Hello and welcome back to the show.
And I must say, Piers, I've had to field a number of complaints
about missing an episode with Piers Curran over the last week.
Ah So what all those complaints? What the added up to of like 1
maybe? It was 2, but you know, there's
still complaints. No.
It was more, it was I'll take two.
But no, no, in this episode I wanted to, I kind of provide a
bit of, I guess, feedback to, to you on what we could talk about,
which was a lot of students were saying, you know, things are
coming up, things are livening back up in terms of, you know,
not just markets, but the application season.
I don't know, a lot of banks go a little bit different in terms
of when they do their assessment centres and interviews.
But I know one big U.S. bank actually has an assessment
centre tomorrow. So we've got to get this episode
out ASAP, but there's some other things rolling over as well
coming up in the coming weeks. So what I thought we could do is
just talk about some of the big topics, the what would you need
to know to survive? A kind of technical interview,
talking about global macro markets.
So the big things, the growth, the inflation, the interest
rates, what's happening? Because I had a chat with some
students yesterday, and they were, I think, pretty convincing
in terms of knowing what the news was, perhaps not so good at
articulating how the market was really reacting through the
journey of the first six months of this year.
And they certainly weren't very good at connecting the dots
about actual specific price movement when it came to
different asset classes. Yeah, which I know that you're
the main man for. So yeah, over to you.
Yeah. Well, no, I mean, it's always
tricky with, well, any, any kind of obviously any interview,
right, Any assessment process. Obviously it's always difficult
and people are very nervous and it's always that fear of the
unknown. What am I going to get asked?
What do I need to know? And I'd already like, the first
thing I would always say is that, you know, always remember,
try and go with, with the mindset that, you know, you're
not, they're not looking to trip you up here, that the, the
people interviewing you are looking for a, you know,
intelligent, engaged conversation.
And they're trying to prompt you and, and obviously probe to see
where, where your knowledge is. And then try and just go from
there in terms of having some follow up questions.
And so look, I'd say, and, and the problem with markets, it's
always changing, right? Every week, you know, even every
day, certainly every month that, you know, certainly in the world
of Trump, you know, stuff is, is volatile.
And so you've, you've always got to be reading up, spending some
time every day just just touching base what's going on
today, What's happened, any big themes?
And so you obviously like anything, you've got to invest
some time to become fluent. And ultimately how are you going
to get a job with these big banks?
You need to have some really strong commercial awareness.
You need to be confident and fluent in having a discussion
about, you know, what can be difficult stuff.
So I'd always, always go from the big macro themes.
I'm a macro guy, so you know, I'd always, I'm always thinking
like super top level no matter what year it is.
You know, what is happening with the kind of big three things and
that I would call that GDP growth, I'd call it inflation
and interest rates. OK, these are the big three
things. They're all highly interlinked
and it's just where are we in the cycle?
And then right, what are the big powerful contributing factors to
all of those three thinking about from a, from a monetary or
a fiscal or a geopolitical perspective, you know, what are
the big forces on those three? And then ultimately, how are
markets behaving? And it's normally, the market
behaviour is normally around expectations about how we see
those three things playing out in the months ahead.
So what do we think is going to happen to GDP growth in the
second-half of 2025? You know, how do we anticipate
inflation to change And therefore, how will people like
the Federal Reserve, you know, go about setting their interest
rate strategy? OK, So that, that's a super top
level then. And, and those things that can
influence those three are changing, right?
But right now in 2025, in some ways it's pretty easy because
you just need 5 letters that forms one word and that is
Trump. I thought so.
I thought you could say Taco, but yeah, that was only four
but. That's 4 letters, basically
Trump. You can pretty much lead
everything back to Trump in some way.
OK, So if we, and it's hard to kind of know where to go with
this conversation, but I, I would say if you're thinking
about the big themes around Trump, then I would say it kind
of falls into two buckets. Obviously it's tariffs, right?
And that's been the front and centre risk, you know, since
January. And, you know, where are we in
that whole episode? And we'll touch on where in a
second. But right, you've got to be on
top of the tariff situation. Now, of course, tariffs tie
into, obviously that's a risk and an uncertainty for things
like GDP growth. You know, is our tariffs going
to impact growth not just in the US, remember, but what about
China, for example, and others? And then right, are tariffs
going to be inflationary or not? Are people just panicking for
nothing about that? And then back final one of the
trio, the interest rate thing, you know how the Fed going to
play that out. And I think it's super difficult
for the Fed at the moment because it's so uncertain as to
where this is all going to go. So the Fed are quite rightly,
just as we say, standing pat, they're just kind of saying that
we're not going to change anything for now.
We want to see more evidence. OK.
So obviously tariffs then I think the new the newer one to
the conversation and I've been banging on about this on the pod
for a few weeks, but it's about the debt situation and it's the
deficit situation in the US, OK. And we've had the big beautiful
bill. So this is all political, right?
Both the tariff thing and this debt thing at the moment, the
number one item on the list of influencing growth, inflation,
interest rates, the number one is US politics.
OK. So with the deficit, we're
really worried that the debt situation is getting out of
control. And we'll dive into this in a
bit more detail in a second. We're really worried that the
deficit situation is out of control.
We've had, you know, debt downgrades.
You know, is this bill that Trump's trying to get through
Congress, you know, is that going to be a good thing for GDP
growth or is it going to be a bad thing for the deficit and
debt? And actually is it both of those
things together and then you've got a problem because one,
obviously more GDP growth, awesome, great.
But at what cost? And ultimately the difficult
thing for markets and and what we're trying to get our head
around is which of these is going to be the more powerful
force, the positive GDP growth force?
Is that going to trump everything and become a positive
story? Or is the cost of that growth
going to be too great and the debt situation starts to
escalate and that negative force becomes the dominant thing,
right? And here we're caught between
those two at the moment. And I think that can be nicely
summed up with what is a pretty confusing financial market
landscape at this moment. So meaning if you go and look at
then, and I would say three things here when you're looking
at I'd say 4 things maybe when you're looking at markets, I'm
looking at stocks, right? So what's going on with the US
stocks and their backs all their, almost their all time
highs. So stocks are kind of shrugging
this off and are preferring to perhaps learn more towards that
positive outcome class half full.
But then if you go and look at the bond markets, bond yields
are incredibly high, which then feeds into the kind of concerns
around the debt situation, of course.
And so bond markets are maybe looking at glass half full
stuff. And then the dollar has been
weakening. And so actually just to complete
this first section since Liberation Day, that's Trump's
famous day at the start of April where he kind of re ratcheted up
his tariff war. Since then, there's been two
big, big themes in markets and one is rising bond yields and
the other is a weakening dollar. And if you're going to go into
an interview today, you need to be prepared to talk about
particularly those two things. Right.
So that that that last point then would be somewhat counter
intuitive. So those who are studying
classical economics might go right.
Yeah, I know the answer to this one, which could see them undone
pretty quickly because it would probably show that you're not
actually following markets day-to-day because you're just
going off the textbook. So, So what?
First of all, what's the actual theoretical way that these
relationships should work? And then what is and why is
what's happening? So the theory goes that you
might get in your textbook well, if yields are higher, well then
that often attracts money into your country.
You, you get inflows coming in because international investors
want to take advantage of those higher yields by moving their
money into dollars and buying Treasuries because you get
higher interest rates on that. So higher yields can often lead
to, you know, an inflow and currency appreciation, but it's
not that it's the opposite. And here you've got some
alarmists out there in the media and I'm going to brand them
alarmists and, and I, Anthony Chung's moving into the alarmist
camp. I'll give it your comment to me.
When was it yesterday or no Monday, wasn't it?
What, what was it that you said to me?
It's like, hang on, have we got any dollar like as a company now
amplify me, have we got any dollar reserves?
And shouldn't we be looking to immediately exit all of our
dollar positions? Hey, hey, who's sensational now?
You know that's not what I said. But look, there's alarm out
there about this weird scenario. Higher yields, weakening
currency. Some are calling it and
comparing it to emerging market type crisis.
Because what can happen this vicious cycle that often happens
to emerging markets when the debt situation is getting out of
control, right? If you're suddenly worried this
country can't afford its debt anymore, well, then what tends
to happen is you sell bonds, you sell that debt, but selling it
means the price goes down and the yield goes up, making it
even harder for that country to afford the debt because it's the
interest payments go up with those yields, right?
And so you sell the bonds and then you repatriate your cash.
So that's then an FX transaction.
So like, let's say you're holding some Argentinian bonds
and this is, this has happened several times in the last couple
of decades. There's been a bit of a
Stampede, right, as international investors exit.
So they're selling Argentinian bonds because they think they're
going to default, driving down price and driving up yield,
increasing the chances of default.
Then you've got pesos, right? You're going to then take your
pesos and you're going to sell them and I'm going to buy
sterling, OK, to bring my money back home.
But that means the currencies value drops as well.
And then you get this vicious cycle because the more the
yields rise, the more the panic of default, the more
international investors exit their their trades and
repatriate money. And this vicious cycle often
gets out of control and leads to carnage and chaos and default
and IMF bailouts and all the rest of it.
OK, there's some in the media who are suggesting that the US
are looking like an emerging market debt crisis here.
This is false. In my opinion.
This is false news. And that's because there's one
thing about yields rising. I mean, yes, US yields are
rising. I mean, I go and check out the
30 year yield. It's nudging 5%.
Why is that important? It's important because we
haven't really had 5% yields on a 30 year Treasury since 2007.
OK? So it's incredibly high, but
yields are rising all over the planet.
So here's your big difference. Yields.
Yes, they're rising in the US, but they're rising in the UK,
they're rising in Europe. Check out the Japanese 30 year
yield. We spoke about that the other
day. That's a an all time ever high
yields are rising everywhere. Now that's a key differentiator
here because if yields are rising in the US, well then
you're not going to if they're rising everywhere, right?
It's about yield differential. You're only going to get the
typical move into the US to take advantage of higher yields.
Appreciating the dollar. The normal way of things isn't
happening because yields are rising everywhere.
So you don't need to, you know, getting extra yield by going to
the US now you can get it everywhere else also, right?
So there's, there's, there's less inflow into the US because
of that, right. But then you might think, well,
there's out aren't there outflows then?
And, and this is where that panic comes from.
And, and maybe the reason for, I mean, there's a few reasons,
right? There's the debt sustainability
thing, which I've really just mentioned, but then there's also
the international demand side, which we've mentioned.
And then it's Trump as always, back to Trump, right?
Because look at the moment, there's a little bit of an anti
Trump sort of positioning from a lot of the rest of the world
because Trump's bullying them into this tariff situation,
right? And so there's definitely a
negative, you would say bias against US assets at the moment,
which is helping that dollar probably to weaken.
But look, I'd say the dollar and you can measure the dollar
obviously against any individual currency you want and fine the,
the dollar like against the pound is at 1.35, which is the
highest we've seen for years, right?
That's the pound being expensive and the dollar being weak.
Euro dollars at 11385, right? Really.
So the dollar is weak against a lot of these currencies, but
we'll often talk about what's called the dollar index when
we're thinking about the dollar's value against a basket
of currencies and what's kind of psychological.
And the reason why it's getting a lot of air time in the press
is that the dollar index is below 100, which is just a
really key psychological level that puts it at the lowest we've
seen since 2022. So it's a 3 1/2, it's a 3 and a
bit year low for the dollar index, right?
But yes, 3 1/2 years, fine, it's really low.
But go back over the last couple of decades and 100 on the dollar
index is about average. So I think you can look at this
in a different way when you're thinking about the dollar.
I think we've come to the end of a period really post COVID where
the dollar's been abnormally expensive and actually it's just
returned to its mean, I would say.
So the dollar move, I'm not getting too alarmed about now.
I am very anxious about the debt situation, which is a separate
thing. But I think from a dollar
weakness perspective, I think we've kind of got a bit carried
away panicking about that and perhaps unnecessarily.
So that that divergent has been happening over really the last
what, 3 weeks? Yeah.
So you're, would you be on the side of that they will converge
and they'll come back to the normal pattern of things or what
does there need to be a trigger point in your mind from a near
to macro event around this debt talk that Ben's going to?
So the near term, yeah of so always the macro journey will
determine where we end up, right.
And so what's what's on the radar for the next few months?
And well, a on the tariff front, really the two things, it's
China and it's the EU, right? And with China, we've got August
the 12th is the key date because Trump basically said, right,
let's have a 90 day reprieve. Remember they were ratcheting
tariffs up to 145% and they said, right, let's wind these
all the way back into whatever. I can't even remember now.
Was it 30% whilst we have 90 days to chat, negotiate and come
up with a better deal, right? That 90 day period ends on
August the 12th. Trump just overnight.
There's a little throwaway comment.
He said Zee, Zee, sorry, is hard to make a deal with.
So there's a little insight into how negotiations are going.
Obviously, I would assume Zee here is is kind of playing a
hard game and then digging his heels in.
I think stuff like the US courts or some of the US courts making
the whole tariff thing illegal has helped all the other
countries that are on the negotiating table.
So probably she is taking advantage of that.
And Trump's saying that it's hard to make a deal, right?
But we've got another couple of months until August the 12th.
Before that is the EU reprieve, 90 days.
That comes to an end on July 9th.
So we're only kind of five weeks away from that now.
So those deadlines are key. And what happens on, you know,
in these negotiations along the way is really important.
Then it's about debt, right? And it's, does the beautiful,
big, beautiful bill get passed by the Senate?
Remember, it's been passed by the House of Representatives.
Will it get passed by the Senate?
And there's really two big pro. There's two big things in this
bill. One's really positive and one's
really negative. And again, it just comes down to
your judgement as an investor as to which one you think's more
powerful. The positive is this bill is to
extend Trump tax cuts. They're the tax cuts Trump
implemented in his first term, right over four years ago.
Now, Biden maintains those cuts, but they're due to expire this
summer. OK, So this bill is to put into
law and make those tax cuts permanent.
So if this bill doesn't get through, you're going to get a
massive tax hike on the US, which will be highly negative
for things like GDP growth and and so on, right?
So if the bill gets through, you could say there's a big
positive, it's a big economic stimulus because it'll extend
the tax cuts, right? That's the positive side.
However, at what cost? Because tax cut or maintaining
tax cuts means you're not going to get a bump in revenue for the
government by taxes going up. And that's then a problem if the
government's got a really large deficit and debt, so that to
fund the extended tax cuts, they're having to increase the
deficit, making it more alarming as to whether that's
sustainable, especially when interest rates stay high.
And so interest debt costs for the US in 2026, they're going to
be above a trillion dollars just to service their debt interest,
right? The last time yields on the 30
year were at 5% was in 2007. So what was the debt situation
in 2007? All right, that's pre financial
crisis, but in 2007 the debt to GDP ratio in the US was 62.9%,
today is 124%. So it's basically doubled.
Debt to GDP is doubled, right? And so the last time debt
interest costs were this high, their debt to GDP situation was
half. So you got a really big issue of
large amounts of debt and interest rates staying high.
And so that's the negative from this bill.
If this bill gets passed through the Senate, it's going to be
very, very, very interesting to see how markets react.
Do they go big guns where hey, extended tax cuts, buy stocks,
S&P new all time highs or do bond yields spike because
investors are like, now this ain't going to work out.
You can't afford this bond yield spike becoming then the bigger
force leading to a massive risk off and stocks get killed.
So at the moment then stock, stocks are just buying their
time and slowly edging up higher and higher.
But you're saying that though the risk factor to that
continuation of record high territory inequities, not to say
it won't continue, but the risk to the rally it will increase
given those near term events? Yeah, right.
And stocks are interesting. I mean, actually, and we're
obsessed with the US and I know on this we're very high.
Well, I'm very guilty of just kind of mainly talking US, but
they are the biggest game in town.
But German stocks new all time highs today, right?
So there's, there's stocks going up here globally despite tariff
uncertainty. But you could say, well, that
tariff uncertainty has massively come down because Trump's
conceding, right? And so that's what the stock
market's saying. They're saying Trump's not going
to follow through on any of this bad stuff.
A deal will get done. And, you know, let's go.
And, you know, if you're looking more medium term, people
thinking about the AI revolution leading to productivity gains
and GDP growth acceleration is on the horizon, right?
So fine, that's all time high. Go and look at U.S. stocks,
though. They're not all time highs, but
they're pretty much back there. All right.
The NASDAQ is trading 21700 nearly the all time high is just
above 22. Sorry, 20 yeah, 22,000.
So look, U.S. stocks are almost back to their all time highs,
but it's been quite a narrow rebound.
This is quite familiar territory because the reason for the US
stock market rebound is mostly the MAG 7.
Again, this is a 2024 thing where we call this a very narrow
based rally where it's just a handful of stocks in the index
that are responsible for most of the gains.
To put some numbers on it, the S and PS up 7% in since the start
of May, but 4% of that is just from 7 companies and it's the
MAG 7, except for swapping one of those out, take out Apple
from the traditional MAG 7. Apple are right in the
crosshairs of the tariff risk, so they haven't recovered.
But actually, weirdly, Broadcom comes back.
If you put Broadcom in for Apple, then you've got this new
makeshift Mag 7 that's responsible for most of these
gains. But again, I always come back to
these two arguments. There's another two sets of
arguments. Well, is this good news then
that the stock markets rallied in the US?
Half would say it's actually bad news because of that narrow
argument. If the rallies based on only a
few companies, it's not sustainable, it'll never last,
right? But then the other argument is
actually US tech are the leaders, everyone else follows.
So actually they're the first ones to go and and actually the
others will follow. And actually this is just the
beginning then of a rally. So the beauty of markets and the
beauty of being in an interview situation, you can say whatever
you want as your opinion, right? You could be super bearish, doom
and gloom, the world's going to end.
Or you could be super mega bullish and this is the
beginning of a beautiful secular rally.
And both arguments are valid as long as you're hitting it with
the right evidence, OK? No one knows what's going to
happen. And I think uncertainties
particularly elevated, which is why you got this weird situation
where stock markets are saying everything's cool, everything's
fine, don't worry as you were. And bond markets, the kind of
alarm bell is, is softly flashing and it it whether that
bond market alarm bell ratchets up or not, I think ultimately
will be the lead indicator to where we go next.
And it was the bond market before when stocks are really
selling off. When the bond market went was
when Trump did a tactical turn on China before.
Is there anything within like who's trading these different
asset classes? So as a normal, normal Joe, I'm
not there trading the 30 year bond for example, but large
institutional funds are. So does that come into this as
some context as to why equities might behave slightly different?
Well, that's an interesting one. Are you suggesting that the bond
market is more intelligent? Like from a sort?
Of that is not what I said, Piers Curran.
Intelligent from a, you know, these are professional traders
that are really playing in the bond markets versus the stock
market where there's a lot of retail like in other words,
amateur trader volumes. Maybe you could say that, but
you know, ultimately, if the bond mark stock markets are all
time highs, right? The the mainly the rich own
stocks. OK, so if the stock market
drops, fine. The rich are going to lose 1020%
of their credibly valuable portfolios.
It's not going to necessarily impact Main Street, right?
Bond markets are entirely different.
If they move, everyone feels it. And that's because it governs
the cost of borrowing. And ultimately, if the cost of
borrowing changes, if you own a house and you've got a mortgage,
well then your mortgage rates are going to go up.
If you've got a credit card that's rammed full of debt, your
interest payments or your credit card's going to go up, and so on
and so forth, right? And it's going to lead to
companies changing their strategy.
If, if the borrowing cost for businesses goes up sharply,
they're going to borrow less, which means they're going to
have to streamline. And then you start to get people
getting laid off, so people start losing their jobs.
And then you start to get that slide into a recession that
infects everyone in the country, right?
And so ultimately, bond yields are the king and and that's.
It it appears this is not an interview to join the rates
desk, by the way. Oh shit, sorry.
What is this this? This is cash Equities, sorry.
Sorry, scrap that, scrap that. Stocks are stocks are key buy
video. Oh look, just.
To just to conclude then was commodities because we've spoken
in recent weeks about gold was kind of just tapping away at all
time highs, seemed pretty relentless, had a little bit of
a pullback, but then just shot back up again.
And something we don't talk often about is Bitcoin and just
crypto in general. So how's it looking then in
commodities? Because there's a few things
that play out, you know, in the broader picture on the supply
and demand side with OPEC have been making a few changes as
well. How does that fit into this
Trump tariff debt picture? Yeah.
So, well, let's talk oil first then, because it does play an
important role on on one, particularly on one of those
things on on inflation, for example, right.
So if oil prices are going to drop, which they have, so oil
prices are, I forget they're like down 63 bucks, but that's
like in terms of a multi year low.
Let me just get the right stat here.
That's the lowest we've seen since the start of 2021, right?
So oil's really low, cheap energy.
Great, OK, that's deflationary. Good.
Helps with that inflation situation.
And it's it's economically, it's economic stimulus in a way,
because energy is cheap. So people and companies are
spending less on energy and they got more money to spend on
everything else, right? So you could say that's a
positive thing. But then at exactly the same
time, gold's all time highs, indicating that as a safe haven
kind of vehicle that's getting strong demand.
So again, you got a real conflicting set of market
situations here. But Bitcoin has just broken back
above 100,000. OK, a bit of Bitcoin made a new
all time high just over the last few weeks, right?
And is Bitcoin finally maybe becoming that safe haven status
that the Bitcoin enthusiasts have been trying to persuade me
for about 15 years that Bitcoin is a safe haven and I'll be
going no, it's not no, it's not No, it's not Maybe now it is and
that is tied into debt, right, and government debt situations.
And so maybe Bitcoin starting to show a flavour of safe haven
here anyway, so an all time high so gold and Bitcoin are going
well hang on a minute, there's risks on the horizon.
Let's get, let's put some of our portfolio into some safe places.
But or yeah, so that, so oil is because of OPEC increasing
production and maybe people are concerned about global growth,
right? So demand risk.
And so that's why oil is low. It's just is it low enough to
provide an economic stimulus enough to to mean we fall on the
positive side of, of of where we're right on the tightrope.
Let's maybe finish like this. We're on the tightrope here and
it could go either way. And it's either growth is strong
enough to pay for all this debt and we're panicking and it's not
a big deal and growth is strong enough to deal with interest
rates staying high. And maybe the AI story can
gather momentum and really fire that growth story and we're
panicking about nothing, right. Hopefully that's the side we
fall on. The other side is is definitely
very gloomy and that is actually growth will not rescue the day.
And therefore we've got a stagflation risk where
inflation's too high to be able to cut rates.
So interest rates stay high, leading this debt crisis to a
place where no one wants to see. And that's where you get this
dip and turn into an incredibly negative kind of vicious spiral.
So we really are on a tightrope at the moment.
And some markets are saying stocks are like we're hey, gross
coming. Don't worry, bonds and maybe
gold and maybe Bitcoin are suggesting, hang on.
We're a little bit more worried than you lot are over in the
stock market. Just a final question.
I did see some data out of China yesterday.
This is a their manufacturing sector had its worst slump since
September 2022. So yeah, how much of an I would
you cast into this macro picture about the economic performance
of China? I think you got to be really
careful because we also had some ISM and PMI data out of the US
that was really bad on the manufacturing side.
You got to be really careful about where you're comparing
things to because Trump and his Liberation Day tariffs, right,
was at the start of April. So what happened in March,
everyone bought a load of stuff. So inventory stocking at pre
tariff hike prices, right? So go and look at the data for
it from for March and you saw, you know, a huge bump up, right?
Of course you then get the equal and opposite collapse in April
because people stocked up in March, right?
So you're you're seeing a really big disruption.
I think really with all of this data, you've got to really wait
till May. We've got to get, we need the
May data, if not June, right. By the time we get to the
midpoint of the year, I think we can look back and just average
it all out through this Trump driven volatility, average it
all out and only then will you really get a true understanding
as to where things sit. So I wouldn't get too alarmed
about some of these crazy stats like, yeah, biggest drop in
Chinese manufacturing since September.
Well, yeah, but March was really short, so.
Yeah, that's a very good point. All right, well, look, what
we'll do is we will open up the comments section and Piers and I
will be replying to help as best as we can.
So if you're watching this on YouTube or if you're on Spotify,
we are now publishing our podcast in video form on
Spotify. So let us know what you think.
Now you get to see the the, the faces behind the voices and you
know, is it, is it a yay or nay? Does it hit the mark?
Or not. OK, I'm bearish.
But yeah, otherwise, yeah, feel free to leave a comment on
Spotify as well that has access for us to also reply.
So if there's any questions, any views, any thoughts, or any way
we can help if you do have a pending interview, we're more
than happy to do so. All right.
Thanks as always, Pierce, and take care everyone.
Thanks a lot.