August 28, 2025 • 45 mins
Piers is back on the mic, and just in time. The markets are heating up and so is the political pressure.
In this episode, Anthony and Piers unpack Trump’s latest attack on the Federal Reserve, this time zeroing in on Governor Lisa Cook with allegations of mortgage fraud. Is this just another headline-grabbing move, or a serious threat to the Fed’s independence?
Then, the focus shifts to France, where political chaos is shaking investor confidence and French markets are tanking. Could Macron’s government collapse? And what happens if it does?
Closer to home, UK households are facing another blow as food and energy prices spike. So why is the Bank of England cutting rates while inflation is rising?
Also in this episode: market reactions to Powell’s Jackson Hole speech, the bond market’s inflation signals, and why traders keenly awaiting the upcoming payrolls report.
(00:00) Reunion and Market Overview
(04:33) Trump's Influence on the Fed
(27:58) Political Turmoil in France
(38:12) UK Inflation and Economic Outlook
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to the Market Maker Podcast.
And yes, he's alive. Piers Curran is alive.
I had to go through every continent on planet Earth to
locate this man. There was lots of people
messaging. What's going on?
It's been several weeks. So to Kia Ahmed, your message
(00:21):
was received. You don't need to go out and
send a search party. That job has been done.
I have located Piers Curran and we are back to talk about all
things markets. So before you give us a bit more
colour on where you have been, Pierce, we're going to talk
about in this episode really three main market themes and try
to break them down, make them a little bit more digestible to
(00:44):
understand, particularly given the fact that we're going to
application season, but also because markets there's always a
pretty volatile and it's good toknow from an investing
perspective. So we're going to talk about
Trump versus the Fed. What is going on?
And of course, Donald Trump is making moves once again.
This time he has a name, Lisa Cook, in his crosshairs as to
(01:07):
potential mortgage fraud. So what does this mean for her
future, but more importantly, that for the independence of the
central bank and US monetary policy and how markets are
perceiving that? That's number one.
Number two, France politics meets markets.
Yes, you're reading lots of headlines about French political
chaos. Markets are really tanking in
(01:28):
France. Is that the case?
How worried should we be? What's actually happening?
What are the next things to lookout for?
And then close to home here fromwhere we are in the UK, we've
had UK food prices climbing again, putting pressure on
families. And they're going to get hit
with another electricity price rise as well in the back end of
(01:48):
this year. And so this all comes to the
context of the Bank of England cutting rates.
So are they able to cut when inflation in some of these
measures is going the opposite direction?
It's going up away from target. So, Piers, how are you and where
have you been? Oh, well, I'm back.
That's all that matters. I am back in the seat.
(02:10):
Yeah. You know, taking some time out
over over the summer period, a bit bit of bit of Greek islands
and then then Cornwall actually,you know, staycation keeping it,
keeping it within the UK bit like, well, you know, JD Vance,
if if he can holiday in England,well then you know, why can't I?
(02:34):
Did you see that, JD Vance? Who's he being?
Spoiled by it was George Osborne.
George Osborne, wasn't it? But then they got done for
fishing without a license, isn'tthat right?
Does a billionaire require a license to fish?
I'm not. I'm not.
Sure. I mean, I don't know, I don't
make the rules. But yeah, good to be good to be
(02:55):
back. You know, August is always a bit
of a well, like as a trader, youknow, back in the day, August
used to be a breed of a slog like because obviously a lot of
huge amount of the industry takeholiday in the Northern
Hemisphere at least, right, Because the schools are out.
And so, you know, if you've got families, you're you're off on
(03:15):
your family vacations. So it just means a lot of people
away from desks generally trade volumes, you know, drop right
down. And so generally it can be
pretty quiet and dull. It's just of course that not
everything stops. Obviously big theme today is
politics. So politics doesn't stop.
And particularly when Trump's around, of course.
(03:37):
So just because people are on holiday doesn't mean markets
can't move. And actually, not that it's
happened in this August, but youknow, we if something mega that
does kick off in August and people are away from their
desks, actually it can exacerbate the size of market
reactions just because liquiditylevels are lower.
(03:58):
So maybe we saw a touch of that with some of the French market
moves earlier this week possibly.
But yeah, we'll we'll get into it.
But yeah, good to be good to be back and looking forward to,
yeah, getting stuck back in. Well, look, anyone listening, if
you haven't already done so, if you don't like and subscribe to
(04:21):
this channel and that will make it a stronger commitment then
for us to never miss an episode because there'll be more of a
business case to run the episode.
So I'll leave it at that and letyou take action on it.
But let's start with the Fed then, because this is one of the
big talking points. And, you know, Trump is never
far from the headlines, and he'skind of pivoted here from
(04:43):
targeting Powell to one of his deputies.
So Fed Governor Lisa Cook. So what?
What exactly has happened here? Well, I mean, this specific
story broke Monday night becauseTrump tweeted or on Truth Social
or wherever it was that right, Lisa Cook, you're fired
(05:04):
effective immediately was his kind of message.
And this is just his latest little bite nibble.
Is it more than a nibble? I don't really know.
But it's latest. A kind of general all out
assault on the Federal Reserve at large.
And here he's claiming that she falsified some details on her,
(05:27):
one of her mortgage applications, whatever, I don't
even know the dates a few years back and that therefore she's
fired. And that the issue here is
right. And obviously Trump's been
trying to get rid of Powell. There was a legal ruling to say
that he had no legal grounds to fire Powell or anybody else on
(05:48):
the and or any other Fed governor without due 'cause
right. So here's here's the thing.
He can only fight legally. He can only fire someone with
due cause. Due cause, meaning they've done
something specific that has violated the law in some way.
Hence why he's bringing forward this claim about the falsified
(06:08):
documents as part of a mortgage application.
I think it's something around Lisa Cook buying 2 houses in
quite close succession and that she claimed that both were her
primary residence. I think that was the deal.
Yeah, so the the the specifics of this was because it's not an
uncommon thing. Trump has actually used this as
(06:29):
a as a tactical approach, specifically using mortgages as
a centrepiece to some of these accusations he makes against
opposition figures. So there were there were two
priors to Lisa Cook, the New York attorney General and Adam
Schiff who is the California senator.
So how it works is that the alleged the alleges, well the
(06:52):
alleged part of this with James and Schiff and Cook is committed
what is known as owner occupancyfraud.
So this is when a person claims a second home, IE Piers Corn
might have Cornwall or the an island in Cyprus.
When a person claims a second home or investment property is
(07:14):
actually a primary residence in order to get a better mortgage,
IE lenders are more inclined to give borrowers a lower mortgage
rate on a primary residence compared to a second home or
investment. So that's that's where this
comes in. And it looks he's accusing her
of fudging that process. And she had two primary
residences I think. Right, Look, I think let's step
(07:37):
back a SEC. What what's going on here when,
you know, you see Trump heavily criticizing Powell like pretty
much on the daily. Now this Lisa Cook, the bigger
issue is Trump wants interest rates down, OK?
He he believes interest rates are too high.
He wants them lower. He's talked about as much as 2%
(07:59):
below where they are now that his agenda is that he's got a
lot of debt to refinance. He's got a roll over about a
trillion dollars worth of debt. And you know, interest rates are
high. So it's going to be expensive to
roll and borrow another $1 trillion at a much higher
interest rate than the government has been enjoying.
(08:22):
You know, over the last sort of 15 years post financial crisis
where you've had that zero interest rate environment and
borrowings been let's just say relatively pretty free, right.
So that's Trump's top level agenda.
It's just that the Fed is independent of the White House
and the government, right? So this is the whole thing
(08:44):
that's in question here, the Fed's credibility.
And look, this isn't, whilst it's not normal, Trump's not the
first kind of president to be attacking the Fed and trying to
get interest rates to kind of move lower.
You've seen, you know, loads of them doing it over the years,
(09:05):
including, like, well, I had a list, actually.
I've lost it now. But yeah, Like, Johnson back in
the 1960s basically invited the then Fed chair Martin to his
Texas ranch, where he proceeded to kind of, like, lambast him
about why he's not cutting interest rates.
Nixon very famously was badgering Arthur Burns at the
(09:29):
time and getting pretty fruity about the language they have
quite actually. Nixon was quite kind of Trump
styly, to be honest, in being pretty out front and not afraid
to kind of throw abuse, pretty much.
But George Bush in the 90s was trying to get Greenspan to cut
rates, right? So look, it's not, it's not
(09:51):
unusual. It's just it hasn't happened
since the 90s. So meaning most people around
now in markets have never seen this before.
It has happened though. And Trump in his first term, you
know, that's when he actually got going and, and criticizing
Powell back then. And you know, he's just amped it
up big time. What is different, and that's
never happened before ever, is the sitting president trying to
(10:16):
fire a Fed governor. So this Lisa Cook thing is
notable because it's like it is unprecedented to try and go that
far. Obviously the press are all over
it. The press are kind of generally
anti Trump. And so of course 99.9% of press
coverage is about Oh my God, what the Hell's Trump doing?
(10:38):
You know another, you know, threatening the sort of
credibility of our institution and all the rest of it.
Yeah, and, and there's always method to Trump's apparent
madness. And what I thought was quite
interesting with this one, he's obviously fired a number of
shots at Powell. And I think there's the law of
kind of diminishing return when you're throwing pop shots at
(10:59):
someone. It's a pretty spicy first time
and it gets a bit boring after awhile.
Interesting this time and perhaps again shows that there
is a bit of tactics behind what he does.
So a lot of thought which was about the shape or the
composition of the people that sit on the Federal Open Market
(11:21):
Committee, which are the decision makers at the US
central bank. Now in in 2026, all 12 regional
Fed bank presidents are up for aterm recertification.
And guess who decides who are the reserve district presidents?
So reserve districts are basically, if you think of
(11:42):
United States as a big geographyin your mind's eye on a map, and
because it's so big and diverse and it's geography, so it's
local economies. And so you have say, the Dallas
Fed, the Chicago Fed, the the California San Fran, Fred Fed,
and basically they're all comingup for renewal as they do on the
(12:05):
calendar rotation. These are decided by the Fed's
Board of Governors. She sits on the Board of
Governors. Lisa Cook.
So if she goes, if Cook is replaced by one of Trump's other
picks, one of which I know you've got some colour on, which
is Stephen Moran or Christopher Waller, who's talked about as a
(12:26):
potential power placement, or Michelle Bowman.
If they were to vote together, Iblocked voting.
They could theoretically remove and replace all 12 regional Fed
presidents. Not as much as I think that
that's an absolute limited possibility of happening.
Just the timing and just the theoretical calculation of this
(12:49):
being possible. I think it's added an extra
little dynamic to this Trump. Yeah, look, there's a, there's a
theoretical pathway to Trump controlling the Fed from what
you've just said, right? And you know, obviously it's
theoretically possible, like it's almost zero.
I don't think that's Trump's agenda really.
(13:10):
He's just kind of bashing the Fed to try and even if it's
subconsciously influence their decision making around the table
come FOMC meeting day and just trying to encourage them to lean
on the kind of rate cutting direction, right?
You know, I don't think Trump's agenda here is to basically do
(13:32):
an Erdogan in Turkey and take over the basically central bank
and just control entirely interest rates.
I don't think really that's that's his path.
But look, it's serious. It's theoretically possible and
fine. Yes, it does look that I I want
to say two things that firstly, let's see what happens.
Most likely this is a, as you'resaying, Trump playbook just
(13:55):
chipping away at somebody else on the Fed just to grab
headlines and try and influence,right.
Of course, there is the possibility that he's right and
Lisa Cook did commit mortgage fraud and fine, the courts will
decide and maybe she gets kickedout.
Right. Well, I was surprised when I was
(14:15):
reading up on this was the term of these fed governors.
They have a 14 year term. So she was Lisa Cook was sworn
in on in 2021. So or is it 17 years?
Yeah, it must be 17 years because she heard her term ends
in 2038, which I kind of shockedme a little bit because these
(14:37):
are essentially unelected officials who have a huge job to
do in terms of controlling interest rates, which obviously
has a major, major influence on the US economy and indeed the
economic kind of workings of theentire planet, let's be honest.
So, yeah, quite shocked me that their terms are so long.
(14:58):
I get it that they're supposed to be longer than the four or
even 8 year terms of the president.
Fine. So to try and get it, try and
make it as kind of apolitical aspossible.
But look, that aside, look, is she going to get found guilty
and kicks off? I don't know.
Probably not. And in any case, it's going to
take months. She's going to fight it, right?
In fact, her quote was we will be filing a lawsuit challenging
(15:19):
this illegal action. So look, this is months in the
making, right? And there's going to be plenty
of headlines and noises. Is it going to change much?
I don't know. The one thing to realize with
the Fed governors is one of themstepped down.
Like forget Lisa Cook now, who may get fired and find Trump can
replace. Forget that for a SEC, Adriana
(15:41):
Kugler, another of the seven Fedgovernors.
She quit at the start of August.Her term was coming to an end
anyway in January 26, so near the end, but still she quit and
that seat's currently open and available now.
Trump has nominated Stephen Mirren, who's his current
council of, you know, White House's Council of Economic
(16:01):
Advisers chief. He's been fully involved with
creating the tariff policy. His opinion is there will be
absolutely no inflationary impact to tariffs.
He's obviously fully in Trump's pocket, very anti Powell.
Now Trump can't just put him in that seat.
The Senate has to or Congress has to vote on that, right?
(16:23):
But you know, Republicans do have the majority, so who knows?
But look, so he could get Mirrenon there.
I don't know. If Cook got found guilty, then I
think this could become more interesting because fine, That's
another seat open and fine, we could go one more step down that
path, theoretical pathway if youlike.
(16:43):
But look, we're not going to find that out for months.
And she may well not be guilty. So it could be a bit of a
nothing burger this story. So really it just kind of I
think you step back and it leaves you saying, well, we know
Trump wants rates to go down. We know his attack on the Fed is
aggressive and unconventional. We know that certain parts and
I, they're pretty isolated I think, but there are certain
(17:06):
parts of the market participantsthat are a bit concerned and
nervous about this in terms of how it's undermining the Fed's
credibility. I say certain parts because the
S and PS at an all time high stocks don't care, right?
I know the media really wants stock markets to care about
this. They just don't.
(17:27):
So it leaves you with the bond markets and something they
latched onto. I say they the media is you did
see some very marginal moves in bond, US bond yields off the
back of this story earlier this week.
All that's happened is that the trends of the last couple of
years are ongoing. So the 30 year bond yield ticked
(17:48):
up and like the media were trying to make the FTR school I
was reading was trying to make abig thing out of it, but it
ticked up 0.06 basis points and then ended the day back to flat
pretty much. But they were trying to make a
thing out of it. But the trend is up, right?
30 year yields are rising and the two year yields are going
(18:09):
down. That's because there's a, the
markets are pricing in a higher likelihood of a cut, right?
So that means the lower end of the shorter end of the curve
drops. One thing we look at a lot is
the yield curve and really the difference, the shape of it, the
difference between 2 year yieldsand 30 year yields, the
difference between the short endand the long end.
(18:29):
That difference ticked up to 1.25% off the back of this
story. That trend, it's been on a
rising trend all year, right? But it just ticks up another
little new high, which if you'reinclined to be critical of Trump
here, though, the kind of reaction to that is, well,
(18:49):
markets are pricing lower interest rates, but that's going
to mean higher inflation in the future because inflationary
pressures haven't gone away. And if the Fed does cut and if
they cut too early, it's going to exacerbate the re rise of
inflation further down the line.So people are talking about
(19:10):
those longer duration yields reflecting the fact that we're
going to get another inflation problem down the track.
So that's that's it really. I like your re rise of
inflation. I saw that sounded like a new
Netflix kind of miniseries or something.
The re rise of inflation, boom, boom, boom.
(19:33):
Just a couple of points there just before we move on, because
I know there is a good segue between talking guilds and
talking US and France just before we do.
I don't think you're giving someof the Fed governments enough
credit here. You're saying they're going to
be influenced when they have these meetings just to plant a
little seed in their head just as you know that he's there,
he's looming and literally outside the door or on the other
(19:55):
side of of a phone. So couple of things.
One, I don't think that's Trump's intention is to like, I
don't think he's going to influence them.
I think they're too long in the tooth that I think they're
probably intellectually think they're too superior to want to
go to his level on that point, though, I don't think that that.
(20:16):
Reduces his impact that he can make because I don't think it's
about him influencing the Fed. I think it's about him
influencing public opinion, right.
And so this is a word that I wasn't familiar with, but you
seemingly read much more than I do.
But Trump tactics called lawfare.
(20:37):
Lawfare being the weaponization of the legal process
investigations or allegations for political gain.
And so this very much, this would fit within this category I
guess of what he's doing with Lisa Cook and kind of breaking
that those characteristics down.That's selective prosecution,
signalling out political opponents claims of mortgage
(20:59):
fraud, for example, whilst ignoring your allies who are
showing similar conduct. But probably the main one here,
not just intimidation through legal pressures, but
delegitimization strategy. I think that's important.
Everything he does, it's framingopponents as corrupt criminals
to weaken their credibility. Even if the allegation remains
(21:20):
unproven. This can often happen.
When you see these, you know, kind of murder convictions, all
that guy next door looks really weird.
It was definitely him. Like the net, Netflix always
takes you on this journey, doesn't it?
He goes. Oh, these these kids got
kidnapped and it's like, well, it's definitely the guy who
lives on his own at the end of the road who has the really
wrote the house. And you're like, that's the
first two episodes and you go through.
(21:42):
The whole cast. Then you go, well, no, he's just
a weird guy. Like he's got nothing to do with
it, but it's kind of a similar thing.
But the damage is done. That guy is, you know, forever
tainted by it. So I think, you know, I think
his his job is almost done here,come what may out of the Lisa
Cook scenario. I think it's just another chip
at the armor of the Fed. Here's a question for you if
(22:06):
this is entire BS right? If Trump has just pulled this,
it's completely made it up right?
There is no absolutely no evidence for her fraudulent
activity in the morgue. Like if they if it's a complete
made-up story, surely that will come out and undermine Trump,
won't it? If he's just kind of making up
(22:28):
bullshit. Matter how many times have you
heard Trump say incorrect thingsor Boris Johnson make
inappropriate claims on statistics during COVID?
Like that's not how this works. It's just about controlling the
narrative and sometimes repetition, which is also core
to his communication style. Human psychology dictates if you
(22:49):
say something enough it becomes believable irrespective of its
truth or not. Now, I'm not here to say, you
know, Trump is right or wrong orwhat what is right or wrong.
Overall, it's just a tactical approach.
And I think he does this well inin many senses.
But and then the other part was,oh, sorry, go ahead.
No, no, go on. The other part of this was about
the the length of term. So just I've had a quick look, I
(23:13):
was like ChatGPT, what do you think?
And there's a couple of interesting points here.
So basically all of the governors are on staggered
terms, so they all roll off every 14 years.
Basically there is a there's a 1governor's term expires every
two years I see. Meaning no single president can
(23:33):
immediately reshape the whole board.
Point. Number one, the other thing is
about continuity, because economic cycles generally take
quite long and therefore they can see it through from a policy
setting perspective. Insulation from politics,
obviously they outlast, you know, the the White House
officials in, in that respect. The one thing I would say is
(23:56):
that aren't economic cycles getting shorter and isn't
technology reshaping the way economies work?
So by definition, whilst those things I noted remain true now
and are appropriate, surely thatsystem is doomed to fail because
of technology's impact on the economic cycle itself.
(24:18):
Yeah, I mean, it's a very good point, I think.
I think you can argue that, you know, the speed at which these
institutions evolve and modernise is like snail's pace
and certainly relative to what happens at there in the real
world, right? And so, and the problem is that
(24:39):
AI, right, has just accelerated the evolution of the real world
even faster, making that lag just all the more pronounced.
But these are long term issues that, yeah, I mean, how, how do
you change it though? Because, you know, when you have
an institution like the Fed, they will vote in a way that
(25:00):
protects their their institutionand the way that they do things,
right? And you can't change, you know,
they're in charge. So, yeah, I I think it's
probably is a model that's not fit for purpose and it's
progressively getting even less fit for purpose as as time goes
on. But look, I want to maybe end on
(25:21):
this whole Fed thing by just saying all this stuff this week.
Just forget about it. What's more important is what
happened last week, which was Jackson Hole and was Powell who
stepped up to make a speech and was surprisingly dovish and
(25:41):
essentially paving the way for arate cut in September.
Now, obviously this Trump and Cook stories just flashed up and
taken over the whole narrative, right?
But I think part of that, I think the Fed are going to now
cut rates in September. You could argue Trump as badly
times this attack on Cook because if he just riles Powell
(26:03):
and pisses off the governing council even more, they may,
even if it's subconsciously, youknow, behave in a way that's
against an opposite to what Trump wants.
But obviously I don't know. We'll see that intellectually I
think they're above that. So I think you're going to get a
cut next week or next. Not next week, sorry, at the
next meeting in a in a few weekstime.
That's the most important thing from a market point of view.
(26:25):
And that is why 2 year yields are dropping.
That's why the stock market is on an all time high and this
this kind of storm in a tea cup around cook is is just a bit of
a temporary focal point. Yeah.
And the next Fed meetings on the17th of September, market
pricing is currently a 90% implied probability of a 25
(26:46):
basis point cut. And I'll also going out.
So you've got the set meeting, October meeting, December
meeting in December, the marketstilted towards another cut, so
just three, 3 3/4 to 4%. Federal funds range of around
50%. Yep.
And look, we've got another round of key economic data in
(27:07):
the next couple of weeks, another fresh look at the labour
market, because you remember thenon farm payrolls report that we
had last month was an absolute shocker, like really bad.
The main reason why Powell has now pivoted a little bit more to
the dovish side. So we're going to get another
payrolls number at the end of next week.
(27:27):
That's that's AB, that's it, that's it.
That is the number, that's everything.
If that doesn't show a really strong rebound from the terrible
numbers that we got at the startof August, then this rate cuts
locked in 100%. We do have another set of
inflation figures before that Fed meeting as well, but I think
given that shocker of a labour market report, that's become the
(27:49):
number one data point between now and the next Fed meeting.
Cool. Well look, just for the sake of
time, let's try and connect the dots then to France and then
cover off the UK inflation situation.
Yes so France that are having a bit of a shocker from a
(28:11):
political point of view and there's been another call for a
vote of no confidence in Beirut.That's the current Prime
Minister in his administration and if the vote fails then he
must resign Deja vu because thishappened literally 8 months ago.
(28:33):
The last time that the there wasa vote of no confidence in the
government and the Prime Minister had to resign, a guy
called Michel Barnier that you'll I'm sure recognise the
name from the kind of Brexit negotiations.
But look, this is yet another kind of episode in, in, in the
French kind of political circus.Macron, who's the president.
Of course, if the vote of no confidence goes through, which
(28:57):
is look looking likely, then Macron will have a decision to
make either he has to try and appoint a new Prime Minister
like he did last time when Barney A got chopped.
So but then that would mean trying to cobble together a new
coalition. And obviously that didn't work
last time because here we are 8 months on, we've got the same
(29:19):
problem. I imagine he'll try and do that
though and try and kick this down the road because the other
option is dissolving parliament and having a general election.
And the way the polls are going at the moment, you know, you're
definitely getting kind of not not extreme, but like, like
very, very left and very right political parties are on the
(29:40):
rise, of course. And look, this what markets kind
of sold off quite sharply off the back of this development
earlier this week. And underlying all of this is
just the situation that the French economy is not in a good
place and their debt and their deficit levels are not in a good
place, OK. And This is why markets are
(30:00):
getting a little not panicked, but their concern has ratched up
another notch. And so we saw French stocks.
I was actually looking at the CAC Caron, that's the French
stock market. I mean, so it's down 3% this
week, right? But if you look at this isn't
new, right? The French have been
underperforming all year. The year to date for the French
(30:23):
market, I mean, it's up, but it's up 5%.
Compare that to Germany. Germany's up 21%, Italy's up
24%, Spain's up 30%, right? So at the BIG4 economies, France
is having a shocker from a stockmarket point of view, which is
just a reflection of this whole story That's not suddenly
(30:44):
happened this week has been ongoing for months and months
and months, right? So we'll see.
But and you've got to keep an eye on things like the French 10
year bond yield, for example, and also obviously the French
stock market. But when you're looking at their
debt situation, I've got I've got some stats here.
(31:06):
So the French debt to GDP ratio is 113%, which is high.
But the problem is the directionof travel as well.
So it's high, but it's rising. OK, so it's getting worse to
compare that Germany, who are always the the most fiscally
(31:27):
prudent out of the European countries, their debt to GDP
63%. Oh, and by the way, as an aside,
back in the 90s when these lot were trying to figure out this
new kind of Eurozone thing and let's have a single currency,
they came up with this stabilityand growth pact.
And it was basically to appease Germany, who were the strong
(31:47):
economy at the time and saying Germany basically said, look, if
I'm going to join a club with you lot, then I want assurances
that you're going to be fiscallymore disciplined.
So look, here are a set of rulesand the rules were you're not
allowed. Your debt to GDP ratio cannot
rise above 60%. France is at 113, your deficit,
(32:09):
right? So debt to GDP is just right,
your total debt right now, this moment divided by the size of
your economy, right, gives you that ratio.
So the amount of debt they have is larger in monetary terms than
in an an entire 12 months worth of economic output.
The deficit is then looking on an annual basis, what's the
(32:30):
government's budget spend versusthe revenues they've got coming
in, right, revenues from taxes and whatever and their their
deficit is at -6%. OK, but the Stability and Growth
Pact back in the 90s said you'renot allowed to have a deficit
above -3%. So their deficit is double, give
(32:54):
or take their debt to GDP ratiosdouble.
All right then what it's supposed to be.
However, there isn't 1 country in the entire block pretty much
that stuck to these rules. I mean, all right, we've had
COVID and major crises, so fair enough.
Maybe in the short term, right? But look, France is in a bad
place and it's getting worse. That's the problem.
(33:16):
And they've got the credit rating agencies account.
They're they're on negative watch across all three of the
main ratings agencies. They're currently rated at AA
minus. They're probably going to get
chopped down to single A, right?And so, yeah, I, I guess this
story needs to be monitored. It's not really moving at a
(33:38):
breakneck speed at this point. But if I would say if Macron
has, if he's forced into callinga general election rather than
trying to cobble together a new coalition, then I think markets
will really start to go again. And you'll see the concern
levels start ratcheting and the blast point if the the big worry
(34:00):
is the vicious sort of cycle that if you get into the
negative feedback loop, then you're kind of dead.
That meaning if people are worried that France are going to
default on their debt and their fiscal trajectory is
unsustainable, they're going to start selling that debt, which
means yields rise, which means it's then even more expensive
(34:23):
for France to roll over and re borrow some of this money,
meaning their fiscal situation gets even worse.
And so, right, yields rise and people sell debt and you, you
get into this negative spiral, right?
And we're we're not there, but it's not a million miles away.
But yeah, something it's definitely one of the key risks
in Europe for sure over the second-half of this year that
(34:46):
you've got to be looking out for.
And just for context, looking atthat French yield in comparison
to the German benchmark yield, so the French, German 10 year
yield spread that's coming up toaround those late March, early
April highs, which is around 80 basis points.
(35:06):
We were around 70 before this latest debacle.
But in that previous one you mentioned 8-8 months ago at the
end of last year, it got up to near 90.
So there's a bit of room to run here.
But my question is, isn't, isn'tFrance two things?
Isn't France too big to fail? And isn't secondly famous last
(35:26):
words, But it isn't the second one here that like any political
incumbent, your power and popularity decline over time.
It's backgrounds. Time to go.
He's he's out staying his welcome here.
So he's on. He's on.
He's he's a dead man walking as far as his political situation
(35:49):
is right now. It's how long?
When is it going to happen? So that change is coming.
So it's the trade. The trade is not now shorting
French stocks or going long. You know, the spread or whatever
it is. It's the trade not fading, all
of this. Waiting for the freak out.
Right at the end of any political term, it normally
(36:11):
requires an economic episode to just be the final dagger.
And then then sensibility prevails and France is France.
And then this thing fades like it has done in prior occasion.
Yes, I think you're right. I mean the risk is who wins if
(36:31):
Macron falls on his sword and the big concern from a market's
point of view, not I mean your political persuasions are what
they are, right. But from a market's point of
view, if we suddenly get a more,if we kind of get a knee jerk to
the left, then the left will be more, you know, policies such as
(36:53):
lowering the retirement age or let's increase welfare spending,
you know, And so that just meansthe government spending more
money, which means the debt levels and the deficits are
going to get any better. They're going to get worse,
right? And so then that, that that kind
of default risk rises. But to your, to your point,
(37:14):
France is too big to fail. Let let's not let's not get
confused here 100% too big to fail.
You know Greece and Portugal andIreland, you know, if you're old
enough, you'll remember they gotbailed out back in 2010 and
2011, right? They're tiny minnows compared to
(37:37):
the French economy. And so should the absolute worst
case scenario happens, and I don't think it will.
But if you do get a slide to default, then of course the
eurozone will come in and backstop France and there will
be a bailout. And so you're right, that
Armageddon scenario isn't going to happen.
(37:59):
So you wait till the freak out about it peaks and then you're
kind of fading that move as it kind of reverses off those sort
of exaggerated behavioural extremes.
All right, well, look to wrap upmaybe in the next few minutes,
just a final words on the UK, because I know we've had some
(38:20):
headlines. Certainly if you're based here,
that would have been on your radar.
One being, damn, my, my food shop's gone up against UK food
inflation has gone up to 4.2% inAugust.
That's now the highest since basically the beginning of 2024.
So Feb 24, they were, they were attributing this to poor
(38:43):
harvests, higher labor costs andsupply strains driving that
rise. But what was interesting as I
saw in the news this morning that in addition, gas
electricity prices will rise by 2% for millions of households
under the latest cap announced by the energy regulator off GEM.
(39:03):
Now, I thought this was what we were expecting anyway, which is
we have an uptick in toward yearend, but you've got energy
prices going up as a systematic kind of jump with the cap.
Then you got food prices more aggressively going up, the
fastest rate, in fact, in 18 months.
So what does this mean for the Bank of England because they
(39:25):
just cut interest rates hoping the inflation's under control.
So what would they be thinking in this scenario do you think?
Yeah. Well, look, the Bank of England,
don't forget they've been cutting rates.
That's, that was their fifth rate cut, OK, since the peak.
So they started cutting in August last year and they're
basically cut every quarter, right, which is kind of their
(39:48):
usual playbook. Every other meeting they cut
rates by 25 basis points. So the peak back last year was
up at 5.25%. And as of the meeting back on
7th of August, they cut and it'snow at 4% right now during that
time, yes, food inflation has grabbed the headlines here.
Food inflation is on the up, butactually inflation broadly.
(40:10):
Has been rising in the UK all year.
So really if you think about that post COVID spike in
inflation, where inflation peaked around the start of 2023
or mid 2022, let's call it, thenreally we had a big drop.
But that drop troughed sort of ayear ago, right?
(40:31):
September, October, we kind of troughed and inflation's just
been trending back up, quite a slow, steady rate, but trending
back up anyway. But the Bank of England have cut
rates five times in that period of 12 months where inflation's
been creeping back up. So I guess the timing of this is
(40:55):
good in that they've just cut rates, right?
And on the current schedule, they're going to cut rates
again, but not until November. So we've still got, it's August
still, right? So we've got the whole of
September, the whole of October and a bit of November.
And we're going to get more inflation data and we'll get
more knowledge about how the economy is doing before that
kind of cutting meeting comes round, right.
(41:17):
But but look, mainly the reason for food prices going up is not
something that the central bank can control because it's supply
side, it's, it's the weather, right?
Our harvests have been really bad again.
And so it just means supplies short.
(41:37):
Now the central bank, I mean, you can cut rates or hike rates
all you want, but that's not going to control the weather,
right. So really, if I was thinking
about this, it would be, well, this is going to cause an
economic drag. If food prices particularly are
back on the up, well then surelythis is a negative factor for
economic growth. Therefore we should get a
(41:58):
dampening in demand as a result of that.
We should take care of this bumphigher and inflation on its own.
And really let's look beyond that and think about the
economic trajectory, which, let's be honest, is probably
down. And if I was the Bank of
England, I'd still be thinking, yeah, we're going to cut in
November. That's my.
(42:21):
Yeah. One of the.
One of the stats there, I was just kind of fact checking.
I was watching the news last night and they were talking
because me and my wife were saying, well, you know, it's
been such an amazing summer. Like from a personal point of
view, you're like, oh, sunshine's great.
And you're watching news and you're like, bam, this global
warming. Like you look at what's
happening in Bangladesh. You look at what's happening to
(42:44):
the farmers in the UK and as yousaid, you know, some of these
shortages, butter, eggs, chocolate, that's a tough one, I
know, for you to swallow. But chocolate is going up
because of the, you know, the ingredient shortages.
But the UK is almost certain. We're already obviously coming
to September to have had its hottest summer on record and
(43:04):
looking over the course of like the whole year, mean
temperatures across the country,which includes overnight lows as
well as daytime highs for the UK, stands at 16.13 Celsius, 61
Fahrenheit. That is well above the previous
warmer summer. It's crazy.
It's like that. The previous one was 15.7.
(43:26):
It's gone up to 16.1. Temperatures during the rest of
August would need to be 4° belowN to prevent the record being
broken. So, and what was interesting was
there has been I think previous periods when this has happened,
but what's happening is the datashowing that all of these are
happening. I think it was 202020222025.
(43:48):
It used to be, you know, a decade episode.
More stretched if you like. The frequencies increased.
Right. So temperatures going up,
frequency is going up. But look, I'm not here to
complain about climate change, and I'm sure people will have
their views on that, especially Trump, who I know is listening.
So drop a comment and let us know what you think.
(44:11):
But yeah, just some just some stats on that.
All right. Well, look, we've we've gone on
for 45, so we'll end it there. Good to be back.
Thank you, Piers for joining me.You're very welcome.
That's it. I'm back now.
No. No more missing of any episodes.
Honest. Yeah.
(44:31):
So drop us a comment, let us know.
I've also been recorded some really great guest episodes that
are coming up across everything from banking to a quant trading.
And also I've got a really cool series that I'm doing with the
LSE, the London School of Economics students.
And so keep your eyes and ears peeled and tuned for that
(44:53):
because it's going to be super helpful for application season,
which I know is fully underway at the moment.
So see you next week. Thanks very much everyone.
Cool, see ya.
Hello and welcome back to the Market Maker Podcast.
And yes, he's alive. Piers Curran is alive.
I had to go through every continent on planet Earth to
locate this man. There was lots of people
messaging. What's going on?
It's been several weeks. So to Kia Ahmed, your message
(00:21):
was received. You don't need to go out and
send a search party. That job has been done.
I have located Piers Curran and we are back to talk about all
things markets. So before you give us a bit more
colour on where you have been, Pierce, we're going to talk
about in this episode really three main market themes and try
to break them down, make them a little bit more digestible to
(00:44):
understand, particularly given the fact that we're going to
application season, but also because markets there's always a
pretty volatile and it's good toknow from an investing
perspective. So we're going to talk about
Trump versus the Fed. What is going on?
And of course, Donald Trump is making moves once again.
This time he has a name, Lisa Cook, in his crosshairs as to
(01:07):
potential mortgage fraud. So what does this mean for her
future, but more importantly, that for the independence of the
central bank and US monetary policy and how markets are
perceiving that? That's number one.
Number two, France politics meets markets.
Yes, you're reading lots of headlines about French political
chaos. Markets are really tanking in
(01:28):
France. Is that the case?
How worried should we be? What's actually happening?
What are the next things to lookout for?
And then close to home here fromwhere we are in the UK, we've
had UK food prices climbing again, putting pressure on
families. And they're going to get hit
with another electricity price rise as well in the back end of
(01:48):
this year. And so this all comes to the
context of the Bank of England cutting rates.
So are they able to cut when inflation in some of these
measures is going the opposite direction?
It's going up away from target. So, Piers, how are you and where
have you been? Oh, well, I'm back.
That's all that matters. I am back in the seat.
(02:10):
Yeah. You know, taking some time out
over over the summer period, a bit bit of bit of Greek islands
and then then Cornwall actually,you know, staycation keeping it,
keeping it within the UK bit like, well, you know, JD Vance,
if if he can holiday in England,well then you know, why can't I?
(02:34):
Did you see that, JD Vance? Who's he being?
Spoiled by it was George Osborne.
George Osborne, wasn't it? But then they got done for
fishing without a license, isn'tthat right?
Does a billionaire require a license to fish?
I'm not. I'm not.
Sure. I mean, I don't know, I don't
make the rules. But yeah, good to be good to be
(02:55):
back. You know, August is always a bit
of a well, like as a trader, youknow, back in the day, August
used to be a breed of a slog like because obviously a lot of
huge amount of the industry takeholiday in the Northern
Hemisphere at least, right, Because the schools are out.
And so, you know, if you've got families, you're you're off on
(03:15):
your family vacations. So it just means a lot of people
away from desks generally trade volumes, you know, drop right
down. And so generally it can be
pretty quiet and dull. It's just of course that not
everything stops. Obviously big theme today is
politics. So politics doesn't stop.
And particularly when Trump's around, of course.
(03:37):
So just because people are on holiday doesn't mean markets
can't move. And actually, not that it's
happened in this August, but youknow, we if something mega that
does kick off in August and people are away from their
desks, actually it can exacerbate the size of market
reactions just because liquiditylevels are lower.
(03:58):
So maybe we saw a touch of that with some of the French market
moves earlier this week possibly.
But yeah, we'll we'll get into it.
But yeah, good to be good to be back and looking forward to,
yeah, getting stuck back in. Well, look, anyone listening, if
you haven't already done so, if you don't like and subscribe to
(04:21):
this channel and that will make it a stronger commitment then
for us to never miss an episode because there'll be more of a
business case to run the episode.
So I'll leave it at that and letyou take action on it.
But let's start with the Fed then, because this is one of the
big talking points. And, you know, Trump is never
far from the headlines, and he'skind of pivoted here from
(04:43):
targeting Powell to one of his deputies.
So Fed Governor Lisa Cook. So what?
What exactly has happened here? Well, I mean, this specific
story broke Monday night becauseTrump tweeted or on Truth Social
or wherever it was that right, Lisa Cook, you're fired
(05:04):
effective immediately was his kind of message.
And this is just his latest little bite nibble.
Is it more than a nibble? I don't really know.
But it's latest. A kind of general all out
assault on the Federal Reserve at large.
And here he's claiming that she falsified some details on her,
(05:27):
one of her mortgage applications, whatever, I don't
even know the dates a few years back and that therefore she's
fired. And that the issue here is
right. And obviously Trump's been
trying to get rid of Powell. There was a legal ruling to say
that he had no legal grounds to fire Powell or anybody else on
(05:48):
the and or any other Fed governor without due 'cause
right. So here's here's the thing.
He can only fight legally. He can only fire someone with
due cause. Due cause, meaning they've done
something specific that has violated the law in some way.
Hence why he's bringing forward this claim about the falsified
(06:08):
documents as part of a mortgage application.
I think it's something around Lisa Cook buying 2 houses in
quite close succession and that she claimed that both were her
primary residence. I think that was the deal.
Yeah, so the the the specifics of this was because it's not an
uncommon thing. Trump has actually used this as
(06:29):
a as a tactical approach, specifically using mortgages as
a centrepiece to some of these accusations he makes against
opposition figures. So there were there were two
priors to Lisa Cook, the New York attorney General and Adam
Schiff who is the California senator.
So how it works is that the alleged the alleges, well the
(06:52):
alleged part of this with James and Schiff and Cook is committed
what is known as owner occupancyfraud.
So this is when a person claims a second home, IE Piers Corn
might have Cornwall or the an island in Cyprus.
When a person claims a second home or investment property is
(07:14):
actually a primary residence in order to get a better mortgage,
IE lenders are more inclined to give borrowers a lower mortgage
rate on a primary residence compared to a second home or
investment. So that's that's where this
comes in. And it looks he's accusing her
of fudging that process. And she had two primary
residences I think. Right, Look, I think let's step
(07:37):
back a SEC. What what's going on here when,
you know, you see Trump heavily criticizing Powell like pretty
much on the daily. Now this Lisa Cook, the bigger
issue is Trump wants interest rates down, OK?
He he believes interest rates are too high.
He wants them lower. He's talked about as much as 2%
(07:59):
below where they are now that his agenda is that he's got a
lot of debt to refinance. He's got a roll over about a
trillion dollars worth of debt. And you know, interest rates are
high. So it's going to be expensive to
roll and borrow another $1 trillion at a much higher
interest rate than the government has been enjoying.
(08:22):
You know, over the last sort of 15 years post financial crisis
where you've had that zero interest rate environment and
borrowings been let's just say relatively pretty free, right.
So that's Trump's top level agenda.
It's just that the Fed is independent of the White House
and the government, right? So this is the whole thing
(08:44):
that's in question here, the Fed's credibility.
And look, this isn't, whilst it's not normal, Trump's not the
first kind of president to be attacking the Fed and trying to
get interest rates to kind of move lower.
You've seen, you know, loads of them doing it over the years,
(09:05):
including, like, well, I had a list, actually.
I've lost it now. But yeah, Like, Johnson back in
the 1960s basically invited the then Fed chair Martin to his
Texas ranch, where he proceeded to kind of, like, lambast him
about why he's not cutting interest rates.
Nixon very famously was badgering Arthur Burns at the
(09:29):
time and getting pretty fruity about the language they have
quite actually. Nixon was quite kind of Trump
styly, to be honest, in being pretty out front and not afraid
to kind of throw abuse, pretty much.
But George Bush in the 90s was trying to get Greenspan to cut
rates, right? So look, it's not, it's not
(09:51):
unusual. It's just it hasn't happened
since the 90s. So meaning most people around
now in markets have never seen this before.
It has happened though. And Trump in his first term, you
know, that's when he actually got going and, and criticizing
Powell back then. And you know, he's just amped it
up big time. What is different, and that's
never happened before ever, is the sitting president trying to
(10:16):
fire a Fed governor. So this Lisa Cook thing is
notable because it's like it is unprecedented to try and go that
far. Obviously the press are all over
it. The press are kind of generally
anti Trump. And so of course 99.9% of press
coverage is about Oh my God, what the Hell's Trump doing?
(10:38):
You know another, you know, threatening the sort of
credibility of our institution and all the rest of it.
Yeah, and, and there's always method to Trump's apparent
madness. And what I thought was quite
interesting with this one, he's obviously fired a number of
shots at Powell. And I think there's the law of
kind of diminishing return when you're throwing pop shots at
(10:59):
someone. It's a pretty spicy first time
and it gets a bit boring after awhile.
Interesting this time and perhaps again shows that there
is a bit of tactics behind what he does.
So a lot of thought which was about the shape or the
composition of the people that sit on the Federal Open Market
(11:21):
Committee, which are the decision makers at the US
central bank. Now in in 2026, all 12 regional
Fed bank presidents are up for aterm recertification.
And guess who decides who are the reserve district presidents?
So reserve districts are basically, if you think of
(11:42):
United States as a big geographyin your mind's eye on a map, and
because it's so big and diverse and it's geography, so it's
local economies. And so you have say, the Dallas
Fed, the Chicago Fed, the the California San Fran, Fred Fed,
and basically they're all comingup for renewal as they do on the
(12:05):
calendar rotation. These are decided by the Fed's
Board of Governors. She sits on the Board of
Governors. Lisa Cook.
So if she goes, if Cook is replaced by one of Trump's other
picks, one of which I know you've got some colour on, which
is Stephen Moran or Christopher Waller, who's talked about as a
(12:26):
potential power placement, or Michelle Bowman.
If they were to vote together, Iblocked voting.
They could theoretically remove and replace all 12 regional Fed
presidents. Not as much as I think that
that's an absolute limited possibility of happening.
Just the timing and just the theoretical calculation of this
(12:49):
being possible. I think it's added an extra
little dynamic to this Trump. Yeah, look, there's a, there's a
theoretical pathway to Trump controlling the Fed from what
you've just said, right? And you know, obviously it's
theoretically possible, like it's almost zero.
I don't think that's Trump's agenda really.
(13:10):
He's just kind of bashing the Fed to try and even if it's
subconsciously influence their decision making around the table
come FOMC meeting day and just trying to encourage them to lean
on the kind of rate cutting direction, right?
You know, I don't think Trump's agenda here is to basically do
(13:32):
an Erdogan in Turkey and take over the basically central bank
and just control entirely interest rates.
I don't think really that's that's his path.
But look, it's serious. It's theoretically possible and
fine. Yes, it does look that I I want
to say two things that firstly, let's see what happens.
Most likely this is a, as you'resaying, Trump playbook just
(13:55):
chipping away at somebody else on the Fed just to grab
headlines and try and influence,right.
Of course, there is the possibility that he's right and
Lisa Cook did commit mortgage fraud and fine, the courts will
decide and maybe she gets kickedout.
Right. Well, I was surprised when I was
(14:15):
reading up on this was the term of these fed governors.
They have a 14 year term. So she was Lisa Cook was sworn
in on in 2021. So or is it 17 years?
Yeah, it must be 17 years because she heard her term ends
in 2038, which I kind of shockedme a little bit because these
(14:37):
are essentially unelected officials who have a huge job to
do in terms of controlling interest rates, which obviously
has a major, major influence on the US economy and indeed the
economic kind of workings of theentire planet, let's be honest.
So, yeah, quite shocked me that their terms are so long.
(14:58):
I get it that they're supposed to be longer than the four or
even 8 year terms of the president.
Fine. So to try and get it, try and
make it as kind of apolitical aspossible.
But look, that aside, look, is she going to get found guilty
and kicks off? I don't know.
Probably not. And in any case, it's going to
take months. She's going to fight it, right?
In fact, her quote was we will be filing a lawsuit challenging
(15:19):
this illegal action. So look, this is months in the
making, right? And there's going to be plenty
of headlines and noises. Is it going to change much?
I don't know. The one thing to realize with
the Fed governors is one of themstepped down.
Like forget Lisa Cook now, who may get fired and find Trump can
replace. Forget that for a SEC, Adriana
(15:41):
Kugler, another of the seven Fedgovernors.
She quit at the start of August.Her term was coming to an end
anyway in January 26, so near the end, but still she quit and
that seat's currently open and available now.
Trump has nominated Stephen Mirren, who's his current
council of, you know, White House's Council of Economic
(16:01):
Advisers chief. He's been fully involved with
creating the tariff policy. His opinion is there will be
absolutely no inflationary impact to tariffs.
He's obviously fully in Trump's pocket, very anti Powell.
Now Trump can't just put him in that seat.
The Senate has to or Congress has to vote on that, right?
(16:23):
But you know, Republicans do have the majority, so who knows?
But look, so he could get Mirrenon there.
I don't know. If Cook got found guilty, then I
think this could become more interesting because fine, That's
another seat open and fine, we could go one more step down that
path, theoretical pathway if youlike.
(16:43):
But look, we're not going to find that out for months.
And she may well not be guilty. So it could be a bit of a
nothing burger this story. So really it just kind of I
think you step back and it leaves you saying, well, we know
Trump wants rates to go down. We know his attack on the Fed is
aggressive and unconventional. We know that certain parts and
I, they're pretty isolated I think, but there are certain
(17:06):
parts of the market participantsthat are a bit concerned and
nervous about this in terms of how it's undermining the Fed's
credibility. I say certain parts because the
S and PS at an all time high stocks don't care, right?
I know the media really wants stock markets to care about
this. They just don't.
(17:27):
So it leaves you with the bond markets and something they
latched onto. I say they the media is you did
see some very marginal moves in bond, US bond yields off the
back of this story earlier this week.
All that's happened is that the trends of the last couple of
years are ongoing. So the 30 year bond yield ticked
(17:48):
up and like the media were trying to make the FTR school I
was reading was trying to make abig thing out of it, but it
ticked up 0.06 basis points and then ended the day back to flat
pretty much. But they were trying to make a
thing out of it. But the trend is up, right?
30 year yields are rising and the two year yields are going
(18:09):
down. That's because there's a, the
markets are pricing in a higher likelihood of a cut, right?
So that means the lower end of the shorter end of the curve
drops. One thing we look at a lot is
the yield curve and really the difference, the shape of it, the
difference between 2 year yieldsand 30 year yields, the
difference between the short endand the long end.
(18:29):
That difference ticked up to 1.25% off the back of this
story. That trend, it's been on a
rising trend all year, right? But it just ticks up another
little new high, which if you'reinclined to be critical of Trump
here, though, the kind of reaction to that is, well,
(18:49):
markets are pricing lower interest rates, but that's going
to mean higher inflation in the future because inflationary
pressures haven't gone away. And if the Fed does cut and if
they cut too early, it's going to exacerbate the re rise of
inflation further down the line.So people are talking about
(19:10):
those longer duration yields reflecting the fact that we're
going to get another inflation problem down the track.
So that's that's it really. I like your re rise of
inflation. I saw that sounded like a new
Netflix kind of miniseries or something.
The re rise of inflation, boom, boom, boom.
(19:33):
Just a couple of points there just before we move on, because
I know there is a good segue between talking guilds and
talking US and France just before we do.
I don't think you're giving someof the Fed governments enough
credit here. You're saying they're going to
be influenced when they have these meetings just to plant a
little seed in their head just as you know that he's there,
he's looming and literally outside the door or on the other
(19:55):
side of of a phone. So couple of things.
One, I don't think that's Trump's intention is to like, I
don't think he's going to influence them.
I think they're too long in the tooth that I think they're
probably intellectually think they're too superior to want to
go to his level on that point, though, I don't think that that.
(20:16):
Reduces his impact that he can make because I don't think it's
about him influencing the Fed. I think it's about him
influencing public opinion, right.
And so this is a word that I wasn't familiar with, but you
seemingly read much more than I do.
But Trump tactics called lawfare.
(20:37):
Lawfare being the weaponization of the legal process
investigations or allegations for political gain.
And so this very much, this would fit within this category I
guess of what he's doing with Lisa Cook and kind of breaking
that those characteristics down.That's selective prosecution,
signalling out political opponents claims of mortgage
(20:59):
fraud, for example, whilst ignoring your allies who are
showing similar conduct. But probably the main one here,
not just intimidation through legal pressures, but
delegitimization strategy. I think that's important.
Everything he does, it's framingopponents as corrupt criminals
to weaken their credibility. Even if the allegation remains
(21:20):
unproven. This can often happen.
When you see these, you know, kind of murder convictions, all
that guy next door looks really weird.
It was definitely him. Like the net, Netflix always
takes you on this journey, doesn't it?
He goes. Oh, these these kids got
kidnapped and it's like, well, it's definitely the guy who
lives on his own at the end of the road who has the really
wrote the house. And you're like, that's the
first two episodes and you go through.
(21:42):
The whole cast. Then you go, well, no, he's just
a weird guy. Like he's got nothing to do with
it, but it's kind of a similar thing.
But the damage is done. That guy is, you know, forever
tainted by it. So I think, you know, I think
his his job is almost done here,come what may out of the Lisa
Cook scenario. I think it's just another chip
at the armor of the Fed. Here's a question for you if
(22:06):
this is entire BS right? If Trump has just pulled this,
it's completely made it up right?
There is no absolutely no evidence for her fraudulent
activity in the morgue. Like if they if it's a complete
made-up story, surely that will come out and undermine Trump,
won't it? If he's just kind of making up
(22:28):
bullshit. Matter how many times have you
heard Trump say incorrect thingsor Boris Johnson make
inappropriate claims on statistics during COVID?
Like that's not how this works. It's just about controlling the
narrative and sometimes repetition, which is also core
to his communication style. Human psychology dictates if you
(22:49):
say something enough it becomes believable irrespective of its
truth or not. Now, I'm not here to say, you
know, Trump is right or wrong orwhat what is right or wrong.
Overall, it's just a tactical approach.
And I think he does this well inin many senses.
But and then the other part was,oh, sorry, go ahead.
No, no, go on. The other part of this was about
the the length of term. So just I've had a quick look, I
(23:13):
was like ChatGPT, what do you think?
And there's a couple of interesting points here.
So basically all of the governors are on staggered
terms, so they all roll off every 14 years.
Basically there is a there's a 1governor's term expires every
two years I see. Meaning no single president can
(23:33):
immediately reshape the whole board.
Point. Number one, the other thing is
about continuity, because economic cycles generally take
quite long and therefore they can see it through from a policy
setting perspective. Insulation from politics,
obviously they outlast, you know, the the White House
officials in, in that respect. The one thing I would say is
(23:56):
that aren't economic cycles getting shorter and isn't
technology reshaping the way economies work?
So by definition, whilst those things I noted remain true now
and are appropriate, surely thatsystem is doomed to fail because
of technology's impact on the economic cycle itself.
(24:18):
Yeah, I mean, it's a very good point, I think.
I think you can argue that, you know, the speed at which these
institutions evolve and modernise is like snail's pace
and certainly relative to what happens at there in the real
world, right? And so, and the problem is that
(24:39):
AI, right, has just accelerated the evolution of the real world
even faster, making that lag just all the more pronounced.
But these are long term issues that, yeah, I mean, how, how do
you change it though? Because, you know, when you have
an institution like the Fed, they will vote in a way that
(25:00):
protects their their institutionand the way that they do things,
right? And you can't change, you know,
they're in charge. So, yeah, I I think it's
probably is a model that's not fit for purpose and it's
progressively getting even less fit for purpose as as time goes
on. But look, I want to maybe end on
(25:21):
this whole Fed thing by just saying all this stuff this week.
Just forget about it. What's more important is what
happened last week, which was Jackson Hole and was Powell who
stepped up to make a speech and was surprisingly dovish and
(25:41):
essentially paving the way for arate cut in September.
Now, obviously this Trump and Cook stories just flashed up and
taken over the whole narrative, right?
But I think part of that, I think the Fed are going to now
cut rates in September. You could argue Trump as badly
times this attack on Cook because if he just riles Powell
(26:03):
and pisses off the governing council even more, they may,
even if it's subconsciously, youknow, behave in a way that's
against an opposite to what Trump wants.
But obviously I don't know. We'll see that intellectually I
think they're above that. So I think you're going to get a
cut next week or next. Not next week, sorry, at the
next meeting in a in a few weekstime.
That's the most important thing from a market point of view.
(26:25):
And that is why 2 year yields are dropping.
That's why the stock market is on an all time high and this
this kind of storm in a tea cup around cook is is just a bit of
a temporary focal point. Yeah.
And the next Fed meetings on the17th of September, market
pricing is currently a 90% implied probability of a 25
(26:46):
basis point cut. And I'll also going out.
So you've got the set meeting, October meeting, December
meeting in December, the marketstilted towards another cut, so
just three, 3 3/4 to 4%. Federal funds range of around
50%. Yep.
And look, we've got another round of key economic data in
(27:07):
the next couple of weeks, another fresh look at the labour
market, because you remember thenon farm payrolls report that we
had last month was an absolute shocker, like really bad.
The main reason why Powell has now pivoted a little bit more to
the dovish side. So we're going to get another
payrolls number at the end of next week.
(27:27):
That's that's AB, that's it, that's it.
That is the number, that's everything.
If that doesn't show a really strong rebound from the terrible
numbers that we got at the startof August, then this rate cuts
locked in 100%. We do have another set of
inflation figures before that Fed meeting as well, but I think
given that shocker of a labour market report, that's become the
(27:49):
number one data point between now and the next Fed meeting.
Cool. Well look, just for the sake of
time, let's try and connect the dots then to France and then
cover off the UK inflation situation.
Yes so France that are having a bit of a shocker from a
(28:11):
political point of view and there's been another call for a
vote of no confidence in Beirut.That's the current Prime
Minister in his administration and if the vote fails then he
must resign Deja vu because thishappened literally 8 months ago.
(28:33):
The last time that the there wasa vote of no confidence in the
government and the Prime Minister had to resign, a guy
called Michel Barnier that you'll I'm sure recognise the
name from the kind of Brexit negotiations.
But look, this is yet another kind of episode in, in, in the
French kind of political circus.Macron, who's the president.
Of course, if the vote of no confidence goes through, which
(28:57):
is look looking likely, then Macron will have a decision to
make either he has to try and appoint a new Prime Minister
like he did last time when Barney A got chopped.
So but then that would mean trying to cobble together a new
coalition. And obviously that didn't work
last time because here we are 8 months on, we've got the same
(29:19):
problem. I imagine he'll try and do that
though and try and kick this down the road because the other
option is dissolving parliament and having a general election.
And the way the polls are going at the moment, you know, you're
definitely getting kind of not not extreme, but like, like
very, very left and very right political parties are on the
(29:40):
rise, of course. And look, this what markets kind
of sold off quite sharply off the back of this development
earlier this week. And underlying all of this is
just the situation that the French economy is not in a good
place and their debt and their deficit levels are not in a good
place, OK. And This is why markets are
(30:00):
getting a little not panicked, but their concern has ratched up
another notch. And so we saw French stocks.
I was actually looking at the CAC Caron, that's the French
stock market. I mean, so it's down 3% this
week, right? But if you look at this isn't
new, right? The French have been
underperforming all year. The year to date for the French
(30:23):
market, I mean, it's up, but it's up 5%.
Compare that to Germany. Germany's up 21%, Italy's up
24%, Spain's up 30%, right? So at the BIG4 economies, France
is having a shocker from a stockmarket point of view, which is
just a reflection of this whole story That's not suddenly
(30:44):
happened this week has been ongoing for months and months
and months, right? So we'll see.
But and you've got to keep an eye on things like the French 10
year bond yield, for example, and also obviously the French
stock market. But when you're looking at their
debt situation, I've got I've got some stats here.
(31:06):
So the French debt to GDP ratio is 113%, which is high.
But the problem is the directionof travel as well.
So it's high, but it's rising. OK, so it's getting worse to
compare that Germany, who are always the the most fiscally
(31:27):
prudent out of the European countries, their debt to GDP
63%. Oh, and by the way, as an aside,
back in the 90s when these lot were trying to figure out this
new kind of Eurozone thing and let's have a single currency,
they came up with this stabilityand growth pact.
And it was basically to appease Germany, who were the strong
(31:47):
economy at the time and saying Germany basically said, look, if
I'm going to join a club with you lot, then I want assurances
that you're going to be fiscallymore disciplined.
So look, here are a set of rulesand the rules were you're not
allowed. Your debt to GDP ratio cannot
rise above 60%. France is at 113, your deficit,
(32:09):
right? So debt to GDP is just right,
your total debt right now, this moment divided by the size of
your economy, right, gives you that ratio.
So the amount of debt they have is larger in monetary terms than
in an an entire 12 months worth of economic output.
The deficit is then looking on an annual basis, what's the
(32:30):
government's budget spend versusthe revenues they've got coming
in, right, revenues from taxes and whatever and their their
deficit is at -6%. OK, but the Stability and Growth
Pact back in the 90s said you'renot allowed to have a deficit
above -3%. So their deficit is double, give
(32:54):
or take their debt to GDP ratiosdouble.
All right then what it's supposed to be.
However, there isn't 1 country in the entire block pretty much
that stuck to these rules. I mean, all right, we've had
COVID and major crises, so fair enough.
Maybe in the short term, right? But look, France is in a bad
place and it's getting worse. That's the problem.
(33:16):
And they've got the credit rating agencies account.
They're they're on negative watch across all three of the
main ratings agencies. They're currently rated at AA
minus. They're probably going to get
chopped down to single A, right?And so, yeah, I, I guess this
story needs to be monitored. It's not really moving at a
(33:38):
breakneck speed at this point. But if I would say if Macron
has, if he's forced into callinga general election rather than
trying to cobble together a new coalition, then I think markets
will really start to go again. And you'll see the concern
levels start ratcheting and the blast point if the the big worry
(34:00):
is the vicious sort of cycle that if you get into the
negative feedback loop, then you're kind of dead.
That meaning if people are worried that France are going to
default on their debt and their fiscal trajectory is
unsustainable, they're going to start selling that debt, which
means yields rise, which means it's then even more expensive
(34:23):
for France to roll over and re borrow some of this money,
meaning their fiscal situation gets even worse.
And so, right, yields rise and people sell debt and you, you
get into this negative spiral, right?
And we're we're not there, but it's not a million miles away.
But yeah, something it's definitely one of the key risks
in Europe for sure over the second-half of this year that
(34:46):
you've got to be looking out for.
And just for context, looking atthat French yield in comparison
to the German benchmark yield, so the French, German 10 year
yield spread that's coming up toaround those late March, early
April highs, which is around 80 basis points.
(35:06):
We were around 70 before this latest debacle.
But in that previous one you mentioned 8-8 months ago at the
end of last year, it got up to near 90.
So there's a bit of room to run here.
But my question is, isn't, isn'tFrance two things?
Isn't France too big to fail? And isn't secondly famous last
(35:26):
words, But it isn't the second one here that like any political
incumbent, your power and popularity decline over time.
It's backgrounds. Time to go.
He's he's out staying his welcome here.
So he's on. He's on.
He's he's a dead man walking as far as his political situation
(35:49):
is right now. It's how long?
When is it going to happen? So that change is coming.
So it's the trade. The trade is not now shorting
French stocks or going long. You know, the spread or whatever
it is. It's the trade not fading, all
of this. Waiting for the freak out.
Right at the end of any political term, it normally
(36:11):
requires an economic episode to just be the final dagger.
And then then sensibility prevails and France is France.
And then this thing fades like it has done in prior occasion.
Yes, I think you're right. I mean the risk is who wins if
(36:31):
Macron falls on his sword and the big concern from a market's
point of view, not I mean your political persuasions are what
they are, right. But from a market's point of
view, if we suddenly get a more,if we kind of get a knee jerk to
the left, then the left will be more, you know, policies such as
(36:53):
lowering the retirement age or let's increase welfare spending,
you know, And so that just meansthe government spending more
money, which means the debt levels and the deficits are
going to get any better. They're going to get worse,
right? And so then that, that that kind
of default risk rises. But to your, to your point,
(37:14):
France is too big to fail. Let let's not let's not get
confused here 100% too big to fail.
You know Greece and Portugal andIreland, you know, if you're old
enough, you'll remember they gotbailed out back in 2010 and
2011, right? They're tiny minnows compared to
(37:37):
the French economy. And so should the absolute worst
case scenario happens, and I don't think it will.
But if you do get a slide to default, then of course the
eurozone will come in and backstop France and there will
be a bailout. And so you're right, that
Armageddon scenario isn't going to happen.
(37:59):
So you wait till the freak out about it peaks and then you're
kind of fading that move as it kind of reverses off those sort
of exaggerated behavioural extremes.
All right, well, look to wrap upmaybe in the next few minutes,
just a final words on the UK, because I know we've had some
(38:20):
headlines. Certainly if you're based here,
that would have been on your radar.
One being, damn, my, my food shop's gone up against UK food
inflation has gone up to 4.2% inAugust.
That's now the highest since basically the beginning of 2024.
So Feb 24, they were, they were attributing this to poor
(38:43):
harvests, higher labor costs andsupply strains driving that
rise. But what was interesting as I
saw in the news this morning that in addition, gas
electricity prices will rise by 2% for millions of households
under the latest cap announced by the energy regulator off GEM.
(39:03):
Now, I thought this was what we were expecting anyway, which is
we have an uptick in toward yearend, but you've got energy
prices going up as a systematic kind of jump with the cap.
Then you got food prices more aggressively going up, the
fastest rate, in fact, in 18 months.
So what does this mean for the Bank of England because they
(39:25):
just cut interest rates hoping the inflation's under control.
So what would they be thinking in this scenario do you think?
Yeah. Well, look, the Bank of England,
don't forget they've been cutting rates.
That's, that was their fifth rate cut, OK, since the peak.
So they started cutting in August last year and they're
basically cut every quarter, right, which is kind of their
(39:48):
usual playbook. Every other meeting they cut
rates by 25 basis points. So the peak back last year was
up at 5.25%. And as of the meeting back on
7th of August, they cut and it'snow at 4% right now during that
time, yes, food inflation has grabbed the headlines here.
Food inflation is on the up, butactually inflation broadly.
(40:10):
Has been rising in the UK all year.
So really if you think about that post COVID spike in
inflation, where inflation peaked around the start of 2023
or mid 2022, let's call it, thenreally we had a big drop.
But that drop troughed sort of ayear ago, right?
(40:31):
September, October, we kind of troughed and inflation's just
been trending back up, quite a slow, steady rate, but trending
back up anyway. But the Bank of England have cut
rates five times in that period of 12 months where inflation's
been creeping back up. So I guess the timing of this is
(40:55):
good in that they've just cut rates, right?
And on the current schedule, they're going to cut rates
again, but not until November. So we've still got, it's August
still, right? So we've got the whole of
September, the whole of October and a bit of November.
And we're going to get more inflation data and we'll get
more knowledge about how the economy is doing before that
kind of cutting meeting comes round, right.
(41:17):
But but look, mainly the reason for food prices going up is not
something that the central bank can control because it's supply
side, it's, it's the weather, right?
Our harvests have been really bad again.
And so it just means supplies short.
(41:37):
Now the central bank, I mean, you can cut rates or hike rates
all you want, but that's not going to control the weather,
right. So really, if I was thinking
about this, it would be, well, this is going to cause an
economic drag. If food prices particularly are
back on the up, well then surelythis is a negative factor for
economic growth. Therefore we should get a
(41:58):
dampening in demand as a result of that.
We should take care of this bumphigher and inflation on its own.
And really let's look beyond that and think about the
economic trajectory, which, let's be honest, is probably
down. And if I was the Bank of
England, I'd still be thinking, yeah, we're going to cut in
November. That's my.
(42:21):
Yeah. One of the.
One of the stats there, I was just kind of fact checking.
I was watching the news last night and they were talking
because me and my wife were saying, well, you know, it's
been such an amazing summer. Like from a personal point of
view, you're like, oh, sunshine's great.
And you're watching news and you're like, bam, this global
warming. Like you look at what's
happening in Bangladesh. You look at what's happening to
(42:44):
the farmers in the UK and as yousaid, you know, some of these
shortages, butter, eggs, chocolate, that's a tough one, I
know, for you to swallow. But chocolate is going up
because of the, you know, the ingredient shortages.
But the UK is almost certain. We're already obviously coming
to September to have had its hottest summer on record and
(43:04):
looking over the course of like the whole year, mean
temperatures across the country,which includes overnight lows as
well as daytime highs for the UK, stands at 16.13 Celsius, 61
Fahrenheit. That is well above the previous
warmer summer. It's crazy.
It's like that. The previous one was 15.7.
(43:26):
It's gone up to 16.1. Temperatures during the rest of
August would need to be 4° belowN to prevent the record being
broken. So, and what was interesting was
there has been I think previous periods when this has happened,
but what's happening is the datashowing that all of these are
happening. I think it was 202020222025.
(43:48):
It used to be, you know, a decade episode.
More stretched if you like. The frequencies increased.
Right. So temperatures going up,
frequency is going up. But look, I'm not here to
complain about climate change, and I'm sure people will have
their views on that, especially Trump, who I know is listening.
So drop a comment and let us know what you think.
(44:11):
But yeah, just some just some stats on that.
All right. Well, look, we've we've gone on
for 45, so we'll end it there. Good to be back.
Thank you, Piers for joining me.You're very welcome.
That's it. I'm back now.
No. No more missing of any episodes.
Honest. Yeah.
(44:31):
So drop us a comment, let us know.
I've also been recorded some really great guest episodes that
are coming up across everything from banking to a quant trading.
And also I've got a really cool series that I'm doing with the
LSE, the London School of Economics students.
And so keep your eyes and ears peeled and tuned for that
(44:53):
because it's going to be super helpful for application season,
which I know is fully underway at the moment.
So see you next week. Thanks very much everyone.
Cool, see ya.
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