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Why Politics Mean You Won't See a Recession in 2024 with Julian Brigden · Merryn Talks Money

0:00
Speaker 1: Okay, John Melton, you and I have been waiting a
0:05
Speaker 1: long time. We wait for things to hit recordize highs
0:08
Speaker 1: all the time.
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Speaker 2: Right.
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Speaker 1: We waited for Japan forever. We're like, come on, come on,
0:11
Speaker 1: come on. Years and years we waited, hell decades, we waited,
0:14
Speaker 1: and eventually it happened. And the other thing that we've
0:17
Speaker 1: been waiting for four years, God, we wait.
0:20
Speaker 2: We really we should get a prize for waiting.
0:22
Speaker 1: There's gold. We recommend it, we talk about it. We
0:26
Speaker 1: you know, we love it, and we wait. We try
0:28
Speaker 1: and force people to choose gold over bitcoin. God, we steer,
0:31
Speaker 1: and we steer hate mail usually dress. God, I've got
0:33
Speaker 1: a lot of Twitter people on me about bitcoin at
0:35
Speaker 1: the moment. Now you're winning that because you told them
0:38
Speaker 1: you'd converted. Now they'll think you're great, and they're after me.
0:41
Speaker 1: I'm the dinosaur and you're You're the young guy who
0:44
Speaker 1: gets it. You're the flexible thinker, and I'm the old
0:47
Speaker 1: stuck in the mud.
0:51
Speaker 3: This scene are always hired.
0:53
Speaker 1: And I've told you before, there's nothing worse than the
0:55
Speaker 1: zeal of a convert.
0:59
Speaker 3: True.
1:00
Speaker 1: Right anyway, gold is finally doing what we wanted it
1:06
Speaker 1: to do. Right here, we go a couple of record highs.
1:09
Speaker 2: Hooray. But but but but but but the.
1:13
Speaker 1: Gold miners n't following and the junior miners, you know,
1:15
Speaker 1: we always expected when the gold price broke out, then
1:18
Speaker 1: we just make our fortunes from the junior gold minag
1:20
Speaker 1: just buy that ETF. Yes, set back the money rolls
1:23
Speaker 1: interns that we should have bought bitcoin.
1:26
Speaker 3: See you're a convert now as well.
1:28
Speaker 2: I am not. I won't have it. Don't you speak
1:30
Speaker 2: to me like that?
1:32
Speaker 3: Oh well, yes, gold miners, gold mane I said, this
1:35
Speaker 3: is quite interesting, and I remember an old friend, Dominic
1:39
Speaker 3: Frisbee always used to see this, and more recently, old
1:42
Speaker 3: friend Alie Morris mentioned something a bit this as well.
1:46
Speaker 3: But one of the things that stopped gold miners from
1:49
Speaker 3: doing well when the gold price went up was the
1:52
Speaker 3: fact that ETFs launched so like in like the early
1:56
Speaker 3: two thousands. Point of the big factor in gold miner's
2:00
Speaker 3: lagging behind in that bull market is because you could
2:03
Speaker 3: basically buy gold easily on the stock market without buying
2:09
Speaker 3: the miners. And then the old days people would buy
2:10
Speaker 3: the miners to get exposure at the gold price, and
2:12
Speaker 3: then they didn't have to anymore. So that's one thing
2:15
Speaker 3: that kind of decoupled it because you can get the
2:17
Speaker 3: gold exposure about the equity risk. However, that said, Charlie
2:23
Speaker 3: put out his most recent I think it's his Atlas
2:26
Speaker 3: Pulse newsletter, which thinks free if people want to read themselves. Well,
2:30
Speaker 3: he was pointing there.
2:31
Speaker 1: And by the way, Charlie, we talk about quite a
2:33
Speaker 1: lot John and I because he's one of the few
2:34
Speaker 1: people who loves both gold and bitcoin, and he has
2:37
Speaker 1: a strate equal Yeah. He calls bold right, bitcoin and
2:40
Speaker 1: gold and the Earth can't get wrong.
2:42
Speaker 3: Yeah, And he's and the things he basically understands them both,
2:47
Speaker 3: which is unusual, especially seeing as he has a background
2:51
Speaker 3: as a mainstream fund manager. So he's one of the
2:54
Speaker 3: few people who's been through the city who actually also
2:57
Speaker 3: gives credence to these alternative assets, shall we say, I'm
3:02
Speaker 3: going to.
3:02
Speaker 1: Get them on anyways, back to shoulder, back to gold
3:05
Speaker 1: and gold at christ John. So, you know, we've got
3:07
Speaker 1: this incredibly frustrating business where gold is that what twenty
3:11
Speaker 1: twenty five percent?
3:12
Speaker 2: It's the start of the year.
3:13
Speaker 1: But you look at the gold mine, isn't there kind
3:14
Speaker 1: of flat nothing going on there at all? But you
3:16
Speaker 1: think this is going to turn right.
3:19
Speaker 3: It just seems to have started to turn. And apparently
3:22
Speaker 3: silver has just broken out as well. And when we
3:25
Speaker 3: use terms like broken out, we're basically talking about people
3:28
Speaker 3: drawing lines on charts. I know that a lot of
3:31
Speaker 3: readers listeners probably are skeptical about charting and technical analysis,
3:37
Speaker 3: but whenever you don't have realistically, there aren't any what
3:43
Speaker 3: you would traditionally describe as fundamentals for something like gold
3:46
Speaker 3: orfer bitcoins for that matter. So paying attention to what's
3:50
Speaker 3: happening in the charts just gives you a sense of
3:52
Speaker 3: what's happening to sentiment in that area. And also, because
3:56
Speaker 3: there's not really an obvious other way of value them,
4:00
Speaker 3: people pay even more attention to the chat so there's
4:02
Speaker 3: a kind of a feedback look going on there. So
4:05
Speaker 3: the fact that basically silver is obviously a much more
4:09
Speaker 3: volatile version of gold, the fact that it's now shooting
4:12
Speaker 3: up suggests that, you know, if you like this precious
4:15
Speaker 3: metals bull market has got legs, and the same sort
4:19
Speaker 3: of things are being seen in the gold mine and
4:21
Speaker 3: ETFs even as we speak, according to the various charity
4:26
Speaker 3: people who follow. So yeah, so basically yeah. I mean,
4:31
Speaker 3: you can probably play it any way that you like.
4:35
Speaker 3: But if you've been sitting in a gold mine and
4:37
Speaker 3: etf for a gold mine and fund for a little
4:39
Speaker 3: while getting a bit frustrated now is probably not the typer.
4:42
Speaker 2: Do you think that might be?
4:44
Speaker 1: Oh, I don't know, getting mindly frustrated.
4:48
Speaker 2: Then I'm ma getting any money coming of anyone? No?
4:51
Speaker 3: No, absolutely not.
4:53
Speaker 2: Listen, John, there we go.
4:55
Speaker 1: We're getting the little bull markets and everything, so I
4:57
Speaker 1: mean bit going lot to the other crypto currencies as well,
5:01
Speaker 1: the ones you honestly thought we'd never see the light
5:03
Speaker 1: of day again.
5:03
Speaker 2: There they are up up.
5:06
Speaker 1: You've got Japan, You've got you know, some of the
5:09
Speaker 1: European markets beginning to move, You've got what's going on
5:12
Speaker 1: in the US, etc.
5:13
Speaker 2: Are you getting nervous? Where does all the money come from?
5:17
Speaker 3: I do think that's a very good question. Money two
5:23
Speaker 3: policy clearly isn't as tight as lots of people think
5:26
Speaker 3: it is. But if we could, I don't know, have
5:31
Speaker 3: I guessed who's got a good explanation for these things?
5:34
Speaker 3: That would be? That would be great And I'm sure
5:36
Speaker 3: lesteners would love that too.
5:38
Speaker 2: Well. In excellent news, John in excellent News.
5:42
Speaker 1: We've got a really really good conversation coming up with Julian,
5:46
Speaker 1: who's a great macroeconomist, really good on what's going on
5:50
Speaker 1: in the US, what's going on in the US economy
5:53
Speaker 1: with the US money supply, Why these dogs just keep
5:56
Speaker 1: going up. I think everyone's going to rather enjoy it.
6:00
Speaker 1: You're a fan of Julian as well, right, It's.
6:01
Speaker 2: Not just me?
6:02
Speaker 3: Oh yeah, Jillian, and he is one of these guys
6:07
Speaker 3: that kind of mind us to tell the fundamentals together
6:10
Speaker 3: very well with the whole Charitie Hawcus porkist stuff so
6:14
Speaker 3: and make sense of it.
6:15
Speaker 4: So definitely.
6:16
Speaker 2: Yeah.
6:16
Speaker 1: Unfortunately, unfortunately we had the conversation before I started to
6:20
Speaker 1: get irritable about gold miners, so we haven't talked to
6:22
Speaker 1: him about that. But we did talk about gold of
6:24
Speaker 1: course a bit going towards the end. So so that
6:27
Speaker 1: is interesting. When we get to the after show one,
6:29
Speaker 1: not the off show, but the bit of the end
6:31
Speaker 1: where you and I discussed it the.
6:32
Speaker 2: Debrief, we will pick the piece.
6:34
Speaker 1: Of what Julian has said, and I think everyone's going
6:37
Speaker 1: to find it pretty interesting. Welcome to Maren Talks Money,
6:45
Speaker 1: the podcast in which people who know the markets explain
6:47
Speaker 1: the markets. I'm Maren Sunset Web as promised this week
6:50
Speaker 1: my conversation with Julian Bridgeton, co founder of macro Intelligence
6:53
Speaker 1: two Partners, a global independent macroeconomic research firm. Julian, so
6:58
Speaker 1: nice to have you with us, Thanks very much, Thanks
7:00
Speaker 1: for coming.
7:00
Speaker 4: Marion, thank you very much for having me on the show.
7:02
Speaker 1: Right now, you're a macro guy, so you're going to
7:05
Speaker 1: answer the questions for us that we have been waiting
7:08
Speaker 1: to have a definitive answer to for a long time,
7:11
Speaker 1: and this is what we want to know. We want
7:14
Speaker 1: to know where inflation's going next, and we want to
7:16
Speaker 1: know where interest rates are going next. So if you
7:18
Speaker 1: could just kindly answer those questions for us, we're all good.
7:21
Speaker 4: There you go, there you go, no pressure. So look,
7:24
Speaker 4: we were wildly bullish on inflation in twenty twenty one.
7:30
Speaker 4: We said we rode on the beginning of January. It's
7:32
Speaker 4: the most important variable of twenty twenty one. And we
7:35
Speaker 4: came out with some quite outlandish calls in early twenty
7:38
Speaker 4: eighty one talking about very high single digits to potential
7:42
Speaker 4: double digits. And I do remember doing a round of
7:46
Speaker 4: calls with my institutional clients and one guy calling me
7:50
Speaker 4: back after the presentation and going, you're an idiot. There
7:55
Speaker 4: is no way that we're going to those thoughts of levels. Okay,
8:00
Speaker 4: in hindsight, we got lucky. So last year we started
8:03
Speaker 4: to call the top on the inflation cycle, and we've
8:07
Speaker 4: been talking it down ever since. And I think we
8:12
Speaker 4: now come to this, to the problematic bit merit. I
8:17
Speaker 4: think when people look at inflation, particularly say let's say
8:20
Speaker 4: equity folks, they tend to group inflation as one single
8:24
Speaker 4: metric headline inflation, core, inflation, whatever. But really what determines
8:30
Speaker 4: inflation is not, when you break it down, is not
8:33
Speaker 4: goods inflation. Okay, it's not manufacturing what we spend at
8:37
Speaker 4: the shop. I've got a chart where I look at it,
8:39
Speaker 4: and I take it back to the last twenty odd years,
8:42
Speaker 4: and you can see that essentially in the United States,
8:45
Speaker 4: manufactured goods or goods prices have been flat to down
8:52
Speaker 4: every single year, and the only time in the last
8:57
Speaker 4: twenty odd years that we've seen a bump was during COVID, Okay,
9:00
Speaker 4: and now those prices have gone back to flat lining
9:03
Speaker 4: too slightly down. So if you take that out and say, look,
9:08
Speaker 4: prices are coming down look at some of these PMI surveys,
9:11
Speaker 4: look at how weak they are. The fake can slash
9:14
Speaker 4: rates idea. It's predicated on, I think, a return to
9:19
Speaker 4: normal actually and a return to normal, which actually some
9:23
Speaker 4: of the central banks have been quite good at picking out,
9:26
Speaker 4: like the Bank of England is highlighted this particularly. Both
9:30
Speaker 4: Catherine Mann and Andrew Bailey have talked to the fact
9:33
Speaker 4: that negative price inflation in the good sector is the norm.
9:38
Speaker 4: So the fact that we've got back is fine, But
9:41
Speaker 4: what really determines inflation is service inflation. That's what drives
9:47
Speaker 4: underlying inflation, and service inflation, to our mind, is still
9:52
Speaker 4: being driven by a very strong employment economy, particularly here
9:59
Speaker 4: in It's waning elsewhere in the world, but that is
10:05
Speaker 4: much more sticky and that is much more problematic. And
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Speaker 4: I have this view as well that the what drives
10:12
Speaker 4: the employment market, particularly here in the US, is the
10:14
Speaker 4: equity market, and so it's going to be quite hard
10:18
Speaker 4: to break the back of the employment market and thus
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Speaker 4: service inflation, which is linked to waste can.
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Speaker 1: I briefly, before we get to services inflation, bring linked
10:27
Speaker 1: to the e free market to goods inflation that constant
10:31
Speaker 1: fall or flattening in the price of manufactured goods has
10:34
Speaker 1: been closely connected to globalization, to the rise of China,
10:38
Speaker 1: to all these things things that we are now seeing,
10:42
Speaker 1: maybe not reverse but the best flat line. And then
10:46
Speaker 1: we have a war economy beginning to build, we have
10:49
Speaker 1: supply chain problems, we have global transportation, all these of
10:53
Speaker 1: things which other people suggest may mean that we begin
10:56
Speaker 1: to see more.
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Speaker 4: To be honest, we started to write about this in
10:59
Speaker 4: twenty eighteen and we were ahead of the game. We
11:01
Speaker 4: said this sort of idea that we thought we were
11:04
Speaker 4: coming to the end of global disinflation from a lot
11:08
Speaker 4: of those structural factors they were starting to peter out.
11:11
Speaker 4: And then obviously we got COVID and it accelerated a
11:13
Speaker 4: lot of those trends. Marin. So I think you're right
11:18
Speaker 4: the disinflationary backdrop that we've had in the goods sector.
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Speaker 4: And I think the Bank of England did some work
11:26
Speaker 4: on this in their Bank Underground blog where they went
11:29
Speaker 4: back and they took this stuff back to I want
11:31
Speaker 4: to say, the fifteen hundreds. Of the fourteen hundreds, only
11:34
Speaker 4: the Bank of England could do it, and they were
11:36
Speaker 4: looking at like the return on risk free assets through
11:39
Speaker 4: the last six hundred years. And it's pretty clear that
11:42
Speaker 4: since we started to enclose common land in the UK
11:47
Speaker 4: in the sort of hundreds and you started to see
11:50
Speaker 4: productivity advances in the agricultural sector, then moved to manufacturing
11:54
Speaker 4: sector and so on and so forth, we've had kind
11:56
Speaker 4: of disinflationary trends in goods prices. But what was very
11:59
Speaker 4: interesting thing is what caused what they called real rate depressions,
12:04
Speaker 4: where you had these periods of extended low bond yields
12:08
Speaker 4: and low inflation, and they were always commencemate with the
12:10
Speaker 4: same kind of thing, and they were commensurate with periods
12:14
Speaker 4: of peace or which delivers this sort of globalization peace
12:19
Speaker 4: dividend kind of thing, and a slewing of innovation from
12:25
Speaker 4: things that we used to bass each other over the
12:27
Speaker 4: head with in periods of war to more productive uses.
12:30
Speaker 4: So you turn the battleship into the clipper ship and
12:33
Speaker 4: suddenly you can open fast trade and globalize and get
12:37
Speaker 4: the benefits of globalization. But what ended those was always
12:40
Speaker 4: the same thing, and it was war and or a pandemic,
12:44
Speaker 4: and then you enter a period of inflation and structural
12:48
Speaker 4: reversal of some of the benefits of those periods. And
12:52
Speaker 4: I think to your point, days are all the things
12:54
Speaker 4: that we are seeing. And then you add on top
12:58
Speaker 4: of that, as I said, this sticky service inflation.
13:03
Speaker 1: So why is service inflation sticky? This is because people
13:06
Speaker 1: are now refusing to accept that their wages don't go
13:10
Speaker 1: off every year.
13:11
Speaker 2: So we're seeing.
13:11
Speaker 1: A response to inflation and being during that long period
13:15
Speaker 1: of low inflation, people didn't really think about inflation eroding.
13:18
Speaker 1: They're really income as one. People didn't demand rising wages,
13:21
Speaker 1: but now.
13:21
Speaker 4: They do correct people's real incomes of fallen. Right, this
13:27
Speaker 4: is the biggest problem that Biden faces. Right, And someone
13:29
Speaker 4: just did a survey of people in the developed world.
13:31
Speaker 4: What's the biggest gripe that you've got? And everyone says,
13:34
Speaker 4: I'm twenty percent worse off than I was before, So
13:37
Speaker 4: everyone is looking to recoup that. It's possible to some
13:42
Speaker 4: degree to recoup that because we've seen a lot of
13:45
Speaker 4: people leave the labor force, so the demographics are tight.
13:49
Speaker 4: The benefits of productivity in terms of AI might be
13:53
Speaker 4: coming through, but are really nascent at present. So the
13:58
Speaker 4: demand for labor is very high. The economies are still
14:02
Speaker 4: running actually incredibly strong. In the US. You're looking at
14:06
Speaker 4: nominal GDP of six percent, which is miles above historic norms.
14:13
Speaker 4: That's been driven by a strong labor demand, strong wage growth,
14:17
Speaker 4: and all of that, and that correlates incredibly tightly historically
14:22
Speaker 4: to core service inflation. So when you look at core
14:26
Speaker 4: service inflation, strikes me as bizarre that the FED is
14:32
Speaker 4: even thinking of cutting rates where their basic core service
14:38
Speaker 4: inflation is running at I think it's five point something
14:44
Speaker 4: percent at the moment, I'm just trying to find it
14:47
Speaker 4: on the chart.
14:48
Speaker 1: Were only the exact numbers where find the vagari is
14:50
Speaker 1: on this podcast.
14:52
Speaker 2: So here we have a situation where you think.
14:54
Speaker 1: That inflation is still going to run reasonably hot or
14:57
Speaker 1: at the very least be volatile, but the majority of
15:00
Speaker 1: the market is still expecting rate cuts fairly imminently. And
15:03
Speaker 1: we're hearing a bit more now from people about maybe
15:06
Speaker 1: it's maybe higher for longer, isn't likely, etc. Wearing a
15:09
Speaker 1: little bit less about rate cuts, but we're still the
15:11
Speaker 1: majority of the market, I would still say, believes that
15:15
Speaker 1: rate cuts will be coming and will be coming soon.
15:18
Speaker 1: And that's one of the justifications for markets remaining top
15:20
Speaker 1: markets remaining quite so hot.
15:22
Speaker 4: And look, our view is that there is a risk now,
15:26
Speaker 4: and what you really should be watching is PPI, because
15:29
Speaker 4: PPI tends to lead that sort of good sector pricing.
15:32
Speaker 4: So PPI starts to rebound, there's a danger actually that
15:35
Speaker 4: headline rates are going to relaminate from below where that
15:39
Speaker 4: service pricing is. So you could see quite decent jumps,
15:43
Speaker 4: certainly as we move into Q two and into Q
15:45
Speaker 4: three in some of these core inflation metrics. So that's
15:49
Speaker 4: our risk there, and then that it self pressurizes central
15:55
Speaker 4: banks and their ability to cut, particularly I think in
15:57
Speaker 4: the US, where I think things are much more hotter,
16:01
Speaker 4: where the economic porridge, far from being goldilocks just right,
16:04
Speaker 4: is still too hot. I think that makes that quite
16:08
Speaker 4: hard for them to cut. And I think the other
16:11
Speaker 4: problem that people have got merit is this assumption, and
16:15
Speaker 4: I think it's partly incumbent on the central banks. And
16:18
Speaker 4: I think this is in part because they themselves aren't
16:21
Speaker 4: sure that they can get away with this policy. But
16:24
Speaker 4: my understanding is being since the very end of last year,
16:29
Speaker 4: god sorry, the year before last, that they were going
16:31
Speaker 4: to try and pursue a very different policy framework from
16:35
Speaker 4: the one that would typically be pursued in this sort
16:39
Speaker 4: of high inflation environment. So if you're a central bank,
16:43
Speaker 4: that's basically two options that you have when inflation gets
16:47
Speaker 4: this high. Option Number one is you take a very
16:50
Speaker 4: hardline Paul Volka type approach, and that is referred to
16:55
Speaker 4: in policy terms as deliberate disinflation. You deliberately create through
17:00
Speaker 4: pain disinflation. And if you want an analogy, you take
17:05
Speaker 4: the economy into the back garden, walk into the swimming pool,
17:07
Speaker 4: and you stick its head under the water till it
17:10
Speaker 4: drowns dead. God.
17:12
Speaker 2: Okay, but we didn't do that. That's not the option
17:15
Speaker 2: we've followed.
17:15
Speaker 4: Which we clearly did not do. Now will we still
17:20
Speaker 4: have to do it? We hope not clearly, but it
17:25
Speaker 4: is possible. But what we are trying to pursue, which
17:29
Speaker 4: has only been tried once before in history, is a
17:33
Speaker 4: policy called opportunistic this inflation. Now, opportunistic this inflation has
17:42
Speaker 4: a couple of trade offs. The first thing is is
17:43
Speaker 4: you do not take rates as high as you would
17:47
Speaker 4: in a typical cycle. Okay, you take them to the
17:53
Speaker 4: point that they are restrictive to if you want to
17:55
Speaker 4: go back to that analogy of the swimming pool, you
17:58
Speaker 4: are holding the economy's head so that it's spluttering, but
18:02
Speaker 4: it isn't drowning. Okay. Now, the payoff for that is
18:08
Speaker 4: higher for longer. Okay. Now, the problem that central banks
18:13
Speaker 4: have come across is that they haven't explained that even
18:17
Speaker 4: in the higher for longer environment, it doesn't preclude tweaking rates. Okay.
18:25
Speaker 4: What a higher for longer environment would preclude would be
18:28
Speaker 4: a typical raise rates up very aggressively, slash them very
18:33
Speaker 4: aggressively cycle. But you can tweak them if inflation falls
18:38
Speaker 4: to the point that you don't want real rates to
18:41
Speaker 4: get too tight. And that's if you think is exactly
18:44
Speaker 4: what the Fed's forecast. Their sep have penciled in seventy
18:49
Speaker 4: five basis points of tweaks. Now, the only other time
18:55
Speaker 4: in history that we tried to pull this off and
18:59
Speaker 4: did it successfully was under Greenspan in the late nineteen
19:02
Speaker 4: nineties and he raised rapes quite aggressively in ninety four
19:07
Speaker 4: into early ninety five. He then let them sit there
19:10
Speaker 4: for a little bit and then cut them in July
19:12
Speaker 4: of ninety five, and cut them again at the end
19:14
Speaker 4: of the year and into the beginning of ninety six.
19:16
Speaker 4: Total is seventy five basis points. But then rates went
19:19
Speaker 4: on hold merin for the best part of two and
19:23
Speaker 4: a half years, right, two and a half years. That
19:26
Speaker 4: long extended higher for longer. He also got extraordinarily lucky
19:34
Speaker 4: that he had a burst of productivity, which really is
19:37
Speaker 4: the get out of jail free card. That is the
19:39
Speaker 4: golden ticket, the.
19:40
Speaker 2: One we're hoping for this time round. We're really hoping exactly.
19:44
Speaker 4: What we're hoping for this time round, because that will
19:46
Speaker 4: give you everything that will enable very high nominal GDP,
19:50
Speaker 4: which is great for the equity market, falling unemployment, which
19:53
Speaker 4: is great for the real economy, and falling inflation, which
19:56
Speaker 4: is great for the bottle market. But the thing that
19:59
Speaker 4: I would say is that maybe AI comes in quickly,
20:03
Speaker 4: maybe it doesn't. The other thing is, though the greenspand
20:06
Speaker 4: started with unemployment two hundred basis points higher than we
20:09
Speaker 4: are starting, and the only other time in history where
20:13
Speaker 4: we punted the cycle from this level of unemployment, So
20:18
Speaker 4: in other words, we didn't go into the recession. After
20:20
Speaker 4: the tiding was the sort of mid late nineteen sixties,
20:26
Speaker 4: and it looked like a goldilock scenario for nine months,
20:31
Speaker 4: and then inflation came ripping back again.
20:33
Speaker 1: And that's the concern now get it wrong enough that
20:36
Speaker 1: inflation comes back a correct Is that a risk?
20:39
Speaker 4: I think there is a real risk that unless we
20:43
Speaker 4: allow the labor markets to weaken, which will almost certainly
20:48
Speaker 4: mean a recession, because labor markets don't just weaken a
20:52
Speaker 4: little bit. Once they start to weaken, they weaken. That
20:56
Speaker 4: the risk is that we will find that inflation is
20:59
Speaker 4: not vanquished nearly to the degree that we hope, with consequences,
21:06
Speaker 4: probably for twenty twenty five, not for this year.
21:09
Speaker 1: Then let's talk about this yet. So within those parameters,
21:14
Speaker 1: how are you feeling about the US secuity market? And
21:17
Speaker 1: maybe we should divide the U S secuity market up,
21:20
Speaker 1: shouldn't we into its magnificent seven leading the market, it's
21:27
Speaker 1: wider all cat market, and then maybe US small to
21:31
Speaker 1: mid caps, which again feel like a slightly different market.
21:33
Speaker 4: Yeah. So look, I think the last time we spoke
21:39
Speaker 4: was just before we got the correction in twenty twenty
21:44
Speaker 4: two inequities. I was concerned by just how extended global
21:49
Speaker 4: equities were at that point.
21:51
Speaker 1: So we yes, Julian, so the record, you were absolutely right,
21:54
Speaker 1: I'll say it for you.
21:55
Speaker 2: He came home, we talked, he was absolutely right.
21:58
Speaker 4: So we went long in April or twenty two, and
22:05
Speaker 4: oh sorry, of twenty three. We went long of April
22:08
Speaker 4: of twenty three. And it was driven by a couple
22:11
Speaker 4: of things. The firstly was the first thing was Janet
22:16
Speaker 4: Yellen's ability to offset what the FED has been trying
22:20
Speaker 4: to do in terms of tightening liquid tocy VIAQ. Janet
22:23
Speaker 4: has shown herself very adept at using the two levers
22:28
Speaker 4: at her control, which is basically, where does she issue
22:32
Speaker 4: debt In other words, whether she pulls money out of
22:34
Speaker 4: bank reserves or from the reverse repo to fund the government,
22:39
Speaker 4: and if it comes out of the reverse repo, it
22:42
Speaker 4: tends not to weigh on asset prices. And secondly, playing
22:46
Speaker 4: around with the TGA. And that's what she deployed in
22:48
Speaker 4: twenty twenty three and still could deploy this year. So
22:54
Speaker 4: when I take a step back at this and I
22:57
Speaker 4: look at it, if I have a FED that seems
23:00
Speaker 4: desperate and from what I've heard, somewhat politically motivated meren
23:05
Speaker 4: to avoid a recession is.
23:06
Speaker 2: Year never who could have guessed.
23:08
Speaker 4: Okay, to avoid the risk of the Orange man okay?
23:12
Speaker 4: And if we don't think that is a real thing,
23:16
Speaker 4: this central bank, elite institutional fear of Trump. Then you
23:21
Speaker 4: don't have to look any further than Madame Legarde's amazing
23:27
Speaker 4: diplomatic rule breaking comment about Donald Trump. Central banks should
23:34
Speaker 4: never let alone from other countries comment on leaders, right,
23:39
Speaker 4: And what did she say? She said, if you look
23:43
Speaker 4: at those years where when Trump was president of the
23:46
Speaker 4: United States, there could be threats and there could be
23:49
Speaker 4: issues for which the Europeans should be prepared. Let us
23:53
Speaker 4: be prepared for potential tariffs, for harsh decisions that would
23:57
Speaker 4: be unexpected, led us to be strong at home. Should
24:00
Speaker 4: never ever say that sort of thing. That's really persona
24:03
Speaker 4: non grata. So I think that angst is present in
24:09
Speaker 4: the United States, which I think why the FED is
24:11
Speaker 4: desperate to avoid a recession and really honestly believes that
24:16
Speaker 4: they can achieve this self landing. How do they do it?
24:19
Speaker 4: So what does that mean for the equity market. It
24:21
Speaker 4: means there's a bias to ease. How many eases they
24:24
Speaker 4: get in merin I think is highly questionable. As you know,
24:28
Speaker 4: our bet since really early December has to be to
24:31
Speaker 4: fade the number of rate cards because we thought it
24:34
Speaker 4: got excessive. But do they get in a couple this year? Maybe? Maybe,
24:40
Speaker 4: depending on if we do, if we're right, and we
24:43
Speaker 4: get this potential rebound in some of these inflation metrics
24:45
Speaker 4: in the second half of the year, it might be
24:47
Speaker 4: tough for them to get more than that in, but
24:49
Speaker 4: they're definitely in that camp. Okay. Second, Janet Yellen is
24:55
Speaker 4: determined to get her boss reelected, and to do that
24:59
Speaker 4: actually has to run this economy full bore into the election.
25:03
Speaker 4: And the way that you do that is you keep
25:05
Speaker 4: this equity market going. So if there is a wobble,
25:09
Speaker 4: she is the TGA which she can deploy, which is
25:11
Speaker 4: the best part of eight or nine hundred billion dollars,
25:14
Speaker 4: which basically enables her to fund the government without drawing
25:18
Speaker 4: on any market liquidity for at least a couple of quarters.
25:21
Speaker 4: So most of my clients and myself included, don't think
25:24
Speaker 4: that why wouldn't she deploy that? So when I look
25:27
Speaker 4: at the US and I look at this equity market,
25:31
Speaker 4: sure it's at those bleeding levels. It is unquestionably looks
25:36
Speaker 4: like a bubble, walks like a bubble, quacks like a bubble.
25:39
Speaker 4: Probably is a bubble. Price action wise.
25:42
Speaker 1: Infinitely, okay, price action wise, speed of price moves, Yes,
25:46
Speaker 1: it looks like but nonetheless, even if you look at
25:50
Speaker 1: the valuations of the really big tech stocks moving it,
25:55
Speaker 1: they're still significantly lower than they were bubble.
25:59
Speaker 4: Correct, Yeah, correct, Look.
26:01
Speaker 1: There are also earnings are still surprising to the upside. Correct,
26:05
Speaker 1: they look like they could fulfill their valuations.
26:08
Speaker 2: I feel like I'm talking in someone else's voice. This
26:10
Speaker 2: is not the kind of thing, And we.
26:11
Speaker 1: Say, but there is something in the idea that they
26:14
Speaker 1: could grow into these valuations, because as aren't that nuts,
26:18
Speaker 1: and the earnings are still growing, And if you take
26:21
Speaker 1: those big companies out and look at valuations out with
26:26
Speaker 1: those stocks, then ZUS simply doesn't look that expensive.
26:31
Speaker 4: Okay, let's unpack some of those statements.
26:34
Speaker 2: Do that for me.
26:34
Speaker 4: Firstly, I think pees have little or no valuation, particularly
26:40
Speaker 4: in this situation. I think what we are looking about
26:43
Speaker 4: here when we look at the price action of a
26:45
Speaker 4: stock like in video, is simply heard behavior. This is
26:51
Speaker 4: psychological greed. This is herding of cash and concentration of
26:57
Speaker 4: cash into an acid price that runs until the point
27:03
Speaker 4: that you run out of marginal money to put into
27:07
Speaker 4: the stock. That is what drives bubbles. A bubble is
27:10
Speaker 4: created with an incredibly good with the exception of let's say,
27:16
Speaker 4: the Tulip bubble was quite understood what the underlying pinning
27:19
Speaker 4: of that was. But when you look at everything from
27:24
Speaker 4: the Latin American railway bubbles in the eighteen hundreds to
27:28
Speaker 4: the Nikai to the in the two thousands.
27:32
Speaker 1: The diving Bell bubble, my fairite, yeap, just the greatest
27:36
Speaker 1: of bubbles, right, you know, I was talking to someone about.
27:39
Speaker 2: The great Whiskey bubble in Edinburgh.
27:41
Speaker 4: But generally the better of the story, the bigger the bubble, okay.
27:46
Speaker 4: And then what you do is you attract money into it.
27:50
Speaker 4: And the analogy I like to use is it looks
27:52
Speaker 4: like the F sixteen fighter going vertical. Right. You look
27:56
Speaker 4: at this thing and when you're in this phase is
27:59
Speaker 4: where all the money's so you want to be in it.
28:01
Speaker 4: But it looks like this thing is going to the moon.
28:05
Speaker 4: But we all know that it can't go to the
28:08
Speaker 4: moon because at some point it's oxygen dependent jet runs
28:13
Speaker 4: out of oxygen, it gets too thin, You run out
28:17
Speaker 4: of that marginal oxygen molecule that you can suck into
28:21
Speaker 4: the jet, and then it drops. And in terms of pees,
28:28
Speaker 4: sure in video is not like the chart looks like
28:32
Speaker 4: Cisco did in two thousand and in that's it's.
28:35
Speaker 2: Actually being told we can't compare it Cisco.
28:39
Speaker 4: Hold On, but its valuation looks like Microsoft in two thousand.
28:44
Speaker 4: If you look at in videos pe, it peaked in
28:48
Speaker 4: the middle of last year. It is now sixty five.
28:53
Speaker 4: If you look at Microsoft PE and I might be off,
28:56
Speaker 4: but roughly the metrics of art, I think it peaked
28:59
Speaker 4: in ninety nine and about one hundred, and then by
29:04
Speaker 4: March or April of two thousand it was somewhere around
29:08
Speaker 4: sixty and then the stock dropped sixty five. It isn't
29:11
Speaker 4: about valuation, Maren. This is about concentration of cash into
29:19
Speaker 4: these stocks. So the question that you have to ask
29:21
Speaker 4: yourself is can this concentration continue? And if you look
29:27
Speaker 4: at a stock like in video, the pattern that's why
29:30
Speaker 4: you can look at what we call a classic bubble
29:32
Speaker 4: pattern and it applies to every single bubble from nineteen
29:36
Speaker 4: twenty nine through to the Saudi stock marketing I think
29:40
Speaker 4: it was like two thousand something through to you know,
29:44
Speaker 4: the nawftack in two thousand. They all have very similar
29:48
Speaker 4: patterns that you're in the blowoff parabolic move and in
29:53
Speaker 4: video's move for a blowoff parabolic move isn't really enough
29:56
Speaker 4: yet a thousand wouldn't be at all unusual.
30:01
Speaker 2: Okay, so we should hang on for a bit longer.
30:04
Speaker 4: I think you hang on for a little bit longer, right,
30:07
Speaker 4: because you have to ask yourself, what is going to
30:10
Speaker 4: discipline this equity market? Right? We could be the data.
30:14
Speaker 4: We just had pretty shitty pce data. But because we'd
30:17
Speaker 4: forecast pretty bad PCEE data, when it came in line
30:22
Speaker 4: with the pretty bad number, the market was like, phew,
30:26
Speaker 4: it's only in line, right, So we now have to
30:29
Speaker 4: wait for probably another month for data. We've got a
30:33
Speaker 4: feed as I said, that seems inclined to want to
30:36
Speaker 4: even though I don't. I think they're playing with fire
30:39
Speaker 4: and they shouldn't do it ease. We have same with
30:43
Speaker 4: the Bank of England, same with the ECB, and we
30:48
Speaker 4: have certainly in the US a Treasury Secretary who has
30:52
Speaker 4: all the abilities to keep this game going if she's
30:55
Speaker 4: truly decides she wants to do that. So to me,
30:59
Speaker 4: this main has got room to run, but.
31:04
Speaker 2: Excellent buy into the main ear everybody.
31:08
Speaker 4: Yeah, when I look at the valuations, you've got a
31:12
Speaker 4: US equity market which against the rest of the world
31:17
Speaker 4: I think now is eighty eight percent of the rest
31:20
Speaker 4: of the world total valuation.
31:24
Speaker 2: Let's try this from another angle.
31:26
Speaker 1: Okay, the US market is this part of the US
31:29
Speaker 1: market anyway is horribly unvalued. But the interesting thing about
31:33
Speaker 1: this as a bubble is that a bit like I
31:35
Speaker 1: would go back to dot com times, right, it's just
31:37
Speaker 1: it's a limited bubble. It's the sector bubble or an
31:40
Speaker 1: area bubble, and so it's not a full bubble because
31:43
Speaker 1: there are loads of parts of the even the U
31:45
Speaker 1: S equity market and around the world where you get
31:48
Speaker 1: real value. So let's let's talk about Let's talk about
31:51
Speaker 1: the places where you can invest with a view for
31:53
Speaker 1: more than a couple of months and you don't have
31:55
Speaker 1: to keep watching Janet to see what's going to happen.
31:57
Speaker 4: That is the problem, right, And this is the problem
32:00
Speaker 4: that I find when I listen to a lot of
32:02
Speaker 4: equity guides on the TV. They say, we're looking at
32:05
Speaker 4: the relative price of blah blah blah, and it looks cheap, okay,
32:09
Speaker 4: and they're right. The problem is when you get extreme
32:15
Speaker 4: sexual blowoffs like this, particularly sectors that dominate the indexes,
32:19
Speaker 4: the problems that you're going to find meren is when
32:22
Speaker 4: the correction comes in those sectors. Yes, the relative price
32:28
Speaker 4: of this cheap stock that you own will outperform the
32:32
Speaker 4: very expensive stock that you don't own, that you believe
32:36
Speaker 4: was a bubble and is in fact turns out to
32:38
Speaker 4: be a bubble and correct. The problem is they will
32:40
Speaker 4: both go down. So, as we call this, the ratios
32:45
Speaker 4: can correct in two ways, the nice or the nasty way.
32:51
Speaker 4: And the nice way is that the bubble sectors go
32:54
Speaker 4: nowhere for the next five years and the cheap stocks
32:58
Speaker 4: rally into those. Or the nasty way, we're both stocks fall,
33:03
Speaker 4: but the bubble stock falls the most. And the problem
33:07
Speaker 4: is it's pretty rare at these degree of valuations to
33:13
Speaker 4: get that rotation as a nice rotation where the cheap
33:19
Speaker 4: stock rallies and the expensive stock goes sideways, very simply
33:23
Speaker 4: in the US, in part because of the construction of
33:25
Speaker 4: the indexes.
33:26
Speaker 1: I'm still trying to get you to say something positive here,
33:29
Speaker 1: But if we're not looking over a year, and we're
33:32
Speaker 1: not looking over two years, we're looking over more like
33:34
Speaker 1: five years, and we're not holding the stocks that are
33:36
Speaker 1: going to lose sixty percent of their value and stay there.
33:39
Speaker 1: We're holding the ones that are relatively cheap to begin
33:41
Speaker 1: with them maybe impacted by the collapse of a bubble,
33:44
Speaker 1: and there's one small area, but we will still perform
33:48
Speaker 1: perfectly well over a five year period.
33:51
Speaker 2: If we're looking for that, where can we go right here?
33:54
Speaker 4: Right now? I think the manufacturing sector looks quite cheap,
33:59
Speaker 4: So I'm looking at things like in the US, yes, Xli,
34:04
Speaker 4: I like the DAX looks to me like it is
34:07
Speaker 4: actually in the process of potentially it has broken out,
34:10
Speaker 4: and I'd love to get a retest of the breakout
34:13
Speaker 4: on the dacks. And these are all something like the
34:16
Speaker 4: dacks is a cyclical growth play, right, what you'd really like?
34:21
Speaker 4: And of course the damn thing just won't come back
34:23
Speaker 4: at all. Is you really want to test this thing
34:25
Speaker 4: down back down to seventeen hundred on the dacks and
34:28
Speaker 4: again today it just blew up again today, or there's
34:32
Speaker 4: a gap down on the charts that's like seventeen one
34:36
Speaker 4: five eight one five nine, So I would love to
34:39
Speaker 4: get an opportunity to buy that. I think that the
34:43
Speaker 4: Japanese banking sector looks very intriguing for overseas buyers. Right
34:50
Speaker 4: It's had a very good run, but in the scheme
34:53
Speaker 4: of things. It really has gone nowhere for donkeys years,
35:00
Speaker 4: really nowhere for donkeys' is. And I'm looking ideally at
35:07
Speaker 4: I have this bit of what I could chart fun
35:11
Speaker 4: and I'm looking at the topics banks in dollars, so
35:16
Speaker 4: the Japanese banking sector in dollars, and there is a
35:20
Speaker 4: very big trend line at a multi decade trend line
35:25
Speaker 4: at two double oh two dollars, and it is starting
35:29
Speaker 4: to break out from that. So I would rather be there,
35:34
Speaker 4: And whenever I get nervous, I'm just going to go
35:37
Speaker 4: and sell a bit of navdak And can.
35:39
Speaker 2: We say that Japan across the board.
35:41
Speaker 4: Is cheap stas I think Japan is the sales. We've
35:44
Speaker 4: written a lot about Japan, and we think Japan is
35:50
Speaker 4: really intriguing. It is intriguing on a number of levels. Firstly, obviously,
35:55
Speaker 4: they are gradually moving away from the negative interest rate policy.
36:00
Speaker 4: We think markets are probably jumping the gun a little
36:04
Speaker 4: bit on April as the move, maybe because the politics
36:08
Speaker 4: are pretty toxic over there at the moment, and the
36:10
Speaker 4: politics may get in them in the way of an
36:12
Speaker 4: adjustment until the summer. But they're definitely ending negative interest rates.
36:16
Speaker 4: Now where they go from there, I think is a
36:18
Speaker 4: little bit more popularmatic. It'll depend on the underlying economy.
36:21
Speaker 4: But that is a huge deal. By the way, it
36:24
Speaker 4: is a massive deal for global bonds, right if people
36:29
Speaker 4: don't understand this how this factor of the bond professionals
36:33
Speaker 4: call fungibility in other words, the ability to create one
36:37
Speaker 4: sovereign bond from another by just buying it and then
36:41
Speaker 4: hedging the currency exposure. It is a huge deal. So
36:45
Speaker 4: if you look at someone said to me, they'd heard
36:48
Speaker 4: and I don't think. I think this is the best
36:50
Speaker 4: played laid plans of mice and men, that the boj
36:54
Speaker 4: really would like to take rates up twenty five basis
36:58
Speaker 4: points every quarter for the next two years until they
37:02
Speaker 4: hit two and then you think, what happens to thirty
37:05
Speaker 4: year jgbs in that environment? Do we still keep the
37:08
Speaker 4: shape of the curve and then thirty year jgb's go
37:11
Speaker 4: to two and half sorry, three and a half percent?
37:14
Speaker 4: And then what does that do to treasury yields? Because
37:17
Speaker 4: they can all move together, they can all move together,
37:23
Speaker 4: then this would be this is the biggest story out there.
37:26
Speaker 4: But I do think they want to try and move
37:29
Speaker 4: The second thing that I think is we do believe
37:34
Speaker 4: that Japan is going to become the next major tech
37:39
Speaker 4: hub for the West in the Cold War with China.
37:46
Speaker 4: So there is a lot of reonshoring of Japanese high
37:51
Speaker 4: tech back into Japan with fab factories, with automation, with
37:57
Speaker 4: everything which is going to leave Japan very much in
38:02
Speaker 4: the Western sphere. Okay, the only concern that I have
38:08
Speaker 4: Maren about Japan is the same concern that I have
38:14
Speaker 4: about the US. If you go back and you look
38:17
Speaker 4: at two thousand and seven and two thousand, the Japanese
38:22
Speaker 4: market tends to run up right towards the end of
38:27
Speaker 4: the ballmarket. It's as if people turn round and go, oh,
38:34
Speaker 4: what's cheap in the world, Oh, Japan's cheap. They go
38:39
Speaker 4: piling into Japan, And really what they should be asking
38:45
Speaker 4: is not what is cheap, but what is really expensive?
38:49
Speaker 4: And the US is really expensive, and so Japan is
38:53
Speaker 4: only really cheap relative to the US. Again, so it's
38:57
Speaker 4: and so.
38:57
Speaker 1: It runs up when people think themselves, this is spensify.
39:00
Speaker 1: I want to buy something cheap, and they rush off
39:02
Speaker 1: to Japan.
39:03
Speaker 4: Yeah, well, but it could be chart wise, Japanese banks
39:08
Speaker 4: look amazing in dollars right here, right now. If we
39:13
Speaker 4: can hold what looks to me like a twenty five
39:17
Speaker 4: year trend line break, fascinating.
39:21
Speaker 1: Okay, let's leave Japan and see if we can find
39:24
Speaker 1: something positive to say about the UK for challenge.
39:28
Speaker 4: Yeah, it is a bit of a challenge. I'm afraid easy,
39:32
Speaker 4: look and I'm not and I find it quite hard
39:34
Speaker 4: to model the UK. I wasn't a Brexit fan. To me,
39:38
Speaker 4: that was a bit of an own goal. I do
39:41
Speaker 4: think the inflation improvement is by and large over. I
39:48
Speaker 4: do think we are playing with fire when it comes
39:53
Speaker 4: to the same thing as the US is cutting rates
39:56
Speaker 4: with service inflation as high as it is. But I
39:58
Speaker 4: can see and we we are heading for but we're
40:01
Speaker 4: heading for a recession, so they.
40:03
Speaker 1: Should technically remember them. Yeah, okay, all right, can't make
40:06
Speaker 1: you say anything positive I'm going to have to do
40:09
Speaker 1: on the UK now, haply with there, Okay, let me
40:11
Speaker 1: ask you some quick fire questions.
40:12
Speaker 4: Then.
40:12
Speaker 2: Who's going to win the American election?
40:14
Speaker 4: I would say it's too early to call, but I
40:17
Speaker 4: think there is a real isk that Trump gets it.
40:20
Speaker 1: If I locked you away for ten years, actually didn't
40:23
Speaker 1: lock you away, you can go free.
40:24
Speaker 2: But if I told you that you could.
40:26
Speaker 1: Only buy one thing and you had to hold it
40:29
Speaker 1: for ten years, and they gave you a choice of
40:30
Speaker 1: only two things, and they were gold and bitcoin, what'd
40:33
Speaker 1: you take?
40:33
Speaker 4: Oh? God, Look, on a relative basis, right here, right now,
40:37
Speaker 4: has to be gold because.
40:38
Speaker 1: It's cheaper, because it's didn't gone up. How do we
40:40
Speaker 1: know what's cheap and expensive when it comes to bitcoin
40:42
Speaker 1: and gold?
40:43
Speaker 4: We don't, right, you don't. But I would say gold
40:46
Speaker 4: right here, right now if you put a gun to
40:47
Speaker 4: my head.
40:47
Speaker 2: Okay, have you got anything useful to say on bitcoin?
40:50
Speaker 4: Look, my colleague in one of the products that we produce,
40:54
Speaker 4: the Real Vision product that we produce for ol Powell
40:57
Speaker 4: has been has nailed this thing, right, He's done incredibly well.
41:01
Speaker 4: And I did listen to some extent and board a
41:03
Speaker 4: bit around twelve thousand. Didn't buy enough. By any search
41:06
Speaker 4: of the imagination, it should have been in many years ago.
41:09
Speaker 4: But in accience I'm a bit of a Luod eye.
41:11
Speaker 4: And the problem that I've got with all of these things, Maren,
41:16
Speaker 4: is my fear about bitcoin. And I've said this on
41:19
Speaker 4: the record. I think it could be the best trade ever, right,
41:24
Speaker 4: the best trade ever. Now is it the best store
41:31
Speaker 4: of wealth and that which is one of the arguments
41:35
Speaker 4: that you get from a lot of people, and on
41:37
Speaker 4: that I think the answer is definitively no. And the
41:41
Speaker 4: reason is that I fear that in the world, I
41:44
Speaker 4: think that we are going into where government deficits are
41:48
Speaker 4: going to be challenged, where governments and central banks are
41:51
Speaker 4: going to have to be increasingly interventionist, and we move
41:55
Speaker 4: to this thing called fiscal dominance where basically government deficiit
42:00
Speaker 4: dictate what happens to central bank policy. That central banks
42:05
Speaker 4: and policy may have to move back to the sort
42:08
Speaker 4: of situations we saw in the sixties and the seventies,
42:12
Speaker 4: where you get it things like exchange controls and draggy
42:15
Speaker 4: is intimated this recently and in that situation. My fear
42:20
Speaker 4: is that bitcoin is so good at potentially avoiding those
42:26
Speaker 4: outcomes that Western governments may have to ban it.
42:31
Speaker 2: That is what I see is that the risk as well.
42:34
Speaker 4: Now that could happen from two hundred thousand maren right
42:38
Speaker 4: in bitcoin, right, so it could be the best trade,
42:43
Speaker 4: but is it going to be ultimately the place where
42:45
Speaker 4: you want to have your wealth? And that that's completely
42:49
Speaker 4: different question.
42:49
Speaker 1: Yeah, yeah, indeed it is, Julian. We have to end there.
42:53
Speaker 1: I've taken that far two months of your time. But
42:55
Speaker 1: thank you so much for joining us today. That was fascinating,
42:58
Speaker 1: and we put you down on our lists of who's
43:01
Speaker 1: chosen Gold and who's chosen Bitcoin. We put you down
43:03
Speaker 1: as gold. Thank you, okay, John. So that was Julian,
43:15
Speaker 1: pretty interesting. We covered well, we basically covered everything.
43:19
Speaker 2: What did you think.
43:20
Speaker 4: I thought he was great.
43:22
Speaker 3: The one thing that kind of stood there to me
43:25
Speaker 3: and made me feel worried the game is the fact
43:26
Speaker 3: that he said that Japan always goes up late before
43:29
Speaker 3: there's a big crash, and I've sort of been trying
43:31
Speaker 3: to pretend that that doesn't happen, but now I'm feeling
43:35
Speaker 3: feeling worried about it again.
43:37
Speaker 4: Yeah.
43:38
Speaker 1: Well, I mean he's right in the in the sense
43:40
Speaker 1: that you know, we talked to him. We talked in
43:41
Speaker 1: the beginning about before before Julian came on, about all
43:45
Speaker 1: the things that we've waited for and waited for and
43:47
Speaker 1: waited for, and we've been waiting for a jam for
43:49
Speaker 1: Japan for a long time. And along the way, we've
43:51
Speaker 1: also we've made a couple of mistakes, haven't we we've
43:53
Speaker 1: thought that Japan is good and everything's fine, it's back
43:56
Speaker 1: in a bull market, and then and then it isn't.
43:59
Speaker 2: But this time it does feel it feels real. It
44:03
Speaker 2: feels real.
44:04
Speaker 4: You know.
44:04
Speaker 1: We've got all the things that we talked about in
44:06
Speaker 1: this about it becoming a take cub for the West,
44:09
Speaker 1: about it taking over a lot of the stuff from China,
44:11
Speaker 1: the on shoring or reassuring, the sort of slight reversal
44:14
Speaker 1: of globalization that actually works in Japan's favor. We've talked
44:18
Speaker 1: about activism, We've talked about the valuations. But he says,
44:22
Speaker 1: you know this bit in part of the conversation where
44:24
Speaker 1: he says, it's as if people turn around and go, oh,
44:27
Speaker 1: everything is expensive.
44:28
Speaker 2: What's cheap?
44:28
Speaker 1: Now, Japan, Japan's AWA's cheap. They're pile into that and
44:32
Speaker 1: they shouldn't be asking what is cheap, he says, but
44:35
Speaker 1: what is really expensive? And the US is really expensive,
44:39
Speaker 1: So Japan is not really cheap, is only cheap relative
44:42
Speaker 1: to the US, and we don't think of it the
44:44
Speaker 1: right way around. But of course, actually Japan kind of
44:47
Speaker 1: is really cheap or was you know, if you look
44:51
Speaker 1: back at the valuations that we used to talk about
44:53
Speaker 1: with the percentage of stocks of companies in in the
44:56
Speaker 1: in Japan trading it below their net asset value, below
44:59
Speaker 1: their cash back. And you look at the page, you
45:01
Speaker 1: look at the dividends, it has been cheap in absolute levels,
45:05
Speaker 1: not just relative to you.
45:06
Speaker 3: Yeah, and I mean, to be fair, there's has been
45:08
Speaker 3: a lot of change. I mean, the latest wage round,
45:13
Speaker 3: they're looking at over five percent wage inflation in Japan,
45:16
Speaker 3: which is I mean extraordinary. That would have been unimaginable
45:22
Speaker 3: to probably either of his certainly pre COVID. So to
45:27
Speaker 3: be fair, I do think things have changed. Although one
45:29
Speaker 3: of the other interesting points he raises, which I do
45:32
Speaker 3: think is something to watch, is this idea that when
45:36
Speaker 3: Japan finally raises interest rates, we don't know what's going
45:40
Speaker 3: to happen, because there might be a massive swosh of
45:44
Speaker 3: money basically towards Japan again, and that could be a big,
45:49
Speaker 3: big shift in you know, the the landscape for asset
45:54
Speaker 3: prices generally. But beyond all that, the other thing that
45:58
Speaker 3: was really interesting was the way that he talked about
46:00
Speaker 3: how inflation will be persistent. Because I know we both
46:04
Speaker 3: agree that inflation will be persistent, but he kind of.
46:06
Speaker 1: We do agree with that, and we like to come
46:08
Speaker 1: on to agree with us that.
46:12
Speaker 3: The nice thing is he articulated good reasons for it
46:14
Speaker 3: to be kind of persistent. I think the point about
46:19
Speaker 3: kind of services inflation particularly being you know, it's it's
46:23
Speaker 3: not actually obvious at this point why with interest rates
46:29
Speaker 3: where they are, services inflation should get particularly you know,
46:34
Speaker 3: weaker than it is, particularly because a lot of people
46:38
Speaker 3: still feel fed up that their you know, their earnings
46:42
Speaker 3: are not maintaining their standard of living the way it
46:46
Speaker 3: was maybe you know, three years ago, because like price
46:51
Speaker 3: inflation might be calming down, but the price level is
46:53
Speaker 3: absolutely higher. And I don't know about you, and I
46:57
Speaker 3: don't know about our listeners, but definitely there's a lot
47:00
Speaker 3: of things when I go into you know, a restaurant
47:02
Speaker 3: or you know, I mean that's kind of luxury, the
47:04
Speaker 3: wee things that you like to you know, spend money
47:08
Speaker 3: on that make your life cannot find you look at
47:10
Speaker 3: the prices like hang on a minute, that is actually
47:14
Speaker 3: really painfully high, and or like.
47:18
Speaker 1: Pint you want to be careful John, or I'm going
47:20
Speaker 1: to ask you. I'm going to ask if you know
47:21
Speaker 1: the price for a pint of milk, and you won't.
47:24
Speaker 2: Of course, I don't know what kind of conversations you have.
47:27
Speaker 3: My servants to face with pints and milk. That's you know,
47:30
Speaker 3: I don't know the places are pint and milk. Another
47:33
Speaker 3: places are pint in central London and that's just you know, unacceptable.
47:39
Speaker 1: Didn't mean to get you onto that either, but but
47:42
Speaker 1: Julian phils it. Even though inflation, it serves this inflation
47:46
Speaker 1: is going to be more persistent than many people expect,
47:49
Speaker 1: which you and I agree with because we particularly believe
47:52
Speaker 1: that that labor forces now understood the decline in real
47:56
Speaker 1: wages and understood that the way to get your real
47:59
Speaker 1: wages to stay daddy or possibly even right is to
48:01
Speaker 1: ask for more money and to give power to your union.
48:05
Speaker 1: You know, this is a change over the last couple
48:07
Speaker 1: of years in the psyche of the work right.
48:09
Speaker 2: Not a bad one, by the way.
48:11
Speaker 1: Because your railway just particularly in the UK, have been
48:13
Speaker 1: flat or falling for far too long. So a little
48:16
Speaker 1: bit of push from from workers is no bad thing.
48:19
Speaker 1: And that is I think in Julian things and I
48:21
Speaker 1: think you think definitely going to be the thing that
48:23
Speaker 1: holds up inflation and makes it more volatile than people expect,
48:26
Speaker 1: but Julian does not expect that to mean that rates
48:32
Speaker 1: either stay particularly eye or to rise. He feels very
48:36
Speaker 1: strongly that into an election year, as he puts it,
48:41
Speaker 1: Yellen wants to get her boss reelected.
48:44
Speaker 3: Yeah, and I thought that was really interesting, and it
48:47
Speaker 3: kind of made me think what a stronger genius it
48:52
Speaker 3: was to get a former central banker it'd be your
48:56
Speaker 3: treasury secretary, because she really does understand and the plumbing
49:02
Speaker 3: and a way that you know, your standard politician would not.
49:06
Speaker 3: And so it's pretty clear. I don't mean, please, don't
49:10
Speaker 3: get wrong, I don't understand the plumbing properly, but from
49:13
Speaker 3: what more intelligent people than me seem to say, Janet
49:17
Speaker 3: Yellen has managed to, you know, mess about with their
49:21
Speaker 3: issuance in such a way that it keeps the whole
49:24
Speaker 3: thing rolling, certainly until the next election. If you're a player,
49:27
Speaker 3: you know, if you if you, if you have that
49:28
Speaker 3: power and you have that knowledge, then you know, why
49:31
Speaker 3: not use it pertainly? Now she has a politician rather
49:34
Speaker 3: than an independent central banker.
49:37
Speaker 1: Yeah, and he says here, I mean, I was very
49:39
Speaker 1: interesting when you talk talking about this. He talked about
49:42
Speaker 1: Janet Yellen's ability to offset what the FED has been
49:44
Speaker 1: trying to do in terms of tightening liquidity. You know,
49:47
Speaker 1: and I asked you earlier he said, well, what, yeah,
49:49
Speaker 1: where does the money come from? And you know what
49:51
Speaker 1: what Yellen can do here as part of the answer.
49:54
Speaker 1: So whatever you think of the FED, and you know
49:58
Speaker 1: Jillian doesn't, doesn't it expect to see the constant rate
50:02
Speaker 1: rises that some people do. But whatever you think of
50:05
Speaker 1: the FED, the most important thing at the moment seems
50:07
Speaker 1: to be to listen to what he's saying here about
50:09
Speaker 1: what yelling can do out with God have been in
50:11
Speaker 1: Scotland too long out with and what that's.
50:15
Speaker 2: A great one. So I don't know how English people
50:17
Speaker 2: ever managed. It's a brilliant word out with the Fed.
50:22
Speaker 1: Now with that in mind, I've just been reading earlier
50:25
Speaker 1: today a report from gav Kal and I you sometimes
50:28
Speaker 1: read there in their research as well, and they have
50:30
Speaker 1: got a list of places where they think all the
50:33
Speaker 1: money is coming from, and they include this.
50:36
Speaker 2: But also one of the other things.
50:38
Speaker 1: Is is still the COVID hangover, that there is still
50:42
Speaker 1: money sitting in bank accounts left over from COVID. And
50:46
Speaker 1: then they talk about lower energy bills and various things,
50:48
Speaker 1: but it's another thing they come back to which is
50:50
Speaker 1: really interesting based on what we were speaking about earlier
50:53
Speaker 1: with services inflation, which is that in the US, with
50:58
Speaker 1: wages having been rising significantly faster among the young than
51:02
Speaker 1: the old, is it possible whether and I'm quoting here,
51:06
Speaker 1: this newfound wealth has encouraged encouraged speculation in the more
51:10
Speaker 1: youth oriented parts of the market, So, you know, momentum trades,
51:15
Speaker 1: crypto and as they put it, monkey JPG.
51:22
Speaker 2: I think they're they're they're.
51:23
Speaker 1: Not not the youth orientated generation themselves, but still kind
51:27
Speaker 1: of so that was a that was an interesting thought
51:30
Speaker 1: that I had not had. I that this rising the
51:33
Speaker 1: rising services inflation, which is connected to rising wages, which
51:37
Speaker 1: is connected in particular to rising wages of younger people,
51:40
Speaker 1: which in turn is connected two more speculative types of investing.
51:45
Speaker 3: See that actually interest because there's another guy who I
51:48
Speaker 3: read a lot I think maybe you get stuff to
51:50
Speaker 3: called Vincent Delwald who writes for stone X, and he's
51:54
Speaker 3: been talking about inflation for a long time as well,
51:57
Speaker 3: and he talked about the wealth effect coming back to
52:01
Speaker 3: you're sort of arguing that that was repressed during the
52:04
Speaker 3: kind of twenty tens because households were fixing the balance sheets,
52:08
Speaker 3: so the whole you know, even a low stock market
52:12
Speaker 3: prices did go up. You know, any kind of excess
52:15
Speaker 3: was basically going towards balance sheet repair. But now the
52:21
Speaker 3: rising asset prices is going to feed through to inflation again.
52:25
Speaker 3: And at some point twenty twenty five, maybe that means
52:28
Speaker 3: they fed if they do want to tackle inflation, will
52:30
Speaker 3: have to lean against asset prices. But it's interesting they
52:34
Speaker 3: both have come up with that, the kind of return
52:36
Speaker 3: of the wealth effect as being inflationary.
52:39
Speaker 2: Yeah.
52:40
Speaker 1: But of course the other interesting thing about this conversation
52:42
Speaker 1: with Jillian is that he makes it very clear that
52:44
Speaker 1: if it looks like a bubble, looks like a bubble,
52:46
Speaker 1: quite like a bubble, it probably is a bubble. So
52:49
Speaker 1: it doesn't matter how much time and effort you put
52:52
Speaker 1: into talking about where the money comes from and all
52:54
Speaker 1: the different ways to adjust it, it just looks.
52:57
Speaker 2: Like a bubble.
52:59
Speaker 3: Yeah, yeah, the one probably something that looks like a bubbles. Well,
53:04
Speaker 3: so as a normal private investor, what do you do
53:07
Speaker 3: about it? Because you don't know when it's going to
53:09
Speaker 3: burst it? I mean, the one painful thing that I
53:12
Speaker 3: have learned over my middling investment career is that you
53:18
Speaker 3: you can't time a bubble bursting. It's much much easier
53:22
Speaker 3: to pick at I would say it's much much e's
53:25
Speaker 3: heier to say no, it's okay piling now, but if
53:28
Speaker 3: but saying when do you like? When do you get
53:30
Speaker 3: out of Nvidia? The price was insane about you know,
53:34
Speaker 3: nine months ago, and it's just got more insane. So
53:38
Speaker 3: I think with that you just have to rebalance, don't you.
53:42
Speaker 3: Basically that's allocation.
53:43
Speaker 1: We can we can recognize the insanity without attempting to
53:47
Speaker 1: pick the top, can't we?
53:48
Speaker 2: Because we're adult, This is true.
53:51
Speaker 3: Being an adult means not trying to pick the top
53:54
Speaker 3: of a bubble. That's that. I think that's a good
53:58
Speaker 3: thought for the day.
53:58
Speaker 2: Really, thanks for.
54:03
Speaker 1: Listening to this week's Marin Dogs Money. We'll be back
54:06
Speaker 1: next week in the meantime. If you like our show,
54:08
Speaker 1: rate review, and subscribe wherever you listen to podcasts, and
54:10
Speaker 1: feel free to reach out to us through our show
54:12
Speaker 1: Email Maren Money at Bloomberg dot net. This episode was
54:16
Speaker 1: hosted by me Maren sumset Web. It was produced by
54:19
Speaker 1: some Aside additional editing by Rischie bjcol Special thanks to
54:22
Speaker 1: Julian Britain and to John Steppeck