candle, right.
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  Speaker 1: I think we're going to leave that there. I'm going
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  Speaker 1: to write more about this in the news letter at
• 12:40
  Speaker 1: the end of the week, so everyone sign up for
• 12:42
  Speaker 1: that and you can you can read all about it.
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  Speaker 1: Thanks for listening to this week's Mary and Drugs Money Debrief.
• 12:54
  Speaker 1: If you like us show, rate, review, and subscribe wherever
• 12:56
  Speaker 1: you listen to podcasts. Also, as you would, follow me
• 12:58
  Speaker 1: in John on ex or Twitter at marinas w and
• 13:01
  Speaker 1: John Underscore Stepic. This episode was produced by Samasadi, Production
• 13:05
  Speaker 1: support and sound design by Moses and Questions and comments
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  Speaker 1: on this show and all our shows are always welcome.
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  Speaker 1: Our show email is merin Money at Bloomberg dot net