November 14, 2025 • 22 mins
In this week’s Merryn Talks Money market wrap, Merryn Somerset Webb and John Stepek dissect the latest UK housing trends ahead of the budget, exploring why falling mortgage rates might not be enough to lift property prices amid growing uncertainty. They also touch on the sluggish UK economy, the FTSE 100’s near-record run, and whether the AI boom in US markets is showing shades of a bubble.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. So Merrin Talks Money listeners,
or at the very least the London based ones, Have
you actually done it? Have you signed up to join
us at Bloomberg's European headquarters in the heart of the
city on November twenty seventh, we will be taping an
episode of the podcast in front of a live audience
(00:24):
the morning after the UK budget. I will be joined
by Helen Thomas of Blonde Money, Stephanie Flanders, Bloomberg's head
of Government and Economics, and of course John Steppek will
also be there. So if you haven't signed up yet,
find the registration link in the show notes and do
join us.
Speaker 2 (00:38):
We hope to see you there. There will be coffee,
There will be croissants. Onto the episode.
Speaker 1 (00:53):
Welcome to the Merrin Talks Money Market Wrap, while we
talk about the biggest moves in the market this week
and what is driving them. I'm Maren zumset webeditor, a
large for Bloomberg UK Wealth.
Speaker 3 (01:02):
And I'm Joined Stebic, senior reporter noted at the Money
Distilled newsletter.
Speaker 2 (01:06):
Excellent.
Speaker 1 (01:09):
Hi John, Hi Ma, Now listen I know that I
mean you know it'd be nice to have a little
casual chat right now, but there's literally no point because
all you can think about is the housing market. Yeah,
as regular listeners will know, John is absolutely obsessed with
house prices in the UK and the latest Rick survey
is just Christian's mill.
Speaker 3 (01:28):
It's just fascinating stuff. Well, I say, I suppose it's
not that fascinating. There's an awful lot obviously, the agents
saying that the nervous and the buyers and nerves ahead
of the budget that people are putting off sales, they
are putting off buy in. There a little bit gloomy
about how things are going to go over the next
(01:48):
three months, but they're not that gloomy, and basically all
points to prices being kind of flat to lower, assuming
that the budget goes broadly according to plan. That's just
quite a big assumption. But the one thing I would
say is, and I think it is probably more important
than any of this stuff, is the fact that interest
rates have been steadily dripping lower and mortgage rates have
(02:12):
been steadily dripping lower. And the one thing that you
and I know from years and years of better experience
is that really house prices are driven by one thing
and that's the price that somebody can get a mortgage for.
And the reason that they've been flag to fall in
for the last three years is because mortgage rates obviously
shot up with interest rates and now that they're kind
of just ever so slightly dropping lower because markets now
(02:34):
expect the Bank of England to have to cut interest
rates more. I suspect that we might see house prices
not go up a lot, but can of move away
from the flat line maybe in the next six months.
Speaker 1 (02:47):
Yeah, I mean that's an interesting point, John, And you're right.
We always say that the price of a house is
about the price of money, but it's also about some
of the uncertainties. At the moment, we're in this hopefully
short term situation of huge economic uncert you and concern
about what taxes might come up in the budget, and
there's lots of concern about new property taxes, new wealth taxes,
changes to the council tax regime, etc. And an awful
(03:09):
lot of people feel very uncertain about buying house at
all level and paying over the asking price by any
means for a house in this kind of environment.
Speaker 3 (03:18):
Right, Oh, yeah, absolutely, I think to be feeling that
mostly affects people at the wealthier end of the spectrum. Yeah,
mainly because you know, they're the ones who will be
sitting there going very well, if I put this off,
I'm going to be able to see how hard she's
going to hit me and whether I actually want to
go ahead with this or not. I mean, it's kind
(03:39):
of slightly different if you're moving you know, maybe under
a half a million pounds or under three quarters of
a million pounds, if you're in London and it's just well, look,
you just get to get on with life.
Speaker 1 (03:50):
You know.
Speaker 3 (03:50):
It's not like you can leave the country if you
don't like what Rachel Reeves does. It's not like you've
gotten an awful lot of evasive action things that you
can do. So I think at that end of the
market it probably doesn't actually have that much effect. It's
just a useful, you know, conversation piece for the stagents
to talk about, but definitely the high end.
Speaker 1 (04:07):
The other thing I think it's useful to point out
is that even if house prices over the full year
do reach that reach the level that most analysts are
forecusting and say, you know, two and a half three
percent growth over the year, we're still looking at things
being flat and inflation adjusted terms at best, and in fact,
house prices have full and quite a lot in inflation
adjusted terms over the last few years.
Speaker 3 (04:29):
Yeah, and that's actually I find this really interesting because
when you think about how buoyant things like equities and
gold have been, the fact that house prices have probably
for one of the first times in my career, have
been the least interesting asset market for a prolonged period
(04:51):
of time now and to the point where people are
actually sort of getting the message. There was a very
good piece posted out on LinkedIn yesterday from a chart
who was talking about how he'd bought a flat in
twenty sixteen and rented it out, and he was basically
explaining how over that whole time, with the changes to
the taxation and buy to let it and also with
(05:12):
the fact that capital gains have gone nowhere because this
was in London, so it's been about flat for ten
years in London. He'd walked out that he'd been paid
less than minimum wage for all the work he'd done
running this side business as a kind of amateur landlord,
and he basically said that there was a complete waste
of my time. I should have sold it and put
all the money into equities. And I haven't heard much
(05:33):
stuff like that, even though it's probably been true for
at least kind of five or six years now. So
it's really interesting that I think people are starting to
get out of the mindset of you can't go wrong
with bricks and watar.
Speaker 1 (05:45):
Yeah, I mean, this is it's interesting, isn't it, Because
it used to be that there was so many problems
with buy to letting. We got to the point where
we remember us making various calculations showing that the average
by to let invest it was actually cash negative on
average months, but nobody cared because if they were making
great capital gains, it was still absolutely worth it. Yeah,
(06:09):
but if you're not making capital gain, suddenly it turns
into a bit of a nightmare.
Speaker 3 (06:12):
Yeah, And it is that. I do think it's also
that thing I thought it was really sensible. The guy
made the point, you know, I'm actually having any managed
this so like where it's like my equity portfolio and
never phones me up and says the toilet's broken. You
know that happens, you know what I mean, It's like
it's a all mazing kind of business running an equity portfolio,
(06:33):
whereas yeah, you know, you're kind of taking up your
weekends and you just spare time stressing about things. You
want to get compensated for that as well, So even
if you are managing to make some money, it's going
to be worth your real money. Yeah, so I thought
that was really interesting.
Speaker 1 (06:50):
It is interesting, Okay, So moving away from that and
the idea that they may finally be the beginning of
a change of mindset about property prices in the UK,
about you know, my property is my pension and all
that kind of thing that we've written about a lot
over the years. We are suddenly seeing, despite the appalling
political shenanigans in the UK and the miserable state of
(07:10):
the UK economy growth coming in at almost nothing almost
nothing in the last quarter, we're still seeing the equity
market doing rather well and it's kind of exciting.
Speaker 3 (07:20):
We have this idea that quite soon we'll go through
ten thousand, right, Oh, that would be great. I hope.
I mean, I can see the seeding. It's usual and
just like really horribly teasing us all as it has
been doing this week. But yeah, it's just no reason
why you shouldn't get to the big number of ten
thousand at some point before Christmas, assuming you know, the
(07:40):
American EA bubble doesn't pop before then it is ruined
efflent on everyone, which, by the.
Speaker 1 (07:45):
Way, we should we should say, by the way, that
this still leaves the foot seat very significantly down from
its peak and inflation adjusted terms, So you know, ten
thousand might feel nice, but you will still be down
in real terms.
Speaker 3 (08:00):
Oh, that's such a spoil sport. That's the one law.
It depends on when you pop. Just it.
Speaker 2 (08:07):
Okay, all right, all right, mister optimistic. Just like.
Speaker 1 (08:15):
Round numbers are exciting, but they don't tell you the
whole truth. And we should mention, by the way, while
we're talking about the footy one hundred, that three I
group has had a bit of a nasty day. We're
talking on the day when its results came out and
it fell I think at one point down set of
fifteen percent or so.
Speaker 3 (08:31):
And that's.
Speaker 1 (08:33):
I think partly because people are suddenly noticing the extent
to which is dependent on one company. So it's got
an awful lot of the portfolios of seventy percent of
it's a total asset value in a Dutch retailer, so
it makes it at the very top heavy, and it's
also trading it at a premium to it's navy, So
there are various things to worry about with that, But
(08:53):
I think a lot of people probably have it in
their portfolios. Just it heads up that just because the
firsty one hundred doing well does not mean that every
cant situent in it is doing exactly what you wanted
to do.
Speaker 3 (09:03):
Yeah. I mean, it has been a good week for
some of the stalks, but that's that is quite a
big one, it is.
Speaker 1 (09:09):
And it's also you know, you alwas thinking it as
a private equity portfolio, don't you, so when you suddenly
realize that, in fact, it's a it's a large it's
a large retailer with a couple of little private acty
things around the edge.
Speaker 2 (09:19):
It's a slightly different kind of portfolio.
Speaker 1 (09:21):
Anyway, leaving that aside, UK growth, do we want to
talk about the miseries of that?
Speaker 3 (09:27):
Do I find GDP figures really just send me sleep.
It's terrible. They're so constantly devised all the time, and
all you do is need to see you know what,
if it had been point two instead of point one, okay,
the points would have been a bit more positive, but
it's still rubbish. So all we could say is that
the economy continues to be very, very sluggish, and it's
(09:51):
basically don't incredibly bad management not just by this government
but by previous governments as.
Speaker 1 (09:57):
Well, but many many previous governments. But certainly they run
up to this budget is not helping it. We were
talking before we started recording with me about about all
the different taxes that might come and go, everything from
changes to pension tax, two different different income tax bands,
to god in a salary sacrifice and not being able
to put your expensive bicycle through anything. I think I
(10:17):
slightly approve of that. Want to be honest, should you
really be able to put those expensive bicycles?
Speaker 3 (10:21):
I don't know, be a little bit more really going
to bicycles? No, she's going to cap it two key.
That's not very pleasant for anyone who's attempting to can
save for the retirement during the peak ending season.
Speaker 1 (10:41):
What do you mean, did you not get a cap
what you can put into your pension to two k?
Speaker 3 (10:45):
No, but it's going to cap no, no, no, no.
Before your employer is going to have to share national insurance,
you're gonna have to share it. As well, So I mean,
I think, you know it might not happen. It's like,
but I mean, you're right this. I think the problem
(11:05):
is that on the one hand, the Overton, the fiscal
Overton window has been blown wide open. So like you know,
a while ago, there were certain things you could say, Okay,
the government stupids, but they're not going to do this
because that would just be so obviously a bad idea.
And so there was a group of policies that they
would do. And this is now something could come in
and just make something up and you still wouldn't have
(11:27):
any idea if it was actually going to happen or not,
because anything goes And this is partly the result of
the havoc at the top, because there is clearly a
war at the top or who gets to say what's
going to kind of be in the budget. And Rachel
Reeves is worried because obviously she's worried about appeasing her
own party members and kind of you know, the gelp's
(11:50):
market and also the voters. And I think obviously she's thinking, well,
am I actually going to survive this? And that's why
we're also hearing talk about getting rid of this too
child benefit CAUP, which is clearly not an affordable situation
or choice, and it hasn't become any more affordable since
she said it was unaffordable last year. But I kind
of saw up to the left wing and her party, and.
Speaker 1 (12:13):
I suppose it's also worth noting that when we talk
about the two child benefit CAUP, a lot of the
conversation around it so it suggests it's not possible to
have more than two children, And of course you can
have as many children as you like outside the benefit
system and also within the benefit system, and there are
only certain parts of the system that capped at two children.
Speaker 2 (12:32):
There are.
Speaker 1 (12:33):
Yes, it's a complicated system. It's a very complicated system.
The UK benefit system is much more complicated than most
people realize. In fact, we've been chatting earlier and I
would encourage anybody who's interested in how the benefit system
actually works and what you can and can't get on
welfare to go and look at a website called entitled
two dot co dot uk, where you can input all
sorts of variables and find out for yourself exactly how
(12:55):
it is complicated.
Speaker 2 (12:56):
It is complicated.
Speaker 3 (12:58):
You may also find the entitled Suddenly didn't know what
we are.
Speaker 1 (13:01):
That's not what we're encouraging.
Speaker 3 (13:03):
I'm not encouraging it. More of our lessons would be
surprised if the will is true.
Speaker 1 (13:08):
They might be surprised to find that they are inside
the system. Anyway, Moving on from that, this is not
not a program about how to claim benefits that TikTok
is available for that.
Speaker 2 (13:19):
Let's move on to talking about the US market.
Speaker 1 (13:23):
And they've been quite a few interesting pieces on on
Bloomberg about this recently, and.
Speaker 2 (13:29):
So there is em for starters.
Speaker 1 (13:30):
Let's say that there's been a report from Oppenheimer at
Goldman SAX who points out that US equities are likely
to lag other markets.
Speaker 2 (13:38):
For the next decade or so.
Speaker 1 (13:39):
I mean, this is all about if you're going to
invest the starting prices what matters. And he expects over
the next ten years to see six and a half
percent from from US markets, which personally I think is ambitious,
but he's looking at totally different numbers for other markets,
so emerging markets ten point nine percent, he sees, it's
just the strongest over the next decade. Now, of course,
to think to worry about in the US is the
(14:01):
great AI bubble, which I think you also think is
a bubble. I think we're as one on this bubble thing,
aren't we.
Speaker 3 (14:05):
John, Definitely. I think we've got to acknowledge that just
because you think something's a bubble doesn't mean that you
have any idea when it's going to pop.
Speaker 2 (14:12):
And it also doesn't absolutely.
Speaker 3 (14:14):
It's the only extent is it is meaningless. But there's
been a lot of interest and stuff come out about it,
and I think that's starting to get I think we're
starting to get a better sense of where the problems lie.
And it's sort of this whole thing about Do you
want to talk about the chep depreciation?
Speaker 1 (14:33):
Yeah, I do, But I want to briefly mention things
that that people are now talking about in a much
sort of wider and louder way than they were previously.
I mean, we've talked before about the energy problems of AI,
the ability for data centers to connect to the electricity
that they need to keep things going in the extent
to which a data centers already using vast amouns for
(14:55):
electricity in the US and indeed in the UK. So
there is this limiting factor energy that is beginning to
be discussed more outside the niche areas that we're discussing
it previately. And then there's also the infrastructure issues you
and there's a lot of people who who want companies
that want to use a lot of a lot of
data center capacity and are finding that the data centers
aren't going up fast enough. So you've got an energy problem,
(15:17):
you've got an infrastructure problem, and then as you say,
you've got this quite interesting depreciation issue.
Speaker 3 (15:23):
This is interesting, I'm not like completely across. The basic
point is that for AI to work, these companies need
to keep investing in very expensive micro chips. And the
issue is that these things have an uncertain shelf life.
So if you want to keep up with the latest DII,
you need to keep investing in the latest chips. But
(15:46):
that means that the ones you spend, you know, hundreds
of millions of billions of dollars on three years ago
are no longer as valuable on your balance sheet as
you thought they were going to be. Understand And basically
the amount that you haven't a right off every year
is you know, you're already investing a lot, you're writing
down a lot, and are your kind of revenues going
(16:06):
to actually cover that and then on top of that,
you've got all of these slightly weird circular deals that
they're all doing with each other where somebody buys the
chips but then they rent them back off them or whatever.
And then on top of that, you've got the interaction
with private debt markets. With all of this, so where's
the funding coming from? How it opaque or not? Is
(16:27):
it what happens if the smaller players particularly start to
kind of go bust or be unable to care popular payments,
that sort of thing. So you can see that there's
a there's a running out of road element to it, and.
Speaker 1 (16:43):
I suppose that just to go back to the depreciation
that the key point is that there is a there's
an idea that possibly the big companies are underestimating depreciation,
they're not doing it fast enough, and that makes the
balance looks rather better than they should right their accounting,
their accounting assumptions are just a little bit too generous.
Speaker 2 (17:04):
Now, that brings us back to something we were talking.
Speaker 4 (17:07):
About last week, to this idea that JKKW Brave had
about his term the bezel right, which he wrote about
in The Great Crash, his book on that Great Crest
nineteen twenty nine, and shall.
Speaker 2 (17:21):
I read you the paragraph as well alone.
Speaker 1 (17:24):
Among the various forms of larceny, bragger's embezzlement has a
time parameter. Weeks, months, or years may allapse between the
commission of the crime and this discovery. This is a period, incidentally,
when the embezzler has his gain and the man who
has been embezzled oddly enough field to no loss. There
is a net increase in psychic wealth. At any given time,
there exists an inventory of undiscovered embezzlement in or more
(17:46):
precisely not in the country's business and banks. Now he's
talking here about the bezel, this idea that there is
a period in each bubble where there's a lot of
fraud and corruption, larseny, embezzlement, whatever you like to call it,
that people don't know out and when they begin to
know about this inflated sense of value collapses.
Speaker 3 (18:05):
Yes, to be clear, we are not talking about moving
on to that.
Speaker 2 (18:10):
Yeah, I am moving on to that.
Speaker 1 (18:12):
But so he talks about things that are basically illegal
or close to illegal.
Speaker 3 (18:17):
I mean, he doesn't push the.
Speaker 1 (18:19):
Whole idea on quite as far as some other people have.
But since then Charlie Munger bucks you halfway. I mean
he sort of developed it in to more about the
story when the story isn't quite true or the story
doesn't help you understand everything. And this too creates a
sense of psychic value. So the bezel is the word
(18:40):
for the disconnect between what you think the value of
an acid is and what you will come to understand
it is over time.
Speaker 2 (18:48):
That's also the bezel.
Speaker 1 (18:50):
So it's not necessarily about illegality, but it is about
things like vendor financing, that kind of circularity that we've
talked about before.
Speaker 2 (18:58):
It is about perhaps.
Speaker 1 (18:59):
Getting an appreciation wrong and making things look better than
they really are. It's about all these things about necessarily fraud,
they're not last andy, they're not actually embezzlement, but they
are part of the bezel that comes towards the end
of most bubbles.
Speaker 3 (19:14):
Yeah, it's the stuff you can get away with because
everyone wants to believe Yeah, funnly and I do. Yeah.
And it's interesting to see that this is the sort
of we're standing to get signs of where that might
crop up. And I think that that again you're getting
the sense that people are looking at AI and starting
to ask Okay, so how is this going to actually
(19:35):
pay off? Now you've got a little bit beyond people
just unthinkingly just buying into the hype and starting to say, so,
where's the payoff? You know, like kind of expectations are
starting to crystallize a bit, so we're interested to see
what happens with that. I mean, I still find it's
it's fascinating stuff because I'm not I am not an
(19:57):
e I skeptic. Things are clear happening in some industries
more than others, you know, and people you know there
is having an impact on certain jobs in some places.
I was reading another piece of Bloomberg this morning. I
was pointing out that a lot of banking customer service
layoffs have been driven by AI, and I can see
(20:18):
things like that happening. So I guess, I guess it
is like the dot com boom all over again. Something
big is going on. But simultaneously we can also have
a big market crash simply because we're priced in too
much too soon.
Speaker 1 (20:35):
And so it's probably the point in the cycle when
people heavily invested in the US should wonder what part
of their wealth is psychic wealth, and what part of
their wealth is real wealth.
Speaker 3 (20:48):
That's an interesting one. It's a bit like your household
balance sheet. For your house price in the UK, you
may need to ads that depending on when you put
your home.
Speaker 1 (20:59):
Exactly him you think your house is worth, and how
much is it really worth? I remember again, I will decide.
I don't know how often I tell you the story,
but I'm going to tell you once more, once more
about that wonderful survey, possibly my favorite survey ever. It
must have been two thousand and nine ish, asking people
in the UK about house prices in the UK and
what they expected, and everybody said, house prices are falling
(21:22):
across the UK, and and continued to fall across the UK,
but they're not going to fall in my neighborhood because
we have a special community or a really great pub,
or a marvelous market or the best school or whatever
it is.
Speaker 2 (21:35):
And so people went into a period of.
Speaker 1 (21:38):
Absolute denial about their own houses while accepting that the
nominal price of everybody else's houses was going to fall.
Speaker 2 (21:47):
We may be approaching that period again.
Speaker 3 (21:51):
Well, at least they make it some commity selfies out
of it.
Speaker 1 (21:55):
Oh, I'd love to see that survey again, you know,
obviously I can't actually find that survey. I've been looking
for it for ages so that I can actually read
you bits of it because I loved it so much.
I can't find it. When we finished this, I'm going
to look for it again. In fact, we're going to
finish this right now so I can go look for
it again.
Speaker 3 (22:10):
Okay, Thanks John, Thanks Mail.
Speaker 2 (22:20):
Thanks for listening to this week's Marin Talks Money Debrief.
If you like our show, rate review, and subscribe wherever
you listen to your podcast.
Speaker 1 (22:26):
Also be sure to follow me in John on x
or Twitter at marins w and John Underscore Stepek. This
episode was produced by some Asadi, Production support and sound
design by Moses and Questions and comments on this show
and all our shows are always welcome. Our show email
is Mirror Money at Bloomberg dot net
Bloomberg Audio Studios, podcasts, radio news. So Merrin Talks Money listeners,
or at the very least the London based ones, Have
you actually done it? Have you signed up to join
us at Bloomberg's European headquarters in the heart of the
city on November twenty seventh, we will be taping an
episode of the podcast in front of a live audience
(00:24):
the morning after the UK budget. I will be joined
by Helen Thomas of Blonde Money, Stephanie Flanders, Bloomberg's head
of Government and Economics, and of course John Steppek will
also be there. So if you haven't signed up yet,
find the registration link in the show notes and do
join us.
Speaker 2 (00:38):
We hope to see you there. There will be coffee,
There will be croissants. Onto the episode.
Speaker 1 (00:53):
Welcome to the Merrin Talks Money Market Wrap, while we
talk about the biggest moves in the market this week
and what is driving them. I'm Maren zumset webeditor, a
large for Bloomberg UK Wealth.
Speaker 3 (01:02):
And I'm Joined Stebic, senior reporter noted at the Money
Distilled newsletter.
Speaker 2 (01:06):
Excellent.
Speaker 1 (01:09):
Hi John, Hi Ma, Now listen I know that I
mean you know it'd be nice to have a little
casual chat right now, but there's literally no point because
all you can think about is the housing market. Yeah,
as regular listeners will know, John is absolutely obsessed with
house prices in the UK and the latest Rick survey
is just Christian's mill.
Speaker 3 (01:28):
It's just fascinating stuff. Well, I say, I suppose it's
not that fascinating. There's an awful lot obviously, the agents
saying that the nervous and the buyers and nerves ahead
of the budget that people are putting off sales, they
are putting off buy in. There a little bit gloomy
about how things are going to go over the next
(01:48):
three months, but they're not that gloomy, and basically all
points to prices being kind of flat to lower, assuming
that the budget goes broadly according to plan. That's just
quite a big assumption. But the one thing I would
say is, and I think it is probably more important
than any of this stuff, is the fact that interest
rates have been steadily dripping lower and mortgage rates have
(02:12):
been steadily dripping lower. And the one thing that you
and I know from years and years of better experience
is that really house prices are driven by one thing
and that's the price that somebody can get a mortgage for.
And the reason that they've been flag to fall in
for the last three years is because mortgage rates obviously
shot up with interest rates and now that they're kind
of just ever so slightly dropping lower because markets now
(02:34):
expect the Bank of England to have to cut interest
rates more. I suspect that we might see house prices
not go up a lot, but can of move away
from the flat line maybe in the next six months.
Speaker 1 (02:47):
Yeah, I mean that's an interesting point, John, And you're right.
We always say that the price of a house is
about the price of money, but it's also about some
of the uncertainties. At the moment, we're in this hopefully
short term situation of huge economic uncert you and concern
about what taxes might come up in the budget, and
there's lots of concern about new property taxes, new wealth taxes,
changes to the council tax regime, etc. And an awful
(03:09):
lot of people feel very uncertain about buying house at
all level and paying over the asking price by any
means for a house in this kind of environment.
Speaker 3 (03:18):
Right, Oh, yeah, absolutely, I think to be feeling that
mostly affects people at the wealthier end of the spectrum. Yeah,
mainly because you know, they're the ones who will be
sitting there going very well, if I put this off,
I'm going to be able to see how hard she's
going to hit me and whether I actually want to
go ahead with this or not. I mean, it's kind
(03:39):
of slightly different if you're moving you know, maybe under
a half a million pounds or under three quarters of
a million pounds, if you're in London and it's just well, look,
you just get to get on with life.
Speaker 1 (03:50):
You know.
Speaker 3 (03:50):
It's not like you can leave the country if you
don't like what Rachel Reeves does. It's not like you've
gotten an awful lot of evasive action things that you
can do. So I think at that end of the
market it probably doesn't actually have that much effect. It's
just a useful, you know, conversation piece for the stagents
to talk about, but definitely the high end.
Speaker 1 (04:07):
The other thing I think it's useful to point out
is that even if house prices over the full year
do reach that reach the level that most analysts are
forecusting and say, you know, two and a half three
percent growth over the year, we're still looking at things
being flat and inflation adjusted terms at best, and in fact,
house prices have full and quite a lot in inflation
adjusted terms over the last few years.
Speaker 3 (04:29):
Yeah, and that's actually I find this really interesting because
when you think about how buoyant things like equities and
gold have been, the fact that house prices have probably
for one of the first times in my career, have
been the least interesting asset market for a prolonged period
(04:51):
of time now and to the point where people are
actually sort of getting the message. There was a very
good piece posted out on LinkedIn yesterday from a chart
who was talking about how he'd bought a flat in
twenty sixteen and rented it out, and he was basically
explaining how over that whole time, with the changes to
the taxation and buy to let it and also with
(05:12):
the fact that capital gains have gone nowhere because this
was in London, so it's been about flat for ten
years in London. He'd walked out that he'd been paid
less than minimum wage for all the work he'd done
running this side business as a kind of amateur landlord,
and he basically said that there was a complete waste
of my time. I should have sold it and put
all the money into equities. And I haven't heard much
(05:33):
stuff like that, even though it's probably been true for
at least kind of five or six years now. So
it's really interesting that I think people are starting to
get out of the mindset of you can't go wrong
with bricks and watar.
Speaker 1 (05:45):
Yeah, I mean, this is it's interesting, isn't it, Because
it used to be that there was so many problems
with buy to letting. We got to the point where
we remember us making various calculations showing that the average
by to let invest it was actually cash negative on
average months, but nobody cared because if they were making
great capital gains, it was still absolutely worth it. Yeah,
(06:09):
but if you're not making capital gain, suddenly it turns
into a bit of a nightmare.
Speaker 3 (06:12):
Yeah, And it is that. I do think it's also
that thing I thought it was really sensible. The guy
made the point, you know, I'm actually having any managed
this so like where it's like my equity portfolio and
never phones me up and says the toilet's broken. You
know that happens, you know what I mean, It's like
it's a all mazing kind of business running an equity portfolio,
(06:33):
whereas yeah, you know, you're kind of taking up your
weekends and you just spare time stressing about things. You
want to get compensated for that as well, So even
if you are managing to make some money, it's going
to be worth your real money. Yeah, so I thought
that was really interesting.
Speaker 1 (06:50):
It is interesting, Okay, So moving away from that and
the idea that they may finally be the beginning of
a change of mindset about property prices in the UK,
about you know, my property is my pension and all
that kind of thing that we've written about a lot
over the years. We are suddenly seeing, despite the appalling
political shenanigans in the UK and the miserable state of
(07:10):
the UK economy growth coming in at almost nothing almost
nothing in the last quarter, we're still seeing the equity
market doing rather well and it's kind of exciting.
Speaker 3 (07:20):
We have this idea that quite soon we'll go through
ten thousand, right, Oh, that would be great. I hope.
I mean, I can see the seeding. It's usual and
just like really horribly teasing us all as it has
been doing this week. But yeah, it's just no reason
why you shouldn't get to the big number of ten
thousand at some point before Christmas, assuming you know, the
(07:40):
American EA bubble doesn't pop before then it is ruined
efflent on everyone, which, by the.
Speaker 1 (07:45):
Way, we should we should say, by the way, that
this still leaves the foot seat very significantly down from
its peak and inflation adjusted terms, So you know, ten
thousand might feel nice, but you will still be down
in real terms.
Speaker 3 (08:00):
Oh, that's such a spoil sport. That's the one law.
It depends on when you pop. Just it.
Speaker 2 (08:07):
Okay, all right, all right, mister optimistic. Just like.
Speaker 1 (08:15):
Round numbers are exciting, but they don't tell you the
whole truth. And we should mention, by the way, while
we're talking about the footy one hundred, that three I
group has had a bit of a nasty day. We're
talking on the day when its results came out and
it fell I think at one point down set of
fifteen percent or so.
Speaker 3 (08:31):
And that's.
Speaker 1 (08:33):
I think partly because people are suddenly noticing the extent
to which is dependent on one company. So it's got
an awful lot of the portfolios of seventy percent of
it's a total asset value in a Dutch retailer, so
it makes it at the very top heavy, and it's
also trading it at a premium to it's navy, So
there are various things to worry about with that, But
(08:53):
I think a lot of people probably have it in
their portfolios. Just it heads up that just because the
firsty one hundred doing well does not mean that every
cant situent in it is doing exactly what you wanted
to do.
Speaker 3 (09:03):
Yeah. I mean, it has been a good week for
some of the stalks, but that's that is quite a
big one, it is.
Speaker 1 (09:09):
And it's also you know, you alwas thinking it as
a private equity portfolio, don't you, so when you suddenly
realize that, in fact, it's a it's a large it's
a large retailer with a couple of little private acty
things around the edge.
Speaker 2 (09:19):
It's a slightly different kind of portfolio.
Speaker 1 (09:21):
Anyway, leaving that aside, UK growth, do we want to
talk about the miseries of that?
Speaker 3 (09:27):
Do I find GDP figures really just send me sleep.
It's terrible. They're so constantly devised all the time, and
all you do is need to see you know what,
if it had been point two instead of point one, okay,
the points would have been a bit more positive, but
it's still rubbish. So all we could say is that
the economy continues to be very, very sluggish, and it's
(09:51):
basically don't incredibly bad management not just by this government
but by previous governments as.
Speaker 1 (09:57):
Well, but many many previous governments. But certainly they run
up to this budget is not helping it. We were
talking before we started recording with me about about all
the different taxes that might come and go, everything from
changes to pension tax, two different different income tax bands,
to god in a salary sacrifice and not being able
to put your expensive bicycle through anything. I think I
(10:17):
slightly approve of that. Want to be honest, should you
really be able to put those expensive bicycles?
Speaker 3 (10:21):
I don't know, be a little bit more really going
to bicycles? No, she's going to cap it two key.
That's not very pleasant for anyone who's attempting to can
save for the retirement during the peak ending season.
Speaker 1 (10:41):
What do you mean, did you not get a cap
what you can put into your pension to two k?
Speaker 3 (10:45):
No, but it's going to cap no, no, no, no.
Before your employer is going to have to share national insurance,
you're gonna have to share it. As well, So I mean,
I think, you know it might not happen. It's like,
but I mean, you're right this. I think the problem
(11:05):
is that on the one hand, the Overton, the fiscal
Overton window has been blown wide open. So like you know,
a while ago, there were certain things you could say, Okay,
the government stupids, but they're not going to do this
because that would just be so obviously a bad idea.
And so there was a group of policies that they
would do. And this is now something could come in
and just make something up and you still wouldn't have
(11:27):
any idea if it was actually going to happen or not,
because anything goes And this is partly the result of
the havoc at the top, because there is clearly a
war at the top or who gets to say what's
going to kind of be in the budget. And Rachel
Reeves is worried because obviously she's worried about appeasing her
own party members and kind of you know, the gelp's
(11:50):
market and also the voters. And I think obviously she's thinking, well,
am I actually going to survive this? And that's why
we're also hearing talk about getting rid of this too
child benefit CAUP, which is clearly not an affordable situation
or choice, and it hasn't become any more affordable since
she said it was unaffordable last year. But I kind
of saw up to the left wing and her party, and.
Speaker 1 (12:13):
I suppose it's also worth noting that when we talk
about the two child benefit CAUP, a lot of the
conversation around it so it suggests it's not possible to
have more than two children, And of course you can
have as many children as you like outside the benefit
system and also within the benefit system, and there are
only certain parts of the system that capped at two children.
Speaker 2 (12:32):
There are.
Speaker 1 (12:33):
Yes, it's a complicated system. It's a very complicated system.
The UK benefit system is much more complicated than most
people realize. In fact, we've been chatting earlier and I
would encourage anybody who's interested in how the benefit system
actually works and what you can and can't get on
welfare to go and look at a website called entitled
two dot co dot uk, where you can input all
sorts of variables and find out for yourself exactly how
(12:55):
it is complicated.
Speaker 2 (12:56):
It is complicated.
Speaker 3 (12:58):
You may also find the entitled Suddenly didn't know what
we are.
Speaker 1 (13:01):
That's not what we're encouraging.
Speaker 3 (13:03):
I'm not encouraging it. More of our lessons would be
surprised if the will is true.
Speaker 1 (13:08):
They might be surprised to find that they are inside
the system. Anyway, Moving on from that, this is not
not a program about how to claim benefits that TikTok
is available for that.
Speaker 2 (13:19):
Let's move on to talking about the US market.
Speaker 1 (13:23):
And they've been quite a few interesting pieces on on
Bloomberg about this recently, and.
Speaker 2 (13:29):
So there is em for starters.
Speaker 1 (13:30):
Let's say that there's been a report from Oppenheimer at
Goldman SAX who points out that US equities are likely
to lag other markets.
Speaker 2 (13:38):
For the next decade or so.
Speaker 1 (13:39):
I mean, this is all about if you're going to
invest the starting prices what matters. And he expects over
the next ten years to see six and a half
percent from from US markets, which personally I think is ambitious,
but he's looking at totally different numbers for other markets,
so emerging markets ten point nine percent, he sees, it's
just the strongest over the next decade. Now, of course,
to think to worry about in the US is the
(14:01):
great AI bubble, which I think you also think is
a bubble. I think we're as one on this bubble thing,
aren't we.
Speaker 3 (14:05):
John, Definitely. I think we've got to acknowledge that just
because you think something's a bubble doesn't mean that you
have any idea when it's going to pop.
Speaker 2 (14:12):
And it also doesn't absolutely.
Speaker 3 (14:14):
It's the only extent is it is meaningless. But there's
been a lot of interest and stuff come out about it,
and I think that's starting to get I think we're
starting to get a better sense of where the problems lie.
And it's sort of this whole thing about Do you
want to talk about the chep depreciation?
Speaker 1 (14:33):
Yeah, I do, But I want to briefly mention things
that that people are now talking about in a much
sort of wider and louder way than they were previously.
I mean, we've talked before about the energy problems of AI,
the ability for data centers to connect to the electricity
that they need to keep things going in the extent
to which a data centers already using vast amouns for
(14:55):
electricity in the US and indeed in the UK. So
there is this limiting factor energy that is beginning to
be discussed more outside the niche areas that we're discussing
it previately. And then there's also the infrastructure issues you
and there's a lot of people who who want companies
that want to use a lot of a lot of
data center capacity and are finding that the data centers
aren't going up fast enough. So you've got an energy problem,
(15:17):
you've got an infrastructure problem, and then as you say,
you've got this quite interesting depreciation issue.
Speaker 3 (15:23):
This is interesting, I'm not like completely across. The basic
point is that for AI to work, these companies need
to keep investing in very expensive micro chips. And the
issue is that these things have an uncertain shelf life.
So if you want to keep up with the latest DII,
you need to keep investing in the latest chips. But
(15:46):
that means that the ones you spend, you know, hundreds
of millions of billions of dollars on three years ago
are no longer as valuable on your balance sheet as
you thought they were going to be. Understand And basically
the amount that you haven't a right off every year
is you know, you're already investing a lot, you're writing
down a lot, and are your kind of revenues going
(16:06):
to actually cover that and then on top of that,
you've got all of these slightly weird circular deals that
they're all doing with each other where somebody buys the
chips but then they rent them back off them or whatever.
And then on top of that, you've got the interaction
with private debt markets. With all of this, so where's
the funding coming from? How it opaque or not? Is
(16:27):
it what happens if the smaller players particularly start to
kind of go bust or be unable to care popular payments,
that sort of thing. So you can see that there's
a there's a running out of road element to it, and.
Speaker 1 (16:43):
I suppose that just to go back to the depreciation
that the key point is that there is a there's
an idea that possibly the big companies are underestimating depreciation,
they're not doing it fast enough, and that makes the
balance looks rather better than they should right their accounting,
their accounting assumptions are just a little bit too generous.
Speaker 2 (17:04):
Now, that brings us back to something we were talking.
Speaker 4 (17:07):
About last week, to this idea that JKKW Brave had
about his term the bezel right, which he wrote about
in The Great Crash, his book on that Great Crest
nineteen twenty nine, and shall.
Speaker 2 (17:21):
I read you the paragraph as well alone.
Speaker 1 (17:24):
Among the various forms of larceny, bragger's embezzlement has a
time parameter. Weeks, months, or years may allapse between the
commission of the crime and this discovery. This is a period, incidentally,
when the embezzler has his gain and the man who
has been embezzled oddly enough field to no loss. There
is a net increase in psychic wealth. At any given time,
there exists an inventory of undiscovered embezzlement in or more
(17:46):
precisely not in the country's business and banks. Now he's
talking here about the bezel, this idea that there is
a period in each bubble where there's a lot of
fraud and corruption, larseny, embezzlement, whatever you like to call it,
that people don't know out and when they begin to
know about this inflated sense of value collapses.
Speaker 3 (18:05):
Yes, to be clear, we are not talking about moving
on to that.
Speaker 2 (18:10):
Yeah, I am moving on to that.
Speaker 1 (18:12):
But so he talks about things that are basically illegal
or close to illegal.
Speaker 3 (18:17):
I mean, he doesn't push the.
Speaker 1 (18:19):
Whole idea on quite as far as some other people have.
But since then Charlie Munger bucks you halfway. I mean
he sort of developed it in to more about the
story when the story isn't quite true or the story
doesn't help you understand everything. And this too creates a
sense of psychic value. So the bezel is the word
(18:40):
for the disconnect between what you think the value of
an acid is and what you will come to understand
it is over time.
Speaker 2 (18:48):
That's also the bezel.
Speaker 1 (18:50):
So it's not necessarily about illegality, but it is about
things like vendor financing, that kind of circularity that we've
talked about before.
Speaker 2 (18:58):
It is about perhaps.
Speaker 1 (18:59):
Getting an appreciation wrong and making things look better than
they really are. It's about all these things about necessarily fraud,
they're not last andy, they're not actually embezzlement, but they
are part of the bezel that comes towards the end
of most bubbles.
Speaker 3 (19:14):
Yeah, it's the stuff you can get away with because
everyone wants to believe Yeah, funnly and I do. Yeah.
And it's interesting to see that this is the sort
of we're standing to get signs of where that might
crop up. And I think that that again you're getting
the sense that people are looking at AI and starting
to ask Okay, so how is this going to actually
(19:35):
pay off? Now you've got a little bit beyond people
just unthinkingly just buying into the hype and starting to say, so,
where's the payoff? You know, like kind of expectations are
starting to crystallize a bit, so we're interested to see
what happens with that. I mean, I still find it's
it's fascinating stuff because I'm not I am not an
(19:57):
e I skeptic. Things are clear happening in some industries
more than others, you know, and people you know there
is having an impact on certain jobs in some places.
I was reading another piece of Bloomberg this morning. I
was pointing out that a lot of banking customer service
layoffs have been driven by AI, and I can see
(20:18):
things like that happening. So I guess, I guess it
is like the dot com boom all over again. Something
big is going on. But simultaneously we can also have
a big market crash simply because we're priced in too
much too soon.
Speaker 1 (20:35):
And so it's probably the point in the cycle when
people heavily invested in the US should wonder what part
of their wealth is psychic wealth, and what part of
their wealth is real wealth.
Speaker 3 (20:48):
That's an interesting one. It's a bit like your household
balance sheet. For your house price in the UK, you
may need to ads that depending on when you put
your home.
Speaker 1 (20:59):
Exactly him you think your house is worth, and how
much is it really worth? I remember again, I will decide.
I don't know how often I tell you the story,
but I'm going to tell you once more, once more
about that wonderful survey, possibly my favorite survey ever. It
must have been two thousand and nine ish, asking people
in the UK about house prices in the UK and
what they expected, and everybody said, house prices are falling
(21:22):
across the UK, and and continued to fall across the UK,
but they're not going to fall in my neighborhood because
we have a special community or a really great pub,
or a marvelous market or the best school or whatever
it is.
Speaker 2 (21:35):
And so people went into a period of.
Speaker 1 (21:38):
Absolute denial about their own houses while accepting that the
nominal price of everybody else's houses was going to fall.
Speaker 2 (21:47):
We may be approaching that period again.
Speaker 3 (21:51):
Well, at least they make it some commity selfies out
of it.
Speaker 1 (21:55):
Oh, I'd love to see that survey again, you know,
obviously I can't actually find that survey. I've been looking
for it for ages so that I can actually read
you bits of it because I loved it so much.
I can't find it. When we finished this, I'm going
to look for it again. In fact, we're going to
finish this right now so I can go look for
it again.
Speaker 3 (22:10):
Okay, Thanks John, Thanks Mail.
Speaker 2 (22:20):
Thanks for listening to this week's Marin Talks Money Debrief.
If you like our show, rate review, and subscribe wherever
you listen to your podcast.
Speaker 1 (22:26):
Also be sure to follow me in John on x
or Twitter at marins w and John Underscore Stepek. This
episode was produced by some Asadi, Production support and sound
design by Moses and Questions and comments on this show
and all our shows are always welcome. Our show email
is Mirror Money at Bloomberg dot net
Host
Merryn Somerset Webb
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