March 13, 2025 • 21 mins
The great John Authers, senior markets editor and Opinion columnist at Bloomberg, joins Merryn and John Stepek for this week's roundup. He talks about his time in Frankfurt, explaining "the biggest turning point for German economic policy at least since reunification, and possibly much longer." He also points out why German companies look like good value ( "take 10 percent out of your Mag7 ETF and put it into a Stocks Industrials ETF, and that will move things very quickly") and whether Wall Street is losing hope in the 'Trump put.'
Disclaimer: Merryn's audio isn't great in this episode but we'll have it fixed by next week. The Johns sound excellent.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
Talks Money weekly round up, our debrief on the biggest
stories in markets and economics. I'm Merin Sum's web editor
(00:23):
at large for Bloomberg UK.
Speaker 2 (00:24):
Wealth, and I'm joined Stoviks, senior port and author of
the Money Distilled newsletter.
Speaker 1 (00:29):
John Exciting Times. I'm an exciting Times all round. But
this week we have a guest, and not just any guest, Butjmen.
We are both great fans of John, author's senior editor
for Market and opinion columnist at Bloomberg. He also has
a brilliant daily newsletter, Points of Return, which I read
avidly and plagiarize, and so does John. Of course, John
(00:51):
with chief Markets commentary at the FT, where he and
I first met, and he is the author of the
Fearful Rise of Markets.
Speaker 2 (00:56):
John.
Speaker 3 (00:57):
Welcome, Well, it's great to be here. I nearly my
pink shirt from an FT alumni gathering. I guess it's
delight to hear your voicing in May.
Speaker 1 (01:09):
Now listen John, before John, John Orthur's I ask you
some questions. I just want to give our John John
staffagant opportunity to do something that actually he can do
more often than you'd think, and that is to take
part in the I Told you So section of this podcast, John.
Speaker 3 (01:26):
Ah, yeah, yeah, you see.
Speaker 2 (01:28):
I'm actually slightly embarrassed to say this in front of
join authors, because I know that he would never do
anything in his crass or a hostage to fortune. There's
making predictions in the newsletter. But so mid December, just
after Donald Trump had appeared on the cover of Time
magazine and rang the bell in the New York Stock Exchange,
I tentatively suggested that there would probably be a ten
(01:50):
percent correction within three months on the US market, and
lo and be old, we're here.
Speaker 3 (01:56):
We supplaud for that.
Speaker 2 (01:57):
Thank you, thank you, thank you.
Speaker 3 (02:00):
This did look like a crescendo of sentiment. I mean
it felt a little bit that way, but you were
too nervous to say well, I was too nervous to
say so at the time. But yes, that was a
crescendo of sentiment.
Speaker 1 (02:11):
John got the timing right, whereas I've just spent the
last five years proticting a ten percent correction in any second. Now,
So John, John, when does one because he got the
timing rights, Well, do I actually say, why didn't you
actually say I told you so. It'll make you feel
so good.
Speaker 3 (02:23):
God, just let me I told you so. There we go.
Speaker 1 (02:28):
Well then feels good, right, John John Al says that
isn't me. Yeah, you have had a ringside seat. I
gather that you've been in Frankfurt recently. Tell us all
about it.
Speaker 3 (02:39):
Yes, this was very lucky last week because there was
an ECB meeting. Because I hadn't been to Germany since
the pandemic. I thought, as I was on this side
of Atlantic anyway, this was a good opportunity to catch
up in Frankfurt. So I arrived Tuesday night and new
likely next chancellor Mets and the Social Democrats have just
(02:59):
announced looking to borrow an extra nine hundred billion euros.
And that, yeah, Wednesday and Thursday where some of the
most remarkable days of my career. In that obviously, your
average German financier is not exactly given to overstatement. These
(03:22):
aren't voluble, excitable people. And they were saying, without you know,
without any kind of cynicism or sarcasm, that this might
even be bigger than the fall of the Berlin Wall,
that this was a complete total paradigm changer. You could
forget all the research that had this from a couple
(03:43):
of people say, just don't ignore my research for the
last year or so. It's it's inoperative. So it is
that big of a deal. There's there's there's two elements
to it. One is and this is something I'm British myself.
I certainly know I have a particular reaction to some
of the things JD. Vans has said in the last
(04:03):
few weeks, but in Germany it hits very much more
painfully still. And I think the combination of what he
said at the Munich conference and the way he bullied
Voladimir Zelenski and I didn't know. I couldn't find anybody
who thought anything other than the way they treated as
Zelenski was disgraceful. It just seemed to be a completely
(04:25):
uniform reaction among often generally quite politically conservative and more
generally small sy conservative people that the US had just
very plainly broken broken off, that they could no longer
trust them, and in some ways that was it's even
more of a compact that's been broken in their perception
(04:49):
than was broken when the wall came down, which ended
this division of the country and all those other exciting
things and then when it comes to financially, which is
why all these I was talking to barely had any sleep,
and where they were so excited. You know, you know,
the bundmarket has been telling Germany for years that it
(05:10):
can borrow more, and indeed that it should borrow more.
It's the only major advanced economy that isn't borrowing enough
that anybody could possibly say with a straight face, isn't
borrowing enough. And most of these people had sort of
again it was like, well, of course it'd be fantastic
(05:30):
if the East reunited in the same way. Of course
it would be nice if Germany actually borrowed some money
and did away with this debt break. But it was
almost regarded as an academic possibility that economists would lord
would say was a good idea, but that was never
going to happen. And somehow or other, just the extremity
of the you know, the words and actions of Donald
(05:53):
Trump and JD. Vance in the space of a couple
of weeks really did does seem to have sparked as
big as shit in the paradigm, as as anything said
anything we saw when the wall came down. I mean,
I mean, if you'd like to talk about the more
marketing things they related to it. We've got lots of
thoughts on that as well, but that was my main
human reaction.
Speaker 1 (06:13):
That reaction is great, but we would definitely like to
hear about the market reactions. You know, said the amount
of time that American exceptionalism and now we see the
huge burst of money about it and pour into Germany
at the same time as America is pulling back. Exceptionalism
is really about money. Are we about to move into
a decade or two of German exceptionalism or European exceptionalism.
Speaker 3 (06:37):
Not being as not being quite as bold as John Steppeck.
I'm not going to predict that with total confidence. There
are some interesting parallels though, in terms of you and
I being boring and talking about value all the time.
There is this fascinating combination that outside of the Magnificent
(07:00):
Seven and the US more or less, the whole planet
has looked like a fairly decent value but Germany in particular,
so the German economy is not doing anything great, but
a lot of the big German companies they're on a
smaller scale, but they're actually generating profits as nicely as
(07:21):
they ever did. So if you buy the stock, you
find that that the pees are still very, very generous.
So if you look at what's happened to I had fun.
This was in one of the recent newsletters. European value
has outperformed US growth if you believe MSCI, by thirty
seven percent since Christmas Eve, so less than three months.
(07:45):
There is this sudden sense of Okay, it's time to
look for value. There was the catalyst that that value
guys always want suddenly r particularly in Germany. Germany happens
to be where there are a lot of absolutely value
stocks where you really can put some kind of evaluation,
fundamental valuation on them because it's all stuff, it's all
(08:07):
equipment and things they make. And so you've seen this
very dramatic rise. Now you've got to be careful comparing
the Magnificent seventh phenomenon and the you know, the AI
with dot Com, because dot Com really was absurd and
this may turn out to be absurd. But in terms
(08:28):
of the valuations, I don't think it's it is something
qualitatively different. But if you look this was a chart
I think it was Andy Lapthorne of Sockgen, who's one
of my favorite quant analysts, brought to my attention, and
then I reconstructed it in about thirty seconds on the
on the Bloomberg. So really it was genuinely he hadn't
done any If you look at the stocks chemicals sector
(08:52):
relative to the S and P five hundred information technology sector,
from March two thousand until the global financial crisis, chemicals
outperforms US TECH by about four hundred five hundred percent.
They went, they traveled, Tech was down still about forty
to fifty percent by the time you get to the crisis.
(09:14):
By the turn of this year, they had given all
of that back and US tech had finally matched US
European chemicals companies. It would have been better off is
BASF than Microsoft. Well, I'm not sure about BOSF RRIS.
You would have been better off in BASF than a
(09:36):
tech US TECH index for most of the last twenty years,
twenty five years. So is there a precedent for when
money finally is jolted into moving when there is this
big catalyst, boring German companies making you far more money
than sexy American tech companies. Yes, there is. That was
(09:58):
a seven or eight year rally. If you were a
bit late, never mind you still it's it's a it's
a nice perfect, you know, diagonal, upward sloping line, and
that you know there was room for more as you
as you piled in, and you go on about this
as much as I do. These German stocks started really cheap,
(10:18):
and the concern for years has been that their value traps.
But again, these are things that make stuff. They're not
as intangible as you know that you do have something
to grab hold of here. They are worth something. They've
got these big factories. So anyway that I I'm inherently
careful about being too positive. And there are lots of
(10:41):
things that you know, the history of large European power
rearmaments isn't good, shall we say it's not? So? There
are plenty So in answer to the question what could
possibly go wrong? I think we know there are some
pretty scary answers to that question. But cautiously, yes, I
(11:02):
am quite a believer. In terms of the sentiment, the
sheer excitement combined with the absolute financial logic that's been
there for years, this is quite interesting.
Speaker 1 (11:16):
Yeah, And I suppose one thing says that the money
has barely started to move. I mean it doesn't you
think about the weight of money that has gone into
the US market over the last decade, and then the
constant removal of money from Europe and UK markets. It
really doesn't take much of a cheft for things to
really start moving as.
Speaker 3 (11:32):
A scene and has begun. Take ten percent out of
your mag seven ETF and put it into a stocks
industrial's ETF and that will move things very quickly. Yes,
the cemetery as well.
Speaker 2 (11:44):
Between you know, we've we've lived in a world where
almost everyone's been told but intangibles and digital and everything
being clean. It's the same sort of thing that ed
coin me goes on a boot with the material world
thesis and so having that sort of perfect between stuff
and you know, digitization, it's actually quite It's just another
(12:06):
one of those fun market things that you see all
the time.
Speaker 3 (12:09):
And nobody has ever mentioned anything about whether AI could
help rhyne metal, which is up something like six hundred percent,
you know to the biggest German arms manufacturer. We know why,
but nobody's suggested, well, with AI they can improve their
profitability bits. Maybe they can bit I don't know, but
it's this is just completely external to any great risk
(12:31):
about the whole AI play.
Speaker 2 (12:33):
Oh yeah, and also I mean we've seen the I
think that's is the other thing, because people get weirdly
sort of scared whenever a ton comes and they'll have
a mester ton And then you say, oh, yeah, no,
but remember that the take bubble has lasted for about
ten years so but actually probably just very near the
beginning of a secular trend, rather than you know, okay,
(12:55):
we've already messed because Bee Systems is up you know,
x percent or whatever in the last six months. So no,
I think.
Speaker 3 (13:03):
It's all it's all.
Speaker 2 (13:04):
Part of a wider kind of rotation as well. But
it's interesting now you need these catalysts to make these
things kick off, because it's you know, we've been talking
about for quite a long time, the US has looked
expensive for ages and ages and ages. But at that
point where something happens to change the politician's behavior, that
then catalyzes the shifting flows that you need to see.
(13:28):
But things really striking you saying that about the actual
sensation on the when the market floor in Frankfurt, rather
than you know, because from here you can see it's
a big deal. But it hadn't occurred to make the
idea about the Germans feeling or we thought we were
being the good guys by not spending money on defense,
and now you're criticizing this for not spending enough, and
(13:50):
that sort of message has finally got through to them.
Speaker 1 (13:52):
And currently leave us back to markets briefly and back
to the US market. We all believe, actually not all
of us, but some people believed that there was a
Trump put and that after the S and P five
hundred and fall a certain amount that's even to John's
forecast level. Yes, some would do something to make it stop.
(14:14):
Because he feels that he is judged buy the stock market.
It's a measure of his success, certainly was in his
first term. Has something changed, sir?
Speaker 3 (14:23):
I think the way he has continued with tariffs and
been as erratic with them has scared quite a number
of people that just that the mattra with Trump in
the markets has been look at what he does rather
than he says, so he can say as many outrageous
(14:43):
things as he likes. Basically, the first time around, he
was a fairly orthodox George W. George H. W. Bush
style conservative Republican did things the can Chamber of Commerce liked,
with a few exceptions, but broadly speaking, in terms of
what he actually did that was kind of what he
was and what he's doing at the moment is absolutely
not that about, you know it complete might might have
(15:07):
need the word conservative applied to it in some different
meaning of the word, but other than that, this is
just not not what he did before at all. So
I think that did's some damage to the assumption. I
think the fact that he started with tariffs at a
point when the conversation on taxes hasn't really even started
(15:30):
and where they're beginning to realize this is actually going
to be pretty tricky to get through Congress because the
Democrats badly need this to fail. Obviously they are completely
entitled to say no, and the Republicans have no wiggle
room at all. So it's from triumphalism to realizing, well,
hang on, he hasn't even started doing this, and that's
(15:52):
in large part because this is one of the things
that's actually going to be difficult to do. Then there
was the realization will actually extending the TCGA the big
tax cuts from isn't the seventeen Sorry, isn't a tax cut.
It's avoiding the tax hike because they expire and then reverse,
and then making more cuts from there is going to
(16:15):
be really difficult unless you can find some good cuts
to the budget. Most sensible people look at the way
that Elon Musk is going about his business and do
not gain confidence. Obviously, there is an awful lot of
waste to be taken out of the federal budget. Surely
that must be true. Very few people who have a
(16:38):
good understanding of management would think that the way that
Elon Musk is currently going about it is the right way.
So there's this combination of factors that once you actually
see what he's doing, has changed perception. And then on
the issue of the put itself, I think it's quite interesting.
In some ways this is gain theory. But you've I've
(17:00):
seen a number of figures on the the pro Trump
right arguing that there shouldn't be a put and that
in fact, Donald Trump is about shaking up globalization and capitalism.
And the companies that have benefited the most and whose
(17:20):
stocks are up the most from globalization are the Magnificent Seven,
are the big the companies that make up the bulk
of the S and P. And the fact that some
people have assets but most of Trump's voters don't means
that this is stoked inequality, and so no, Donald Trump
actually wants the stock market to go down this time,
(17:42):
even though he passionately wanted it to go up last time.
I doubt that because so many Americans have four oh
one ks and iras and know very quickly if things
are going wrong with it, because you get monthly statements.
I think that's a little bit like the effect that
variable rate mortgages had in the UK for a long time,
that politicians need to be somewhat nervous about doing something
(18:03):
that takes the stock market down because it will make
people feel poorer instantly, in the same way that raising
interest rates would make anybody with a house feel poorer instantly.
So I question how far to take it, And it's
possible that this is just oh sorry. One other point
is he does need to get everything done inside two years,
because you assume they will lose the house next the
(18:26):
end of next year. And there is also this belief that,
and this is a perfectly sensible one, actually, that there
is a window during which you can blame Biden. Plainly,
very little that he has done would be showing up
an economic aggregates. Yet you have a few more months
in which you can say well, this is just cleaning
up Joe Biden's mess, So there isn't there is. Those
(18:47):
are valid sort of political strategic arguments for really going
for it early, being prepared to suffer a bigger S
and P sell off than you otherwise might have done.
And and it's like game theories, and it's like a
commitment strategy. So we'll see plainly, as the marketers began
to fool, people have re examined their belief in the
(19:08):
Trump put and have come up with reasons to be
nervous about it.
Speaker 1 (19:12):
Yeah, thank you, John, We will see what happens next.
You any predictions to leave us with.
Speaker 3 (19:16):
Kind of guessing that you want I think you want
the other Jobby.
Speaker 1 (19:19):
Look, if you could come up with the prediction, we'll
have you on. We told you so.
Speaker 3 (19:27):
The latest University of Michigan survey finds this. They very
handily started eight years ago. They started dividing everything by partisanship,
so they would give you the data that independents, Republicans,
and Democrats reported. And obviously this is because the political
(19:47):
identifications now trumped all other aspects. The annual inflation rate
expected by Democrats over the next twelve months is I
think it did actually top five percent. Forgive me if
I'm wrong. It's certainly surged up to a very high number.
(20:08):
And the average inflation rate expected by Republicans, I'm absolutely
certain certain I remember that this number is exactly zero.
The average Republican thinks that inflation is going to be
abolished over the next twelve months. My prediction is that
that isn't going to happen, that that's wrong, That inflation
(20:31):
will be positive over the next twelve months. And I'm
really quite happy to book my champagne supper now to
celebrate those peer I think you'll find.
Speaker 1 (20:41):
I didn't offer you a champagne supper. I offer you
the obituary. Really come back on the podcast. Thank you
very very much for that and thanks for joining us.
Speaker 3 (20:50):
Really good to have you on.
Speaker 1 (20:54):
Thanks for listening to this week's Marriage Dogs, Money dat
If you like ushow rate review and subscribe wherever you
listen to pods all.
Speaker 3 (21:00):
They made sure to follow me and John.
Speaker 1 (21:02):
On x or Twitter at marinas w and John Underscore Stepics.
Also John Author's at John Orthors. This episode was produced
by Summersaudi and Moses and Production Sport and sound designed
by Blake Maple's keep the emails coming to Merinmoney at
Bloomberg Dot Now, and don't forget to subscribe to all
of our newsletters.
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
Talks Money weekly round up, our debrief on the biggest
stories in markets and economics. I'm Merin Sum's web editor
(00:23):
at large for Bloomberg UK.
Speaker 2 (00:24):
Wealth, and I'm joined Stoviks, senior port and author of
the Money Distilled newsletter.
Speaker 1 (00:29):
John Exciting Times. I'm an exciting Times all round. But
this week we have a guest, and not just any guest, Butjmen.
We are both great fans of John, author's senior editor
for Market and opinion columnist at Bloomberg. He also has
a brilliant daily newsletter, Points of Return, which I read
avidly and plagiarize, and so does John. Of course, John
(00:51):
with chief Markets commentary at the FT, where he and
I first met, and he is the author of the
Fearful Rise of Markets.
Speaker 2 (00:56):
John.
Speaker 3 (00:57):
Welcome, Well, it's great to be here. I nearly my
pink shirt from an FT alumni gathering. I guess it's
delight to hear your voicing in May.
Speaker 1 (01:09):
Now listen John, before John, John Orthur's I ask you
some questions. I just want to give our John John
staffagant opportunity to do something that actually he can do
more often than you'd think, and that is to take
part in the I Told you So section of this podcast, John.
Speaker 3 (01:26):
Ah, yeah, yeah, you see.
Speaker 2 (01:28):
I'm actually slightly embarrassed to say this in front of
join authors, because I know that he would never do
anything in his crass or a hostage to fortune. There's
making predictions in the newsletter. But so mid December, just
after Donald Trump had appeared on the cover of Time
magazine and rang the bell in the New York Stock Exchange,
I tentatively suggested that there would probably be a ten
(01:50):
percent correction within three months on the US market, and
lo and be old, we're here.
Speaker 3 (01:56):
We supplaud for that.
Speaker 2 (01:57):
Thank you, thank you, thank you.
Speaker 3 (02:00):
This did look like a crescendo of sentiment. I mean
it felt a little bit that way, but you were
too nervous to say well, I was too nervous to
say so at the time. But yes, that was a
crescendo of sentiment.
Speaker 1 (02:11):
John got the timing right, whereas I've just spent the
last five years proticting a ten percent correction in any second. Now,
So John, John, when does one because he got the
timing rights, Well, do I actually say, why didn't you
actually say I told you so. It'll make you feel
so good.
Speaker 3 (02:23):
God, just let me I told you so. There we go.
Speaker 1 (02:28):
Well then feels good, right, John John Al says that
isn't me. Yeah, you have had a ringside seat. I
gather that you've been in Frankfurt recently. Tell us all
about it.
Speaker 3 (02:39):
Yes, this was very lucky last week because there was
an ECB meeting. Because I hadn't been to Germany since
the pandemic. I thought, as I was on this side
of Atlantic anyway, this was a good opportunity to catch
up in Frankfurt. So I arrived Tuesday night and new
likely next chancellor Mets and the Social Democrats have just
(02:59):
announced looking to borrow an extra nine hundred billion euros.
And that, yeah, Wednesday and Thursday where some of the
most remarkable days of my career. In that obviously, your
average German financier is not exactly given to overstatement. These
(03:22):
aren't voluble, excitable people. And they were saying, without you know,
without any kind of cynicism or sarcasm, that this might
even be bigger than the fall of the Berlin Wall,
that this was a complete total paradigm changer. You could
forget all the research that had this from a couple
(03:43):
of people say, just don't ignore my research for the
last year or so. It's it's inoperative. So it is
that big of a deal. There's there's there's two elements
to it. One is and this is something I'm British myself.
I certainly know I have a particular reaction to some
of the things JD. Vans has said in the last
(04:03):
few weeks, but in Germany it hits very much more
painfully still. And I think the combination of what he
said at the Munich conference and the way he bullied
Voladimir Zelenski and I didn't know. I couldn't find anybody
who thought anything other than the way they treated as
Zelenski was disgraceful. It just seemed to be a completely
(04:25):
uniform reaction among often generally quite politically conservative and more
generally small sy conservative people that the US had just
very plainly broken broken off, that they could no longer
trust them, and in some ways that was it's even
more of a compact that's been broken in their perception
(04:49):
than was broken when the wall came down, which ended
this division of the country and all those other exciting
things and then when it comes to financially, which is
why all these I was talking to barely had any sleep,
and where they were so excited. You know, you know,
the bundmarket has been telling Germany for years that it
(05:10):
can borrow more, and indeed that it should borrow more.
It's the only major advanced economy that isn't borrowing enough
that anybody could possibly say with a straight face, isn't
borrowing enough. And most of these people had sort of
again it was like, well, of course it'd be fantastic
(05:30):
if the East reunited in the same way. Of course
it would be nice if Germany actually borrowed some money
and did away with this debt break. But it was
almost regarded as an academic possibility that economists would lord
would say was a good idea, but that was never
going to happen. And somehow or other, just the extremity
of the you know, the words and actions of Donald
(05:53):
Trump and JD. Vance in the space of a couple
of weeks really did does seem to have sparked as
big as shit in the paradigm, as as anything said
anything we saw when the wall came down. I mean,
I mean, if you'd like to talk about the more
marketing things they related to it. We've got lots of
thoughts on that as well, but that was my main
human reaction.
Speaker 1 (06:13):
That reaction is great, but we would definitely like to
hear about the market reactions. You know, said the amount
of time that American exceptionalism and now we see the
huge burst of money about it and pour into Germany
at the same time as America is pulling back. Exceptionalism
is really about money. Are we about to move into
a decade or two of German exceptionalism or European exceptionalism.
Speaker 3 (06:37):
Not being as not being quite as bold as John Steppeck.
I'm not going to predict that with total confidence. There
are some interesting parallels though, in terms of you and
I being boring and talking about value all the time.
There is this fascinating combination that outside of the Magnificent
(07:00):
Seven and the US more or less, the whole planet
has looked like a fairly decent value but Germany in particular,
so the German economy is not doing anything great, but
a lot of the big German companies they're on a
smaller scale, but they're actually generating profits as nicely as
(07:21):
they ever did. So if you buy the stock, you
find that that the pees are still very, very generous.
So if you look at what's happened to I had fun.
This was in one of the recent newsletters. European value
has outperformed US growth if you believe MSCI, by thirty
seven percent since Christmas Eve, so less than three months.
(07:45):
There is this sudden sense of Okay, it's time to
look for value. There was the catalyst that that value
guys always want suddenly r particularly in Germany. Germany happens
to be where there are a lot of absolutely value
stocks where you really can put some kind of evaluation,
fundamental valuation on them because it's all stuff, it's all
(08:07):
equipment and things they make. And so you've seen this
very dramatic rise. Now you've got to be careful comparing
the Magnificent seventh phenomenon and the you know, the AI
with dot Com, because dot Com really was absurd and
this may turn out to be absurd. But in terms
(08:28):
of the valuations, I don't think it's it is something
qualitatively different. But if you look this was a chart
I think it was Andy Lapthorne of Sockgen, who's one
of my favorite quant analysts, brought to my attention, and
then I reconstructed it in about thirty seconds on the
on the Bloomberg. So really it was genuinely he hadn't
done any If you look at the stocks chemicals sector
(08:52):
relative to the S and P five hundred information technology sector,
from March two thousand until the global financial crisis, chemicals
outperforms US TECH by about four hundred five hundred percent.
They went, they traveled, Tech was down still about forty
to fifty percent by the time you get to the crisis.
(09:14):
By the turn of this year, they had given all
of that back and US tech had finally matched US
European chemicals companies. It would have been better off is
BASF than Microsoft. Well, I'm not sure about BOSF RRIS.
You would have been better off in BASF than a
(09:36):
tech US TECH index for most of the last twenty years,
twenty five years. So is there a precedent for when
money finally is jolted into moving when there is this
big catalyst, boring German companies making you far more money
than sexy American tech companies. Yes, there is. That was
(09:58):
a seven or eight year rally. If you were a
bit late, never mind you still it's it's a it's
a nice perfect, you know, diagonal, upward sloping line, and
that you know there was room for more as you
as you piled in, and you go on about this
as much as I do. These German stocks started really cheap,
(10:18):
and the concern for years has been that their value traps.
But again, these are things that make stuff. They're not
as intangible as you know that you do have something
to grab hold of here. They are worth something. They've
got these big factories. So anyway that I I'm inherently
careful about being too positive. And there are lots of
(10:41):
things that you know, the history of large European power
rearmaments isn't good, shall we say it's not? So? There
are plenty So in answer to the question what could
possibly go wrong? I think we know there are some
pretty scary answers to that question. But cautiously, yes, I
(11:02):
am quite a believer. In terms of the sentiment, the
sheer excitement combined with the absolute financial logic that's been
there for years, this is quite interesting.
Speaker 1 (11:16):
Yeah, And I suppose one thing says that the money
has barely started to move. I mean it doesn't you
think about the weight of money that has gone into
the US market over the last decade, and then the
constant removal of money from Europe and UK markets. It
really doesn't take much of a cheft for things to
really start moving as.
Speaker 3 (11:32):
A scene and has begun. Take ten percent out of
your mag seven ETF and put it into a stocks
industrial's ETF and that will move things very quickly. Yes,
the cemetery as well.
Speaker 2 (11:44):
Between you know, we've we've lived in a world where
almost everyone's been told but intangibles and digital and everything
being clean. It's the same sort of thing that ed
coin me goes on a boot with the material world
thesis and so having that sort of perfect between stuff
and you know, digitization, it's actually quite It's just another
(12:06):
one of those fun market things that you see all
the time.
Speaker 3 (12:09):
And nobody has ever mentioned anything about whether AI could
help rhyne metal, which is up something like six hundred percent,
you know to the biggest German arms manufacturer. We know why,
but nobody's suggested, well, with AI they can improve their
profitability bits. Maybe they can bit I don't know, but
it's this is just completely external to any great risk
(12:31):
about the whole AI play.
Speaker 2 (12:33):
Oh yeah, and also I mean we've seen the I
think that's is the other thing, because people get weirdly
sort of scared whenever a ton comes and they'll have
a mester ton And then you say, oh, yeah, no,
but remember that the take bubble has lasted for about
ten years so but actually probably just very near the
beginning of a secular trend, rather than you know, okay,
(12:55):
we've already messed because Bee Systems is up you know,
x percent or whatever in the last six months. So no,
I think.
Speaker 3 (13:03):
It's all it's all.
Speaker 2 (13:04):
Part of a wider kind of rotation as well. But
it's interesting now you need these catalysts to make these
things kick off, because it's you know, we've been talking
about for quite a long time, the US has looked
expensive for ages and ages and ages. But at that
point where something happens to change the politician's behavior, that
then catalyzes the shifting flows that you need to see.
(13:28):
But things really striking you saying that about the actual
sensation on the when the market floor in Frankfurt, rather
than you know, because from here you can see it's
a big deal. But it hadn't occurred to make the
idea about the Germans feeling or we thought we were
being the good guys by not spending money on defense,
and now you're criticizing this for not spending enough, and
(13:50):
that sort of message has finally got through to them.
Speaker 1 (13:52):
And currently leave us back to markets briefly and back
to the US market. We all believe, actually not all
of us, but some people believed that there was a
Trump put and that after the S and P five
hundred and fall a certain amount that's even to John's
forecast level. Yes, some would do something to make it stop.
(14:14):
Because he feels that he is judged buy the stock market.
It's a measure of his success, certainly was in his
first term. Has something changed, sir?
Speaker 3 (14:23):
I think the way he has continued with tariffs and
been as erratic with them has scared quite a number
of people that just that the mattra with Trump in
the markets has been look at what he does rather
than he says, so he can say as many outrageous
(14:43):
things as he likes. Basically, the first time around, he
was a fairly orthodox George W. George H. W. Bush
style conservative Republican did things the can Chamber of Commerce liked,
with a few exceptions, but broadly speaking, in terms of
what he actually did that was kind of what he
was and what he's doing at the moment is absolutely
not that about, you know it complete might might have
(15:07):
need the word conservative applied to it in some different
meaning of the word, but other than that, this is
just not not what he did before at all. So
I think that did's some damage to the assumption. I
think the fact that he started with tariffs at a
point when the conversation on taxes hasn't really even started
(15:30):
and where they're beginning to realize this is actually going
to be pretty tricky to get through Congress because the
Democrats badly need this to fail. Obviously they are completely
entitled to say no, and the Republicans have no wiggle
room at all. So it's from triumphalism to realizing, well,
hang on, he hasn't even started doing this, and that's
(15:52):
in large part because this is one of the things
that's actually going to be difficult to do. Then there
was the realization will actually extending the TCGA the big
tax cuts from isn't the seventeen Sorry, isn't a tax cut.
It's avoiding the tax hike because they expire and then reverse,
and then making more cuts from there is going to
(16:15):
be really difficult unless you can find some good cuts
to the budget. Most sensible people look at the way
that Elon Musk is going about his business and do
not gain confidence. Obviously, there is an awful lot of
waste to be taken out of the federal budget. Surely
that must be true. Very few people who have a
(16:38):
good understanding of management would think that the way that
Elon Musk is currently going about it is the right way.
So there's this combination of factors that once you actually
see what he's doing, has changed perception. And then on
the issue of the put itself, I think it's quite interesting.
In some ways this is gain theory. But you've I've
(17:00):
seen a number of figures on the the pro Trump
right arguing that there shouldn't be a put and that
in fact, Donald Trump is about shaking up globalization and capitalism.
And the companies that have benefited the most and whose
(17:20):
stocks are up the most from globalization are the Magnificent Seven,
are the big the companies that make up the bulk
of the S and P. And the fact that some
people have assets but most of Trump's voters don't means
that this is stoked inequality, and so no, Donald Trump
actually wants the stock market to go down this time,
(17:42):
even though he passionately wanted it to go up last time.
I doubt that because so many Americans have four oh
one ks and iras and know very quickly if things
are going wrong with it, because you get monthly statements.
I think that's a little bit like the effect that
variable rate mortgages had in the UK for a long time,
that politicians need to be somewhat nervous about doing something
(18:03):
that takes the stock market down because it will make
people feel poorer instantly, in the same way that raising
interest rates would make anybody with a house feel poorer instantly.
So I question how far to take it, And it's
possible that this is just oh sorry. One other point
is he does need to get everything done inside two years,
because you assume they will lose the house next the
(18:26):
end of next year. And there is also this belief that,
and this is a perfectly sensible one, actually, that there
is a window during which you can blame Biden. Plainly,
very little that he has done would be showing up
an economic aggregates. Yet you have a few more months
in which you can say well, this is just cleaning
up Joe Biden's mess, So there isn't there is. Those
(18:47):
are valid sort of political strategic arguments for really going
for it early, being prepared to suffer a bigger S
and P sell off than you otherwise might have done.
And and it's like game theories, and it's like a
commitment strategy. So we'll see plainly, as the marketers began
to fool, people have re examined their belief in the
(19:08):
Trump put and have come up with reasons to be
nervous about it.
Speaker 1 (19:12):
Yeah, thank you, John, We will see what happens next.
You any predictions to leave us with.
Speaker 3 (19:16):
Kind of guessing that you want I think you want
the other Jobby.
Speaker 1 (19:19):
Look, if you could come up with the prediction, we'll
have you on. We told you so.
Speaker 3 (19:27):
The latest University of Michigan survey finds this. They very
handily started eight years ago. They started dividing everything by partisanship,
so they would give you the data that independents, Republicans,
and Democrats reported. And obviously this is because the political
(19:47):
identifications now trumped all other aspects. The annual inflation rate
expected by Democrats over the next twelve months is I
think it did actually top five percent. Forgive me if
I'm wrong. It's certainly surged up to a very high number.
(20:08):
And the average inflation rate expected by Republicans, I'm absolutely
certain certain I remember that this number is exactly zero.
The average Republican thinks that inflation is going to be
abolished over the next twelve months. My prediction is that
that isn't going to happen, that that's wrong, That inflation
(20:31):
will be positive over the next twelve months. And I'm
really quite happy to book my champagne supper now to
celebrate those peer I think you'll find.
Speaker 1 (20:41):
I didn't offer you a champagne supper. I offer you
the obituary. Really come back on the podcast. Thank you
very very much for that and thanks for joining us.
Speaker 3 (20:50):
Really good to have you on.
Speaker 1 (20:54):
Thanks for listening to this week's Marriage Dogs, Money dat
If you like ushow rate review and subscribe wherever you
listen to pods all.
Speaker 3 (21:00):
They made sure to follow me and John.
Speaker 1 (21:02):
On x or Twitter at marinas w and John Underscore Stepics.
Also John Author's at John Orthors. This episode was produced
by Summersaudi and Moses and Production Sport and sound designed
by Blake Maple's keep the emails coming to Merinmoney at
Bloomberg Dot Now, and don't forget to subscribe to all
of our newsletters.
Host
Merryn Somerset Webb
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