August 8, 2024 • 5 mins
After a turbulent week for financial markets - have things bounced back?
Japan's stocks have rebounded after their crash, but there's mixed results from around the rest of the world.
Sam Dickie from Fisher Funds explains further.
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Speaker 1 (00:00):
Whatever DUPERZL.
Speaker 2 (00:01):
Now, after the market turmoil of the past week, the
question of courses, has the bubble burst or have we
still got a little bit of a way to go here?
Sam Dickey from Fisher Funds is with me. Now, Hey Sam, Heather, Sam,
am I right, but you were just warning about all
this stuff the other day and then it's happened.
Speaker 1 (00:18):
I'm not sure about warning, but you and I were
certainly talking about Heather, Yes.
Speaker 2 (00:21):
Yeah, okay. So the specific risks that have led to
the point that we're at, what are they?
Speaker 1 (00:27):
Yes, outside of the unlined of the giant Japanese carry trade,
which in plain English means borrowing at near zero present
in Japanese un and using that money to invest in
risky assets around the world. Outside of that, there were
two other things happening which caused a third to happen,
so the US economic growth risk. The market was far
too complacent about what investors call a soft economic landing.
(00:49):
So despite the sharpest rate high cycle bi central banks
in forty years, the US economy was expected to sail
through and that came unstuck. And then there was the
AAAI Hyphe press can remember that. One number to remember
ten trillion dollars. So we add up half a dozen
of the AI darlings, and their market capitalization or valuations
(01:10):
had gone up by over ten trillion dollars in the
last twenty months or so. But on the ground, the
reality was you and I were not prepared to pay
for that. There was no AI use case out there
headed that really caught our fancy. So there was this
huge yawning gap between the hype and the reality. So
those two things caused the market. A third thing to
(01:31):
happen that the market was being driven by a very
few stocks, So that's a sort of unhealthily narrow rally,
so that those were the four risks that kind of
became unstuck all at once.
Speaker 2 (01:41):
I see that the JP Morgan analysts reckon that, especially
with regards to the carry trade. We're only about halfway
through that turmoil. What do you think, I mean, can
you tell whether we're still seeing this happen or whether
it's already done.
Speaker 1 (01:55):
There's a lot of thought gone on to that around
the world. My thought with these things is, you know this,
the seeds for this was sowed back in the nineteen
eighties in Japan. I'm not saying they've been building for
that long, but really that's where the seeds were. So
when the bubble burst, and we took sort of thirty
years of anemic growth and anemic inflation, you know, driven
(02:18):
by the scar tissue of the bursting of that bubble
and a shrinking and aging population in Japan, and you know,
the Japanese government and the boj is being desperate to
manufacture inflation, and finally they got an opportunity to piggyback
on a once in forty years spike in global inflation.
But they were just kind of a day late and
a dollar short. So I do think when these things
(02:40):
have been building for months and months, if not years,
they're not going to unwind and sort of forty eight hours,
So I guess I agree with that long way of saying,
I agree with the Japanese Joping Morman analysts.
Speaker 2 (02:52):
Interesting, okay, So I mean, what do we take out
of this if we're investors?
Speaker 1 (02:58):
Well, four days of a lifetime markets, but quite a
few things have changed in each of those three or
four risks, so on new its economic growth expectations. The
good news is the markets expecting the Federal Reserve to
know the ca cavalry to arrive. So the market was
pricing two rate caps by the end of the year
literally seven days ago, and now it's pricing five rate
(03:20):
cuts and nothing happens in a vacuum. You know, New
Zealand's now pricing another rate cut or two by the
end of the year as well. And in equity markets,
we've seen the frost blown out and economically sensitive stocks
down a lot more. So that's good news. That's at
least partially getting priced in on the AI bubble. You know,
in the last week or so, we've seen the big
(03:41):
tech companies come out with the results and they continue
to weigh and then plow more money into AI hardware
like in videos, computer chips. But the market's lost patients.
They're not prepared to allow them to continue plowing money
into this I guess this AI experiment with no revenue
at the other side. So the good news is the
market is forcing these companies to become more prudent and
(04:05):
drive an obvious return on invested capital. So that yawning
gap I talked about between kind of the hype and
the capex that's going in there and the reality of
the fact you and I are not prepared to pay
for this year. Here there is still there. But the
good news is we've seen some of these AI darlings
correct hard. So super Micro Computer, which builds liquid cooling
(04:27):
systems for these very hot and video chips, has down
twenty five percent of last week. And on the unwind
of the giant carry trade Japanese carry trade, the deputy
governor of the boj almost came out and corrected as
the governor, and they said they've heard the market's message
loud and clear after the sharpest fall in the stock
(04:48):
market's history, and they said they wouldn't raise interest rates
anymore until the financial tumoli has calmed down. So we've
seen a stabilization there. So the good news is when
risk's on the front page of every newspaper around the world,
or at least on the front page of the business section,
we can rest asshuredage at least partially priced into assets
and stock markets.
Speaker 2 (05:07):
Fascinating, really fascinating stuff. At the moment, ame.
Speaker 1 (05:10):
Yeah, very fast. I was going to say. One last
thing is a really another good piece of good news
is owning a portfolio of stocks and bonds and using
the bonds and insurance is definitely working again after not
working during the kind of inflation spike of twenty twenty two.
So while equities fell sharply this week, your bond investments
went up sharply as insurance, so that is good news.
Speaker 2 (05:32):
Thanks Wit Smart, Hey Sam, thank you very much, appreciate it.
As always, we'll talk to you soon. Sam Dickey Fisher Funds.
Speaker 1 (05:38):
For more from Hither Duplessy Allen Drive. Listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
Whatever DUPERZL.
Speaker 2 (00:01):
Now, after the market turmoil of the past week, the
question of courses, has the bubble burst or have we
still got a little bit of a way to go here?
Sam Dickey from Fisher Funds is with me. Now, Hey Sam, Heather, Sam,
am I right, but you were just warning about all
this stuff the other day and then it's happened.
Speaker 1 (00:18):
I'm not sure about warning, but you and I were
certainly talking about Heather, Yes.
Speaker 2 (00:21):
Yeah, okay. So the specific risks that have led to
the point that we're at, what are they?
Speaker 1 (00:27):
Yes, outside of the unlined of the giant Japanese carry trade,
which in plain English means borrowing at near zero present
in Japanese un and using that money to invest in
risky assets around the world. Outside of that, there were
two other things happening which caused a third to happen,
so the US economic growth risk. The market was far
too complacent about what investors call a soft economic landing.
(00:49):
So despite the sharpest rate high cycle bi central banks
in forty years, the US economy was expected to sail
through and that came unstuck. And then there was the
AAAI Hyphe press can remember that. One number to remember
ten trillion dollars. So we add up half a dozen
of the AI darlings, and their market capitalization or valuations
(01:10):
had gone up by over ten trillion dollars in the
last twenty months or so. But on the ground, the
reality was you and I were not prepared to pay
for that. There was no AI use case out there
headed that really caught our fancy. So there was this
huge yawning gap between the hype and the reality. So
those two things caused the market. A third thing to
(01:31):
happen that the market was being driven by a very
few stocks, So that's a sort of unhealthily narrow rally,
so that those were the four risks that kind of
became unstuck all at once.
Speaker 2 (01:41):
I see that the JP Morgan analysts reckon that, especially
with regards to the carry trade. We're only about halfway
through that turmoil. What do you think, I mean, can
you tell whether we're still seeing this happen or whether
it's already done.
Speaker 1 (01:55):
There's a lot of thought gone on to that around
the world. My thought with these things is, you know this,
the seeds for this was sowed back in the nineteen
eighties in Japan. I'm not saying they've been building for
that long, but really that's where the seeds were. So
when the bubble burst, and we took sort of thirty
years of anemic growth and anemic inflation, you know, driven
(02:18):
by the scar tissue of the bursting of that bubble
and a shrinking and aging population in Japan, and you know,
the Japanese government and the boj is being desperate to
manufacture inflation, and finally they got an opportunity to piggyback
on a once in forty years spike in global inflation.
But they were just kind of a day late and
a dollar short. So I do think when these things
(02:40):
have been building for months and months, if not years,
they're not going to unwind and sort of forty eight hours,
So I guess I agree with that long way of saying,
I agree with the Japanese Joping Morman analysts.
Speaker 2 (02:52):
Interesting, okay, So I mean, what do we take out
of this if we're investors?
Speaker 1 (02:58):
Well, four days of a lifetime markets, but quite a
few things have changed in each of those three or
four risks, so on new its economic growth expectations. The
good news is the markets expecting the Federal Reserve to
know the ca cavalry to arrive. So the market was
pricing two rate caps by the end of the year
literally seven days ago, and now it's pricing five rate
(03:20):
cuts and nothing happens in a vacuum. You know, New
Zealand's now pricing another rate cut or two by the
end of the year as well. And in equity markets,
we've seen the frost blown out and economically sensitive stocks
down a lot more. So that's good news. That's at
least partially getting priced in on the AI bubble. You know,
in the last week or so, we've seen the big
(03:41):
tech companies come out with the results and they continue
to weigh and then plow more money into AI hardware
like in videos, computer chips. But the market's lost patients.
They're not prepared to allow them to continue plowing money
into this I guess this AI experiment with no revenue
at the other side. So the good news is the
market is forcing these companies to become more prudent and
(04:05):
drive an obvious return on invested capital. So that yawning
gap I talked about between kind of the hype and
the capex that's going in there and the reality of
the fact you and I are not prepared to pay
for this year. Here there is still there. But the
good news is we've seen some of these AI darlings
correct hard. So super Micro Computer, which builds liquid cooling
(04:27):
systems for these very hot and video chips, has down
twenty five percent of last week. And on the unwind
of the giant carry trade Japanese carry trade, the deputy
governor of the boj almost came out and corrected as
the governor, and they said they've heard the market's message
loud and clear after the sharpest fall in the stock
(04:48):
market's history, and they said they wouldn't raise interest rates
anymore until the financial tumoli has calmed down. So we've
seen a stabilization there. So the good news is when
risk's on the front page of every newspaper around the world,
or at least on the front page of the business section,
we can rest asshuredage at least partially priced into assets
and stock markets.
Speaker 2 (05:07):
Fascinating, really fascinating stuff. At the moment, ame.
Speaker 1 (05:10):
Yeah, very fast. I was going to say. One last
thing is a really another good piece of good news
is owning a portfolio of stocks and bonds and using
the bonds and insurance is definitely working again after not
working during the kind of inflation spike of twenty twenty two.
So while equities fell sharply this week, your bond investments
went up sharply as insurance, so that is good news.
Speaker 2 (05:32):
Thanks Wit Smart, Hey Sam, thank you very much, appreciate it.
As always, we'll talk to you soon. Sam Dickey Fisher Funds.
Speaker 1 (05:38):
For more from Hither Duplessy Allen Drive. Listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
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