May 16, 2025 • 31 mins
From a blistering 20% S&P rebound to Trump’s tariff U-turn, Anthony and Piers unpack what’s behind one of the fastest stock market rallies in recent memory — and whether it can last.
They also dive into the surprise inflation slowdown, what it means for Fed rate cuts, and why the looming US debt ceiling deadline could be the next big market risk. Plus, is “taco trade” the new “buy the dip”?
Essential listening for anyone trying to make sense of fast-moving markets, policy shifts, and the psychology driving investor behavior.
(00:00) Intro & Key Themes
(03:05) What’s Driving the Market Rebound
(09:03) US Inflation Trends & Fed Rate Cut Hopes
(14:56) Trading Psychology: Fear, Risk & Strategy
(16:00) The Debt Ceiling Explained - And Why It Matters
(24:29) One Market Factor You Might Be Overlooking
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
All right, it is the end of the week.
Hope everyone's had a good one. I'm pleased to say if you're in
the UK, the sun has started shining again.
Fingers crossed as we go into the weekend.
But not only that, you know, cheerful note, but it's because
the S&P is current is on track for one of its best weeks this
year. We're back, baby, so here we go.
(00:24):
Was it ever it die? We've had a lot of doom and
gloom. There was a lot of anxious
listeners out there over this roller coaster of the last I
guess 10-12 weeks or so. But this week to to focus in on,
we had Tuesdays lower than expected inflation figures in
the US and that added fuels to the rally that was already in
place sparked by Donald Trump's deal with China to cut tariffs,
(00:47):
albeit temporarily. You've had Goldman's increasing
their forecast for US earnings growth, year end, S&P targets,
other banks have followed. It hasn't all been sunshine and
rainbows, though. I did clock Steve Cohen, the
founder of the hedge fund .72. He's quite a bit more
pessimistic. He was talking about the chance
(01:09):
of recession in the US is still close to 5050 in his opinion.
But look, in this conversation we can talk about, and I think
it's important to because the speed of this turn around has
been pretty phenomenal. So break that down.
Have a little look at the CPI numbers and also you and I were
talking earlier in the week about like, OK, so, so what's
(01:30):
next? And there's obviously a lot
around the trade side, a lot of uncertainties, but also we've
had some more color about the impending U.S. debt ceiling,
couple of Treasury officials been a movement on Congress.
And so how does that link to other headlines that have
emerged in the past week around talk of regulation on bank
capital requirements? And what's that got to do with
(01:55):
the debt ceiling? Is this now the next big thing
to look for in financial marketsif you're trading, investing,
following with interest and alsojust like the debt ceiling?
I know from recent history, thiswill be like the doomsday
scenario end of days as far as the media will be telling us.
(02:16):
But I'd love to get your analysis or take from your
experience to understand what has that looked like through the
episodes of this happening from 2011, from 2021 and all these
other periods when they they've done this before.
And then finally, if we've got time, another positive note
positivity. This talk is welcome to the
(02:37):
positivity podcast. So we had U KG DP better than
expected, in fact best in the G7, all on team TV.
Come on, let's go. But you know, before we all get
too excited, there's probably a reason to rein that in, which
(02:59):
you're going to also explain. So yeah, talk to me about the
just this phenomenal turn aroundthat we've had in Marcus.
Yeah, speed of rebound. So let me take you back to
February, February 19th, OK, that was the, I'm going to talk
about the S&P 500 here. February the 19th, 2025 was the
(03:20):
all time high, OK. And that was at 6122, sorry,
6150, let's call it right. February 19th.
It then dumped to 5000 and that took from February the 19th
through till the lower the move was on April the 8th.
(03:40):
OK, so let's call that like 9 weeks.
OK, so a nine week sell off, which was mainly driven by Trump
tariff uncertainty, that kind ofacceleration around what Trump
called the liberation day, whichwas the 2nd of April where he
rolled out just monster tariffs across the whole planet.
(04:01):
But what's happened since that low on the April the 8th is
almost a full rebound. That's in percentage terms,
right? The S&P at 5000, a 4A here we
are now like 5 weeks later, it'salmost at 6000.
That's a 20% rally in the world's biggest stock index in
(04:23):
five weeks. I mean, that is literally kind
of unprecedented. It's like emerging market
volatility here. But look, the rebound is
obviously reversing a lot of that stuff that sent it
plummeting in the 1st place. And this is something actually,
I, I, I read a thing on the FT like one of my go TOS is the
(04:44):
unhedged newsletter. I would recommend it to, to
anyone. It's part, part of the FTA daily
sort of newsletter. But they, they're, they're kind
of, they lean anti Trump. And they've termed, they've
coined this terminology, the, they've called it the Taco
trade. This, this by the dip has turned
into a they have a new version of it.
(05:04):
It's the Taco trade. Taco standing for Trump always
chickens out. So the point is that Trump will
threaten and bully and write China.
You're going to have 145% tariffs now on everything.
Yeah. See how you see how you're like
that China. Then markets plummet and
(05:27):
collapse. And then he goes, oh, whoa,
whoa, whoa. Hang on, Hang on, Hang on.
All right, then. Fine, fine.
Instead of 145%, let's just makeit 30.
So this is what's happened. Trump has and China have been
engaged in talks in Switzerland like multi stage, multi day
talks over last weekend and intothe start of this week.
(05:48):
And look, they've had the talks have been positive and they've
kind of been a bit more pragmatic, both sides and said,
look, no one wants no one wants a disaster here.
I mean, obviously if they continue on that path that they,
that Trump had set where it was right, increased tariffs,
retaliate, retaliate, retaliate and suddenly you're getting 145%
(06:09):
tariffs on everything that wouldlead to certainly a recession in
China, most likely a recession in the US, therefore a recession
across the whole world. You know, they've said, all
right, let's all calm down a little bit.
But I, I, I think the interesting thing and the, the
reason why the speed of the rebounds been so crazy is
because they've, they've reined it in by more than people were
(06:33):
thinking they would. So they've made further strides
and concessions. So moving it from 145% tariffs
to 30 is, is a bigger move than people thought.
And then China, in response, they've taken their tariffs on
the US and they've chopped them down to 10%, which again, is a
move to a lower position than anybody possibly imagined so
(06:56):
early on in what were, you know,pretty, you know, the only the
beginnings of some negotiations.Too too big to fail both the US
and China in supply and demand Like like.
Literally. So the Taco trade, like on the
day where they announced this pullback on tariffs, that's both
(07:18):
US and China. The S&P rally 3.3%, NASDAQ was
up 4.3%. The dollar rallied 101.5%.
Just I mean, those are numbers, right?
To put it in context, that S&P move 3.3% up in one day that put
it at this was the 12th of May, OK, that put it at the third
(07:40):
biggest single day rally in the last five years.
So, you know, these, these are, these are big, big moves.
And I guess I'll be stepping back a bit from, you know,
tariffs and the reason for the episode this time.
I think the pattern of things isthat markets do move faster than
they ever used to. I think the speed of travel when
(08:02):
volatility kicks off, I think the speed of travel is greater.
And look, that's probably a function of the algo.
I I think the function of two things, the algo driven world
that we live in. So the majority of volumes
trading through these markets are algo driven.
I think there's you know a lot of big hedge funds with what we
(08:25):
call short term fast money kind of ammunition who are kind of
jumping on these momentum moves even though they're very short,
which just accelerates it. So you kind of got all that sort
of thing happening. Then I think on the other side,
it's the buy the dip retail market and the retail market has
become it's just become more powerful, you know, as the years
(08:48):
go by access to markets, you know, get your mobile phone out
and you can, you can be trading huge quantities of money, you
know, click of a button. So I think that is a key player
also in in the speed of this rebound.
So talk to me about the the economic picture then, because
we did have some important U.S. data that's come out and
seemingly is just going to push this market into a good finish
(09:11):
for the week. Yeah, So inflation, I mean, if
you if you're a if you're a listener to this podcast, then
well, thank you. But you'll hear us banging on
about inflation all the time. And that's because it's, it has
been the, the most important thing in this journey over the
last few years as we've been through an inflation crisis, the
(09:31):
cost of living crisis, if you will.
And then the, the kind of returning of inflation back to
normal, normal being 2%. And how ultimately that journey
back to 2 has been really painful because we kind of hit
3% and it got stuck the, and, and this is, and what's the
meaning of that? Well, obviously prices are still
(09:53):
going up, so maybe the consumer gets hurt by that still.
But really the most important thing is it's prevented the Fed
from being able to cut interest rates from what is still a
really high level, right? the Fed cut interest rates
couple of times last year, but they've been so far in 2025.
Here we are. We're midway through May and no
(10:13):
cuts at all. We're not expecting a cut until
maybe July at the earliest, maybe even September, right?
But this data on Tuesday from onthe CPI print, which was lower
than expected, has just opened the door to the idea.
Well, actually, maybe this inflation thing is going to hit
2. Maybe the Fed can hit the button
and start to cut in their July meeting.
(10:36):
So that's obviously really helped with the fueling the
positivity here and, and just helping to speed the rebound.
But maybe to put some numbers onthat inflation thing, I think
the most important thing, the headline inflation was at 2.3%
year on year. So again, just as a reminder,
that means that prices of goods in the US system went up 2.3%
(10:58):
April 2025 versus those same goods and their prices in April
2024, right? So 2.3% rise.
Why is that important? It's the lowest reading since
2021. OK, so it's actually more than
four year low and it took out like last year in 2024.
We all got really excited in August, September last year when
(11:22):
inflation smashed down through 3%.
September last year it hit two point.
Sorry, August it hit 2.5. September it hit 2.4.
And we thought, all right, awesome is hit.
It's going to be hitting 2% by November.
Come on Fed, let's go. And the Fed cut rates by 50
basis points. And we thought, inflation's
(11:44):
done, let's go. The rate cutting cycle begins.
What then happened was, well, inflation went back up.
Not it did. Not only did it not hit 2% from
September, it then climbed through till December.
It climbed back to three. And This is why the Fed have
been like, damn it, all right, fine, we can't cut then.
(12:05):
But now we were 3% in January, 2.8 in February, 2.4 in March,
2.3 in April. There's a direction of travel.
People are getting excited again.
Can we get multiple cuts from the Fed this year, Yes or no?
And the data from on on inflation has tipped the balance
(12:26):
into the yes camp. But look, we'll see.
You could easily just get a repeat of last year where
rebounds goes back up, right? So.
Yeah. And obviously, we always say
with data use, you were listing those numbers there.
And this was the third straight month of softer than forecasted
numbers. And the goods categories exposed
to higher tariffs, including newcars and apparel, didn't see the
(12:50):
kind of price increases that economists has had expected to
have seen. So again, just a bit more detail
there. But perhaps let's let's let's
push this on and let's talk about debt ceiling.
Well, hang on, hang on. There's an important point to
make before we do these inflation figures.
Don't forget tariffs, right? And everyone's going well, look,
(13:10):
it doesn't really matter what inflation's done behind us.
Are tariffs going to lead to inflation going back up,
preventing the Fed from cutting yes or no?
This inflation data in April is the very, very first month where
there's tariffs in the mix. Remember Liberation Day was the
2nd of April. So the most important thing out
(13:30):
of this report, whilst it's super early still, the most
important thing is it doesn't look like tariffs are showing up
in the inflation data. It it looks like early, early,
early days, it looks like tariffs are not pushing
inflation back up. There's a couple of, there was
(13:51):
one in there that was furniture costs, right?
And a lot of furniture gets shipped into the US, right?
So it's an import which obviously then is at risk from
tariffs. That actually bumped up quite
sharply, 1 1/2%. So out of all of the figures,
mostly it looks like, you know what, tariffs are going to be
fine for inflation. Don't panic.
(14:13):
Except for furniture, which is, oh, hang on, all right, maybe it
is showing up. So there is that thing.
So I'd say generally that's why people are most positive about
this report. It's like, all right, why are we
panicking about tariffs? Maybe it's not coming.
So forget tariffs because what else have we got to worry about?
(14:34):
Because we're human and we like,oh, we like this.
Is worry. Do you know what that is?
The most stupid phrase, but it'sexactly what defines often
markets. It's like we're we're just not
satisfied unless we're panickingabout something.
It's just human nature and and that next thing is not that far
away, is it? No, on that psychology side, it
(14:58):
kind of does make sense, right? If you're risking money, all
right, you might be trading for your employer.
I don't know, maybe you're a hedge fund trader.
Maybe you're trading or investing for an asset
management firm, right? You're trading your clients
funds, right? Or you might be trading your own
money. It might be your, I don't know,
managing your SIP, your pension.Maybe you've got a spread
(15:21):
betting account. Maybe you've got a bit of
crypto, whatever it is and you're trading your own money.
This is this is your own money, right?
Or your client's money. You've got a big responsibility
there to not cock it up and loseit all right, because that would
be very painful. So it is right to always be as
you're plotting along, you know,get some strategies in place,
(15:45):
you know, be confident in those and give your trades some
patience to run. But at every step of the way,
it's like you're you're kind of your advanced centuries right
there kind of scanning the horizon, right?
What's coming? What are there any risks on the
horizon that might trip us up? And we need to be scouting and
(16:06):
monitoring. And so it's quite right.
All right. Tariffs may not be the risk we
thought they might be when the market was dumping second-half
of February, but what else is out there that might trip us
over? And so 2 words for you to answer
that question, debt ceiling. Right, so we have got a hard
(16:26):
stop in 18 minutes Piers. So I'm going to plan do do this
quickly. So you First off, not everyone's
going to have even have lived through a debt ceiling situation
to start with so quickly definition of debt ceiling.
So this is a self-imposed rule where the US Congress, the the
(16:50):
government have a limit on how much they can borrow.
And it's just to kind of controlthings.
And every periodically, normallyevery couple of years, that
limit gets reached because the amount of debt the US have is
climbing and climbing and climbing and climbing.
So then they just raise it, right.
They raise the debt ceiling and then a couple of years later
(17:12):
they hit it. And so then they raise it and
then a couple years later they hit it.
But every time we approach it and, and are back to hit it and
hit it, there's a real politicalgamesmanship because the
Republicans and the Democrats use this moment to try and
leverage in some of their other policies because Congress has to
(17:34):
both, Congress has to sign off on raising the debt limit,
right? So look, we hit the ceiling in
January this year. It's $36.1 trillion.
So what happens? What happens is the Treasury
cannot issue new debt whilst thedebt ceiling remains where it is
and hasn't been raised. So how does the government go
(17:55):
ahead and pay for all of its stuff, you know, fiscal workers,
how does it pay, oh, sorry, federal workers?
How does it pay for all of all of the schemes they're running?
Well, then here they're dipping into, let's just simplify it.
They're dipping into their savings account.
It's hard to know how much is inthere.
I've heard some different figures, but it's around about
$500 billion. And each month they're paying
(18:15):
that, that that is decreasing and decreasing and decreasing.
So the key here is when will thegovernment run out of money?
And they're calling this the X date and we don't know the exact
answer. Rough guess, mid August.
So the government have got untilthe middle of August to agree
terms and raise the debt ceiling, allowing the treasury
(18:38):
to borrow money again and fine, refill the coffers and they
carry on as normal. OK.
But each time we go through thisepisode, there is a risk of
default. There is always a risk, a small
one, that they can't agree and the US default on their debt.
And if the US defaulted on theirdebt, I mean, that's like
(18:59):
Armageddon, game over, the worldno longer exists kind of moment.
So, so you've got a good 20 years market experience in the
bank. So you've seen more than one of
these because it's been revised the debt ceiling in its more
than a century history more than100 times.
So does the market even care about this?
What can we take away from? Has there been a change over the
(19:22):
pattern of even the your two decades where it was a big
thing, it still is, or it's not a big thing nowadays?
So it kind of happens every two years, but there's three that
stick out as major events. In my time in markets,
20/11/2013 and 20/23/2011 was the biggest one.
The biggest episode in terms of market ruptures and reactions.
(19:45):
The S&P dropped 19% in two weeksas we went through this debt
ceiling debacle and the government couldn't agree.
The S&P ratings agency downgraded U.S. debt from AAA to
AA Plus, first ever debt downgrade for the US in their
history, right? Markets just plummeted.
Now a function of that was we were just out of the financial
(20:07):
crisis, OK. And so there was a lot of risk.
Europe was going through a massive Eurozone debt crisis at
the time, so the global situation was very vulnerable.
So there was other things that played into it.
OK, Anyway, the government agreed, they raised the debt
ceiling. Fine, back on track.
OK, 2013 we had another episode where the government had to shut
(20:29):
down because they couldn't agreeand they're running out of money
so fast. They literally closed the
government for like 2 weeks. Tony.
But but the S&P didn't even bat an eyelid, didn't go down at
all. 2023, again, quite another big episode, but again, the S&P
didn't move. So the last two big ones, stocks
haven't cared. They're just like look, this
(20:51):
always happens they've got they'll sort it out let's just
ignore it. There is one market that does
care. That's what's called the CDs
market, which is a credit default swap market, which is
basically insurance on debt defaulting.
Because if worst case happens, they default, well, what are
they going to default on? Where they're going to default
on their debt that's hitting maturity like in September, OK.
(21:17):
So this will be most likely their short term debt, right?
So insurance on short term debt,the insurance premiums jumped
higher in 2023. They're rising now as we go into
this summer. But I like, I prefer to look at
it a different way, right? This happens all the time.
So what's different this time and should we be more worried
about it this time or actually is it just going to be an
(21:40):
episode like all the rest where it's a bit of a storm and a
teacup, it gets sorted and we move on.
So I think here are my list of factors as to why it's a bit
more important this time. Firstly, the amount of debt,
right? The US government has 124% debt
to GDP ratio, OK, on average from 2010 to 2020, right, post
(22:04):
crisis, but pre COVID, on average, they had about 100% of
GDP debt, right? So it's jumped significantly
higher because of COVID, right? We got way, way more debt.
Now the problem is on top of that, interest rates have
jumped. So the Fed have taken rates from
between 2010 and 2020, rates were zero.
(22:25):
Now they're 5%, right? So if you have really high
interest rates on way more debt,then what you have is interest
costs that have just gone through the roof.
So again, my between 10:10 and 2020 roughly per year, the US
was spending four, $450 billion on their debt interest payments.
(22:46):
450, right? Do you know what it is this
year? It's estimated to be 950.
So it's doubled and it's expected to go higher and
higher, break the 1 trillion barrel.
This is just interest on the debt.
Forget about actually paying it back as well, right?
So, look, this makes things morerisky, but you could say, well,
(23:06):
more reason for them to sort it out then and not do anything
stupid. But look, there's policy
uncertainty, risk because Trump's back in town and who
knows what he's going to do, right?
Because of that, foreign buyers,I've kind of shield away a
little bit something. And so is there foreign demand
(23:29):
in this U.S. debt like there hasbeen in the past?
And if not, well, then you mighthave a liquidity issue, which
will make exacerbate things further.
Can the Fed cut rates to help? Well, that inflation figure
earlier in the week kind of helps with that.
But still, the Fed still are on the fence where they're like,
yeah, we're not sure whether to cut yet.
They might not cut until towardsthe end of the year, right?
(23:52):
So look, I think there's there'smore risks here.
I think if it's if they do cock it up and don't make an
agreement, it'll be a way more spectacular blow up than it
would have been any of the otherprevious episodes, right?
But as you say, that could mean even more reason to sort it out.
So, so the Fed are independent. The Fed are more almost reacting
(24:16):
to what the administration does,but the administration has
involved with the Treasury and the Treasury and the regulatory
environment. So what's the other angle here
that a lever that Trump could pull to to help the situation?
Well, the other angle, so I've, I've mentioned the word
liquidity there, right? And actually we saw an episode
in this, so liquidity in the Treasury market, so U.S.
(24:38):
government bonds, there was an episode during the Liberation
Day blowout where stocks plummeted.
Well, bond markets kind of went through the roof and, and yields
dropped sharply and then it swung back.
There was huge volatility in bond markets telling us the
liquidity levels in that market had dropped, which is super
(24:58):
dangerous right now. If we go into the summer here
and this debt ceiling crisis escalates, you'll you'll and and
the closer they take it to the wire of where the government's
going to run out of money beforethey agree, the closer they get
to that X date, the more uncertainty, the more risk, the
more market fallout you might see and the less liquidity
(25:20):
there's going to be in the market, especially foreign
buyers are pulling out right now.
Banks are normally one of the big the big banks in the US are
the big players in the treasury market.
However, ironically, kind of regulation that came out of the
financial crisis, core tier one capital ratios and the like have
(25:40):
basically there's been an unintended consequence where
these risk ratios to prevent a 2008 crisis have actually meant
that banks can't buy as much Treasuries anymore, which has
meant that the liquidity in those markets has dropped.
So actually, big news this week.The Trump administration are
(26:01):
looking to reduce the regulatorycapital requirements on banks.
And I think this is 100% preparing and just trying to get
a bit more liquidity in these Treasury markets as we go into
this debt ceiling episode. OK.
So if I'm hearing what you're saying correctly, you're saying
(26:22):
that there's more debt and it's it's compounding faster than
it's ever done. The risk is bigger.
And basically we're going to, wegot one of two options here and
I'm going to go with the one where that whole infrastructure
that was put in place exactly tostop a repeat of the global
(26:44):
financial crisis in 2008. You're saying, no, we're going
to, we're going to actually loosen things.
We're going to add some liquidity to, to just offset any
potential bumps here because youknow what, the world's not going
to end the bombs, not going to go off.
I think we can risk it. So the risk increases.
(27:06):
So doesn't that just mean that pattern you said stocks might
not have might have a diminishing return kind of
impact in terms of its sensitivity to debt ceiling
talks. This thing always goes
gangbusters in the media. All the things you said I I
think are, I think are going to fuel it this time that VIX or
sensitivity that you're going tosee.
(27:27):
Can't we just go long now and then short on the fade because
it's it is too big to fail? Yeah, I'll just take out some
option players. You're like, you're getting me
excited here, Pierce. Look, this will be a thing when
it hits the mainstream media. I can't predict entirely, but
I'd say when we get into June it's going to be a thing.
(27:50):
Besson has set the Congress a mid-july deadline.
Like a Lucy's. Besson has said, look, you need
to sort this out guys. By mid-july.
Don't let me down, right? They'll let him down.
You know, they're not going to sort it by mid-july unless Trump
pulls his magic, but who knows? So I would say when we get into
June, this is going to start to become front page news.
This will fuel the fire and the angst and it'll be the next risk
(28:15):
that markets really latch onto. And then, yeah, it's really hard
to predict how quickly they'll resolve it, but they will.
You know, the consequences of not resolving are so monstrous
that of course they will. It's just, it's just when and
how close did they go to the to the wire?
Yeah, I think I remember the shutdown that they had.
(28:37):
It was the end of 2018 into early 2019.
I think that was the longest oneever.
And if you remember it. Well, that was.
Trump. That was Trump, and that was
Trump. He was like taking it to a whole
new level. Yeah, in all these previous
occasions that I can remember, Congress was always split.
And so therefore you have two actual polar opposite sides of
the political spectrum, whereas now, aren't things different?
(29:00):
Isn't there more unity? I know that that's not true
completely in the Republican Party, but in order that this
doesn't need to become such a big thing.
So, right, you could say the risks this time around are a lot
lower because the Republic, it'sa clean sweep, meaning the
Republicans have a majority in the House of Representatives,
they have a majority in the Senate and they hold the White
(29:21):
House. Of course, Donald Trump, right?
So you could think, well, there's no, there's going to be
no disagreements and they'll just sign off this debt deal and
the raise the ceiling, right? It's just that the Republican
Party's quite fractured on on this topic.
And there's certain parts of theRepublican Party that are
definitely not happy to raise the debt ceiling at all, right?
(29:45):
So it's almost like an internal Republican Party issue.
That means the risk is still there of disagreement and
whether this gets through or not.
But Trump's Trump and yeah, look, they'll get the deal done,
right? It's just timing.
It is tricky. So can we not take that trade
(30:06):
then? Can we not just say that like
we're far enough out that the, you know, it hasn't started to
kick off yet, so you could get apretty good price now.
Yep, lock it in. Look for like a crazy breakout
and it's going to happen probably a week before the
imposed deadline. Let's go, OK.
(30:30):
This is not investment advice, this is just hypothesising.
All right, well, look, we're going to have to end the
conversation there for this timeround.
I have already this morning justrecorded a new hot take from
Stephen on the latest biggest IPOS that have been happening,
including the likes of etoro andalso we talked about for UK
(30:55):
things like Revolute and so forth.
So yeah, stay tuned for that. Remember to subscribe and that
show will be going out on Mondaymorning.
All right, Thanks everyone and enjoy the weekend.
Yep, have a great weekend.
All right, it is the end of the week.
Hope everyone's had a good one. I'm pleased to say if you're in
the UK, the sun has started shining again.
Fingers crossed as we go into the weekend.
But not only that, you know, cheerful note, but it's because
the S&P is current is on track for one of its best weeks this
year. We're back, baby, so here we go.
(00:24):
Was it ever it die? We've had a lot of doom and
gloom. There was a lot of anxious
listeners out there over this roller coaster of the last I
guess 10-12 weeks or so. But this week to to focus in on,
we had Tuesdays lower than expected inflation figures in
the US and that added fuels to the rally that was already in
place sparked by Donald Trump's deal with China to cut tariffs,
(00:47):
albeit temporarily. You've had Goldman's increasing
their forecast for US earnings growth, year end, S&P targets,
other banks have followed. It hasn't all been sunshine and
rainbows, though. I did clock Steve Cohen, the
founder of the hedge fund .72. He's quite a bit more
pessimistic. He was talking about the chance
(01:09):
of recession in the US is still close to 5050 in his opinion.
But look, in this conversation we can talk about, and I think
it's important to because the speed of this turn around has
been pretty phenomenal. So break that down.
Have a little look at the CPI numbers and also you and I were
talking earlier in the week about like, OK, so, so what's
(01:30):
next? And there's obviously a lot
around the trade side, a lot of uncertainties, but also we've
had some more color about the impending U.S. debt ceiling,
couple of Treasury officials been a movement on Congress.
And so how does that link to other headlines that have
emerged in the past week around talk of regulation on bank
capital requirements? And what's that got to do with
(01:55):
the debt ceiling? Is this now the next big thing
to look for in financial marketsif you're trading, investing,
following with interest and alsojust like the debt ceiling?
I know from recent history, thiswill be like the doomsday
scenario end of days as far as the media will be telling us.
(02:16):
But I'd love to get your analysis or take from your
experience to understand what has that looked like through the
episodes of this happening from 2011, from 2021 and all these
other periods when they they've done this before.
And then finally, if we've got time, another positive note
positivity. This talk is welcome to the
(02:37):
positivity podcast. So we had U KG DP better than
expected, in fact best in the G7, all on team TV.
Come on, let's go. But you know, before we all get
too excited, there's probably a reason to rein that in, which
(02:59):
you're going to also explain. So yeah, talk to me about the
just this phenomenal turn aroundthat we've had in Marcus.
Yeah, speed of rebound. So let me take you back to
February, February 19th, OK, that was the, I'm going to talk
about the S&P 500 here. February the 19th, 2025 was the
(03:20):
all time high, OK. And that was at 6122, sorry,
6150, let's call it right. February 19th.
It then dumped to 5000 and that took from February the 19th
through till the lower the move was on April the 8th.
(03:40):
OK, so let's call that like 9 weeks.
OK, so a nine week sell off, which was mainly driven by Trump
tariff uncertainty, that kind ofacceleration around what Trump
called the liberation day, whichwas the 2nd of April where he
rolled out just monster tariffs across the whole planet.
(04:01):
But what's happened since that low on the April the 8th is
almost a full rebound. That's in percentage terms,
right? The S&P at 5000, a 4A here we
are now like 5 weeks later, it'salmost at 6000.
That's a 20% rally in the world's biggest stock index in
(04:23):
five weeks. I mean, that is literally kind
of unprecedented. It's like emerging market
volatility here. But look, the rebound is
obviously reversing a lot of that stuff that sent it
plummeting in the 1st place. And this is something actually,
I, I, I read a thing on the FT like one of my go TOS is the
(04:44):
unhedged newsletter. I would recommend it to, to
anyone. It's part, part of the FTA daily
sort of newsletter. But they, they're, they're kind
of, they lean anti Trump. And they've termed, they've
coined this terminology, the, they've called it the Taco
trade. This, this by the dip has turned
into a they have a new version of it.
(05:04):
It's the Taco trade. Taco standing for Trump always
chickens out. So the point is that Trump will
threaten and bully and write China.
You're going to have 145% tariffs now on everything.
Yeah. See how you see how you're like
that China. Then markets plummet and
(05:27):
collapse. And then he goes, oh, whoa,
whoa, whoa. Hang on, Hang on, Hang on.
All right, then. Fine, fine.
Instead of 145%, let's just makeit 30.
So this is what's happened. Trump has and China have been
engaged in talks in Switzerland like multi stage, multi day
talks over last weekend and intothe start of this week.
(05:48):
And look, they've had the talks have been positive and they've
kind of been a bit more pragmatic, both sides and said,
look, no one wants no one wants a disaster here.
I mean, obviously if they continue on that path that they,
that Trump had set where it was right, increased tariffs,
retaliate, retaliate, retaliate and suddenly you're getting 145%
(06:09):
tariffs on everything that wouldlead to certainly a recession in
China, most likely a recession in the US, therefore a recession
across the whole world. You know, they've said, all
right, let's all calm down a little bit.
But I, I, I think the interesting thing and the, the
reason why the speed of the rebounds been so crazy is
because they've, they've reined it in by more than people were
(06:33):
thinking they would. So they've made further strides
and concessions. So moving it from 145% tariffs
to 30 is, is a bigger move than people thought.
And then China, in response, they've taken their tariffs on
the US and they've chopped them down to 10%, which again, is a
move to a lower position than anybody possibly imagined so
(06:56):
early on in what were, you know,pretty, you know, the only the
beginnings of some negotiations.Too too big to fail both the US
and China in supply and demand Like like.
Literally. So the Taco trade, like on the
day where they announced this pullback on tariffs, that's both
(07:18):
US and China. The S&P rally 3.3%, NASDAQ was
up 4.3%. The dollar rallied 101.5%.
Just I mean, those are numbers, right?
To put it in context, that S&P move 3.3% up in one day that put
it at this was the 12th of May, OK, that put it at the third
(07:40):
biggest single day rally in the last five years.
So, you know, these, these are, these are big, big moves.
And I guess I'll be stepping back a bit from, you know,
tariffs and the reason for the episode this time.
I think the pattern of things isthat markets do move faster than
they ever used to. I think the speed of travel when
(08:02):
volatility kicks off, I think the speed of travel is greater.
And look, that's probably a function of the algo.
I I think the function of two things, the algo driven world
that we live in. So the majority of volumes
trading through these markets are algo driven.
I think there's you know a lot of big hedge funds with what we
(08:25):
call short term fast money kind of ammunition who are kind of
jumping on these momentum moves even though they're very short,
which just accelerates it. So you kind of got all that sort
of thing happening. Then I think on the other side,
it's the buy the dip retail market and the retail market has
become it's just become more powerful, you know, as the years
(08:48):
go by access to markets, you know, get your mobile phone out
and you can, you can be trading huge quantities of money, you
know, click of a button. So I think that is a key player
also in in the speed of this rebound.
So talk to me about the the economic picture then, because
we did have some important U.S. data that's come out and
seemingly is just going to push this market into a good finish
(09:11):
for the week. Yeah, So inflation, I mean, if
you if you're a if you're a listener to this podcast, then
well, thank you. But you'll hear us banging on
about inflation all the time. And that's because it's, it has
been the, the most important thing in this journey over the
last few years as we've been through an inflation crisis, the
(09:31):
cost of living crisis, if you will.
And then the, the kind of returning of inflation back to
normal, normal being 2%. And how ultimately that journey
back to 2 has been really painful because we kind of hit
3% and it got stuck the, and, and this is, and what's the
meaning of that? Well, obviously prices are still
(09:53):
going up, so maybe the consumer gets hurt by that still.
But really the most important thing is it's prevented the Fed
from being able to cut interest rates from what is still a
really high level, right? the Fed cut interest rates
couple of times last year, but they've been so far in 2025.
Here we are. We're midway through May and no
(10:13):
cuts at all. We're not expecting a cut until
maybe July at the earliest, maybe even September, right?
But this data on Tuesday from onthe CPI print, which was lower
than expected, has just opened the door to the idea.
Well, actually, maybe this inflation thing is going to hit
2. Maybe the Fed can hit the button
and start to cut in their July meeting.
(10:36):
So that's obviously really helped with the fueling the
positivity here and, and just helping to speed the rebound.
But maybe to put some numbers onthat inflation thing, I think
the most important thing, the headline inflation was at 2.3%
year on year. So again, just as a reminder,
that means that prices of goods in the US system went up 2.3%
(10:58):
April 2025 versus those same goods and their prices in April
2024, right? So 2.3% rise.
Why is that important? It's the lowest reading since
2021. OK, so it's actually more than
four year low and it took out like last year in 2024.
We all got really excited in August, September last year when
(11:22):
inflation smashed down through 3%.
September last year it hit two point.
Sorry, August it hit 2.5. September it hit 2.4.
And we thought, all right, awesome is hit.
It's going to be hitting 2% by November.
Come on Fed, let's go. And the Fed cut rates by 50
basis points. And we thought, inflation's
(11:44):
done, let's go. The rate cutting cycle begins.
What then happened was, well, inflation went back up.
Not it did. Not only did it not hit 2% from
September, it then climbed through till December.
It climbed back to three. And This is why the Fed have
been like, damn it, all right, fine, we can't cut then.
(12:05):
But now we were 3% in January, 2.8 in February, 2.4 in March,
2.3 in April. There's a direction of travel.
People are getting excited again.
Can we get multiple cuts from the Fed this year, Yes or no?
And the data from on on inflation has tipped the balance
(12:26):
into the yes camp. But look, we'll see.
You could easily just get a repeat of last year where
rebounds goes back up, right? So.
Yeah. And obviously, we always say
with data use, you were listing those numbers there.
And this was the third straight month of softer than forecasted
numbers. And the goods categories exposed
to higher tariffs, including newcars and apparel, didn't see the
(12:50):
kind of price increases that economists has had expected to
have seen. So again, just a bit more detail
there. But perhaps let's let's let's
push this on and let's talk about debt ceiling.
Well, hang on, hang on. There's an important point to
make before we do these inflation figures.
Don't forget tariffs, right? And everyone's going well, look,
(13:10):
it doesn't really matter what inflation's done behind us.
Are tariffs going to lead to inflation going back up,
preventing the Fed from cutting yes or no?
This inflation data in April is the very, very first month where
there's tariffs in the mix. Remember Liberation Day was the
2nd of April. So the most important thing out
(13:30):
of this report, whilst it's super early still, the most
important thing is it doesn't look like tariffs are showing up
in the inflation data. It it looks like early, early,
early days, it looks like tariffs are not pushing
inflation back up. There's a couple of, there was
(13:51):
one in there that was furniture costs, right?
And a lot of furniture gets shipped into the US, right?
So it's an import which obviously then is at risk from
tariffs. That actually bumped up quite
sharply, 1 1/2%. So out of all of the figures,
mostly it looks like, you know what, tariffs are going to be
fine for inflation. Don't panic.
(14:13):
Except for furniture, which is, oh, hang on, all right, maybe it
is showing up. So there is that thing.
So I'd say generally that's why people are most positive about
this report. It's like, all right, why are we
panicking about tariffs? Maybe it's not coming.
So forget tariffs because what else have we got to worry about?
(14:34):
Because we're human and we like,oh, we like this.
Is worry. Do you know what that is?
The most stupid phrase, but it'sexactly what defines often
markets. It's like we're we're just not
satisfied unless we're panickingabout something.
It's just human nature and and that next thing is not that far
away, is it? No, on that psychology side, it
(14:58):
kind of does make sense, right? If you're risking money, all
right, you might be trading for your employer.
I don't know, maybe you're a hedge fund trader.
Maybe you're trading or investing for an asset
management firm, right? You're trading your clients
funds, right? Or you might be trading your own
money. It might be your, I don't know,
managing your SIP, your pension.Maybe you've got a spread
(15:21):
betting account. Maybe you've got a bit of
crypto, whatever it is and you're trading your own money.
This is this is your own money, right?
Or your client's money. You've got a big responsibility
there to not cock it up and loseit all right, because that would
be very painful. So it is right to always be as
you're plotting along, you know,get some strategies in place,
(15:45):
you know, be confident in those and give your trades some
patience to run. But at every step of the way,
it's like you're you're kind of your advanced centuries right
there kind of scanning the horizon, right?
What's coming? What are there any risks on the
horizon that might trip us up? And we need to be scouting and
(16:06):
monitoring. And so it's quite right.
All right. Tariffs may not be the risk we
thought they might be when the market was dumping second-half
of February, but what else is out there that might trip us
over? And so 2 words for you to answer
that question, debt ceiling. Right, so we have got a hard
(16:26):
stop in 18 minutes Piers. So I'm going to plan do do this
quickly. So you First off, not everyone's
going to have even have lived through a debt ceiling situation
to start with so quickly definition of debt ceiling.
So this is a self-imposed rule where the US Congress, the the
(16:50):
government have a limit on how much they can borrow.
And it's just to kind of controlthings.
And every periodically, normallyevery couple of years, that
limit gets reached because the amount of debt the US have is
climbing and climbing and climbing and climbing.
So then they just raise it, right.
They raise the debt ceiling and then a couple of years later
(17:12):
they hit it. And so then they raise it and
then a couple years later they hit it.
But every time we approach it and, and are back to hit it and
hit it, there's a real politicalgamesmanship because the
Republicans and the Democrats use this moment to try and
leverage in some of their other policies because Congress has to
(17:34):
both, Congress has to sign off on raising the debt limit,
right? So look, we hit the ceiling in
January this year. It's $36.1 trillion.
So what happens? What happens is the Treasury
cannot issue new debt whilst thedebt ceiling remains where it is
and hasn't been raised. So how does the government go
(17:55):
ahead and pay for all of its stuff, you know, fiscal workers,
how does it pay, oh, sorry, federal workers?
How does it pay for all of all of the schemes they're running?
Well, then here they're dipping into, let's just simplify it.
They're dipping into their savings account.
It's hard to know how much is inthere.
I've heard some different figures, but it's around about
$500 billion. And each month they're paying
(18:15):
that, that that is decreasing and decreasing and decreasing.
So the key here is when will thegovernment run out of money?
And they're calling this the X date and we don't know the exact
answer. Rough guess, mid August.
So the government have got untilthe middle of August to agree
terms and raise the debt ceiling, allowing the treasury
(18:38):
to borrow money again and fine, refill the coffers and they
carry on as normal. OK.
But each time we go through thisepisode, there is a risk of
default. There is always a risk, a small
one, that they can't agree and the US default on their debt.
And if the US defaulted on theirdebt, I mean, that's like
(18:59):
Armageddon, game over, the worldno longer exists kind of moment.
So, so you've got a good 20 years market experience in the
bank. So you've seen more than one of
these because it's been revised the debt ceiling in its more
than a century history more than100 times.
So does the market even care about this?
What can we take away from? Has there been a change over the
(19:22):
pattern of even the your two decades where it was a big
thing, it still is, or it's not a big thing nowadays?
So it kind of happens every two years, but there's three that
stick out as major events. In my time in markets,
20/11/2013 and 20/23/2011 was the biggest one.
The biggest episode in terms of market ruptures and reactions.
(19:45):
The S&P dropped 19% in two weeksas we went through this debt
ceiling debacle and the government couldn't agree.
The S&P ratings agency downgraded U.S. debt from AAA to
AA Plus, first ever debt downgrade for the US in their
history, right? Markets just plummeted.
Now a function of that was we were just out of the financial
(20:07):
crisis, OK. And so there was a lot of risk.
Europe was going through a massive Eurozone debt crisis at
the time, so the global situation was very vulnerable.
So there was other things that played into it.
OK, Anyway, the government agreed, they raised the debt
ceiling. Fine, back on track.
OK, 2013 we had another episode where the government had to shut
(20:29):
down because they couldn't agreeand they're running out of money
so fast. They literally closed the
government for like 2 weeks. Tony.
But but the S&P didn't even bat an eyelid, didn't go down at
all. 2023, again, quite another big episode, but again, the S&P
didn't move. So the last two big ones, stocks
haven't cared. They're just like look, this
(20:51):
always happens they've got they'll sort it out let's just
ignore it. There is one market that does
care. That's what's called the CDs
market, which is a credit default swap market, which is
basically insurance on debt defaulting.
Because if worst case happens, they default, well, what are
they going to default on? Where they're going to default
on their debt that's hitting maturity like in September, OK.
(21:17):
So this will be most likely their short term debt, right?
So insurance on short term debt,the insurance premiums jumped
higher in 2023. They're rising now as we go into
this summer. But I like, I prefer to look at
it a different way, right? This happens all the time.
So what's different this time and should we be more worried
about it this time or actually is it just going to be an
(21:40):
episode like all the rest where it's a bit of a storm and a
teacup, it gets sorted and we move on.
So I think here are my list of factors as to why it's a bit
more important this time. Firstly, the amount of debt,
right? The US government has 124% debt
to GDP ratio, OK, on average from 2010 to 2020, right, post
(22:04):
crisis, but pre COVID, on average, they had about 100% of
GDP debt, right? So it's jumped significantly
higher because of COVID, right? We got way, way more debt.
Now the problem is on top of that, interest rates have
jumped. So the Fed have taken rates from
between 2010 and 2020, rates were zero.
(22:25):
Now they're 5%, right? So if you have really high
interest rates on way more debt,then what you have is interest
costs that have just gone through the roof.
So again, my between 10:10 and 2020 roughly per year, the US
was spending four, $450 billion on their debt interest payments.
(22:46):
450, right? Do you know what it is this
year? It's estimated to be 950.
So it's doubled and it's expected to go higher and
higher, break the 1 trillion barrel.
This is just interest on the debt.
Forget about actually paying it back as well, right?
So, look, this makes things morerisky, but you could say, well,
(23:06):
more reason for them to sort it out then and not do anything
stupid. But look, there's policy
uncertainty, risk because Trump's back in town and who
knows what he's going to do, right?
Because of that, foreign buyers,I've kind of shield away a
little bit something. And so is there foreign demand
(23:29):
in this U.S. debt like there hasbeen in the past?
And if not, well, then you mighthave a liquidity issue, which
will make exacerbate things further.
Can the Fed cut rates to help? Well, that inflation figure
earlier in the week kind of helps with that.
But still, the Fed still are on the fence where they're like,
yeah, we're not sure whether to cut yet.
They might not cut until towardsthe end of the year, right?
(23:52):
So look, I think there's there'smore risks here.
I think if it's if they do cock it up and don't make an
agreement, it'll be a way more spectacular blow up than it
would have been any of the otherprevious episodes, right?
But as you say, that could mean even more reason to sort it out.
So, so the Fed are independent. The Fed are more almost reacting
(24:16):
to what the administration does,but the administration has
involved with the Treasury and the Treasury and the regulatory
environment. So what's the other angle here
that a lever that Trump could pull to to help the situation?
Well, the other angle, so I've, I've mentioned the word
liquidity there, right? And actually we saw an episode
in this, so liquidity in the Treasury market, so U.S.
(24:38):
government bonds, there was an episode during the Liberation
Day blowout where stocks plummeted.
Well, bond markets kind of went through the roof and, and yields
dropped sharply and then it swung back.
There was huge volatility in bond markets telling us the
liquidity levels in that market had dropped, which is super
(24:58):
dangerous right now. If we go into the summer here
and this debt ceiling crisis escalates, you'll you'll and and
the closer they take it to the wire of where the government's
going to run out of money beforethey agree, the closer they get
to that X date, the more uncertainty, the more risk, the
more market fallout you might see and the less liquidity
(25:20):
there's going to be in the market, especially foreign
buyers are pulling out right now.
Banks are normally one of the big the big banks in the US are
the big players in the treasury market.
However, ironically, kind of regulation that came out of the
financial crisis, core tier one capital ratios and the like have
(25:40):
basically there's been an unintended consequence where
these risk ratios to prevent a 2008 crisis have actually meant
that banks can't buy as much Treasuries anymore, which has
meant that the liquidity in those markets has dropped.
So actually, big news this week.The Trump administration are
(26:01):
looking to reduce the regulatorycapital requirements on banks.
And I think this is 100% preparing and just trying to get
a bit more liquidity in these Treasury markets as we go into
this debt ceiling episode. OK.
So if I'm hearing what you're saying correctly, you're saying
(26:22):
that there's more debt and it's it's compounding faster than
it's ever done. The risk is bigger.
And basically we're going to, wegot one of two options here and
I'm going to go with the one where that whole infrastructure
that was put in place exactly tostop a repeat of the global
(26:44):
financial crisis in 2008. You're saying, no, we're going
to, we're going to actually loosen things.
We're going to add some liquidity to, to just offset any
potential bumps here because youknow what, the world's not going
to end the bombs, not going to go off.
I think we can risk it. So the risk increases.
(27:06):
So doesn't that just mean that pattern you said stocks might
not have might have a diminishing return kind of
impact in terms of its sensitivity to debt ceiling
talks. This thing always goes
gangbusters in the media. All the things you said I I
think are, I think are going to fuel it this time that VIX or
sensitivity that you're going tosee.
(27:27):
Can't we just go long now and then short on the fade because
it's it is too big to fail? Yeah, I'll just take out some
option players. You're like, you're getting me
excited here, Pierce. Look, this will be a thing when
it hits the mainstream media. I can't predict entirely, but
I'd say when we get into June it's going to be a thing.
(27:50):
Besson has set the Congress a mid-july deadline.
Like a Lucy's. Besson has said, look, you need
to sort this out guys. By mid-july.
Don't let me down, right? They'll let him down.
You know, they're not going to sort it by mid-july unless Trump
pulls his magic, but who knows? So I would say when we get into
June, this is going to start to become front page news.
This will fuel the fire and the angst and it'll be the next risk
(28:15):
that markets really latch onto. And then, yeah, it's really hard
to predict how quickly they'll resolve it, but they will.
You know, the consequences of not resolving are so monstrous
that of course they will. It's just, it's just when and
how close did they go to the to the wire?
Yeah, I think I remember the shutdown that they had.
(28:37):
It was the end of 2018 into early 2019.
I think that was the longest oneever.
And if you remember it. Well, that was.
Trump. That was Trump, and that was
Trump. He was like taking it to a whole
new level. Yeah, in all these previous
occasions that I can remember, Congress was always split.
And so therefore you have two actual polar opposite sides of
the political spectrum, whereas now, aren't things different?
(29:00):
Isn't there more unity? I know that that's not true
completely in the Republican Party, but in order that this
doesn't need to become such a big thing.
So, right, you could say the risks this time around are a lot
lower because the Republic, it'sa clean sweep, meaning the
Republicans have a majority in the House of Representatives,
they have a majority in the Senate and they hold the White
(29:21):
House. Of course, Donald Trump, right?
So you could think, well, there's no, there's going to be
no disagreements and they'll just sign off this debt deal and
the raise the ceiling, right? It's just that the Republican
Party's quite fractured on on this topic.
And there's certain parts of theRepublican Party that are
definitely not happy to raise the debt ceiling at all, right?
(29:45):
So it's almost like an internal Republican Party issue.
That means the risk is still there of disagreement and
whether this gets through or not.
But Trump's Trump and yeah, look, they'll get the deal done,
right? It's just timing.
It is tricky. So can we not take that trade
(30:06):
then? Can we not just say that like
we're far enough out that the, you know, it hasn't started to
kick off yet, so you could get apretty good price now.
Yep, lock it in. Look for like a crazy breakout
and it's going to happen probably a week before the
imposed deadline. Let's go, OK.
(30:30):
This is not investment advice, this is just hypothesising.
All right, well, look, we're going to have to end the
conversation there for this timeround.
I have already this morning justrecorded a new hot take from
Stephen on the latest biggest IPOS that have been happening,
including the likes of etoro andalso we talked about for UK
(30:55):
things like Revolute and so forth.
So yeah, stay tuned for that. Remember to subscribe and that
show will be going out on Mondaymorning.
All right, Thanks everyone and enjoy the weekend.
Yep, have a great weekend.
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