2025-09-12--08-36-02-31loycsc3cj--final-mix

Jeremy and Gareth discuss UK's Private Business Awards and market trends. They cover rising political tensions, economic challenges, and market optimism. The weakening US labor market suggests a possible recession. Tech giants' performance is concentrated but fragile. Oracle's AI announcement boosts stock price. The focus is on AI returns and capital reallocation. Emerging markets, especially China, attract global investors seeking relative value amid dollar weakening. The future hinges on managing capital flows effectively. OK. It is Friday the 12th of September. Welcome back, Jeremy. Good to have you here. Hi, Gareth. Yeah, good to be back. So it's been an interesting week. What's going on? I had the pleasure of visiting the UK's inaugural Private Business Awards last night. OK. So it was run by a bunch of entrepreneurs and successful private business owners and managers. And the main talk of these was the LSE's Pisces market, where all these private companies might be able to sort of semi-list themselves. So it was interesting to hear a bit about that and a bit of positivity. So it's been a good week for me in terms of meeting new companies and learning about new ways of doing things. But what's been going on in the macro space while I was sitting into my – tucking into my nice dinner and learning about the successes of other people's businesses? What's been going on in the markets? There's a bit of a feel like – it's a bit of a back-to-school feel, really, after a long hot summer. So the main issues are rising political division and uncertainty here and probably everywhere else. Yeah. Growing tensions in the main theatres of war in the Middle East with Israel bombing Qatar and in Ukraine with Russia testing Poland and NATO more widely with their drone attacks. Economically growing evidence of weakening labour markets and slowing economic growth generally. But combined with a level of inflation, persistence of inflation that remains a concern. But despite all those things, rising markets and increasing signs of healthier capital market activity in the UK but more broadly, I'd say, worldwide actually. Okay. Yeah, no, it certainly feels that way. There is a bit more positivity. There are, you know, a couple of IPOs beginning to happen. Yeah. And it feels like markets are sort of talking themselves into, I wouldn't say necessarily a recovery or a big rebound, but there is certainly more activity than there has been. And you're right. It's interesting that that contrasts with what feels like a steadily more worrying economic position. Yeah. Whether that's UK-focused or not, I don't know. As bond investors returned to school last week, they had to sort of face the talk of, you know, fiscal cliff edges both for the UK and for France, of course. And, you know, we had what Trump might describe or has described previously as some bond market yippies, which seems to have sort of calmed down a bit now. But, you know, of course, in these moments, there's always more than one thing going on. And this case definitely was the case. And things have calmed down. But, you know, the one sort of thing I would point to if the UK was just about to, you know, have to visit the IMF for a bailout, no one seems to have told the currency market. And usually and typically and in previous times that we've gone through these types of periods of uncertainty and potential for financial crisis, the main measure is what's happening to the pound. And the pound's doing fine, thank you very much. Yeah, no, you're right. The talk of the overt talk of panic does seem to have calmed down. And Sterling's doing pretty well. Thank you. So how do you think they've achieved that? How do you think that's happened over the last sort of week or so? Well, of course, the measure of occurrence is all relative. And I think in that context, Trump's making us all look good. So deliberately or otherwise, and I think it is, they're quite happy with it. The US fiscal and monetary authorities, particularly the fiscal authorities, the Treasury, are quite happy to see the value of the dollar lower. And right, yes, the dollar has continued to weaken. So that makes us – there's two things. It gives the – it's better optics for Sterling and for other currencies because we all measure ourselves in terms of how we are doing relative to the dollar. But it also loosens financial conditions. So it has – part of what is going on here is the US policy of trying to outgrow the debt. And a key plank in that is to take one's foot off the inflation break. So, yes, financial conditions generally have loosened and at the risk of untethering inflation expectations. So while that means that risk assets have started to perform, investors are hedging themselves by – and that's reflected in what I would say – what I would argue is the ultimate measure of value here in terms of the rising gold price and other precious metals. Yeah, now that makes sense because as you say, it is all relative. So all currencies can look nice and strong if the dollar is steadily but slowly weakening. And I guess you could make an argument that that's not a bad medium-term way for things to happen. If that can persist for a number of quarters or years, then the US could help everybody effectively inflate their way out of various debt problems. Is that a realistic part of the global economy? But as you say, in that world, what you want to own is the one thing which isn't relative, which is – depending on your pick of assets – is gold or bitcoin or something like that, I guess. Gold, silver, bitcoin, yeah, maybe platinum, yeah. So yeah, okay. And what about economic data? Have we had much coming through from the big economies? We've got – so yeah, US jobs growth slowed significantly in August and there's been all kinds of politics around the measurement of labor market data. But there does seem to be a decisive trend in the US for a weaker labor market. The – I think the bearish interpretation of this is that it indicates that the recession that markets have been – that some in the markets have been fearing for a while probably started several months ago. The historic revisions to the non-farm payrolls indicate that May and June this year saw – went from positive to negative. Yeah, this is – but of course the flip side of that, the interpretation of that is that obviously the bad news is good news and this just means that the likelihood – we get the likelihood of lower rates quicker and a faster trajectory of lower rates as well. Yeah. It's funny because you're right. It's interesting. The US economy on lots of metrics does seem to be slowing and all. You could say it's slowing quite dramatically. But then you've got the mag seven or the big – a number of the big tech names absolutely still hugely up, you know, across the year in terms of performance and still performing very well as businesses. And I suppose there was always that slight worry that if the performance of the markets is so concentrated in the hand, you know, relatively small number of companies, especially where those companies, you know, their revenue is other people's capex and that's quite a dangerous place to be because that capex can be pulled as we saw, we've seen, you know, over a number of different cycles of different types. That can reverse very, very quickly if people change their views on what return they're expecting on their capital or what they're prepared to invest in. So, that can reverse quite quickly if people change their minds or the capital environment alters. So, yeah. Interesting to see how it's evolved. Yeah. I think that the sentiment around the mag seven or, you know, the ten largest stocks is very uncertain and does seem to be quite fragile. Yeah. And you saw it with the remarkable performance of Oracle that updated the market this week making Larry Ellison now, again, I think now the world's richest person. But I think it's something like a 30% appreciation in the Oracle share price this week on the basis of him saying, hey, I'm involved in the AI arms race as well. But, you know, amidst all that euphoria, you've got a slowly but more audible drumbeat of where's the return? Where's the return? And that's the question that at the moment, from what I can see, can't really be answered. No. But, yeah, the return on investment for the AI proposition. Everyone's doing it. Everyone's saying it's something they must do and it's a good thing. But where's the cash? Well, it's going out the door. It is and it was. It's being spent on Nvidia chips or Oracle licenses by the look of it. At some point, there needs to be a return on that. There needs to be some kind of, you know, customer facing business that generates revenue and profit and cash. Yeah. And there aren't many business models yet that have really shown that value being delivered. But meanwhile, these financial assets that are represented by the Mag 7 are now, you know, it's something like 40% of the S&P 500 is represented in a handful of names. Wow. When that unwinds, the optics will say that the US market is in freefall, is weakening. But actually what it will be is there will be a massive unwinding of these huge, arguably overvalued assets. And that capital needs to go somewhere. Yeah. I mean, and that will be, you know, the whole how the world copes with that reallocation of capital and the timescale in which it happens, I think, is the critical factor for financial markets for the foreseeable future. Yeah. No, I'm sure that's right. These individual companies are bigger than nation states. Yeah. And as that capital flows, it's got to find a home somewhere. So in terms of where it might find that home, where do you think the political or the economic landscape is more attractive or is guiding people to put that capital? Have you got stuff going on in Europe or other geographies that could attract capital? I think one of the things that's going on is that active global investors are looking for relative, continue to look for relative value in emerging markets have been, you know, tend to do well when the dollar weakens. And China's got something like 50% over the last 12 months now. You know, it's gone from being a market that most people regarded as out of, you know, beyond the pale and investable to people now saying, well, in the context of, you know, well, if you haven't been in it, and you're a global investor, you're massively under underperformed. Pockets of value in other in developed markets, I would include things like Japanese smaller companies, and, you know, and also the UK. And I think that is why you see this. And we've talked about it before this sort of divergence between what how economies tend to perceive to be performing and how stock markets perform. So amidst the political turmoil that has been going on recent in recent weeks, in Westminster, and the headlines around what's going on in the UK, are the UK stock market seems to be doing okay. And the indicators are that that's replicating itself across other across other geographies as well. Yeah, just going back to your back to school analogy, it feels like we're coming back to the new school year. But it feels like we've got quite a scary exam towards the end of the first term. Yes, yeah, the budget coming up. So there's a bit to worry about this as we enjoy our Yeah, I think it's quite interesting on that. It's quite interesting on that point is that, you know, I think a lot of my, my, my, my, my reaction to hearing the date of the budget, which I think is sometime towards the end of November, middle of November. So it's a long old haul. It's like Deja vu. Just like last year, we seem to wait interminably for, you know, the, the, the, the tax increases or the whatever, whatever the punishment might be. And of course, we, as investors, we forget to get bad news. Let's get it over with. Let's get it out there. So we can understand it and adapt to it. And, you know, and while that is a natural concern, the bullish interpretation of what is going on is that whatever, whatever you make of the turmoil that our government is going through at the moment, and the loss of our deputy prime minister, which incidentally looks to me like an inside job, is that it now gives them the chance or gives Starmer the chance to regroup and re and reset the economy, reset the government and reset the economy for growth. Now, I'm not sure I believe this narrative, but those who are talking it are saying that this is that there is, they're working on a plan or several plans, or maybe a few cunning plans, but they're going to be better than Boverick's cunning plan. And this is, this is the chance for a reset of the economy, moving it toward onto a growth path. And they've got some, they're going to pull some rabbits out of the hat. Now, the other, the other interpretation is that they're streaming out as long as they can, because they haven't got a clue. And they're hoping something things will get better. And amongst those things, as we've already mentioned, is if the dollar continues to weaken, and that it gives the, as you say, it gives the ability for us and other economies then to, to reflate themselves slightly on the back of that dollar weakness. Yeah. And if we saw, yeah, if we saw long term treasury, gradually declining mortgage rates coming down, you know, you could, you could, you could see a positive outcome to a lot of this. Oh, sure. And the direction of travel for interest rates in that period is going to be lower for sure. In short term rates. And the US, the 10 year treasury is back in sighting shots of 4%. Now, premium investors are demanding the UK 10 year gilts is still pretty wide at 60 basis points or something. So we're okay. But, you know, we're going to get dragged down if that 10 year yield falls materially below 4%. Gilt yields will be dragged down with it. So yeah, the, you know, if they do string it out, the macro backdrop can improve here. But it's going to be it's obviously a frustrating wait for investors, because it's sort of waiting for the inevitable. Yeah. Okay. And while we're waiting for the inevitable, various companies are reporting we've had a slew of news this week. Reports, results, reports and updates. Yeah. And I think broadly, yeah, I mean, my take from reading the RNS is in the last week or so, of the sort of the signifier of what's happening out there, as far as the consumer is concerned, is pretty mixed, but probably better than could have been feared. I mean, we've had notable warnings of, you know, I think probably chief among those was the warning of the war paints profit warning, which was, I think, a bit was very company specific, more broadly for as far as it sort of indicates what's happening in the UK consumer economy was, well, we had a B foods that talking about Primark, we are doing okay in the UK doing okay in the US, but got a few issues in Europe. You know, we've had Jim group saying that they guided their forecast to the upper end upper end of the range of expectations. We had a positive update from Wix in the DIY space. So obviously, there's company specific stuff going on. But I think the UK, it indicates that UK companies have adapted to where the UK consumer is. And the UK consumer is in an okay place, you know, in aggregate, the problems of debt in this country aren't to do with the private sector debt with consumer debt, it's to do with public sector debt. And the UK consumer is still able to spend, you know, when when they see the right opportunities. Yeah. We've talked about a number of times, the resilience and the flexibility of the adaptability that the UK PLC has had to exhibit over the last many, many years for all the various different reasons. But that's right. And if that's, if that's correct, and if the UK consumer is not getting worse in terms of sentiment, then yeah, they could really perform pretty well some of these, you know, consumer facing stocks. So that would be a, that could be a good outcome, especially if we do move into this, you know, reducing interest rate environment. Absolutely. And politics, the politics and economics all lines up nicely, you could see a pretty good outcome for some of these businesses. We also looked at TREIT, you saw the modest premium that was offered to the shareholders of TREIT. Yeah, well, yeah, I think that so TREIT agreed to a cash offer from a PE backed business called Natara. But it treats an intriguing situation, you know, in the last few years, it's gone from being a stock market darling, to being very much a problem child, share price from memory down sort of 90% from the high. Yeah, this is an ingredients provider into the supply chain for the soft drinks industry for the food manufacturing industry where it provides fragrances and flavors. It's typically a high value add area. And it has historically performed that function very well. It's had a number of issues relating to in CapEx plans, had a couple of management changes. But it has continued to retain investor support, and the view that it was a high quality business that had gone through a period of gone through a tough period that would one day be able to reassert the value in the company. And I think it was very disappointing for all involved to see the management of TREIT, the board of TREIT, accepting the first offer that comes along with the share price much closer to the, you know, the lowest point of its ever valuation than the highest point of its ever valuation and accepting a modest premium of just 16% to share price for, you know, seemingly from the first offer that comes along. That either reflects the management not fully telling the world the nature of its structural problems, or it's there's something else going on here. Yeah. Sorry about that. That's all right. No worries. Okay. So, I'll just duck in. Yeah. So, yeah, it is interesting. And you could say it looks like a very opportunistic bid from several people, presumably. But you're right. If management really believed in, presumably, the mantra that they were talking about until quite recently, then they and we should have all hoped for a much better outcome than a 16% premium to the current share price. So, yes, it will be interesting to watch and see whether there's a counter bid or, you know, additional interest on the back of what's happened. So, yeah. Okay. And what about the next week or so? What have we got coming up? Well, it's going to be a big focus on Wednesday for next week. We've got the UK's inflation print for August, which the Bank of England has already warned us could have a full handle on. I think the expectation is that it's going to be 3.8%. Sorry, it's going to be a number that could be higher than the print for July, which was 3.8%. Correct. It could be a bit of a scary moment. But later in the day on Wednesday, we get the big one, which will be the Fed rate decision. I don't think there's much debate now that there will be a cut. I think it's almost certainly going to be 25 basis point cut. I think anything bigger would run the risk of scaring the horses. But as ever, the focus will be – it's going to be on the context of this decision in terms of what is communicated at the press conference after the decision is announced. And clearly, Jay Powell is a man who's been under personal pressure, been under personal attack from Donald. And increasingly, the attack on the Fed is now being taken up by Scott Besant, who is adopting a much more sort of structural ideological approach to the very existence or at least independence of the Fed. And I think, you know, whether it's now or sometime in the future after Jay Powell's term ends in May next year, things are going to look very different. And I think we will be looking back and saying that this is the period where the whole concept of independent central banks is – sort of disappears into the sunset. Yeah, that would be a huge change. But if it can be achieved gracefully and steadily, it could allow that slowly inflating world where all of our current debts gradually inflate away to insignificance. And everything's great. It's sort of the boiling the frog, isn't it? Yeah. You've got to do it by just turning the temperature up. Very carefully, yeah. And I think that's what's going on. Yeah. The amazing flick of managers. We'll see what happens. But, you know, so far so good to give Besant his due. He said that he – you know, the thing that keeps him up at night was the 10-year bond yield. He was the world's biggest bond salesman. Subsequently, he said, you know, sort of changed tack a bit and said that he wanted to outgrow the debt rather than refinance it. But he's got the 10-year bond yield down. It's been more of a struggle than I'm sure he ever imagined. But, you know, he does seem to be keeping it on track. So, you know, as you say – but I think it's a matter of doing things – making these adjustments slowly and imperceptible as possible. Yeah. It's good to see a strategic manager. Yeah. But also coming up next week, we've got an inflation print from Tokyo in Japan on Friday, which is expected to show a small reduction from the July figure of 3.1%. But, again, Japan is in a state – its government is in flux. The Prime Minister of Japan resigned last weekend. It's – you know, given its high level of indebtedness, you know, Japan retains the ability to be the – you know, to light the match for the next financial crisis in my opinion. I've been saying it for a while. We had a trial balloon last year. And some people are saying that's just the precursor to the main event that's yet to come. And so keep an eye on that one. But looking ahead next week, I'm leaving the country, as you know, over the weekend. But we have the arrival of Donald Trump for his unprecedented second state visit to the UK. And it's to go with the prevailing ghost of Jeffrey Epstein hanging in the wind over the sight of Keir Starmer and his colleagues obviously trying to keep Peter Mandelson and presumably Prince Andrew out of the way of the Donald. And he has an avaric tendency to say whatever comes into his head at that moment. So I think that that's going to be the main event in the next – in the week ahead. And the unknown consequences of the mutterings of Donald Trump in an environment where the crown and the UK government are just renowned for their diplomatic certainties and control over what goes on. I think, Donald, that is just asking for trouble for someone like Donald Trump. As Donald Trump himself said, I think what he's talking to his friends is that this is going to make great TV. And I think that's exactly what Keir Starmer will be hoping will not happen next week. So, yes, he'll be practicing his poker face and trying to almost completely ignore whatever Donald says and just bluster their way through it. So, yeah, it'll be an interesting one to back on. So we'll catch up on that once you're back. So, yeah. Okay. Great talking to you. And we'll see you soon. All right. Bye for now. Cheers. Bye.