What else are you watching and what else might be slightly spooking the markets?

Yeah, I mean, there's a huge amount going on, as you say.

You mentioned two central banks there.

There's actually more than that.

So I think you're thinking about the ECB and the Fed, which are the key ones that we look at.

You've got the Bank of England next week.

You've got the Bank of Japan this week.

to touch on that and what's happening there?

The correlation regime.

The stock bond correlation went from being consistently negative and this diversification, natural diversification from bonds suddenly fell to pieces.

And since 2022, we've had a more consistent positive correlation.

Bonds and equities have been pointing in the same direction.

And what's driving that relationship is inflation.

And last week, we saw a really stark reversion back to the previous regime where bonds actually worked to protect your portfolios from a sell-off with inequities that was really driven and concentrated within AI and related stocks.

But bonds worked incredibly well.

So last week then, what particularly happened that made you sit up and take notice?

Right.

Uh, Germany is the safest country w- within the Eurozone from a fiscal perspective.

They've got a low debt to GDP ratio.

The OAT/Bund spread on a, on 10-year bonds has widened dramatically this year.

So at the start of the year nor- uh, it was at 0.7%.

It's now doubled to 1.4% to the end of last week.

Right

...

[laughs]

There are, there are other voices, and you will, you will hear from other people, I promise.

But yes, we're seeing this, still a lot of upward pressure on bond yields.

There's this narrative now where I think the market consensus is that we do have to see structurally higher bond yields.

Um, a lot of this is driven by, you know, we've got this energy supply shock-

Yeah

... and bond yields continue to rise, we could see that volatility, uh, spread into other markets as well.

So, so that is the risk, and I think it's why investors are becoming a little bit more concerned.

Mm

... growing, is quite resilient and, and growing, is, is quite strong.

So when you have strong economic growth, interest rates do need to be higher, and this is sort of where we are at the moment.

It's not necessarily...

I mean, the bond, the, the equity market doesn't seem to be shrugging off higher interest rates at the moment.

Thank you.

Thanks for listening.

Investment involves risk.

we're worrying about 5% now, but that's in context of that.

In the context of that, exactly.

And then through the 80s, all the way through really to the global financial crisis, you had falling yields.

Yields fell, inflationary pressures were falling and inflation was falling.

Then you had the global financial crisis in 2008.

And that ushered in this new era of bond market manipulation by the Federal Reserve.

So the Fed started this quantitative easing program and artificially forced bond yields lower.

So what happened then, if that happened in the 2008 financial crisis and yields went down to extraordinary lows, what triggered a change, what did you say, early 2000, 2022?

Yeah, it's the

low growth and also the inflation question as well.

The UK is more sensitive to European economies or to this energy supply shock.

Bond vigilantes is an interesting term.

We use it quite a lot.

And I sometimes say the bond vigilantes are lurking just underneath the surface of the bond markets.

They're no longer lurking underneath the surface.

Okay, yeah,

But are investors now asking tougher questions? Are they nervous about when this spending starts generating meaningful returns?

Yeah, that's absolutely right.

And I think a good way of framing it, although I wouldn't...

I'd probably say less than a year ago, companies were rewarding any AI-related firm.

I would say in the spring, any AI-related company was just performing fantastically well.

We saw this incredibly strong performance in the spring.

And then quite suddenly in the summer, we've seen quite a bit of weakness come through.

Yeah.

I really feel you should have done that in an American accent, but never

mind.

Yeah, I can't do accents.

Okay.

But the point is, he sees his barometer of success, those borrowing costs, particularly long-term borrowing costs.

He's intervened in the market.

So at the same day as the US government's total debt surpassed $40 trillion, the Treasury under Secretary Scott Besant intervened in the bond market by increasing their buybacks of more illiquid, longer-dated bonds.

Okay, so the US

Okay.

60% of stocks, over 60% of stocks have delivered positive returns, but the weakness is concentrated within tech.

That is, the tech sector has fallen 6%.

Communication services, so quite a lot of that is tech related, has actually lost close to 8%.

The semiconductor industry, stocks have declined to 10%.

That's a component of the tech sector.

So weakness there, which is driving the whole market or an index level down, because they're such a big component of the index and there's quite a lot of weakness there, whereas the broader market is actually performing very well.

And the reason it's a

What's happening there then?

Yeah, I mean, I think it's quite clear if you...

And I actually said this on CNBC, that the peace deal was always vulnerable, the memorandum of understanding.

And the US had clearly won or was winning the military contest.

Yeah.

But Iran has enough capability to still close the Hormuz and fundamentally is there for winning the economic war.

So if you've got the US considers themselves the winner on the one hand and Iran on the economic front, they both think they have the upper hand in the negotiation.

So what's worrying investors here then?

Yeah

... popularity within these ants in, in Korea towards these, these products.

Um, but this month, because we've obviously seen weakness within, within global technology stocks, that has caused l- some of the liquidity to break down in these products.

So you have big divergences between the product performance within the ETFs and the actual underlying stock return.

So you've had...

And also just the other thing that it's created is massive volatility in the Korean stock market.

Yeah

... and it makes the rally more sustainable.

So where is the uncertainty most likely to be felt in terms of immediately with Starmer's exit and the incoming prime minister, which we think is probably going to be Andy Burnham?

It wouldn't be a surprise, I think, to most listeners that the gilt market is where the vulnerability is.

Everyone's familiar with the Liz Truss episode and the pressures that the gilt market has faced in recent months as well.

Andy Burnham, the king in the North, he's described, he's seen as someone who could easily sort of want to oversee a further fiscal expansion in the UK.

So the gilt market will be very sensitive to that.

It's sensitive to the borrowing rules, which is almost the UK has built a rod for its own back in that respect.

But there are bond vigilantes operating in the UK bond markets that are very sensitive to these rules.

And what do you think then moving forward from the current cycle, what do you think his long term impact on policy is and the kind of philosophy of the Fed and what they're going to do in the future, essentially, which is probably what investors want to know?

was for the 39th time.

Yeah, that was exactly.

So 39th time, lucky.

But this time, you know, the market was optimistic about it.

And we did see quite a big reaction there.

So oil down 6% last week.

Brent, which is sort of global oil price, seaborne oil price.

It's a bit

... off season?

It's, it's, it's, it's what you said at the end, is what, what are they dropping the most points on? Where can I get the most bang for your buck? I think this whole thing of an off-season and requi-...

I've had it with a beginner before.

"Oh, coach, I should be doing hypertrophy." I'm like, "Please tell me which world titles you've won." It...

Zero.

Like, this guy's a beginner.

Like, you need to get better at the fucking events at the moment.

Right.

Give us some positivity

then.

There's a lot of excitement and enthusiasm.

We've got the SpaceX IPO coming.

We've got Anthropix IPO coming.

There's a ton of excitement and hype out there.

But what's interesting and what I think makes this rally quite durable is the fact that it's really justified by the strength of earnings.

21 times, yes.