April 10, 2025 • 20 mins
In this week's roundup, Merryn Somerset Webb, speaks with Money Distilled newsletter author John Stepek about trade wars, the end to American exceptionalism and President Donald Trump might actually be winning.
https://www.bloomberg.com/news/newsletters/2025-04-09/everything-you-need-to-know-about-the-basis-trade-spooking-markets
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Meron
Talks Money Weekly round Up, our debrief on the biggest
stories in markets and economics. I'm Maren Sum's Web editor
(00:24):
at Large for Bloomberg UK Wealth.
Speaker 2 (00:27):
I'm jointed Staffake or my Stolle newsletter On senior reporter
at Bloomberg.
Speaker 1 (00:32):
Right, John, and I would like you to know that
this is not a bonus podcast. It is not an
emergency podcast. It's just our normal Merin Talks Money Weekly Roundup.
Right John, We are not panicked in anyway whatsoever.
Speaker 2 (00:44):
We are entirely calm.
Speaker 1 (00:47):
However, we are also going to keep this short and
snappy because our producer would like to get it out
before Donald Trump wakes up, so it's valid for at
least half an hour.
Speaker 2 (00:57):
Also, Fair's decision. It's not a bonus sort on emergency podcast,
but it is a rapid podcast.
Speaker 1 (01:05):
Not panicked, just rushing a little, right, So we should,
I suppose set the scene because obviously there is only
one big story now that we're panicked. But there is
only one big story, which is the coming and going
and coming and going of the tariff. So we're eight
days on now from Liberation Day. How many trading days since? Then? Seven?
(01:27):
We hang on, We're on the eighth trading day, up down, up, down,
up down, odd things happening all over the plaze markets
going down, down, down, down down. Then suddenly, yesterday six
eighteen pm UK time, we find out that there is
going to be a ninety day pause for most people,
not for everybody. Obviously the ten percent stays and China
(01:51):
gets one hundred and twenty five percent of tariffs. Now,
this was amazing. Everything changed instantly. When the US market
closed last night, the now's up but twelve percent. The
SMP five hundred was up nine and a half percent.
So that means that while they're both still down year
to date, to look at them over a year and
you wouldn't know that anything has happened. The NASDAK is
(02:12):
now Bysibor closed last night up over six percent over
twelve months, and the SMP was also up over twelve months.
So if you were the kind of person who only
looked at your portfolio once a year, and you chose
last night to look at it, you would think that
absolutely nothing had happened at all. Event you've probably be
pretty pleased that you've got six percent over a year,
(02:33):
given how expensive the US market was, right.
Speaker 2 (02:37):
It really is a good lesson in if you are
on a long term investor and you are comfortable with
your investment plan and you've thought it through, then looking
at your portfolio relatively really is a sensible decision in
terms of being able to sleep well at night in
order the rest to I appreciate that would have been
difficult if you pay any attention to the news at all.
(02:58):
A lot of the time, it really is was just
parking everything and staying calm. And that's the reason to
make sure you've got your financial affairs and financial goals
and or the whale markets are not doing things like this.
Speaker 1 (03:11):
God is so sensible. If I didn't have this job,
I would have been trading manically for the last five
days anyway. By mid morning today, and I'm sticking with
mid morning because who knows what's going to happen. This afternoon,
the footsoo was back up as well, five percent up,
so back to the kind of evens on the year
out of about two percent over twelve months. But also,
and here's John, why you know, maybe you should trade
(03:32):
this stuff. By mid morning this morning, sixteen forty one
hundred stocks were up over ten percent. So if you
spent yesterday afternoon making a night's list of cheap UK
high yielding shares, you'd be really really happy today.
Speaker 2 (03:46):
Oh yeah, I mean this is the other thing I'll
tell If you're buying individual stocks, then you should already
have a watch list and an idea of what place
would tempt you to buy these stocks. There's largest opportunities
for people who did mice to stay calm and who
had the kind of optionality of winning cash. And also
anyone who's held a better the portfolio in gold would
(04:07):
at least if it's something that'll look at on the
downdees that wasn't collapsing.
Speaker 1 (04:11):
Actually, and that's lots very neatly into the we told
you so section of this podcast. We told you so,
We did tell you to always hold gold because it'll
help you out the tough times. Anyway, So onner, what's
going to happen next or what was kind of maybe
going to happen next? You can have the fainted idea,
But let's start with this question, John, is Trump winning?
Did he blink? Did he fold? Or is this what
(04:31):
he planned to do all along? I mean, you can
tell a lot about the biases of every financial and
political commentator out there by the way they've started their
columns and their articles on this today. But when I
look at it, I'm not sure I see anything particularly straightforward.
I mean, the plan was always as I understood it,
(04:52):
the idea was or worth to take action, mainly against China.
And here we are. There are still massive teriffs ainst China,
and everyone else still has a ten percent tariff. So
the problem remains, this is still a huge global upheaval.
It isn't over. It's not solved. These tariffs have to
(05:12):
be paid. The supply chains that everyone has had on
the go for the last couple of decades, and the
shift doors of free trading environment that we've had on
the go for the last eighty years, this is over.
So whether Trump is called a pause and why he
called that pause, the basic situation remains the same. We
(05:33):
are at a massive turning point in global economic and
political history, and those dislocations are going to change everything
around us, and we can't tell quite how. Am I
the mad one or is it the market.
Speaker 2 (05:49):
Nor You're right, certainly I agree both you.
Speaker 1 (05:52):
That means I'm right if we agree almost always together,
we're right.
Speaker 2 (05:56):
Yeah, so yes, awfully yeah, because look, in terms of
the tariff's on China, but at the point where the
number actually doesn't matter, you've effectively declared a trade embargo.
And that's a really big deal. I mean, obviously, nel
Fi Ferguson came up with this term ki America for
what had been going on in the last ten twenty
(06:17):
years since the World Trade Organization that China was allowed
into it, which is the idea that Americans bought cheap
consumer goods from China and China invested in US treasuries.
And clearly that that's gone. That's definitely gone unless there's
some really an actual U turn. And as far as
all the capitulation stuff goes, it's kind of down to
(06:37):
your own bias. I can't see any Trump's mind, but
what you can see is that he started ten days
ago from what looked like an absolutely to most people,
crazily thought through a way of putting on tariffs and
then in a very aggressive position, and now he's retreated
to where people thought he was going to be, except
(06:59):
that actually I don't think anyone thought that. Behondred and
twenty five percent tariffs or in China, and so actually
he's further forward and his agenda then he would have
been if he'd just gone straight for this ten days ago.
Speaker 1 (07:13):
Also, I mean, he did say that he wanted everyone
to negotiate, and you look at it now and it
does look like this big pile of chok and all
has actually done that. Everyone's got their flat ten percent
except famine Canada and Mexico and China, and pretty much
everyone is coming to the table to negotiate him. When
we're told that the fifty out of sixty odd countries
are having a go, there was an EU tweaked yesterday
(07:36):
saying how much they look forward to finding a way
to get to zero tariffs with the US. Everyone's coming
to the table. So maybe maybe we have the headline
say maybe he's kind of winning.
Speaker 2 (07:46):
I wouldn't go so far as to say that yet,
just because I don't know who this is going to unfold,
and I don't nine to fall into the trap can
of beas and things and where my own sympathies lie
one way or the other part from anything else is
American politics. I don't really have sympathies one direction or
the other. But I do think this idea that Trump's
(08:06):
an idiot, that's a waste of your time. If that's
what your mentality is, then don't spend any more time
thinking about this because you're not going to learn anything.
The fact is the world has changed. China and America's
kind of trade relationship has been severed, and America is
now mix to impose a ten percent tax when every
import that comes into the country, which is another thing
(08:28):
that will be interesting to see how that unfolds. Now,
there is one argument that this is effectively back door
way of introducing that consumption tax in America. You can't
do a VAT because obviously, you know Americans don't like
taxes and fair play to them, So this is a
way to impose a ten percent vaight. The looks as
I was being paid for by exporters, and to whatever
(08:52):
extent it is paid for by the exporters, that's a
win for you as a country. But it is also
a summer at least is going to be passed on
to consumers. And I think that's it's really interesting we
look at it because it also shows that the administration
is aware that America has got a debt problem and
they are going to try to address it in some way.
(09:14):
Whether that walks or not is another matter. But the
point is all of these imbalances have been lead knocked
to in a moment like this.
Speaker 1 (09:20):
That's the absolutely key point. We've been talking about this,
and I wrote about it a few weeks ago, effectively
saying he's a catalyst, not a course. Of course, everything
Trump does escalates, changes, shifts a direction to degree of
where we're going here. But the fact remains that we've
been gearing up for some kind of trade wall between
the US and China for a long time now, and
(09:42):
there's anger towards globalization, anger towards the inequalities or perceived
inequalities driven by globalization has been underway for some time,
and actually electorate after electorate after electorate has asked their
leaders to do something about this, and of course have
been roundly ignored. And I did right the other day
that the tariffs are Americas brexiting. And I suppose you
(10:03):
could say that we voted for Brexit, but our leaders
are too to know what we wanted, what the UK wanted.
With Donald Trump, they're kind of getting what they're asked for.
Speaker 2 (10:11):
Up until two thousand and eight, they kind of anger
was papered over by rising house prices and kind of
abundant credit, et cetera. And then whenever the financial crisis
came along and everything blew up so sufficient people felt
they were losing out from the system as it was
to start getting angry about it. And it wasn't until
twenty sixteen that people basically get fed up of business
(10:34):
as usual, politicians promisingly changed things and not changing things.
And that's whenever we got boats Brexit and Trump elected
for the first time. Even there with voters taking quite
radical action, nothing has been done fast enough for their liking.
So this is a point where that's it. It's coming
(10:55):
apoy so that Trump's actually just standing up and seeing
the quiet part out loud as they see. And people
don't like it because it upset it's the kind of
establishment view and they're not used to someone speaking so
undiplomatically putting said any personal qualities that Trump has or
not hasn't. But the fact is some kind of big
(11:16):
change is what people have been asking for and know
they're going to get it, whether they'll EKO not like.
Speaker 1 (11:22):
It or not. I suppose we're supposed to talk about markets.
So the key thing to talk about here is what
on earth is going on in markets. We've talked before
about the fall in US markets so far this year,
sure related to things that Donald Trump's administration have said
and done, but coming anyway, because if there's massive divergence
(11:45):
in valuations between US markets and other markets, which we
were told until readily recently was down to US exceptionalism,
US perfection, everything always going right, AI, etc. And whether
Trump or no, all those things would have begun to
crumble over this year. So this is as much about
(12:06):
that valuation problem than about anything else, and that valuation
differential remains, so regardless of what happens next, it still
makes sense to expect the US market to come off
over the next year, two years, five years, whatever it is,
until valuations return to some kind of norm because now
we know that the US is not perfect. Well I
(12:28):
think we knew it before, but apparently not everybody did.
We know that exceptionalism never lasts that long, and we
know that every time you hear anything like the word exceptionalism,
you should immediately get out of whatever market it is.
I mean, we were old enough to know that, right,
So the simplest thing to say about this is that
regardless of everything happening around US, US stock markets are
(12:48):
still expensive. Other stock market's still off of value. And
if you're moving into a difficult environment, why would you
not want to hold the markets that start at the
right price rather than the markets that started the wrong place.
Speaker 2 (13:00):
Yeah, definitely, and I think that's going to be whatever
else happens. It's very obvious to the people who believed
in US exceptionalism that use exceptionalism is now over. So yeah,
I think it's you can expect capital to move out
of the US, or rather, in relative terms, you can
expect the rest of the world to catch up to
the US. There's another interesting question over whether this is
(13:25):
a time for having an element to home bias. We
haven't seen it overtly yet, but this is the sort
of environment in which capital controls are something that people
will be looking at, and that's just worth considering. I
don't know how extreme those controls might get, but well,
now in a world where if globalization is rolling back
(13:48):
or stalling or whatever, and more borders are going up
in more friction is going up, then you want stuff
to be nearer to you, and that includes your money.
To an extent. I mean, I'm not saying you don't
have a two percent money in the UK. But the
point is, whatever you live, if you may want, you
think about, actually, what are the implications of other countries
(14:08):
to say that, actually we're going to put a tax
or in their sort of tax on that, or your
own country says if you don't keep money in the UK,
for example, then it's going to be treated less favorably
than if it does well.
Speaker 1 (14:21):
I mean, we know that we've talked about national capitalism
on this podcast a lot with Russell Nathan You've been
on several times, and this is a new era of
exactly that where and the tariff is just one symptom
of people wanting to retreat and protect their owner above
above others. And of course we've heard in the UK
endlessly about how our punchinesses are isorets, etcetera. Should be
(14:43):
brought back to the UK and used to help build
the rebuild the UK's infrastructure, and we're hearing that in
other countries around the world. So this is a shift
that combines nicely with the idea of some possibility of
capital control. There's just a very different environment, very unfamiliar
to everybody eighty years as man a trade war that
there hasn't been this kind of sense of national capitalism
for many decades either, So very very very hard to
(15:06):
see how things can unfold from here, because of course,
this kind of thing has never happened inside a global
economy that is not just so globalized but also so financialized.
Financialized is that a word? Yeah?
Speaker 2 (15:18):
Yeahs long enough.
Speaker 1 (15:24):
And that brings us back, of course to the bond market,
which is the thing that apparently made Trump blink or
not blink.
Speaker 2 (15:29):
Who knows boind market moves where interest? But beyond that,
I meanly Norman seems to the way exactly what was
driving it all as a thing called the basis trade
in the US, which I'm not going to even try
to explain because I basically don't know what it is.
I will buy well, I.
Speaker 1 (15:49):
Will tell you what are Our colleagues and competitors over
odd lots have explained this very well. So we will
put in our show notes a link to what they
have done, and you can go and see what the
basis trade is there, rather than John and I are
suffering through trying to explain it.
Speaker 2 (16:03):
Yes, I mean, but you can startly see as America's
aldi basic leverage positions that blow up and then force
things to get sold when you don't want to sell them.
It's fair. I mean the puttly your boind yield went
back to where it started to day by the end
of the session. Yes, that they have once they're tile
of stuff could changed. Boind markets had a problem, but
(16:24):
I'm not sure of their actual disciplinary powers, especially all
over some somewhere the US will be interesting to see.
Speaker 1 (16:36):
Yeah, I mean, it seems to me that the bond
market business is simply a reminder to us of something
that again we've talked about on this pod quite a lot.
I don't need to remember. When we had Edward Chancellor
on the main part as an interviewee. One of the
things he said was that you should always worry about
interest rates having been low for so long, and it
would take ages to see where the problems are and
(16:58):
the full consequences of the GFC and COVID, etc. Because
these very low interest rates get into all the cracks
and you never know where it's going to blow. And
the fragilities in the system from our very very long
low interest period remain remain, and there will be places
where it will blow and we won't know where and how.
(17:21):
And I think what's happened in the bondmarket over the
last few days is a reminder that there are these
fragilities built into the system that we can't identify until
they go horribly wrong. Yeah.
Speaker 2 (17:31):
I think that's a really good way of putting that.
People that always told me they can reduce liquidity and
increased dependence on central banks generally, which has been a
big problem. We spent a long time suppressing a lot
of stuff, and that kind of needs to come somewhere eventually.
(17:52):
And it looks like that's the point of what I.
Speaker 1 (17:56):
Know deep sigh or.
Speaker 2 (18:00):
Well, I mean, on the opposite markets wise, it's basically
playing out as we'd expected it is. The rest of
the world catches up with the US after using which
the S and P. Five hundred is the only game
in town. You own about of gold, you're own some
catch to take advantage of the opportunities when they come about.
You can look at the point side of your portfolio.
(18:22):
You can look at that it's been basically what you
need in terms of income, just kind of tax tree,
how close to retirement you are et cetera, et cetera.
You should be basically comfortable as long as you've thought
things through and you're investing regularly.
Speaker 1 (18:40):
And as long as you understand I think at this
point that you mustn't listen to markets. Yes, you never
always been told markets contain all the information. Markets are
very clever, markets are sending you messages. I'm not sure
that markets have been sending us very accurate messages over
the last week. So don't listen to market. Don't really
know any more than you do. And also, I suppose
(19:00):
we've talked again on this podcast. We've talked previously about
how terrible forecasts are and how almost everybody's forecasts are
almost always wrong. Forecasts are always wrong. They will be
even more wrong, even more wrong than usual, for the
next little while, because no one can begin to understand
what would happen. Even if things stopped right now and
stayed as they are, and we knew these were the
(19:22):
teriff rates and that was that and there was no
further change, it would be impossible to forecast what would
happen with all the moving parts. But given that we
know that everything is subject to more and more and
more change and constant uncertainty, which, of course the Trump's
usp this uncertainty that he creates around him. It's impossible
to forecast everything, so that's important. And the final thing
(19:44):
I want to say on this, the final thing is
that you are so close, John, so close to your headline,
the one that I know you're going to use at
some point say thank you to Trump for your low
mortgage rate name. Thank you to Trump.
Speaker 2 (19:59):
You're so close, so close it.
Speaker 1 (20:04):
As soon as UK rates come down, for whatever reason
they come down, I guarantee John's going to use their
headline definitely. Thanks for listening to this week's Merrin Talgs
Money Debrief. Not a bonus, not an emergency, just a
normal debrief. If you like our show, rate review, and
subscribe wherever you listen to podcasts. Also be sure to
(20:26):
follow me and John on ex or Twitter at marins
w and John Underscore Stepic. This episode was produced by
Moses and Questions and comments on this show and all
our shows are always welcome. Forecasts not so much. Our
show email is Merror Money at Bloomberg dot net
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Meron
Talks Money Weekly round Up, our debrief on the biggest
stories in markets and economics. I'm Maren Sum's Web editor
(00:24):
at Large for Bloomberg UK Wealth.
Speaker 2 (00:27):
I'm jointed Staffake or my Stolle newsletter On senior reporter
at Bloomberg.
Speaker 1 (00:32):
Right, John, and I would like you to know that
this is not a bonus podcast. It is not an
emergency podcast. It's just our normal Merin Talks Money Weekly Roundup.
Right John, We are not panicked in anyway whatsoever.
Speaker 2 (00:44):
We are entirely calm.
Speaker 1 (00:47):
However, we are also going to keep this short and
snappy because our producer would like to get it out
before Donald Trump wakes up, so it's valid for at
least half an hour.
Speaker 2 (00:57):
Also, Fair's decision. It's not a bonus sort on emergency podcast,
but it is a rapid podcast.
Speaker 1 (01:05):
Not panicked, just rushing a little, right, So we should,
I suppose set the scene because obviously there is only
one big story now that we're panicked. But there is
only one big story, which is the coming and going
and coming and going of the tariff. So we're eight
days on now from Liberation Day. How many trading days since? Then? Seven?
(01:27):
We hang on, We're on the eighth trading day, up down, up, down,
up down, odd things happening all over the plaze markets
going down, down, down, down down. Then suddenly, yesterday six
eighteen pm UK time, we find out that there is
going to be a ninety day pause for most people,
not for everybody. Obviously the ten percent stays and China
(01:51):
gets one hundred and twenty five percent of tariffs. Now,
this was amazing. Everything changed instantly. When the US market
closed last night, the now's up but twelve percent. The
SMP five hundred was up nine and a half percent.
So that means that while they're both still down year
to date, to look at them over a year and
you wouldn't know that anything has happened. The NASDAK is
(02:12):
now Bysibor closed last night up over six percent over
twelve months, and the SMP was also up over twelve months.
So if you were the kind of person who only
looked at your portfolio once a year, and you chose
last night to look at it, you would think that
absolutely nothing had happened at all. Event you've probably be
pretty pleased that you've got six percent over a year,
(02:33):
given how expensive the US market was, right.
Speaker 2 (02:37):
It really is a good lesson in if you are
on a long term investor and you are comfortable with
your investment plan and you've thought it through, then looking
at your portfolio relatively really is a sensible decision in
terms of being able to sleep well at night in
order the rest to I appreciate that would have been
difficult if you pay any attention to the news at all.
(02:58):
A lot of the time, it really is was just
parking everything and staying calm. And that's the reason to
make sure you've got your financial affairs and financial goals
and or the whale markets are not doing things like this.
Speaker 1 (03:11):
God is so sensible. If I didn't have this job,
I would have been trading manically for the last five
days anyway. By mid morning today, and I'm sticking with
mid morning because who knows what's going to happen. This afternoon,
the footsoo was back up as well, five percent up,
so back to the kind of evens on the year
out of about two percent over twelve months. But also,
and here's John, why you know, maybe you should trade
(03:32):
this stuff. By mid morning this morning, sixteen forty one
hundred stocks were up over ten percent. So if you
spent yesterday afternoon making a night's list of cheap UK
high yielding shares, you'd be really really happy today.
Speaker 2 (03:46):
Oh yeah, I mean this is the other thing I'll
tell If you're buying individual stocks, then you should already
have a watch list and an idea of what place
would tempt you to buy these stocks. There's largest opportunities
for people who did mice to stay calm and who
had the kind of optionality of winning cash. And also
anyone who's held a better the portfolio in gold would
(04:07):
at least if it's something that'll look at on the
downdees that wasn't collapsing.
Speaker 1 (04:11):
Actually, and that's lots very neatly into the we told
you so section of this podcast. We told you so,
We did tell you to always hold gold because it'll
help you out the tough times. Anyway, So onner, what's
going to happen next or what was kind of maybe
going to happen next? You can have the fainted idea,
But let's start with this question, John, is Trump winning?
Did he blink? Did he fold? Or is this what
(04:31):
he planned to do all along? I mean, you can
tell a lot about the biases of every financial and
political commentator out there by the way they've started their
columns and their articles on this today. But when I
look at it, I'm not sure I see anything particularly straightforward.
I mean, the plan was always as I understood it,
(04:52):
the idea was or worth to take action, mainly against China.
And here we are. There are still massive teriffs ainst China,
and everyone else still has a ten percent tariff. So
the problem remains, this is still a huge global upheaval.
It isn't over. It's not solved. These tariffs have to
(05:12):
be paid. The supply chains that everyone has had on
the go for the last couple of decades, and the
shift doors of free trading environment that we've had on
the go for the last eighty years, this is over.
So whether Trump is called a pause and why he
called that pause, the basic situation remains the same. We
(05:33):
are at a massive turning point in global economic and
political history, and those dislocations are going to change everything
around us, and we can't tell quite how. Am I
the mad one or is it the market.
Speaker 2 (05:49):
Nor You're right, certainly I agree both you.
Speaker 1 (05:52):
That means I'm right if we agree almost always together,
we're right.
Speaker 2 (05:56):
Yeah, so yes, awfully yeah, because look, in terms of
the tariff's on China, but at the point where the
number actually doesn't matter, you've effectively declared a trade embargo.
And that's a really big deal. I mean, obviously, nel
Fi Ferguson came up with this term ki America for
what had been going on in the last ten twenty
(06:17):
years since the World Trade Organization that China was allowed
into it, which is the idea that Americans bought cheap
consumer goods from China and China invested in US treasuries.
And clearly that that's gone. That's definitely gone unless there's
some really an actual U turn. And as far as
all the capitulation stuff goes, it's kind of down to
(06:37):
your own bias. I can't see any Trump's mind, but
what you can see is that he started ten days
ago from what looked like an absolutely to most people,
crazily thought through a way of putting on tariffs and
then in a very aggressive position, and now he's retreated
to where people thought he was going to be, except
(06:59):
that actually I don't think anyone thought that. Behondred and
twenty five percent tariffs or in China, and so actually
he's further forward and his agenda then he would have
been if he'd just gone straight for this ten days ago.
Speaker 1 (07:13):
Also, I mean, he did say that he wanted everyone
to negotiate, and you look at it now and it
does look like this big pile of chok and all
has actually done that. Everyone's got their flat ten percent
except famine Canada and Mexico and China, and pretty much
everyone is coming to the table to negotiate him. When
we're told that the fifty out of sixty odd countries
are having a go, there was an EU tweaked yesterday
(07:36):
saying how much they look forward to finding a way
to get to zero tariffs with the US. Everyone's coming
to the table. So maybe maybe we have the headline
say maybe he's kind of winning.
Speaker 2 (07:46):
I wouldn't go so far as to say that yet,
just because I don't know who this is going to unfold,
and I don't nine to fall into the trap can
of beas and things and where my own sympathies lie
one way or the other part from anything else is
American politics. I don't really have sympathies one direction or
the other. But I do think this idea that Trump's
(08:06):
an idiot, that's a waste of your time. If that's
what your mentality is, then don't spend any more time
thinking about this because you're not going to learn anything.
The fact is the world has changed. China and America's
kind of trade relationship has been severed, and America is
now mix to impose a ten percent tax when every
import that comes into the country, which is another thing
(08:28):
that will be interesting to see how that unfolds. Now,
there is one argument that this is effectively back door
way of introducing that consumption tax in America. You can't
do a VAT because obviously, you know Americans don't like
taxes and fair play to them, So this is a
way to impose a ten percent vaight. The looks as
I was being paid for by exporters, and to whatever
(08:52):
extent it is paid for by the exporters, that's a
win for you as a country. But it is also
a summer at least is going to be passed on
to consumers. And I think that's it's really interesting we
look at it because it also shows that the administration
is aware that America has got a debt problem and
they are going to try to address it in some way.
(09:14):
Whether that walks or not is another matter. But the
point is all of these imbalances have been lead knocked
to in a moment like this.
Speaker 1 (09:20):
That's the absolutely key point. We've been talking about this,
and I wrote about it a few weeks ago, effectively
saying he's a catalyst, not a course. Of course, everything
Trump does escalates, changes, shifts a direction to degree of
where we're going here. But the fact remains that we've
been gearing up for some kind of trade wall between
the US and China for a long time now, and
(09:42):
there's anger towards globalization, anger towards the inequalities or perceived
inequalities driven by globalization has been underway for some time,
and actually electorate after electorate after electorate has asked their
leaders to do something about this, and of course have
been roundly ignored. And I did right the other day
that the tariffs are Americas brexiting. And I suppose you
(10:03):
could say that we voted for Brexit, but our leaders
are too to know what we wanted, what the UK wanted.
With Donald Trump, they're kind of getting what they're asked for.
Speaker 2 (10:11):
Up until two thousand and eight, they kind of anger
was papered over by rising house prices and kind of
abundant credit, et cetera. And then whenever the financial crisis
came along and everything blew up so sufficient people felt
they were losing out from the system as it was
to start getting angry about it. And it wasn't until
twenty sixteen that people basically get fed up of business
(10:34):
as usual, politicians promisingly changed things and not changing things.
And that's whenever we got boats Brexit and Trump elected
for the first time. Even there with voters taking quite
radical action, nothing has been done fast enough for their liking.
So this is a point where that's it. It's coming
(10:55):
apoy so that Trump's actually just standing up and seeing
the quiet part out loud as they see. And people
don't like it because it upset it's the kind of
establishment view and they're not used to someone speaking so
undiplomatically putting said any personal qualities that Trump has or
not hasn't. But the fact is some kind of big
(11:16):
change is what people have been asking for and know
they're going to get it, whether they'll EKO not like.
Speaker 1 (11:22):
It or not. I suppose we're supposed to talk about markets.
So the key thing to talk about here is what
on earth is going on in markets. We've talked before
about the fall in US markets so far this year,
sure related to things that Donald Trump's administration have said
and done, but coming anyway, because if there's massive divergence
(11:45):
in valuations between US markets and other markets, which we
were told until readily recently was down to US exceptionalism,
US perfection, everything always going right, AI, etc. And whether
Trump or no, all those things would have begun to
crumble over this year. So this is as much about
(12:06):
that valuation problem than about anything else, and that valuation
differential remains, so regardless of what happens next, it still
makes sense to expect the US market to come off
over the next year, two years, five years, whatever it is,
until valuations return to some kind of norm because now
we know that the US is not perfect. Well I
(12:28):
think we knew it before, but apparently not everybody did.
We know that exceptionalism never lasts that long, and we
know that every time you hear anything like the word exceptionalism,
you should immediately get out of whatever market it is.
I mean, we were old enough to know that, right,
So the simplest thing to say about this is that
regardless of everything happening around US, US stock markets are
(12:48):
still expensive. Other stock market's still off of value. And
if you're moving into a difficult environment, why would you
not want to hold the markets that start at the
right price rather than the markets that started the wrong place.
Speaker 2 (13:00):
Yeah, definitely, and I think that's going to be whatever
else happens. It's very obvious to the people who believed
in US exceptionalism that use exceptionalism is now over. So yeah,
I think it's you can expect capital to move out
of the US, or rather, in relative terms, you can
expect the rest of the world to catch up to
the US. There's another interesting question over whether this is
(13:25):
a time for having an element to home bias. We
haven't seen it overtly yet, but this is the sort
of environment in which capital controls are something that people
will be looking at, and that's just worth considering. I
don't know how extreme those controls might get, but well,
now in a world where if globalization is rolling back
(13:48):
or stalling or whatever, and more borders are going up
in more friction is going up, then you want stuff
to be nearer to you, and that includes your money.
To an extent. I mean, I'm not saying you don't
have a two percent money in the UK. But the
point is, whatever you live, if you may want, you
think about, actually, what are the implications of other countries
(14:08):
to say that, actually we're going to put a tax
or in their sort of tax on that, or your
own country says if you don't keep money in the UK,
for example, then it's going to be treated less favorably
than if it does well.
Speaker 1 (14:21):
I mean, we know that we've talked about national capitalism
on this podcast a lot with Russell Nathan You've been
on several times, and this is a new era of
exactly that where and the tariff is just one symptom
of people wanting to retreat and protect their owner above
above others. And of course we've heard in the UK
endlessly about how our punchinesses are isorets, etcetera. Should be
(14:43):
brought back to the UK and used to help build
the rebuild the UK's infrastructure, and we're hearing that in
other countries around the world. So this is a shift
that combines nicely with the idea of some possibility of
capital control. There's just a very different environment, very unfamiliar
to everybody eighty years as man a trade war that
there hasn't been this kind of sense of national capitalism
for many decades either, So very very very hard to
(15:06):
see how things can unfold from here, because of course,
this kind of thing has never happened inside a global
economy that is not just so globalized but also so financialized.
Financialized is that a word? Yeah?
Speaker 2 (15:18):
Yeahs long enough.
Speaker 1 (15:24):
And that brings us back, of course to the bond market,
which is the thing that apparently made Trump blink or
not blink.
Speaker 2 (15:29):
Who knows boind market moves where interest? But beyond that,
I meanly Norman seems to the way exactly what was
driving it all as a thing called the basis trade
in the US, which I'm not going to even try
to explain because I basically don't know what it is.
I will buy well, I.
Speaker 1 (15:49):
Will tell you what are Our colleagues and competitors over
odd lots have explained this very well. So we will
put in our show notes a link to what they
have done, and you can go and see what the
basis trade is there, rather than John and I are
suffering through trying to explain it.
Speaker 2 (16:03):
Yes, I mean, but you can startly see as America's
aldi basic leverage positions that blow up and then force
things to get sold when you don't want to sell them.
It's fair. I mean the puttly your boind yield went
back to where it started to day by the end
of the session. Yes, that they have once they're tile
of stuff could changed. Boind markets had a problem, but
(16:24):
I'm not sure of their actual disciplinary powers, especially all
over some somewhere the US will be interesting to see.
Speaker 1 (16:36):
Yeah, I mean, it seems to me that the bond
market business is simply a reminder to us of something
that again we've talked about on this pod quite a lot.
I don't need to remember. When we had Edward Chancellor
on the main part as an interviewee. One of the
things he said was that you should always worry about
interest rates having been low for so long, and it
would take ages to see where the problems are and
(16:58):
the full consequences of the GFC and COVID, etc. Because
these very low interest rates get into all the cracks
and you never know where it's going to blow. And
the fragilities in the system from our very very long
low interest period remain remain, and there will be places
where it will blow and we won't know where and how.
(17:21):
And I think what's happened in the bondmarket over the
last few days is a reminder that there are these
fragilities built into the system that we can't identify until
they go horribly wrong. Yeah.
Speaker 2 (17:31):
I think that's a really good way of putting that.
People that always told me they can reduce liquidity and
increased dependence on central banks generally, which has been a
big problem. We spent a long time suppressing a lot
of stuff, and that kind of needs to come somewhere eventually.
(17:52):
And it looks like that's the point of what I.
Speaker 1 (17:56):
Know deep sigh or.
Speaker 2 (18:00):
Well, I mean, on the opposite markets wise, it's basically
playing out as we'd expected it is. The rest of
the world catches up with the US after using which
the S and P. Five hundred is the only game
in town. You own about of gold, you're own some
catch to take advantage of the opportunities when they come about.
You can look at the point side of your portfolio.
(18:22):
You can look at that it's been basically what you
need in terms of income, just kind of tax tree,
how close to retirement you are et cetera, et cetera.
You should be basically comfortable as long as you've thought
things through and you're investing regularly.
Speaker 1 (18:40):
And as long as you understand I think at this
point that you mustn't listen to markets. Yes, you never
always been told markets contain all the information. Markets are
very clever, markets are sending you messages. I'm not sure
that markets have been sending us very accurate messages over
the last week. So don't listen to market. Don't really
know any more than you do. And also, I suppose
(19:00):
we've talked again on this podcast. We've talked previously about
how terrible forecasts are and how almost everybody's forecasts are
almost always wrong. Forecasts are always wrong. They will be
even more wrong, even more wrong than usual, for the
next little while, because no one can begin to understand
what would happen. Even if things stopped right now and
stayed as they are, and we knew these were the
(19:22):
teriff rates and that was that and there was no
further change, it would be impossible to forecast what would
happen with all the moving parts. But given that we
know that everything is subject to more and more and
more change and constant uncertainty, which, of course the Trump's
usp this uncertainty that he creates around him. It's impossible
to forecast everything, so that's important. And the final thing
(19:44):
I want to say on this, the final thing is
that you are so close, John, so close to your headline,
the one that I know you're going to use at
some point say thank you to Trump for your low
mortgage rate name. Thank you to Trump.
Speaker 2 (19:59):
You're so close, so close it.
Speaker 1 (20:04):
As soon as UK rates come down, for whatever reason
they come down, I guarantee John's going to use their
headline definitely. Thanks for listening to this week's Merrin Talgs
Money Debrief. Not a bonus, not an emergency, just a
normal debrief. If you like our show, rate review, and
subscribe wherever you listen to podcasts. Also be sure to
(20:26):
follow me and John on ex or Twitter at marins
w and John Underscore Stepic. This episode was produced by
Moses and Questions and comments on this show and all
our shows are always welcome. Forecasts not so much. Our
show email is Merror Money at Bloomberg dot net
Host
Merryn Somerset Webb
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