Latest / Merryn Talks Money / Roundup: Nervous Markets, The Oil Price Slide, UK Pensions to the Rescue

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Roundup: Nervous Markets, The Oil Price Slide, UK Pensions to the Rescue · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Maren
• 0:12
  Speaker 1: Talks Money weekly round up debrief on the biggest stories
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  Speaker 1: in markets and economics. I'm Maren Sumset, Web senior opinion
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  Speaker 1: columnist and you're your own George.
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  Speaker 2: Yeah, that's terrible. How many what you can't get used
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  Speaker 2: to this status? And I'm join Stepic Money distilled author
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  Speaker 2: and senior reporter at Bloomperk. Okay, got that sorted. It's
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  Speaker 2: a professional.
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  Speaker 1: I know we're on this. John, You've been writing a
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  Speaker 1: lot of interesting stuff this week and earlier this week
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  Speaker 1: he wrote about nervous, very nervous markets. You know where
• 0:48
  Speaker 1: slightly at the point of hills where markets shouldn't be
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  Speaker 1: nervous because they know that we're on the We're on
• 0:53
  Speaker 1: the edge of a cutting cycle right in the UK
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  Speaker 1: already had a rate cup coming in the US. We
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  Speaker 1: know that twenty five basis points is pretty baked in,
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  Speaker 1: maybe a half, but definitely twenty five. So there we
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  Speaker 1: are on the cusp of this. It's supposed to be
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  Speaker 1: good news for markets. Niggas and such.
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  Speaker 2: A twist about the approximate problem is that the non
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  Speaker 2: found payrolls, so the US labor market numbers were a
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  Speaker 2: bit worse than they thought, And I think that the
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  Speaker 2: problem is everyone was hoping you'd get a definitive answer
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  Speaker 2: from this particular bit of data.
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  Speaker 1: Not great, but not so bad that it's definitely percent.
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  Speaker 2: Yeah, exactly, So it doesn't justify the alone, doesn't justify
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  Speaker 2: the FED going full on, let's just slash rates altogether.
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  Speaker 2: And at the same time, it wasn't a particularly good
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  Speaker 2: figure either, And we had some.
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  Speaker 1: Fairly dire not dire, but not quite right manufacturing numbers
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  Speaker 1: earlier in the week, didn't we.
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  Speaker 2: Yeah, And I guess it's this other thing of the
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  Speaker 2: jobs data everywhere, I mean particular in the UK has
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  Speaker 2: been quite hard to pass compared to most of the
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  Speaker 2: you know, the other data. There's a general problem with
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  Speaker 2: people responding to surveys because the kind of job stata
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  Speaker 2: has largely gathered from survey's and so basically no one's
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  Speaker 2: really got any proper idea of what the labor market's doing.
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  Speaker 2: And so I think that that's sort of adding to
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  Speaker 2: the whole thing. But then over and above that, you've
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  Speaker 2: also get the fact that the big stocks in the
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  Speaker 2: US are very expensive, and there's a lot less confidence
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  Speaker 2: in the artificial intelligence bubble propping up and up than
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  Speaker 2: there was maybe a couple of months ago. So I
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  Speaker 2: suppose it's just the market has been doing this fluctuation
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  Speaker 2: between worrying that there's about to be a recession and
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  Speaker 2: we're going to get taken by surprise and then thinking, actually,
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  Speaker 2: everyone's gonna be fine. And I think this is more
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  Speaker 2: just a continuation of that than anything.
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  Speaker 1: And it does feel like the AI bubble really has beast,
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  Speaker 1: doesn't it. In the conversations and I'm hearing at the
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  Speaker 1: moment very different the conversations I was hearing before. I
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  Speaker 1: mean our main and treat this week I talked much later.
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  Speaker 1: And one of the things that he says, we're talking
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  Speaker 1: about a catalyst for the UK market. He says, well,
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  Speaker 1: do you know it's a lot easier to think of
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  Speaker 1: a catalyst for the UK mugat as a hold to
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  Speaker 1: go up significantly, then it just think of a catalyst
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  Speaker 1: for for example, Nvidia, as you told me to call it,
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  Speaker 1: Nvidia does suddenly go up another thirty percent? One Earth
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  Speaker 1: is catalyst for that. And another conversation earlier this week
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  Speaker 1: about energy and in Nvidia and about if every single
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  Speaker 1: chip that everyone expects in Vidio to produce and ship
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  Speaker 1: is produced and ship. The amount of energy required to
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  Speaker 1: run those chips.
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  Speaker 3: Is off the scale, off the scale.
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  Speaker 1: So once you start looking at all those other areas
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  Speaker 1: and attention is is moving towards thinking about that kind
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  Speaker 1: of thing feels a little over, doesn't it.
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  Speaker 2: Yeah, I mean, I guess it's it feels like the
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  Speaker 2: conversation changes that the point were a Goldman size. Gay
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  Speaker 2: pointed out, you know, the problem is we'll spend a
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  Speaker 2: lot of money up and yeah, sure that EI is
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  Speaker 2: going to change stuff in the long run, but at
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  Speaker 2: the moment, you know, it's reliant on actually quite a
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  Speaker 2: small group of companies spending a shed with the money
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  Speaker 2: on building up the DEA capacity, And as soon as
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  Speaker 2: one of them says, okay, that's an off, then that
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  Speaker 2: you know, the scope for Nvidia's growth is is cannot
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  Speaker 2: stainied as they would put it in America.
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  Speaker 1: Another thing that it was pointed out to me a
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  Speaker 1: lot of conversations this week. Another conversation about video the
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  Speaker 1: other day was about the demand for its products and
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  Speaker 1: saying that one of the interesting things about the market
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  Speaker 1: at the moment is that back saying in the dot
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  Speaker 1: com bubble, the majority of the loss making, small, loss
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  Speaker 1: making tech companies were listed, remember buying all those buying
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  Speaker 1: all those ridiculous, small, unlisted, massively loss making tech companies
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  Speaker 1: very much in the public eye. But this time around,
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  Speaker 1: a lot of the companies involved in high level new technology,
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  Speaker 1: particularly AI et cetera, unlisted and hidden inside private equity films,
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  Speaker 1: private equity companies, et cetera. We can't really see what
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  Speaker 1: they're doing. We can't really see whether that demand is sustainable.
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  Speaker 1: We can't really see the extent which they will survive.
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  Speaker 1: There's an awful lot that we don't really know about
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  Speaker 1: the demand for the products of companies like video. It's
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  Speaker 1: an interesting tech.
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  Speaker 2: Is interesting because you're right, it's the AI bubble is
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  Speaker 2: very narrow and it's basically in video and nothing else,
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  Speaker 2: which is one reason why in video has gone up
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  Speaker 2: so much. But all of the fluffy dot com style
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  Speaker 2: stuff is probably sitting in private equity portfolios where it
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  Speaker 2: can be extended and pretended for.
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  Speaker 1: Years, sitting there the wrong price.
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  Speaker 2: Yeah well yeah, especially if that price is actually zero.
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  Speaker 2: I mean, you can only extend and pretend that something's
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  Speaker 2: not worth zero for so long.
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  Speaker 1: Let's move on to what you've been writing about today.
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  Speaker 1: I think you'll be writing about oil, right, Yeah, the.
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  Speaker 2: Oil prices falling a lot. It's like since a pro
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  Speaker 2: I was looking at a chart not quite appreciated it
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  Speaker 2: is down over twenty percent. And obviously, if you look
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  Speaker 2: at the price of filling up your car, that's down
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  Speaker 2: a good bit as well, which is right. Yeah, maybe
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  Speaker 2: not quite as much as the oil price itself, but.
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  Speaker 1: None the less cheaper driving.
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  Speaker 2: And the thing that getting everyone worried, obviously is is
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  Speaker 2: the oil price falling because the global economy has actually
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  Speaker 2: hit a wall and we just haven't realized that yet.
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  Speaker 2: Or is it falling because there's just too much oil
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  Speaker 2: being produced.
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  Speaker 1: Maybe we don't need it anymore because of the wind.
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  Speaker 2: That I feel I can discount. It's not you're filling
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  Speaker 2: up the car, we wind sadly, but yeah, but I
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  Speaker 2: was looking at the kind of the charts because the
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  Speaker 2: termino actually is very good for this sort of thing,
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  Speaker 2: strangely enough, and US oil production, So the US is
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  Speaker 2: producing over thirteen million barrels of oil a day at
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  Speaker 2: the moment, and that's nearly a record for the US.
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  Speaker 2: And it's also if you look at what Saudi's producing.
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  Speaker 2: Saudi's producing about nine point two million barrels a day,
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  Speaker 2: So see a lot of people Still, I think the
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  Speaker 2: fact that the US is a biggert oil producer in
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  Speaker 2: Saudi Arabia will come as a surprise, even though that
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  Speaker 2: has been the case for many years now. And I
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  Speaker 2: do think this is arguably the most interesting geopolitical story
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  Speaker 2: in the past two decades, is the fact the US
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  Speaker 2: has gone from producing hardly any oil in the early
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  Speaker 2: two thousands to now being the biggest oil producer and
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  Speaker 2: also oil exporter, increasingly important in the like fied natural
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  Speaker 2: gas market as well. And also if you're looking for
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  Speaker 2: a clue as to why the US has done so
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  Speaker 2: well exactly, you know, nobody talks about it. And I
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  Speaker 2: think maybe that's because it's you know, America is a
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  Speaker 2: fossil fuel superpower.
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  Speaker 1: Yeah, and there's more. There's more, Yeah, there's more shell
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  Speaker 1: coming from other places as well, like Canada to yeah.
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  Speaker 3: Brazil, other places.
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  Speaker 1: Do you remember the peak oil thirty years ago, John,
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  Speaker 1: fifteen years ago? I remember we used to write articles
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  Speaker 1: about peak oil.
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  Speaker 2: Well, it was fashionable. I remember.
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  Speaker 1: I'm sure we did not follow fashion I'm sure it's first.
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  Speaker 3: To pea coil.
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  Speaker 2: We were peak coil, just to be very clear. First
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  Speaker 2: we were writing about it whenever it wasn't mainstream. But yeah, no,
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  Speaker 2: the idea, the idea would run out of oil, and
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  Speaker 2: obviously that did partly fuel the new sources oil that
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  Speaker 2: we've got. And I remember, actually when we were writing
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  Speaker 2: about that, the idea that oil fracking was ever going
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  Speaker 2: to be a viable technology was still deemed to be
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  Speaker 2: a decade or more away. And that was when we
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  Speaker 2: first started writing about it in two thousand and five,
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  Speaker 2: and actually it was already kind of on the way.
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  Speaker 2: It's a really good story about how human ingenuity does
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  Speaker 2: actually went out if you incentivize it properly. I mean,
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  Speaker 2: in the current case, I do think or I've sort
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  Speaker 2: of concluded that, well, if the US is making record
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  Speaker 2: amounts at oil, then chances are the oil prices collapsing
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  Speaker 2: because there's just a lot of.
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  Speaker 1: Just a little oil, which is a great thing, Okay, John,
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  Speaker 1: Speaking pragmatism, the one thing that you and I are constantly,
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  Speaker 1: constantly concerned about is the UK stock market and it's
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  Speaker 1: slow and rather miserable death fall in the number of
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  Speaker 1: companies listed on every part of the market, year after
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  Speaker 1: year after year, total dearth of new IPOs. Even though
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  Speaker 1: we keep being told there's for a lot of them coming,
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  Speaker 1: they never seem to turn up. There's a horrible valuation
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  Speaker 1: gap with the US, in particular, miserable levels of liquidity.
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  Speaker 1: As several people I've spoken to over the last few
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  Speaker 1: weeks been talking about why don't foreigners come and investor
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  Speaker 1: in the UK. They are coming by bit, of course,
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  Speaker 1: but one of the things that foreign investors say is
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  Speaker 1: there's just not enough liquidity there. We can't get in
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  Speaker 1: and out when we want to. So many problems with
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  Speaker 1: this market. And of course I'm furious about the dumping
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  Speaker 1: of the British I said. We talked about this last
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  Speaker 1: week because that would have sent a signal to the
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  Speaker 1: rest of the world that our government was serious about
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  Speaker 1: supporting the UK market. Now it kind of looks like
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  Speaker 1: they're not. But there is an enormous amount of church
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  Speaker 1: chat around this. There's a report out this week that
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  Speaker 1: I know you wrote about that it jammed full of
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  Speaker 1: good suggests to the government to ignore.
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  Speaker 2: Yes, it's interesting because we'll have to go and see
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  Speaker 2: what happens with the budget. Because I think the government
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  Speaker 2: might to be seen as supporter, but I suspect it
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  Speaker 2: in net net they probably won't be. But one of
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  Speaker 2: the most interesting elements there was a report about reviving
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  Speaker 2: the capital markets and one of the pieces that fed
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  Speaker 2: into it was this piece by the New Financial think Tank,
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  Speaker 2: which was basically just comparing what the UK's home bias
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  Speaker 2: is like compared to other countries. So basically, how much
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  Speaker 2: do we invest in our own stock market versus other
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  Speaker 2: stock markets? And the thing about this is that the
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  Speaker 2: UK is towards the bottom of the ladder when it
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  Speaker 2: comes to this. I think overall it was the UK
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  Speaker 2: pension system holds about four percent of its assets in
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  Speaker 2: UK equities compared to Australia. In Australia, like the overall
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  Speaker 2: superannuation system holds twenty five percent in Australian equities, And
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  Speaker 2: I think it's obviously Australia is like a much smaller
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  Speaker 2: stock market than the UK's. You know, in the MSCI Index,
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  Speaker 2: the UK probably accounts for about three and hour a
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  Speaker 2: half percent, So four percent is that's not much home
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  Speaker 2: bias at all, whereas compared to Australia twenty five percent
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  Speaker 2: versus I mean Australia must be what about one or
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  Speaker 2: two percent of global stock market value, so that's much
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  Speaker 2: much greater kind of bias towards Home. And so the
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  Speaker 2: question then is why has that happened? Does it matter?
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  Speaker 2: And how will we change it?
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  Speaker 1: And they really need to worry about the why we
• 11:25
  Speaker 1: can just say policy mistake, disaster etctera, Well we need one,
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  Speaker 1: that is, how do we fix it? Yeah.
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  Speaker 2: The one reason I would say that it's interesting to
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  Speaker 2: deal with a bit deeper is because most of this
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  Speaker 2: is because still the biggest party assets is in corporate
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  Speaker 2: divine benefit pension schemes and they're in rundown, so they
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  Speaker 2: basically get rid of most of their equity. Well yeah, exactly,
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  Speaker 2: it'd be nice to have one, but they've got ready
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  Speaker 2: most of their equities and so they only hold about
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  Speaker 2: one percent of their assets in UK equities.
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  Speaker 1: Okay, so they're busy Live Lind team matching, so they
• 11:56
  Speaker 1: don't want to be in there exactly.
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  Speaker 2: And they account for about half of the British pen
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  Speaker 2: to the system's total assets, so they're a big, big thing.
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  Speaker 2: But the good news is that it is mixed news
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  Speaker 2: because you can't have one. But it's good news because
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  Speaker 2: the thing that's replacing them to define contribution pensions or
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  Speaker 2: too enrollment. It already holds about nine percent in UK
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  Speaker 2: equities and that's going to become the bigger player over time.
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  Speaker 2: So gradually the bias away from UK equities should fall
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  Speaker 2: out of the system. Now that's not to say that
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  Speaker 2: we couldn't accelerate that, and it's not to say that
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  Speaker 2: we shouldn't accelerate it. And I do think this is
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  Speaker 2: one area where a lot of the criticisms of the
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  Speaker 2: British ISA missed the point. The point isn't so much
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  Speaker 2: about supporting UK domestic companies of the economy, is about
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  Speaker 2: supporting an actual functioning capital market. And so that means
• 12:54
  Speaker 2: that you know, you can count a UK listed equity
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  Speaker 2: as anything that's listed in the UK. It doesn't you know,
• 13:01
  Speaker 2: it's like a minor that's got all of its mines
• 13:03
  Speaker 2: in Egypt or something like that, or.
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  Speaker 1: If it's an investment trust exactly the point, it's just
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  Speaker 1: the exactly, but the depth of the market val and
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  Speaker 1: anything else. Okay, So there is a lot of conversation
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  Speaker 1: about this and possibly an expectation that's going to be
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  Speaker 1: a level of compulsion.
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  Speaker 2: Yeah, I mean, I do wonder where are they where
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  Speaker 2: are they going to bring that? And you know you've
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  Speaker 2: got companies saying that they will invest five percent, that
• 13:30
  Speaker 2: you've got some seeing them in veset five percent of
• 13:32
  Speaker 2: assets in smaller UK companies and presumably that would end
• 13:36
  Speaker 2: up meaning like AIM stocks as well as the unlisted stuff.
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  Speaker 1: But if you're going to remove which is another conversation
• 13:44
  Speaker 1: really from AIM, so then AIM structs no longer have
• 13:47
  Speaker 1: there is a ridiculous level of unjustifiable taxually that they
• 13:50
  Speaker 1: currently have. Then putting in place something to replace the
• 13:56
  Speaker 1: liquidity that you're losers with. Some that might be might
• 13:59
  Speaker 1: be used, for example, the Brittiser. If you took away
• 14:02
  Speaker 1: the tax relief on AIM and putting a Britiser at
• 14:04
  Speaker 1: the same time, that'll be good.
• 14:06
  Speaker 2: Yeah, that were good.
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  Speaker 1: Or if you took it away but also asked define benefit,
• 14:12
  Speaker 1: define pension fans to put a certain amountain at the
• 14:14
  Speaker 1: same time.
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  Speaker 3: You could you could sort it out, you get because
• 14:21
  Speaker 3: I thought that was quite scandalous really, but also also
• 14:24
  Speaker 3: quite a good idea of basically getting the all the
• 14:28
  Speaker 3: ass and just saying there's only one ayser you've got
• 14:31
  Speaker 3: invest in stocks to get the ta.
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  Speaker 1: Now if you did that and your abolished damn duty
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  Speaker 1: at the same time, yes, you'd send up massive signal
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  Speaker 1: to the world. At the UKs genuinely open for business.
• 14:46
  Speaker 1: Thanks for listening to this week's Maren Dog's Money Debrief.
• 14:49
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