BM Talks: Ben Ashby speaks with a Q4 update

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Hello and welcome to the latest edition of BM Talks with me, Helen Thomas, CEO of Banner of Blond Money.
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We are delighted to welcome back Ben Ashby, CIO of Henderson Row, as we talk about everything to do with markets and politics at this extremely critical and volatile juncture.
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So hello Ben and welcome to the podcast.
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Hi, Helen.
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Thanks for having me on again.
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And before we kick off, because John, our amazingly talented audiovisual uh technician and specialist, cut a load of stuff out.
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I got so much grief for wearing that Gordon Gecko style outfit on our last podcast.
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I want to be clear, it was deliberate and we discussed it.
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So John So because of this, people now think that's how I dress normally.
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Well, I can I confirm you you do not dress like Gordon Gecko most of the time.
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That is absolutely right.
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Even I was shocked.
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So, no, I've I've got a normal shirt and tie on there.
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And for anybody that's an affectionata of military ties, it's Calcutta Light Horse, which was the same as a rugby team that I used to play for.
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So there we go.
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And if you ever read the book about the Calcutta Light Horse, it's called uh The Seawolves, it's a fantastic story.
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But that's why my rugby team uh had it as a tie.
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There we go.
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We will have a sartorial update every time we speak, Ben.
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I love it.
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So I don't know where we should start.
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Uh so we've obviously got markets, we've got France, uh, we've got conference season, we've obviously got a bit more of Burnham since we've had that discussion, and we've got the US midterms.
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So and Spanish snap election.
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Oh yeah, of course.
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It's all happening.
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So, how about we just kick off with perhaps markets?
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Uh I'm tempted to leave France to the end because we all need a good laugh uh to uh finish off the podcast, but uh I suspect it's kind of quite important given what's going on since uh we've also got problems in there.
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Um how about we just kick off with Burnham?
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And uh what do you think so far?
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What do you think is gonna come out of the budget uh and just your interpretation of conference season?
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Well, Andy Burnham's gonna be delighted with this start that he's had uh because of the big rally in the polls.
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It it seems it's gone it's gone very well for him with his voters, and by his voters, I mean not just the ones that are Labour voters, but people who had been dallying with other parties of the left.
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And as we speak, um the Green Party are having something of a at least an internal fight, if not a complete implosion, over the fact that their leader stood to be um an MP at the Harbor and St.
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Pancris by-election.
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That was Keir Starmer's seat that he vacated and uh and lost pretty conclusively, and should never have really gone so hard into that seat.
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Although it is a target seat for the Greens, it's it's quite some way down the list.
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So uh basically, look, Burnham's had a three out of three in terms of uh by-elections on his watch, which is rather different to the Starmer era.
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So we've got Burnham winning elections.
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He did a conference speech that I've got to say, and I know we may have a discussion about this, but I watched it and it was quite an astonishing performance, whatever your politics.
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So very uh significant conference speech.
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We'll come maybe come back to why, but that went well for him.
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Uh and now he's just got to land this budget, do no harm, as they're calling it, um, because looks like plan A, I think we might have even discussed this last time round, Ben, is to go for a general election and try and capitalise on that momentum.
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But he's he's ruled that out.
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I mean, in the same way that when he ran for his own by-election, he said there would be no discussion on Europe.
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And then suddenly there's a discussion on Europe.
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It's almost as if he's a dishonest politician.
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Well, I don't know, that there's sometimes those two words are conflated, aren't they?
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One tends to mean the other for people.
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Look, I uh I said it's plan A.
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I mean, this when they may have to kick off into plan B over some of the other topics we're going to cover in this call uh regarding uh markets and energy.
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But um, the thing about politics is you've got to sort of ride the wave of momentum.
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It's something Keir Starman never really fully got hold of.
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He tended to see everything as a threat, but the best politicians see threats as opportunities.
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So um, as it stands, actually the budget being very uh much a smaller tweaking of things affair, um is itself going to show the constraint of the manifesto that Burnham wasn't even an MP under that one when he became an MP.
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You know, this is the Starmer Reeves plans that he has inherited.
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So look, he wants, he knows he's gonna need a mandate at some time.
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He knows he needs a majority that's cohesive.
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Uh, he knows that his whole entire party, whilst happy with Infinale, tapers over a lot of cracks because there's a lot of them and they don't all sign up to the same ideas.
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Uh, so at some stage he will need that general election.
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And actually demonstrating the, if I might say, sort of paucity of hope to slightly corrupt an Obama comment uh of this budget means look, guys, this is all I could do.
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I've got, I've got to do more.
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I want to do more.
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Look at my plans for the, you know, national care service, like the national health service.
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These are expensive things.
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Uh, I need to be able to do that with a completely fresh uh mandate and not be constrained uh by the old one.
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So hence why, you know, look, that and under our analysis, that would suggest an election within the next six months, or certainly by May next year, that's when the local elections are taking place, which is sort of like a bit of a pragmatic point at which you could then scale up more easily to a general election because you've already got the locals coming up.
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Um, but given catching the other parties on the hop, I mean, reform have been going down in the polls, they're a new party, they may struggle even to get 650 candidates.
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While the Conservatives have had a decent conference season, they're still relatively small.
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It's a lot smaller, that conference, than it used to be.
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There's not as many uh many donors hanging around now that the sort of the right of the of the political spectrum is split.
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So they're they're also struggling.
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The Greens are imploding, and Lib Dems, well, in the midst of it all, and I've managed I monitor this all the time.
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A Lib Dem Trennic shadow treasury minister resigned uh on Friday, and um, I'm not sure anybody noticed, but uh yeah, Ed Davies' position as leader of the Lib Dems is in trouble.
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I've I've gotta be honest, this is a lot to unpack there.
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Um I've gotta be honest, I think of all the political parties that I would be frustrated if I was a member of would be the Lib Dems.
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You think you should absolutely be capitalising at the moment, and they've gone nowhere.
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And Davy's not credible.
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And the other problem that they have as well, just from where I sit, is they're gonna have to take some policies uh that some of which people aren't gonna like.
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And uh what they just seem to have done over the last two or three years is more Europe and complain about everybody else's policies without actually pushing anything about themselves.
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So I I must admit, if they want to be serious, and this is a fantastic opportunity for them to kind of reassert themselves, I I think Davey has to go.
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And I don't think he was particularly well regarded even when he was in the coalition from memory.
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I remember he was considered not particularly a great minister, and of course he had the whole post office thing.
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Now on the Yeah, and it was it was remember, they were down to eight MPs.
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I mean, they're above 70 percent.
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On the polling, I was gonna ask you this.
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So a pollster that we deal with pointed this out.
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In the same way that you had shy Tories, they are really unconvinced that the Tory vote is anywhere near as firm as what people think it is.
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Their view is a lot of people who plan to vote reform will say they're gonna vote for the Conservatives because it's now seemed more socially acceptable, centre-right.
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And they were making the point that if you have a look at a lot of the local elections and some of the by-elections, the Tory vote is awful.
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I mean, absolutely awful.
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So you're getting this 20% in the national polls, yet actually every time it seems to get tested on the ground, it's it's complete rubbish.
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So I was just wondering, do you think there's any validity to that, or do you think it is relatively firm?
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Well, the first thing to note that is a fact is that the Conservatives are polling about four percentage points below their result in the general election, which was their basically was general election result.
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I mean, it was terrible.
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They actually did a bit better, would anyone believe, than you might expect, with with actually a number of um candidates holding on to their seats through the split vote.
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So they are in a kind of a worse position than they were at that general election.
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I mean, the general election reform I think got about 13% of the vote.
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So whichever way you slice and dice this, with reform up about 10% points on that, there's got to have been a significant shift here in some of those right-leaning uh voters.
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So I think there is absolutely credence to what you said there.
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More importantly, and where this is to uh something Burnham again is looking at both threat and opportunity, the electorate is still, we talked many times about a fragmented electorate.
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It's getting worse, they're getting more disillusioned, and they are flirting with whoever they feel either upsets them the least or has got some of what they want.
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There's there's nobody offering, I think, what most people want most of the time.
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Now, in a first past the post system, therefore, let's say four parties, 25% plus one wins all the seats.
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So actually, remember, Label got 34% last time round and had that huge landslide.
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They'll probably need less, uh, or indeed the the winning party to gain a majority this next election is likely to have a lower share of the electorate.
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So um it's a it's a very strange situation, uh strategic situation for the Conservatives where they've got to make sure they get out their base vote, but who is who is the core vote?
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Because certainly the you know the Boris uh phase, people who who l who who went to them in 2019 are more than likely now in the hands of reform.
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Um so and and and and this, you know, it's it's I think the most simple way to look at this is it's advantage burning because he can unite the left, and however you slice and dice it, there's nobody uniting the right in the UK.
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And some of that is down to the fact that the right were in power for 14 years and didn't do a lot of right-wing things, um, uh as many you know, right-leaning voters feel.
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So, you know, where you know Starmer's sort of squandered that, and where Burnham is a good campaigner and a good politician, and and remember, you know, he's been around a long time.
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Him and James Purnell, uh, his chief of staff, you know, we're talking 30 plus years, they were around under the Blair Brown years.
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Um, and we haven't really had a person in charge of the country for at least the last five years who is in any sense a politician.
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Now, it's a dirty word in many ways as people discuss it, but there's a there is a skill to it.
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You know, Sunak was such a technocrat, Starmer was such a technocrat, trust didn't get much time, and then Boris even, he's a good, he was a good politician, Boris, but he needed the Cummings Chief of Staff uh you know uh direction to marshal him in the right in the right path.
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Um, so I think people will be surprised at that's what I think they'll be surprised with under Burnham.
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This is a politician, a left-wing politician.
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That's what we should expect to see, and it's it's ripping dividends for them at the moment.
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But it's still not gonna um we've obviously done those series of podcasts about the bond market.
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It's still not gonna convince the bond market.
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I don't think their economic plans add up.
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Obviously, we still get to see the budget.
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I just think where they are ideologically, they have no idea how to get growth going in the country.
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And I don't think they'll be able to execute on it.
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We're getting a classic socialism versus capitalism uh masterclass here.
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This is what we're gonna get.
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That's actually in a way, I think uh at the Labour conference it was discussed that that they would rather fight that fight.
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You know, they want to take it on, they want to be socialists, and their argument over more public control of utilities.
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I by the way, as ever, I and my business, we are apolitical.
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I do not endorse, there's no interest in that, no lobbying.
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It's about what's gonna happen.
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Yeah.
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And it's it's the strategy on the left would be um public control of utilities.
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Now, this doesn't mean all that nationalization, it could mean off balance sheet, uh, stakes in certain businesses, or as we've just heard, this um GB grid that's gonna try and be some sort of competitor.
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There's a couple of things they're looking at in the economics of this, which are that if you are a public entity, you borrow at a lower cost of capital.
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So you can you can be more competitive.
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That's one angle they might take.
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They would say if they can set the price at a lower level, then hey, that actually cuts the bills for the government because look, if they build more houses, that'll cut housing benefit.
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If they cut the cost of energy, then that will also help.
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It's I mean, well, Ben, you have been a student of um economic history, and uh I know you're very plugged into this.
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People have tried those paths before.
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What you tend to end up with is a hugely inflationary environment, which is uh then a higher interest rate environment, and then that's again tricky for the bond market.
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So, I mean, that I'm very, very roughly sketching out a kind of economic ideology here.
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I mean, how do you think the market would feel about that?
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I so your point about a political like you, I just get paid for what I think's gonna happen and how does that impact investments.
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Um, for the sake of doubt, my political views are uh coup under me, and then I get declared as God emperor and get to do what I want.
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So that's that's my stated long-term political aim for the country.
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Um, it's gonna fail.
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And we've got a fantastic case study of that of France.
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If you want a bigger state, if you want more transfer payments, if you want more uh restrictive working practices, well, there you are.
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Have a look over the uh uh the channel and then have a look at what's happening.
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You know, they are a magnitude larder in terms of the state itself, they are an advanced country, and they are in the early stages of what is going to be a very, very big bond crisis for them and the European Union in general.
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Can we talk about this?
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Because I think you said to leave it to the end, but I think it is actually the real crux of a lot of what we discussed.
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And actually, I would point people towards a speech given this week by the chief of the BIS, that's the Bank for International Settlements uh Bank of Central Bankers, effectively.
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And there was a comment in there about how if you lose liquidity in your bond market, your fiscal space will disappear, even if you have improving fundamentals.
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They're trying to get across that.
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So it's not just that bond markets can teach you a lesson, it is that it's dynamic.
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You you as a political the government loses fiscal space and loses and it gets constrained, even if actually they maybe have tried to talk about a more fundamental.
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He's talking about a stress scenario there, um, which I thought was really, really an interesting intervention.
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Um, these guys don't pop up that often, it's usually very dry, it's very specific about like market structure.
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To be that clear, and then Governor Bailey, the Bank of England, made a speech a couple of days later and he touched again on on we if you want financial stability in your bond market, you need fiscal responsibility.
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At least you need a plan.
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And actually, um, that's what you're driving at, Ben.
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You've always driven at for these last few years is what is the plan?
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Is it going to work?
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If it's not going to work, it only ends one way.
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And I think this intervention by these central bankers is a is their extremely polite, technocratic way of saying what you're saying.
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Do you agree?
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I would agree.
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And just going back to your earlier point, there is absolutely nothing in the actions of the British state since the Second World War that leads me to believe that Burnham's going to be successful from the car industry to the reason why a lot of these things got privatised in the first place.
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People forget they were a mess.
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They were a mess and they were deeply underinvested because the state couldn't afford to put the money in.
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Plus, you had people that couldn't run it.
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They were political appointees half the time.
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So, not to say that the private sector doesn't make mistakes, but what I'm always amazed on is the ability of people to sort of jump on top of, say, Thames Water going, look, the whole sector doesn't work.
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Well, actually, most of them are fine.
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It's just one or two that are problematic.
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Well, and uh just jump in on water because you know, Andy Burnham's big thing is devolution.
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Some of the local mayors are now saying they don't they don't want the power, they don't want to be involved in in uh anything to do with setting anything to do with water policy, uh, knowing full well it it can land back on them uh and that they would be in the line of fire.
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Of course, devolution is very much akin to uh devolving of and delegating of responsibility, which anyone in any large organization will know, um, tends to come with the the middle and the juniors taking the hit uh when something bad turns up.
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I I I agree.
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Look, they're just not competent to run these things, they can't even fix the potholes, and you're gonna ask them to run local utilities.
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It's it's just not for the UK to transition into that environment would probably take decades and a very different social and civil society structure than we have at the moment, then it's just simply not there.
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So yeah, we could do a whole podcast on uh on on devolution and devolving the state because there are obviously arguments on both sides, but it's certainly not a panacea, it's no silver bullet, it might actually be the the opposite, as you said, leading to mismanagement, more uh unproductive outcomes.
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But going back to France, yes, um, what's really interesting to me, and I want your input on this, is look, France has struggled to pass a budget for the last three years and and got through two prime ministers in the process, although one of them resigned and came back a few days later because he couldn't find anyone else.
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Um, they also have constitutional powers to sort of force through uh force through budgets, etc.
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Why now is this having such an impact?
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I have my own theories.
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Yes, there's a presidential election coming up, but there was fear that with such an intransigent parliament that Macron himself might resign just through the fact that the French state had become completely ungovernable.
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So look, political risk in France has been there for years.
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It didn't just go through the roof in the last couple of weeks, did it?
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No, it didn't, but there is uh, as you know, I've got that kind of hard science background.
00:19:26.720 --> 00:19:33.359
So there's a a body called the Santa Fe Institute, which is tries to blend hard science with economics and and other factors.
00:19:33.599 --> 00:19:37.119
And they wrote a fantastic paper about risk about 20 years ago.
00:19:37.200 --> 00:19:41.359
And the point they said is you can't predict when things go, all you can do is predict if there's a fault line.
00:19:41.440 --> 00:19:47.119
And if the fault line's there, you can't work out the exact moment, but identifying the fault line is the issue.
00:19:47.359 --> 00:20:02.799
Now, it could well have been that the gyrations in the Japanese bond market, which has occurred over the summer, the immediate trigger for France seems to have been a large Japanese insurer deciding that they didn't want anything to do with France.
00:20:03.119 --> 00:20:12.480
So it could well be that they've had enough fun and games with the US Treasury market over the summer, and they've sat there and thought now is time to for a big portfolio reallocation.
00:20:12.640 --> 00:20:17.200
And it's just made it clear to everybody else that this is ungovernable, this is the moment.
00:20:17.279 --> 00:20:22.400
Your fault line, as you say, has been there for years, and this is the point where it finally catches up.
00:20:22.559 --> 00:20:24.480
And I think it will catch up with the Brits too.
00:20:24.640 --> 00:20:32.319
The the advantage is we weren't stupid enough to sign up to the Euro like they have, which is just another level of mess for these things.
00:20:32.640 --> 00:20:42.640
Well, that's we should really pick into that actually, because there's now been some talk over this last couple of weeks where there have been really and these are pretty significant bond market moves.
00:20:42.799 --> 00:20:47.599
Um you should give us, as you're on the front line of that every day, give us a flavour of that.
00:20:47.759 --> 00:20:54.559
Because you see screaming headlines about bond markets, it's been it's been the the for me, the interesting part is the persistence.
00:20:54.640 --> 00:20:56.079
It's been very relentless.
00:20:56.319 --> 00:21:01.839
In fact, I'd bother you most days to get an update on uh on what's going on in the bond market.
00:21:02.079 --> 00:21:15.680
Um, because whenever something is that relentless, it it's not a flash of the pan, it's not just it could have been kicked off, as you say, by a big flow from a big fund manager, but it tends to mean the whole market is then reappraising things.
00:21:15.839 --> 00:21:20.000
The market makers are having to uh reprice.
00:21:20.079 --> 00:21:23.680
Sometimes, by the way, you don't have to have flows to get a price to move.
00:21:23.759 --> 00:21:26.000
I mean, some people listening to that will know that very well.
00:21:26.319 --> 00:21:41.839
But if there's a lot of volatility, if it's going in one direction, then when the when the traders walk in or if they switch on that the the system, the algo as they do nowadays, it will just immediately reprice in and get wider and move in the direction the market's already going.
00:21:42.079 --> 00:21:44.799
So, first of all, how relentless has this been, in fact?
00:21:44.880 --> 00:21:46.880
Could you do that first before I talk about anything else?
00:21:46.960 --> 00:21:51.759
Because I'd like them, I'd like your sense of of stress levels in the market.
00:21:52.160 --> 00:21:57.440
So the opposite of the equity stress indicator is the VIX.
00:21:57.839 --> 00:21:59.359
The opposite is called the move index.
00:21:59.440 --> 00:22:06.000
And if you're At the move index, which measures basically bond volatility, it's gone up markedly over the summer and it keeps going up.
00:22:06.160 --> 00:22:12.559
That chokes off liquidity in its own right because as volatility goes up, uh, two or three things happen.
00:22:12.799 --> 00:22:17.359
Margins for brokers go up because obviously you've now got the collateral.
00:22:17.519 --> 00:22:23.359
As we talked in that other podcast we did about the bond market, the collateral is more volatile, so they'll ask for more margin.
00:22:23.519 --> 00:22:27.759
Therefore, you have to post more collateral, you have to basically have more margin.
00:22:28.160 --> 00:22:33.039
So it is slowly getting worse.
00:22:33.440 --> 00:22:50.000
To my mind, certain points of the French bond market, and again, going back to that other podcast we had, I would be cautious with the front end of the French bond market because they've got some very large financial institutions, and the default risk is actually still very low.
00:22:50.160 --> 00:22:58.640
And so some of those institutions may well choose, I will buy short end French debt because it's another year, two years, I'm getting a substantial pickup over other things.
00:22:58.880 --> 00:23:06.640
I think once you start to go further out the curve, say five years out to ten years, my inclination would be if you're happy with the sort of movement, short it.
00:23:06.720 --> 00:23:06.960
Why?
00:23:07.119 --> 00:23:08.960
This has this has gone no resolution.
00:23:09.119 --> 00:23:11.839
There is no resolution until this crisis gets worse.
00:23:12.319 --> 00:23:21.359
Well, this is this is that's what I wanted to pick up on is that as we sit here and talk, um, and there have been some these big headlines, there've been big moves, this is the beginning.
00:23:21.519 --> 00:23:21.680
Yes.
00:23:22.079 --> 00:23:22.960
This is the beginning.
00:23:23.119 --> 00:23:26.079
This is not the end, this is not yet disorderly, in fact.
00:23:26.319 --> 00:23:27.200
And uh is it?
00:23:27.279 --> 00:23:33.599
I mean, it's maybe on some days, I don't know, you you're the one trading the front line, but would you call it a dislocation and disorderly?
00:23:33.839 --> 00:23:42.319
No, they've come out already and said there's so look, central banks will always step in where there's a financial instability risk, but if you have a look at it, it hasn't reached that point.
00:23:42.480 --> 00:23:47.680
So one of the quick ways to look at that is still about half the French corporate sector.
00:23:47.759 --> 00:23:50.720
Uh and again, it's worth looking at France because the mess is enormous.
00:23:50.880 --> 00:23:57.359
I mean, it's it's not just the problems in the government sector, there the French uh private sector is heavily indebted.
00:23:57.519 --> 00:24:04.000
So, one of the things that people are missing, because I think it's worth saying that the issues that happen in America are happening for a different reason.
00:24:04.160 --> 00:24:09.519
Actually, America private sector has significantly delevered over the last sort of 10 years or so.
00:24:09.680 --> 00:24:14.319
And obviously, there's a re-leveraging going on because of the capex around uh AI.
00:24:14.720 --> 00:24:15.759
But France hasn't.
00:24:15.920 --> 00:24:24.240
France is really, really indebted at pretty much every level of the economy, and that is a fundamentally much more dangerous position to be in.
00:24:24.480 --> 00:24:28.799
But about half the French corporate sector is roughly trading through where the sovereign is.
00:24:28.960 --> 00:24:37.759
Now, I think when you start to get really significant French instability, uh, is when their financial sector gets sucked into this.
00:24:37.920 --> 00:24:44.319
And I think it because you've got three or four very large financial international financial institutions in there.
00:24:45.200 --> 00:24:54.000
Well, having done it from the other side, there's some point I am not going to take bonk X risk because I've just decided they're the weakest of the pack.
00:24:54.079 --> 00:24:57.839
And then once they had get into difficulty, then the next one will get into the difficulty.
00:24:58.240 --> 00:25:05.200
Well, I was working in a French institution in 2012, or whenever the you know sovereign debt crisis really got going.
00:25:05.359 --> 00:25:15.680
And I was in foreign exchange, and foreign exchange is a very uh, it's very much a front line of credit issues, as you might expect, because big, big payments get made every day between banks.
00:25:15.759 --> 00:25:23.359
And if there's any doubt over banks and their credit rating, then um people literally move their money from one institution to another.
00:25:23.599 --> 00:25:38.480
Interestingly, by the way, another French institution, uh a rival organization at the time, um, actually gained exposures because it was can it was actually considered to be a stronger uh credit than where I was and another institution.
00:25:38.559 --> 00:25:47.920
So, you know, this isn't necessarily to say that um it will be or in fact it's interesting to look at the whether the those periods are analogous because people are talking about it.
00:25:48.240 --> 00:25:54.240
Before we leave central banks, I want to mention the TPI, which is this transmission protection instrument.
00:25:54.400 --> 00:25:57.519
They love a three-letter acronym in uh in Europe.
00:25:58.079 --> 00:26:04.079
Uh they came out with this in July 2022, never having activated it.
00:26:04.640 --> 00:26:23.359
And it talks about disorderly and unwarranted moves in markets, which might impair the transmission of monetary policy, which sounds very boringly technical, but is basically saying now I'm trying to let me uh this is my first run-up at trying to describe it in a sentence.
00:26:23.839 --> 00:26:26.319
The central bank sets the price of money.
00:26:26.880 --> 00:26:38.480
If that does not make its way out through banks and borrowing and bonds into the world wider world, then they think that you know there's an issue there, there's a there's a problem.
00:26:38.720 --> 00:26:41.359
So they they need to repair the transmission.
00:26:41.680 --> 00:26:43.359
What does it mean in practice?
00:26:43.759 --> 00:26:49.279
It's the idea that well, this is interesting because it's never been used.
00:26:49.440 --> 00:27:00.480
But like if you literally, if there were if the bond price became so dislocated, then the ECB might be able to say, look, I'm I'm gonna step in and kind of buy these bonds.
00:27:00.640 --> 00:27:03.279
I'm trying to, I'm gonna try and make sure that price gets out there.
00:27:03.440 --> 00:27:10.240
Now, the reason I'm stumbling and stuttering is because in and of itself, this is a very weird mechanism.
00:27:10.640 --> 00:27:13.200
Because what the problem is moral hazard.
00:27:13.279 --> 00:27:21.759
Because if you're fundamentally repricing the bond of a government because it has a bad fiscal plan, as you've suggested, then that's just rational.
00:27:22.160 --> 00:27:29.839
And if the central bank says, oh, well, we'll just step in and buy them all, the politicians say, Great, oh I don't need to worry then.
00:27:29.920 --> 00:27:32.720
I don't need to get my house in order, I'll just carry on doing what I'm doing.
00:27:32.960 --> 00:27:37.599
And then you get a really nasty situation where many, many worse things can happen.
00:27:37.680 --> 00:27:39.920
And uh, well, maybe don't get into that.
00:27:40.000 --> 00:27:42.720
And that would be bad enough if it was one country and one currency.
00:27:42.799 --> 00:27:47.759
But as you alluded to, Ben, the Euro is used by more than just France.
00:27:47.920 --> 00:27:50.160
The ECB is not the Banque de France.
00:27:50.319 --> 00:27:52.079
Um, so do you want to go into this?
00:27:52.160 --> 00:27:54.079
Because I I mean, we probably could do a whole podcast on this.
00:27:54.160 --> 00:28:07.920
We probably shouldn't bore people, but it's very important that this apparent help that the central bank could offer is really much more difficult in the French situation than, for example, what happened under Truss in the UK.
00:28:08.559 --> 00:28:10.000
I totally agree.
00:28:10.240 --> 00:28:14.720
They've got a high they've got a high but they've got a high barrier before they can step in.
00:28:14.880 --> 00:28:19.759
And the problem they have is underlying the actual state itself is not sorting its own problems out.
00:28:19.920 --> 00:28:27.119
So the other issue you're gonna have in there is exactly as you say, do they step in and effectively underwrite France's poor fiscal policy?
00:28:27.440 --> 00:28:30.160
I don't think that we're anywhere near that.
00:28:30.480 --> 00:28:41.920
So I unless they dampen this down soon, my core view with high probability or high conviction will be that this just gets worse and worse and worse.
00:28:42.079 --> 00:28:47.279
You've got the French election next year, you get a Le Pen government coming in.
00:28:47.680 --> 00:28:53.359
That I think is going to make it even harder for places like the ECB to get involved.
00:28:53.599 --> 00:29:10.240
And I wouldn't be surprised if you ended up with sort of a 2015 almost Greek type scenario where you get a government that I don't know what you want to call it, but the rest of the European infrastructure doesn't like very much, and they bring them to heel in a fairly unpleasant manner.
00:29:10.400 --> 00:29:37.200
And one of the most outrageous things for me, and I just amazed that it didn't get more coverage, but Tim Geithner's book, who was the Treasury Secretary for Obama, uh the uh Scott Bessant of his era, has in his book about how he was in the meeting, and various unnamed European officials were planning to take down Berlusconi if Berlusconi didn't basically do what they wanted, which is an astonishing thing for democracy.
00:29:37.359 --> 00:29:39.920
That's in the book, that's not a conspiracy theory.
00:29:40.160 --> 00:29:41.039
You've got that problem.
00:29:41.359 --> 00:29:57.759
Le Pen, I would say, is very much not what the mainstream European opinion wants to have running a country, and your best case outcome is she turns into a Maloney, but I don't think she's a Maloney by background or support or what she's likely to get.
00:29:57.920 --> 00:30:04.319
So because Maloney's obviously governing a coalition, the Le Pen will be the president outright.
00:30:04.799 --> 00:30:07.359
So yeah, it's very, very different.
00:30:08.000 --> 00:30:13.839
So and I cannot see how sovereign stress won't go into their financial sector at some point.
00:30:14.799 --> 00:30:16.880
Yeah, it's uh the base case, I would say.
00:30:16.960 --> 00:30:20.000
I mean, I'm surprised there's not more talk about Le Pen, what she will do.
00:30:20.079 --> 00:30:25.039
She actually did set out a budget proposal um in quite a lot of detail this week.
00:30:25.200 --> 00:30:34.000
Um she wants to enshrine into law that the deficit will fall by half a percentage point every year, um, which is quite an interesting political tactic.
00:30:34.160 --> 00:30:47.680
She wants to put that to a referendum, um, which would mean if it was voted down because people maybe didn't like the pen, then they'd effectively be saying we don't like fiscal responsibility, which is how she could portray it.
00:30:47.839 --> 00:30:49.440
I mean, there's a lot going on there.
00:30:49.599 --> 00:30:56.880
Um, there's a whole bunch of stuff in there about cutting taxes and cutting spending, particularly on benefits for immigrants, for example.
00:30:57.119 --> 00:30:59.119
Um, there's a lot more than that as well.
00:30:59.200 --> 00:31:11.519
Um, but of course, there's still the classic French uh issue, which is their pensions and their desire to have a very generous pension system that kicks in at, well, as you know, young of age as possible.
00:31:11.680 --> 00:31:15.200
And that has been a millstone around the French next for years.
00:31:15.359 --> 00:31:18.000
Um, but you know, that's still lurking in there.
00:31:18.160 --> 00:31:28.319
So I should add, by the way, we talk about the ECB and politics, and it surprises me sometimes that monetary policy is considered this dull, dusty, academic, technocratic world.
00:31:28.480 --> 00:31:29.839
It's super political.
00:31:30.000 --> 00:31:31.519
It is super political.
00:31:31.920 --> 00:31:35.279
Uh, as you flagged up there about that conversation that went on.
00:31:35.440 --> 00:31:39.920
And we've got next year, Lagarde will be gone, her term is over.
00:31:40.079 --> 00:31:46.799
So the new governor of the ECB to be appointed, um, and the chief economist, Philip Lane's term is over.
00:31:46.960 --> 00:31:52.160
We've already had um Isabel Schnabel, the one of the Germans on the ECB, uh, she'll leave in January.
00:31:52.240 --> 00:32:08.079
So it's quite a lot of change happening in the ECB itself, and it's always been a real um, what can we call it, classic European compromise fun fight between what nationality and what representative gets those roles.
00:32:08.319 --> 00:32:17.759
And so that in itself will be a very big political question because, as you said, Ben, this is the heart of the European project.
00:32:18.000 --> 00:32:23.359
This is the entire European monetary union, this is just a fact.
00:32:23.519 --> 00:32:26.480
It doesn't work because they don't have fiscal union, right?
00:32:26.640 --> 00:32:34.559
So lots of conversations in the UK about constraining this government because of this, that, and the other, because we are both the fiscal and monetary.
00:32:34.640 --> 00:32:41.279
We have it all in one place in the UK, but as part of the Euro, it's an unfinished project, isn't it?
00:32:41.440 --> 00:32:48.640
And and and basically, Europe or the Eurozone um survives crisis to crisis, doesn't it?
00:32:48.880 --> 00:32:50.880
That's that's how it goes.
00:32:51.680 --> 00:32:53.839
It does, but it gets worse every time.
00:32:54.000 --> 00:32:56.079
I don't think everybody really talks about that.
00:32:56.240 --> 00:32:57.839
I mean, it it's it's a mess.
00:32:58.000 --> 00:32:58.799
It's a complete mess.
00:32:59.039 --> 00:33:02.559
Monetary is a mess, fiscal's a mess, political situation's a mess.
00:33:02.720 --> 00:33:04.880
Well, and and actually we should mention Germany.
00:33:04.960 --> 00:33:14.319
I mean, this is a quarterly, it's a quarterly podcast, and you know, I come in with my predictions, and I was a bit burned on the I think our very first one I said, the next time we speak, Starmer will be gone.
00:33:14.480 --> 00:33:16.480
Now, I think I was wrong by about three months.
00:33:16.559 --> 00:33:18.559
I think I was a quarter early or something, wasn't I?
00:33:18.640 --> 00:33:19.039
Is that right?
00:33:19.759 --> 00:33:21.599
I think you were a quarter early, and that was it.
00:33:21.680 --> 00:33:23.119
Uh uh, you know.
00:33:23.519 --> 00:33:25.519
I'll be a quarter early on this one.
00:33:26.079 --> 00:33:28.240
Mertz is gone in Germany, right?
00:33:28.319 --> 00:33:32.640
Chancellor Mertz, they're gonna do a Kanclercaus, you know how to say it better than me.
00:33:32.720 --> 00:33:34.240
Uh a Chancellor swap.
00:33:34.559 --> 00:33:40.319
Um hasn't been done for since the early 80s, but it can be done.
00:33:40.480 --> 00:33:59.839
And um Germany is in a lot of trouble after these regional elections where the AFD uh gained huge amounts of representation, and more important for Merz, the CDU didn't even get past the threshold for representation in uh the Pommern uh uh regional elections.
00:34:00.000 --> 00:34:05.119
So, I mean there's a lot of folks on France, but Germany is really struggling as well.
00:34:05.440 --> 00:34:06.880
Yeah, it's a complete mess.
00:34:07.039 --> 00:34:08.960
I mean, it's all a complete mess, and there's no growth.
00:34:09.039 --> 00:34:11.760
And Draghi points out there's no growth and they're not doing anything.
00:34:11.840 --> 00:34:24.000
And if you look at the only growth the UK's got, it's largely through reflected glory of the AI boom because we haven't regulated our AI sector out of existence as the European Union largely has already.
00:34:24.320 --> 00:34:31.519
Can I just I know Normie mentioned this, but there's a that somebody got clawed to create uh a song about that.
00:34:31.599 --> 00:34:32.159
Did you see it?
00:34:32.719 --> 00:34:33.360
Yeah, I did.
00:34:34.320 --> 00:34:43.679
Someone said it should go into Eurovision, and it's this brilliant song that's all done by AI, this sort of beautiful European lady singing about, you know, not available in your region.
00:34:44.159 --> 00:34:47.760
And you know, you've got you've got AGI, we've got GDPR.
00:34:48.239 --> 00:34:54.079
Anyway, um, I don't know if that'll make the cut of the podcast, but please Google it because I did amuse me.
00:34:54.159 --> 00:34:58.000
And it had it, and it was a very fair economic and political point.
00:34:58.159 --> 00:35:05.039
As you said, um, they are proud to be European and and uh going in a different path than than the US.
00:35:05.119 --> 00:35:09.679
But the US, which returned to the US in the midterms, yeah, um, obviously got a lot of its own issues.
00:35:09.760 --> 00:35:23.199
And as you alluded to, um bond market wobbles in many ways kind of originated with uh a reassessment of treasuries um uh due to how could it be.
00:35:23.360 --> 00:35:25.599
They're overheating, their economy's overheating.
00:35:26.079 --> 00:35:37.440
Yeah, you've got six percent uh GDP basically fiscal stimulus, which is enormous, plus you've got uh what is about to become the biggest capex boom in US history.
00:35:37.519 --> 00:35:43.360
Uh at the current trajectory it'll overtake the railway boom of the 19th century, and that ended really badly.
00:35:43.599 --> 00:35:49.199
So, plus you're restricting labor, which again was partly what he was uh voting for.
00:35:49.519 --> 00:36:02.480
So you've got basically a two-tier economy that on one side of it, it's absolutely great guns, but you can see from the polling, a lot of the average Americans are being left behind by inflation because you've got an overheating economy.
00:36:02.639 --> 00:36:23.119
So their bond market is repricing, and the structural problem you'll get there is if I'm offered the choice between owning US debt, an economy that's overheating, but might be looking to do some stuff about it, compared to just a complete political quagmire that I don't know what's gonna happen, the economy looks a mess, it's not clear it's ever going to restructure itself.
00:36:23.280 --> 00:36:29.199
I'm gonna own US debt, which I think is just going to end up causing further problems, which gets to our final issue.
00:36:29.519 --> 00:36:32.880
When you're sitting there as an international manager, where do I put the UK?
00:36:33.039 --> 00:36:35.119
Closer to the US or closer to France?
00:36:35.199 --> 00:36:37.760
And you sit there and think, I think that's gonna be France.
00:36:38.079 --> 00:36:42.639
In fact, it looks very similar to France, but with its own central bank and monetary policy.
00:36:42.800 --> 00:36:45.119
But again, you've got a government that wants to copy it.
00:36:45.199 --> 00:36:46.079
This is what I don't understand.
00:36:46.159 --> 00:37:02.159
It's not a political statement, but the the the fact that the European question has come up when there's so much documentation and evidence now that it wasn't the damage the or the damage that was done to the UK economy wasn't insignificant, but it wasn't that much at all.
00:37:02.400 --> 00:37:05.840
The damage that was done by COVID was far more important, as we've discussed before.
00:37:05.920 --> 00:37:21.760
But the fact that you're actively talking that you want to do more of this, and yet you've got this bin fire, as the Americans say, with the French and the Germans at the moment, and Draghi saying you need to deregulate aggressively to get anything working, I just find incredible that the discussion is still being had.
00:37:21.920 --> 00:37:25.039
It's it's our economy needs to grow, so do theirs.
00:37:25.119 --> 00:37:32.320
You've got the tools to do it now, they haven't, and yet you want to tie your own hands to get back for some, again, ideological reason.
00:37:32.400 --> 00:37:40.480
I just as a professional investor, not as a politician, or or I get, you know, it's the motus subject for some people, but it's an absolute mess.
00:37:40.719 --> 00:37:59.280
Well, if I can defend the at least the political strategy is my understanding, which is that of course part of Burnham's suggestions on getting close to Europe are an attempt to unite the left and look more friendly, tempt some of those Lib Dem remain slash rejoin voters over to Labor.
00:37:59.760 --> 00:38:11.360
Um, but I also think if uh we take a longer term view, there is an element of the of the Burnham project for all of his nostalgia and constant talking about the amazing 1970s.
00:38:11.599 --> 00:38:12.639
Not sure that they're that amazing.
00:38:12.880 --> 00:38:14.480
I know, I I was shocked by that as well.
00:38:14.800 --> 00:38:21.920
But um and Chancellor Healy made his corporate speech all about his miner's lamp that was on his uh on his bookcase.
00:38:22.079 --> 00:38:32.320
Anyway, the uh there is a point here about what should the British relationship with Europe be, in fact, um wider than that, even really.
00:38:32.480 --> 00:38:45.199
I mean, I think the defence angle has uh thrown up into the air all of the international uh agreements that have been in place since the Second World War, they had to be reformed.
00:38:45.280 --> 00:38:46.079
We're in a new world now.
00:38:46.159 --> 00:38:48.480
So, you know, obviously NATO, there's a lot of challenge there.
00:38:48.639 --> 00:39:04.400
But look, there's a role here with obviously Britain having its nuclear deterrent, that that there's been talk about um defence banks and uh procurement co-planning and that Canada plus the UK plus Poland plus France plus Germany plus Australia.
00:39:04.559 --> 00:39:09.039
You know, there's a lot of redrawing of um supranational alliances.
00:39:09.199 --> 00:39:27.119
So I think that it depending on how um Burnham plays this, or indeed any future politician, there is a path towards um redrawing of these international relationships that makes sense, but it won't make sense if it's oh, we need to go back to where we were in 2015 before Brexit.
00:39:27.199 --> 00:39:31.119
That I mean, that world is just over for all parties.
00:39:31.519 --> 00:39:44.079
I just talked about that we've talked at length that the risks to the European project and the Eurozone, that those Eurozone countries have got to make the Euro work, um, you know, let alone anything to do with Britain being awkward about things or whatever.
00:39:44.320 --> 00:39:59.519
So I again I see that as sort of this threat and opportunity that's being used strategically to sort of dangle in, especially as well to younger voters who may have not even voted in that Brexit referendum, they were too young, they're not that young now, right?
00:39:59.599 --> 00:40:00.239
I mean, what's that?
00:40:00.400 --> 00:40:02.639
You would be what, 27 now?
00:40:03.039 --> 00:40:04.639
Um, is that right?
00:40:04.960 --> 00:40:06.880
Um, yeah, maybe even.
00:40:06.960 --> 00:40:16.719
So in another 10 years, these are the these are the managers or or the CEOs of Britain, and they may well think, yeah, what's going on?
00:40:16.800 --> 00:40:17.440
What was that all about?
00:40:17.519 --> 00:40:19.039
But let's have a different relationship.
00:40:19.199 --> 00:40:25.360
Whether they'll decide that relationship would be one better linked to America or or Europe is is an interesting question.
00:40:25.599 --> 00:40:32.320
But anyway, I think I get I get why I think there's a path that doesn't reopen the old debate.
00:40:32.480 --> 00:40:35.519
Whether they'll take that path, we'll see.
00:40:35.599 --> 00:40:39.280
But there there is an angle on that from a political strategy point of view.
00:40:39.519 --> 00:40:45.679
Um but on the on the on the US, we should I haven't got much time left, have we?
00:40:45.760 --> 00:40:50.800
We should we should talk about um obviously the the midterms and the um and the energy side of this.
00:40:50.960 --> 00:41:06.239
Actually, Ben, you have been spot on really about the whole energy price situation because we've talked we've talked about sovereign risks, we've talked about indebted corporates, but energy has been a real accelerant to all of this because of course it's been hugely inflationary, hasn't it?
00:41:06.480 --> 00:41:07.039
Yeah, it has.
00:41:07.199 --> 00:41:13.280
When we spoke last time, obviously there'd been a reversal and it hadn't panned out as I expected, it's now panning out as I expected.
00:41:13.360 --> 00:41:21.840
And I made the point that distillates, so diesel and everything else is a problem, as we know we've got uh problems in France, particularly around diesel, it's gonna hit the UK.
00:41:22.159 --> 00:41:30.880
Some of the shutdowns of the refineries that we have, the shutdown and the kind of I see so much nonsense written about the energy industry that it's incredible.
00:41:31.039 --> 00:41:32.559
So, just to clear up a couple of things.
00:41:32.639 --> 00:41:35.920
One is the global price is set by uh international markets.
00:41:36.000 --> 00:41:37.440
That is absolutely correct.
00:41:37.599 --> 00:41:38.480
But do you know what?
00:41:38.639 --> 00:41:40.480
You actually have to ship it somewhere.
00:41:40.639 --> 00:41:47.519
And actually, if you look at the moment, there is enormous price differential with the energy coming out of the Persian Gulf and stuff you can buy offshore.
00:41:47.840 --> 00:41:48.079
Why?
00:41:48.239 --> 00:41:50.880
Because you're not even sure you can get the stuff out of the Gulf.
00:41:51.039 --> 00:42:00.880
So actually, having your own oil fields and gas fields connected to your own system with minimal transfer costs, even though there is an international spot price, the transport costs collapse.
00:42:00.960 --> 00:42:05.760
Also, having your own refinery capacity, if you've got that as well, makes an enormous difference.
00:42:05.920 --> 00:42:10.480
And we have made a conscious policy decision to get rid of all of that.
00:42:10.719 --> 00:42:25.760
And for Healy to talk about I've got a miner's lamp, well, actually, under your energy policy, which you initiated in the um middle of the 2000s onwards, you would have shut down any remaining coal mines even quicker than uh the Conservative government did.
00:42:25.840 --> 00:42:29.840
In fact, post-76, actually, more mines were shut down by the Labour government.
00:42:29.920 --> 00:42:37.519
That's not a political comment, it's just an observation over history that one side seems to have a very sort of um, shall we say, faulty memory.
00:42:37.760 --> 00:42:40.639
Memories may differ about their actual policies in there.
00:42:40.960 --> 00:42:46.079
So, to my mind, the UK, I cannot see how there isn't going to be a significant energy.
00:42:46.559 --> 00:42:47.920
The system is at breaking point.
00:42:48.000 --> 00:42:53.360
You've got a grid that hasn't been designed for this and it's been taken with a lot of variable energy inputs.
00:42:53.599 --> 00:42:57.280
You didn't build any of the backup capacity that you were meant to.
00:42:57.599 --> 00:43:07.119
You have reduced your refining capacity, you've reduced your own ability to basically draw on your own natural resources that you could have used for this, which you are still using.
00:43:07.280 --> 00:43:12.159
So it's just you've made a decision not to use your own and import somebody else's even more expensively.
00:43:12.320 --> 00:43:28.079
So I don't see how we are going to avoid the diesel problems, I don't see how we're going to avoid the heating oil problems, and the really big one is the uh gas price, and the gas price, while it has come up significantly over the summer, it's nowhere near the highs.
00:43:28.320 --> 00:43:40.639
And so I would be interested to see where we are in six months' time, and I suspect that to quote Macmillan, uh Burnham's plans, uh plan A is going to be overcome by events, dear boy, events.
00:43:40.800 --> 00:43:58.800
And I think there's two or three things that I think there's now a very high probability they will overheal things, and whatever you think of the general voter, I I think that Labour is probably most closely identified with the current energy policy than any party that we've got, even though you could rightly say the Tories didn't do a lot of it.
00:43:58.960 --> 00:43:59.760
Because of you mean because of
00:44:00.159 --> 00:44:03.519
net zero effectively or even though that was May that signed it in.
00:44:03.599 --> 00:44:11.440
But I think the whole I think the perception, the way that Miliban in particular was very closely identified with it, I think he's going to come back to haunt them.
00:44:11.519 --> 00:44:20.800
But that I'm not a politician, but from the fundamental side of the economy, I think that starts to derail things and I think that will probably overcome any plans they've got.
00:44:20.960 --> 00:44:23.360
But that would be my my best guesstimate.
00:44:23.679 --> 00:44:26.960
Well, as with all things political, it's who will they blame?
00:44:27.119 --> 00:44:34.239
That's a very good point that you make to my earlier suggestion that you only need, let's say, a third of the electorate.
00:44:34.400 --> 00:44:55.679
Okay, two-thirds of the electorate blame you, but if one third not quite sure if they blame you or not, and extra extra dimension to this uh fragmented electorate and unpredictable elections, the threat of uh Farage, which uh or a reform government, um, there is also that sort of lever to pull.
00:44:55.760 --> 00:44:57.599
I talked about socialism versus capitalism.
00:44:57.679 --> 00:45:04.800
The next election will be fought on that with on the top, you know, do you want to let in Farage, basically?
00:45:05.039 --> 00:45:27.599
And there is even amongst perhaps the one third of core voters on the left for Labor, where a threat of reform might just upset as they may feel about that, might have to say, well, I just I can't I can't annoyed as I am because my, you know, it costs so much to heat my home, uh, drive my car, um, I can't possibly risk letting that man in.
00:45:27.760 --> 00:45:36.159
And I say I use the phrase that man, because actually it's a little bit the phrase that um Kenny used in her conservative um conference speech.
00:45:36.320 --> 00:45:49.280
You know, she said I think the phrase was you know we will not do a deal with that which was uh rightly picked up on as a very clear signal that there would be no deal done with reform.
00:45:50.719 --> 00:46:05.519
But it is also picking up on the sort of element of the electorate who again I'm trying very hard here not to um it's not my political views and you know people listening to me have all different views but the the political angle here is that there are very strong feelings.
00:46:05.599 --> 00:46:23.599
There are strong feelings about Brexit there are strong feelings about Nigel Farage love him or hate him and and there has been a sense of um it's interesting actually like as Trump has struggled in America Farage has also kind of struggled in the UK and that maybe there were some voters tempted that way who were slightly turned off by some of the rhetoric.
00:46:24.239 --> 00:46:39.599
Either way what I'm trying to get at is where you would normally consider your point that um extremely expensive energy costs would would cost you an election a good politician might be able to spin that round again from threat to opportunity.
00:46:39.760 --> 00:46:41.360
So I'll just leave that there.
00:46:41.519 --> 00:46:48.159
And I also leave there the idea that what we're talking about I think you said the next six months um we could get an election sooner than that.
00:46:48.320 --> 00:46:56.320
The earliest we could probably get an election the very earliest based on how long it takes to get one would be something like the 10th of December 2026.
00:46:56.719 --> 00:47:06.320
Uh you'd have to let the budget land and you know go after that Burnham is making a big 10-year planned speech in November.
00:47:06.719 --> 00:47:16.079
That will be effectively the manifesto and then it will be well hang on I can't not gonna wait three years to do this.
00:47:16.480 --> 00:47:20.079
And if it goes down very well with the public then that's the springboard.
00:47:20.239 --> 00:47:28.880
So I just put that out there to people to to to be looking at you know sometime between 10th December and 7th of May uh next year to look out for that election.
00:47:29.039 --> 00:47:39.360
And some of what you're you're discussing there is actually would would suggest going earlier rather than later because what you're saying is this is going to get tougher.
00:47:39.679 --> 00:48:37.519
In fact you're saying it's inevitable that the energy issue, the inflation issue and then I think the bond issue that's just all going to persist is that right I'd hate to use the word inevitable because I've had enough uh uh sure when things in my career go in my face uh to be fair often it's a matter of timing I think there is a very high probability events are gonna move against Burnham quite quickly and well yeah go on go on before I yeah no no I I I that would be my core view that if you're gonna sit there I think that I think we've got a difficult decade ahead not his glorious 10 years and I think events are going to move against him quite quickly and I personally will be surprised if he goes with an early election but you know this better than I do so I'm not gonna bet against it but I I see the merit in your point because I think they'll probably realise they need to go quite quickly.
00:48:37.679 --> 00:48:41.840
The other thing is we've not discussed Farage's got£70 million to play with now.
00:48:42.079 --> 00:48:48.480
Ah yes exactly and uh maybe that's that will be a good example of whether he should be running the country or not.
00:48:48.559 --> 00:49:27.599
If he turns that£70 million into a fearsome election machine then actually they will look a lot more like a government in waiting which I would say at the moment I'm not sure they do um being well they talked about beefing up it's interesting when they talked about what they'd spend that money on because it was not just election agents, people on the ground you know targeted social media messaging they talked about policy they talked about needing more policy people fleshing out the policy narrative um at the moment I believe Farage is going around the country talking about those the first 100 days and being ready and actually having a a literal policy plan you could put into action for government.
00:49:27.840 --> 00:49:48.559
So um they're getting on it that's for that's for sure another reason why Burnham may consider to go early but it's what what is something I think the political world is unprepared for would be a serious period of financial instability bordering on a systemic crisis.
00:49:48.880 --> 00:50:05.440
Now I again I'm not using that phrase to be alarmist I think I hope those people who've listened this is our fourth quarterly podcast will know we're not really keen on clickbait hyperbole we just see the world as we see it and we try and flag up the risks that are coming.
00:50:05.679 --> 00:50:18.639
No I'm open for that if I can get more clickbait yeah it's all gonna crash sell everything but you can't go into cash because they're gonna evaluate that too we're all doomed so uh yeah five under the bed.
00:50:18.880 --> 00:50:31.519
Yeah the classic uh but I wonder now as I mentioned that you know BIS warning uh there are a number of risks that are sort of coming to fruition at once.
00:50:31.760 --> 00:51:57.199
Yes and it may yet just be another tremor before the bigger earthquake where we'll we'll probably we'll probably actually when we look back in history when we do our anniversary 100th podcast we look back um and we'll say look you know 2022 that first uh horrible nasty bond crash that happened was sort of the beginning of a series of tremors one of which you know we removed Liz Truss and may well go on to not only remove other leaders but undermine entire political structures possibly Europe uh and others um but are we there is that is this it are we now into another I'm I'm catching you unawares Ben because we haven't even talked about this between us yet but are we in a more serious tremor are we is the there a threat is there a threat of something more systemic looming yes my my big world view is we know that the world economy runs in long term cycles and in many ways the sort of politics might shape it at the beginning of the cycle but then the rest of it kind of goes along with it and I think that the world of that started in the mid 80s into the early 90s which was effectively inflation being stamped out and then hyperglobalisation I think that's dead and or if it's not dead it's it's in its death rows because what we've got is completely unsustainable.
00:51:57.360 --> 00:52:14.719
The the trade we we've discussed it on the other podcast but the trade imbalances are unsustainable you cannot have the rest of the world absorbing those gigantic surpluses off China because let's put it in real terms that means you getting into debt and you lose in industrial capacity on behalf of China.
00:52:14.960 --> 00:52:37.280
China doesn't make any money out of solar panels it doesn't make any money out of cars and yet it's dumping this stuff straight into your market to make sure that they keep jobs back at home and you're beginning to see that is a problem in Europe where Europe has now China voluntarily which which they can't because they've got no they can't it means for them massive job losses.
00:52:37.360 --> 00:52:44.719
So for them social stability is all so it's like no sorry Europeans I might make some noise but I'm gonna dump this into you so going back to another J cou.
00:52:44.960 --> 00:52:59.360
Here's all the J kus yeah exactly so uh and you have to be j kus because I saw the new Jaguar and I just thought well good luck with that one boys because I don't think that's gonna work but anyway I'm not an auto engineer but uh let's just a similar view myself.
00:52:59.599 --> 00:53:43.199
Yeah I wouldn't be hurrying to buy their uh uh stock shall we say Tata Motors so I to your point I think we're in that bigger regime shift and I've talked to uh clients in the past that I think globalization is going to be unwound to a certain degree I think you're gonna see that rise of uh the nation state again and I think that is what you're beginning to see with uh populism or democracy as some people might uh call it at the same time um and I think you're gonna see a lot of those structures that were anchored in that world start to come unstuck and for us as Europeans I think the European Union is looking particularly vulnerable because people forget I mean that's only a 92 agreement it only came into being in 99.
00:53:43.280 --> 00:54:00.320
We used to have the EEC which was a much looser more flexible structure and just with me as a system science kind of guy I like flexible structures that can absorb shocks I don't like rigid structures that can't absorb shocks and the European Union looks very much like that.
00:54:00.480 --> 00:56:00.320
And if you don't believe me read Draghi's report I only say I always get Europeans phoning up going you're a Brexiteer no I'm just a pragmatist so there we are well the political science backs you up because when you have a flexible political system either because of proportional reputation or you've had um less long running long-term parties if it's more flexible it gives it gives more right so Greece effectively uh having not been a democracy for that long with very long running um traditional parties was one of the first to to dally with um whatever you want to call it right wing populism fire brands etc um and then eventually came back to its original Conservative party and it's done all of that already and now it's got a primary budget surplus and it's investment grade and it's got um tighter uh spreads than other elements of Europe but then when you come to Germany where the main two parties have used to take 70 80% of the vote and that's been chipped away over years and a rigid political system born out of historical uh reasons in many regards um it's much harder for it to give uh and and the same story in the UK and the US is interesting and the US is a is is it was a system where it's quite rigid but Trump's success was to play within the system uh and create a party within a party where you know MAGA republicanism we should end really by just touching on the midterms because this is now becoming a real crux point for that movement where Trump has put his candidacy in and I think very specifically Texas is the race to watch for the control of the Senate and and whether um Trump will well the the American political system actually disperses power quite significantly so it's quite hard for an American this is despite what anyone might ever tell you the US presidency is in and of itself institutionally not a very strong executive power except it does have foreign policy which does tend to have quite a big impact on the direction of America and the rest of the world.
00:56:00.559 --> 00:56:08.480
However um the so Trump will still go around faring of executive orders and doing what he does even if he does lose control of the Senate.
00:56:08.639 --> 00:56:31.039
The fact we're even talking that he might lose it is astonishing because our analysis um shows that the it should have been an easy one to retain really these this this is a big ask for Democrats to rotate the Senate is a big ask because the seats that are up like Texas are a kind of although Texas has shifted a lot over the years but they've technically been quite Republican.
00:56:31.360 --> 00:56:44.639
And what happened in Texas was that you know it's a Trump a Trump guy he picked and put in uh to replace someone that had been around there for a while and well known in Texas um is cut is quite is not appealing to as many voters as as it should.
00:56:45.519 --> 00:57:00.400
So uh and and actually just you know the idea that Texas could go for a Democrat um and quite a left because that's the other thing where everyone is splintering out to the extremes even in America where you have Republicans and Democrats you're getting a Democratic party that's going very left.
00:57:00.559 --> 00:57:15.440
You know its candidates are very left candidates um and actually the party itself has been struggling with its own primary system to try and make sure we don't get them to be too left um and and and then we've got the you know the other side on the Republicans.
00:57:15.599 --> 00:57:19.679
So it's it that's it's it's quite fascinating that that system hasn't broken.
00:57:19.760 --> 00:57:52.000
You know we've had the Tea Party we've had MAGA Republicans and what comes next and at this point in any presidential term where it's two terms you're in the final two years it's all about legacy and so really it was always going to be look 2028 Vance or Rubio I just think if you really if Trump really does lose the Senate then as is looking increasingly likely then in a way it's not that he's a lame duck because he'll still do things but it will be far more about the direction of the Republican Party 2028 onwards.
00:57:52.960 --> 00:57:59.920
I agree we had a high profile US commentator come in and uh we talk about manga and we talk about the Tea Party.
00:58:00.079 --> 00:58:14.079
The way they refer to the Democrat insurgency is DSA Democratic Socialists of America which I'm sure you know and I just thought it's incredible that country has got people that actively identify as democratic socialists.
00:58:14.400 --> 00:58:31.039
So people should look into that if they haven't look at it because that you're right then that is very significant in terms of where the Democratic party's going so I think that's uh yeah it's gonna be an interesting quarter and we're gonna have a lot of things but on the as we discussed earlier I think the next six months are going to be difficult.
00:58:31.119 --> 00:58:40.559
So the next podcast we might be doing this by candlelight and uh both on exercise bikes as we're effectively trying to power up enough electricity to get everything to work.
00:58:41.119 --> 00:59:00.000
I mean I'm laughing I'm laughing but I am not because first of all we have got stockpiles of batteries and bottled water in our house and the government has told you to make sure you do too and again that's not a conspiracy theory that is an actual government suggestion isn't it Ben in the UK anyway.
00:59:00.239 --> 00:59:04.559
It is and it's a massive government failure that you're even getting to that point in a normal condition.
00:59:04.800 --> 00:59:06.639
And you can't just blame that on Trump.
00:59:06.800 --> 00:59:16.480
You can or and his war stuff like this could have always happened Iran could have gone into a revolution as it did in the 70s and you could have well been in exactly this position as well.
00:59:16.639 --> 00:59:30.159
Yeah so it's like the state has been allowed to become fragile over and and to be fair to Burnham and Snarma this has taken a long time to get to this position.
00:59:30.239 --> 00:59:32.159
It's not just the recent dealings.
00:59:32.480 --> 00:59:45.679
No indeed well a very volatile quarter ahead is is something I think we're both definitely predicting uh and uh yeah well let's see where we yeah I do I enjoy that I'll enjoy talking to you on candlelight in uh in January.
00:59:45.920 --> 01:00:00.159
Almost romantic and you've just got engaged as well thank you well we have to draw that to a close what a discussion cantering through all the very key things happening at the moment in politics and markets.
01:00:00.639 --> 01:00:24.000
If you'd like to respond in any way I'm on helen at blondmoney.co.uk also of course on Twitter and LinkedIn please do send us your feedback we do listen and we will incorporate into future episodes and I'd just like to say thank you very much Ben thanks very much Helen and I'm not on Twitter and I probably won't respond if you email me particularly if you want to talk about modern monetary theory there you have it.
01:00:24.159 --> 01:00:25.679
Thanks a lot everyone