Latest / Merryn Talks Money / Burnham’s Bond Gamble, Gavekal’s Turkish Play, and Gold’s Crowded Hedge

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Burnham’s Bond Gamble, Gavekal’s Turkish Play, and Gold’s Crowded Hedge · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
• 0:19
  Speaker 1: Talks Money and News round Up, where we talk about
• 0:21
  Speaker 1: the biggest moves in markets this week and what's driving them.
• 0:24
  Speaker 1: I'm Marren zumzet Webb, Senior editor at Bloomberg UK.
• 0:27
  Speaker 2: Wealth, and I'm Joined Stavik, senior reporter and not that
• 0:29
  Speaker 2: of the I need distilled news later.
• 0:32
  Speaker 3: You missed out award winning.
• 0:33
  Speaker 2: Oh yeah, I'll opt read it next week.
• 0:37
  Speaker 1: That's all right, okay, Just I want to be absolutely
• 0:39
  Speaker 1: sure you get all the credit I know you want
• 0:42
  Speaker 1: every week.
• 0:43
  Speaker 2: I ceve it, I know.
• 0:45
  Speaker 1: Right. Listen, there's a lot to talk about this week,
• 0:48
  Speaker 1: most of which we're not going to talk about. But
• 0:49
  Speaker 1: let's talk about this interview with Annie Burnham, who may
• 0:53
  Speaker 1: or may not one day be Prime Minister of the UK.
• 0:56
  Speaker 3: And he talked about all sorts of things in it.
• 0:58
  Speaker 1: But there are a couple of things that you and
• 0:59
  Speaker 1: I to hmm.
• 1:01
  Speaker 2: Yeah. So this is his big interview in The New Statesman,
• 1:04
  Speaker 2: which for those listening outside the UK is a kind
• 1:07
  Speaker 2: of slightly left lean in UK political magazine. So the
• 1:11
  Speaker 2: Andy Burnham when the cover Nandy Burnham's currently the mayor
• 1:13
  Speaker 2: of Manchester, but he's hoping to be the leader of
• 1:16
  Speaker 2: the Labor Party in there for the Prime Minister. I'm
• 1:19
  Speaker 2: not at all interested in his exact route to get
• 1:21
  Speaker 2: in there, because it's the usual political stuff. But one
• 1:24
  Speaker 2: thing jumped out in this otherwise very softball interview, which
• 1:28
  Speaker 2: is at one point he says we've got to get
• 1:30
  Speaker 2: beyond this thing of being in Hawk to the bond markets.
• 1:34
  Speaker 2: That just leapt out at me, because the most obvious
• 1:37
  Speaker 2: way to get out of Hawk to the bond markets,
• 1:40
  Speaker 2: in other words, to not owe the bond markets money
• 1:43
  Speaker 2: is to stop spending as much money and to live
• 1:46
  Speaker 2: within our means. But elsewhere in the article, all he
• 1:50
  Speaker 2: talks about is how he's going to nationalize basically everything,
• 1:54
  Speaker 2: and that would cost money. So I'm just trying to
• 1:58
  Speaker 2: put two and two together. They make it sum side up,
• 2:00
  Speaker 2: and what I'm really coming not worth is this would
• 2:03
  Speaker 2: be even most for the public finances than the current situation.
• 2:06
  Speaker 2: But then, which at least has Rachel Reeves grappling with
• 2:10
  Speaker 2: the notion that the bond market matters and that her
• 2:15
  Speaker 2: fiscal discipline matters, even if I don't think she's going
• 2:17
  Speaker 2: about that the great way.
• 2:19
  Speaker 1: Yeah, I mean, it's an interesting one, isn't it, because
• 2:21
  Speaker 1: that very common. We've got to get out of this,
• 2:23
  Speaker 1: this idea that we are in hockdaw controlled by the
• 2:25
  Speaker 1: bond market.
• 2:26
  Speaker 3: It's not an idea. It's not an.
• 2:27
  Speaker 1: Idea, it's a reality. You can't think yourself out of
• 2:33
  Speaker 1: being controlled by the bond model. If you you know,
• 2:35
  Speaker 1: if your debt levels are too high, you are controlled
• 2:38
  Speaker 1: by the bond market.
• 2:38
  Speaker 3: That's just the way it works. And as you say,
• 2:40
  Speaker 3: the only way.
• 2:41
  Speaker 1: Out of that is to get that debt down, or
• 2:44
  Speaker 1: the very least get that deficit down so that the
• 2:46
  Speaker 1: markets trust.
• 2:47
  Speaker 3: You know. We're not going to go on about this
• 2:49
  Speaker 3: at length, although we could or were really.
• 2:51
  Speaker 1: Good because we've got a podcast coming on this on
• 2:54
  Speaker 1: Monday that I strongly recommend you or listen to it.
• 2:57
  Speaker 1: It's a little bit scary, so nice cup of tea
• 2:59
  Speaker 1: before you start, but do listen on Monday.
• 3:01
  Speaker 3: It's it's a very.
• 3:03
  Speaker 1: Interesting perspective on where the UK might be going next financially.
• 3:08
  Speaker 3: At least it is great. I mean it's gary but great.
• 3:12
  Speaker 3: And also politics.
• 3:13
  Speaker 1: There's a little bit of Andy and there Andy Byrnham,
• 3:15
  Speaker 1: not Home in particular, but how we might get to
• 3:17
  Speaker 1: the point where there might be an opportunity for him
• 3:20
  Speaker 1: to show us more of his wares. Can't wait, Oh goody,
• 3:27
  Speaker 1: right right, So while we're on the matter of crisis,
• 3:30
  Speaker 1: what I want to talk about today, All I want
• 3:32
  Speaker 1: to tell you about a little bit is a note
• 3:34
  Speaker 1: that's just come out from gav Cal Research, and it's
• 3:37
  Speaker 1: a piece written by Charles Gavin. It's called a Turkish
• 3:39
  Speaker 1: portfolio for France. And he hasn't put in brackets, but
• 3:42
  Speaker 1: he could put in brackets and everywhere else. So what
• 3:45
  Speaker 1: we want to ask is what is a Turkish portfolio?
• 3:48
  Speaker 1: It sounds sounds like a ethhmism, and actually kind of is.
• 3:54
  Speaker 1: While Charles says, is it in any country when you invest,
• 3:57
  Speaker 1: you effectively have a choice between four domestic asset classes.
• 4:01
  Speaker 1: You can invest in shares, you can invest in gold,
• 4:04
  Speaker 1: you can invest in bonds, or you can invent in cash.
• 4:06
  Speaker 1: So we're going to put a bit quite lot and
• 4:09
  Speaker 1: all that aside for one moment. That's just stick with
• 4:11
  Speaker 1: trad got those four things. Now, if the local currency
• 4:15
  Speaker 1: is worthless or heading in that direction, you expect very
• 4:20
  Speaker 1: high inflation or huge political instability or whatever it is,
• 4:22
  Speaker 1: then bonds and cash, they don't have any real value
• 4:26
  Speaker 1: in that currency. And if that is the case, if
• 4:29
  Speaker 1: your government is following a policy that structurally debases the
• 4:32
  Speaker 1: value of the national currency, I don't know who that
• 4:34
  Speaker 1: could be, who might be doing that, but let's say
• 4:37
  Speaker 1: your government is following that kind of policy, then you
• 4:39
  Speaker 1: can't possibly diversify dimest domestically into bonds in cash.
• 4:43
  Speaker 3: All you can do.
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  Speaker 1: Is hold a portfolio made up of fifty percent of
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  Speaker 1: shares and fifty percent of gold, which is what he
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  Speaker 1: calls a Turkish portfolio, because you could call it an
• 4:53
  Speaker 1: Argentinian portfolio or something like that. And in future it
• 4:57
  Speaker 1: may be that we call it a French portfolio or
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  Speaker 1: a even a British portfolio.
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  Speaker 3: I don't know, but you know, the euphemisms might just
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  Speaker 3: keep rolling.
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  Speaker 1: And one of the reasons that he writes about this
• 5:07
  Speaker 1: is because he says, look at the social democratic model,
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  Speaker 1: or perhaps what we might call the kleptocratic model. It
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  Speaker 1: is collapsing in France very fast. It's beginning to collapse
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  Speaker 1: in the UK heading in the same direction in Germany,
• 5:19
  Speaker 1: and in the US, of course, guns and butter, guns
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  Speaker 1: and butter blah blah. One of our our collegue, John
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  Speaker 1: Authors has written in Great Guns and Butter opinion piece
• 5:26
  Speaker 1: do you read that have led to a fiscal situation,
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  Speaker 1: which Charles says is quote making me very nervous. Indeed,
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  Speaker 1: and he says rational investors should therefore adopt Turkish portfolios
• 5:37
  Speaker 1: in France, in the UK, in Germany and in the US.
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  Speaker 2: Wow. So we yes, So he doesn't just single fine
• 5:45
  Speaker 2: does Okay?
• 5:47
  Speaker 3: He goes right for us to write for us too.
• 5:50
  Speaker 2: I like that we spoil up the icy classies there,
• 5:52
  Speaker 2: because that's how I spoil up aid classes. I think
• 5:55
  Speaker 2: if you're thinking about your act allocation, you say equities, borns,
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  Speaker 2: golden cash, and you know all the other bits are
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  Speaker 2: subsets of those things. Yes, So I mean I agree
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  Speaker 2: with him on that, and it's also hard to disagree
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  Speaker 2: with I mean, really, he's just making a distinction between
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  Speaker 2: real assets and financial assets. I know he kind of
• 6:13
  Speaker 2: calls them kind of contractual as it's doesn't he something
• 6:16
  Speaker 2: like that? Yeah? And it I mean obviously I think
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  Speaker 2: I wouldn't. I wouldn't be comfortable saying have half your
• 6:24
  Speaker 2: portfolio and golden half your portfolio and equities. But I
• 6:28
  Speaker 2: do take his point and I suppose the only thing,
• 6:34
  Speaker 2: the one thing that I don't know, and I don't
• 6:36
  Speaker 2: know about you, but my sort of contrarian tingle in
• 6:42
  Speaker 2: my brain keeps on saying points have got to be
• 6:46
  Speaker 2: a bye again at some point. It's not saying that
• 6:49
  Speaker 2: very strongly, but I can't help but feel that we
• 6:54
  Speaker 2: will reach a crisis point rather than societal collapse. I mean,
• 6:58
  Speaker 2: I don't think that's what we'll get. A think we'll
• 7:00
  Speaker 2: get a toundon point, much like the end of the
• 7:02
  Speaker 2: nineteen seventies, and at that point it will probably be
• 7:05
  Speaker 2: a good team, you know, invest in points, but we
• 7:07
  Speaker 2: could be quite away from.
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  Speaker 3: That, I think. I mean, you're you're not alone there
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  Speaker 3: in that, you know.
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  Speaker 1: I've spoken to several people recently who are quite bullish
• 7:15
  Speaker 1: on UK guilts, but I find that quite difficult. Right now.
• 7:19
  Speaker 3: It feels to me like we've got a bit more of.
• 7:22
  Speaker 1: This cycle to go through before we hit a point
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  Speaker 1: where the current government or the government that replaces it
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  Speaker 1: genuinely understands that running the equivalent of a six seven
• 7:33
  Speaker 1: eight percent deficit in the UK, which is where we're
• 7:35
  Speaker 1: likely to end up this year if we don't put
• 7:37
  Speaker 1: ourselves together again. I refer you to Monday's podcast please listen.
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  Speaker 1: Is not sustainable and that something has to change. Whether
• 7:44
  Speaker 1: you want it to or not, whether you feel it's
• 7:46
  Speaker 1: kind or moral or not, something still has to change.
• 7:50
  Speaker 3: I feel we're a way of that. So I'm still
• 7:53
  Speaker 3: looking at and going Turkish portfolio. Yeah, we could do that.
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  Speaker 2: I mean I wish that's half my portfolio and gold rate.
• 8:00
  Speaker 1: Yeah yeah, half in the nasdak and half of the
• 8:03
  Speaker 1: nasdak and half in gold for the last decade. If
• 8:05
  Speaker 1: anyone has done that and is therefore roaringly rich as
• 8:09
  Speaker 1: a result, please do get in touch, let us know
• 8:11
  Speaker 1: about it and tell you why why you decided to
• 8:13
  Speaker 1: do that.
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  Speaker 3: It would be fascinating.
• 8:15
  Speaker 1: But John, that brings us back to the gold price, right, yeah,
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  Speaker 1: I mean, at what point do you look at this
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  Speaker 1: and go this is overbought or do you just look
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  Speaker 1: at it and go, well, Actually, if everyone's going to
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  Speaker 1: get a Turkish portfolio or a French portfolio, whatever we're
• 8:27
  Speaker 1: going to call it these days, there is a.
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  Speaker 3: Long way to go.
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  Speaker 2: But in the past, gold bill markets and quite often, honestly,
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  Speaker 2: I just started to think about these things about like
• 8:35
  Speaker 2: what should have got telling you and then what was
• 8:37
  Speaker 2: it wrong about last time? Because the instinct sort of
• 8:40
  Speaker 2: starts to kick in, and so there's a little bit
• 8:42
  Speaker 2: in the nervousness there. But in my mind that kind
• 8:44
  Speaker 2: of historically means that's probably quite a long way to go. Yeah,
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  Speaker 2: And also at a micro level, I mean, I think
• 8:52
  Speaker 2: the thing that presumably would stop the gold bill market
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  Speaker 2: for good would be a return to some sort of
• 8:59
  Speaker 2: fiscal discipline, and specifically in the US. I am not
• 9:03
  Speaker 2: one hundred percent rolling that out because a lot of
• 9:05
  Speaker 2: people have got such bad Trump derangement syndrome that they
• 9:07
  Speaker 2: can't see that anything that he does will ever turn
• 9:10
  Speaker 2: out well. And actually, in many ways he is actually
• 9:14
  Speaker 2: raising money in unorthodox ways. That said, I do think
• 9:19
  Speaker 2: that he also would like to see you inflation running
• 9:22
  Speaker 2: at three to four percent for a while. He'd like
• 9:24
  Speaker 2: it interest rates to being much lower. So I don't
• 9:27
  Speaker 2: think that, you know, fiscal discipline is going to return
• 9:30
  Speaker 2: anytime soon. And while that's the case, and also while
• 9:35
  Speaker 2: other countries want to get out from under the US
• 9:37
  Speaker 2: dollar system, it's hard to see why gold would you know,
• 9:42
  Speaker 2: turn around and quit.
• 9:44
  Speaker 1: Really Okay, So John's gold bull, Everyone's gold bull.
• 9:49
  Speaker 2: Yeah, well that's the problem. It does feel like that too.
• 9:52
  Speaker 1: You are a resident contrarian. How does that fit anyway?
• 9:56
  Speaker 2: He used to be?
• 9:56
  Speaker 1: For the last decade, we've been able to sit there.
• 9:58
  Speaker 1: You and I am one of the effectively in a
• 10:00
  Speaker 1: gold gold market and the contrariant inside a bull market,
• 10:03
  Speaker 1: which is very unusual position to be in. Right, Yeah,
• 10:06
  Speaker 1: but that that fail is beginning to change now everyone's
• 10:10
  Speaker 1: all over. God.
• 10:10
  Speaker 3: I was listening to radio yesterday morning.
• 10:12
  Speaker 1: I think I said to you the other day, and
• 10:13
  Speaker 1: there it was long chat a bad gold at prime time?
• 10:16
  Speaker 2: That was times low, wasn't it. That wasn't Radio four, No,
• 10:19
  Speaker 2: it wasn't. I see. Look, honestly, at this point, I'm
• 10:22
  Speaker 2: sort of looking for either an economist cover, which would
• 10:24
  Speaker 2: be I think a first ever. I don't think the
• 10:26
  Speaker 2: economist has ever had golden it's covered not in my
• 10:29
  Speaker 2: kind of time of being an adult, or maybe something
• 10:34
  Speaker 2: like you know, a program on the Today program talking
• 10:37
  Speaker 2: about or something like that. I mean also because I
• 10:40
  Speaker 2: mean it, I was looking at the gold mine and
• 10:43
  Speaker 2: ETF and it has doubled in the year today, and okay,
• 10:47
  Speaker 2: it was undervalued relative to gold for death, and it's
• 10:50
  Speaker 2: playing catch up. But at the same time, like anytime
• 10:53
  Speaker 2: an asset doubles in a year and it's not a cryptocurrency,
• 10:56
  Speaker 2: you've got to sit down and start thing and they will.
• 11:00
  Speaker 2: How much more exhibierance can get into this. And yeah,
• 11:05
  Speaker 2: at the same time, I don't feel that it's it's
• 11:09
  Speaker 2: not a kind of you know, twenty eleven levels yet
• 11:13
  Speaker 2: and that we did get kind of cover stories and
• 11:16
  Speaker 2: ATMs ditional gold and things like that at that point.
• 11:20
  Speaker 2: So I guess that's where I am. But you're right,
• 11:22
  Speaker 2: all of the models that people who are actually quite
• 11:25
  Speaker 2: good at analyzing gold have built over the last you know,
• 11:28
  Speaker 2: twenty our years all suggest that it's actually really very overvalued.
• 11:32
  Speaker 2: It's not as overvalued as it has been at some
• 11:35
  Speaker 2: points in the past, but it's certainly not cheap.
• 11:37
  Speaker 1: But then I think you could also say, and we'll
• 11:39
  Speaker 1: finish with this, we could also say that those models
• 11:43
  Speaker 1: do not take account of possible fiscal breakdown no which
• 11:47
  Speaker 1: there is a non zero, non zero possibility of full
• 11:50
  Speaker 1: fiscal breakdown across much of the West. Very hard to
• 11:53
  Speaker 1: get that into a model, very very hard. When you're
• 11:55
  Speaker 1: looking at a model for the price of gold, you're
• 11:56
  Speaker 1: comparing it to the market cap of stock market, So
• 11:59
  Speaker 1: you're comparing it to history. You're comparing it to where
• 12:02
  Speaker 1: it moved in this crisis or that this crisis. But
• 12:04
  Speaker 1: it's very hard to input into your model what happens
• 12:08
  Speaker 1: when the majority of the West has a debt to
• 12:11
  Speaker 1: GDP level of one hundred or one hundred plus.
• 12:15
  Speaker 3: How did you get that into a model.
• 12:17
  Speaker 2: It's proper tail risk stuff. And obviously the actual history
• 12:21
  Speaker 2: of gold does not go back that far. It's only
• 12:25
  Speaker 2: been three flooring since the nineteen seventies, so I'm not
• 12:28
  Speaker 2: you know, it's very hard to see, like, well, what
• 12:30
  Speaker 2: would the gold place have actually been during World War Two,
• 12:34
  Speaker 2: which was the last time everyone had dated GDPD issue
• 12:37
  Speaker 2: was at like over one hundred percent.
• 12:38
  Speaker 3: Yeah, but that didn't count.
• 12:39
  Speaker 1: That didn't count because everyone also had plans to bring
• 12:42
  Speaker 1: that level down by you know, not being a war anymore, right, Hello,
• 12:47
  Speaker 1: peace dividend.
• 12:48
  Speaker 3: We have nothing like that anymore.
• 12:49
  Speaker 1: There is no plan to bring down the vast cost
• 12:52
  Speaker 1: of the welfare state by not having a welfare state anymore.
• 12:54
  Speaker 1: I mean, that doesn't exist. So we cannot even begin
• 12:57
  Speaker 1: to compare the level of debt we have now with
• 12:59
  Speaker 1: the level of debt that we have post war.
• 13:00
  Speaker 3: Don't get me started. I mean, I do remember that the.
• 13:04
  Speaker 1: Wonderful phrase that Russell Napier always used to use, that
• 13:08
  Speaker 1: you know, we built up the debt in wartime, that
• 13:12
  Speaker 1: it was built up by killing people, and if you
• 13:13
  Speaker 1: stop killing people, suddenly you don't ever spend so much money.
• 13:16
  Speaker 1: And now we built up our debt by keeping people alive,
• 13:18
  Speaker 1: and was certainly not going to stop doing that.
• 13:21
  Speaker 3: So where do you go from here?
• 13:22
  Speaker 2: I'd quivered, we're keeping people alive, But that's a that's
• 13:25
  Speaker 2: a different that's a definite issue.
• 13:28
  Speaker 3: I think we had better end up bedge on anything
• 13:30
  Speaker 3: else we need to add.
• 13:31
  Speaker 2: I don't think so. I mean, I think if you're
• 13:33
  Speaker 2: wanted to be called the one thing I would see
• 13:35
  Speaker 2: is just think about what your ass allocation was where
• 13:38
  Speaker 2: it's no sail it down to your ass allocations. But
• 13:42
  Speaker 2: I'll be honest, I'm not rebalancing. Just know, I'm just saying,
• 13:46
  Speaker 2: if you're nervous, you know, sailed down the sleeping point,
• 13:49
  Speaker 2: as the old Wall Street gays used to see.
• 13:52
  Speaker 1: Okay, thank you, John, and we're also pleased to know
• 13:54
  Speaker 1: that you're not selling down. I'm not going to ask
• 13:55
  Speaker 1: you about a bitcoin account. Thanks for listening to this
• 14:02
  Speaker 1: week's Maron Talks Money Debrief. If you like us, show, rate, review,
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• 14:08
  Speaker 1: questions or comments the Mirror Money at Bloomberg dot net.
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  Speaker 1: I hope you enjoyed the pod we did the other
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  Speaker 1: and Moses and