Market Outlook: The podcast discusses the impact of recent central bank interest rate decisions, highlighting the Federal Reserve's 0.25% rate cut and its implications for future monetary policy and market expectations.
US Market Performance: US equity markets have reached new highs, driven by strong retail sales and consumer spending, despite concerns about employment and inflation.
Investment Opportunities: The discussion emphasizes the potential benefits of investing in data centers and AI-related sectors, as well as the positive outlook for US equities amid anticipated interest rate cuts.
Interest Rate Implications: Lower interest rates are expected to support asset values by reducing borrowing costs for companies and increasing economic growth, which in turn can boost share prices.
Portfolio Strategy: The podcast explores the decision-making process for managing a portfolio, including when to take profits and the importance of understanding the underlying assets in investment funds.
Global Economic Concerns: There is a focus on the potential risks of policy mistakes by central banks, drawing parallels with historical events like the Great Depression and the financial crisis.
Currency and Inflation: The conversation touches on the implications of a weakening US dollar and the challenges of accurately forecasting inflation, with a focus on how these factors influence investment decisions.
Central Bank Independence: Concerns are raised about the independence of central banks, particularly with political influences potentially affecting interest rate decisions and their broader economic impact.
Transcript
for inflation. They're still 3% in a year and a half's time. >> No, they're not. >> We'll have a look at that. >> This reminds me, the bulls sing the loudest at the top of the market >> and the bears squeal the loudest as it goes higher. >> Now, we should have looked more into what we had. That's our bad. >> The chairman's bad. It was my stock. >> It was your stock. And you didn't even know what it was. But better to be lucky >> than good. So, I get taken into the room with the head of risk. >> Naughty boy. >> Naughty boy. They say, "Why the hell were you long half a billion dollars of futures last night?" >> What's known in the trade as squeaky bum time? >> It was a horrible feeling. Your capital is at risk. The value of your shares, ETFs, and ETCs can fall as well as rise, which could mean getting back less than you originally put in. This content is for information purposes only and is not investment advice. Past performance is not an indication of future results. [Music] Welcome to episode 11 of The Art of Investing, the Monetary Policy Special. Now, interest rates aren't just what you receive on your savings, pay on your credit cards, or give you stress about your mortgage refinancing. Today we're going to break down everything you need to know about the policy decisions, the language that's used, and also how it affects the valuation of every single asset out there. Most importantly, how is that going to play into our portfolio changes today? But first, as always, the spice market update. >> Thank you very much, Rich, and welcome back. Uh so as Rich says, this is a week where central banks have taken center stage and that's helped equity markets push to the high and we'll come into go into a bit more detail about that later on. But we've had new alltime highs in most the US markets and even the Russell managed to hit a year-to- date high last night uh after the FMC meeting. Uh but Asia doing very well. Gold and silver also popped up to new highs. So that's all very positive for as we have a lot of exposure for our portfolio in that. The lagards were in places like Europe, Germany, France, and of course the UK. Unfortunately, as we talked before, we've had some bad news um in the UK on inflation. There's a uh Bank of England meeting tomorrow, and we were hoping if the inflation data been good, that would give them an excuse to cut interest rates, but it wasn't. The inflation data was a the CPI, the consumer price index rose to 3.8%. Which is broadly in line with expectations, but didn't give them any sort of scope to be able to cut rates uh tomorrow. And that reminds me, we're going to be getting a Bank of England decision as we're on air, finishing this episode, aren't we? >> We are indeed. >> Waiting for us, >> but they will get it a day late if they do that. >> Very true. >> On a more positive note, the uh the US CPR, the consumer price inflation, uh which actually a little bit better than expected last week. Um and as we'll come to later, you'll see that has helped the Federal Reserve cut interest rates. The economy side of the US, apart from employment, uh is actually doing pretty well. Well, they had really strong retail sales, so people are still spending despite worrying about their jobs, etc., which is a good sign for for stock markets, I would tell you. >> Or is it an addiction over there? >> It takes a lot for retail sales to go negative. Even in recessions, retail sales, funny enough, rarely go negative. >> I heard a really interesting stat this week that 10% of the population now is accountable for 50% of consumer spending in the US. It used to be a third and now it's up to 50%. So that top 10% probably aren't worried about losing their jobs. >> No, exactly. That's helped at the sort of the the feel-good factor for equities and earnings. The US and China are in trade talks still and tomorrow President Z and Trump are meeting um to discuss their trade deals and hopefully they'll sign an agreement that takes things positively forward. Uh on the side for those of you like Tik Tok, it's expected that Trump is going to allow Tik Tok to continue to operate in America. Yeah, sorry spicy. What I know is tic tacs, >> but there was worries that that was going to be banned and uh obviously uh that would have hurt companies like Oracle who do all the uh the computer sort of power for Tik Tok in America. But probably some of the biggest moves this week have come from Elon Musk who clearly had his nose put out a joint by uh Larry Ellison having become the richest man in the world albeit very briefly when Oracle went up 40% last week uh because he went out and bought a billion dollars worth of shares in Tesla as you do and the Tesla share price has gone up 30% as a result in the following days. >> Amazing that is an amazing move. >> Yeah. So he's once again the richest man in the world. Also on a positive front in in the the mag seven, the magnificent seven, Alphabet or Google as we know it, uh joined the $3 trillion market capitalization club. So there's now only been four companies that have ever made that sort of had that accolade. Uh Apple was the first ever. Uh now it's Nvidia, Apple, Microsoft, and of course Google has just joined the alphabet. Cash on the sidelines. We've talked about this before. We had an update on that figure this week and it's up to $7.5 trillion just sitting on the sidelines in money market funds in the United States. >> It's cuz I sold some of my stocks >> and you put it in cash. Oh, you grizzly bear. >> The biggest risk position you own therefore is your cash. >> So you keep on telling me, but I sleep very well at night. >> A bit of a technical thing. Trump put forward what could be seen as quite a good idea actually for companies. He's suggesting that they start reporting their earnings every six months now instead of every three months. That's not come into into force yet, but it means that it should reduce the volatility around the earning season and uh reduce costs of companies because every time you have to report numbers to the stock market or to investors that has to be audited and that cost you a lot of money to do it. So he's suggesting in America you do that every six months rather than every three months. In the UK we do it every six months. uh that's what that's the minimum you you have to do that would also sort of help in terms of like less admin etc but it would also reduce investor news flow which I don't think would necessarily be a good thing that would be the negative that you don't get as much news flow up to date news flow on companies >> we tend to get trading statements to replace that don't we in in the UK I wonder if they'll move to that kind of model potentially >> I I would think they would do yeah the interesting thing I suppose is I mean I'm I'm supportive of it I think it say quite a lot and I don't really see quarterly adding too much but it would make it more difficult for them to um play the games they play quite so easily in setting expectations low and moving them up four times a year there would now be more time between those things I suppose more uncertainty being created in there but I think it's a good move I don't think it's a bad move at all >> anything that reduces the burden on companies has to be good they have to concentrate on running the business so as I mentioned this This has been a big week for central banks. Uh yesterday, the Bank of Canada cut interest rates earlier this week. Uh the Bank of England report today as we're recording at the end of this podcast recording. Uh the Bank of Japan report tomorrow. Uh but the big one was the Federal Reserve uh which sat last night which was Wednesday night uh on this week. Uh and they cut interest rates by 0.25% a quarter% or as we say in the city 25 basis points. Did much pop out to you this week, CJ, outside of the the monetary policy decisions? >> I thought there were a couple of things. Uh, one, the Office of Budget Responsibility in the UK um dropped some not too subtle hints that they are going to be cutting their productivity forecast. Now, before everybody switches off saying, "What the hell's that got to do with anything?" You need to remember that the OBR are the people who advise Rachel Reev on the size of her financing gap. And so with the budget coming up with them cutting back their productivity forecasts, that will give her more of a headache than she already had. It doesn't rain, but it pours. Uh not only has she now got to fill her own black hole created by um the policies that she unveiled last budget and the shortfall that that's that's come from there with growth not really pushing on at all in her expectation. But she's now going to have to cover maybe between another 10 and 20 billion. Now, that means that we're going to have to watch very carefully, even even more closely than we probably were going to, what she says in the budget at the end of November. We're going to have a couple of budget specials before that, but there's a little marker for us that things might be a little bit tougher than was originally thought. >> Yeah. >> The second thing that I think was noticeable for me this week, um, and we'll cover it in the portfolio review is the great performance of our VANC crypto fund. Once again, a fund that we bought to control our exposure to Bitcoin. >> Yeah. >> And in fact, Bitcoin's gone down and this thing's gone up by 25% since we bought it. But finally, just on the Federal Reserve meeting, I was quite surprised to to a degree that there wasn't really any reaction yesterday. The market closed pretty much unchanged. And that's because there's such a good discounting mechanism of what people were expecting. People were expecting a 25 basis point cut as Mark was saying, and that's what they got. So now we'll see in the next few days how the market responds to getting what they were expecting. Rachel Reeves, part of of her problem is the the growing debt in the country. Part of Trump's problem is the growing debt. We got to remember that interest rates come into everything. And it's so important and that might have been what caused the tension between Powell and Trump. These decisions are momentous. So, I I've done some maths and I think that you guys must have been through 500 interest rate policy meeting decisions between the two of you over the years and I would love to just garner some of your experience and and hear what you think. What does a decision mean when they choose to cut or increase interest rates? How does a consensus get reached at those meetings, Mark? >> Well, all of them have committees. um the chairman tends to have more power than everyone else and that's particularly true in America and I'm sure it's true in the UK or the Bank of England as well >> and and of this political. >> Oh yes, Mr. Chairman. Sorry, forgive me. I mean, you have to understand that all of the central banks have different mandates. Most of them have a inflation target of 2% or stable prices what they've got to try and achieve. But the Americans are a bit different. the Federal Reserve uh have to promote maximum sustainable employment. Along with that, they have to try and deliver stable prices or inflation of around 2%. Now, interestingly, there's quite a lot of interpretation because they cut interest rates last night and in inflation is running at about 3% in America and their target is 2%. So, why would you say they cutting interest rates even though they're well at 1% above their target? And it's because of this word stable pricing. If in inflation is steadily moving in one direction but not massively then that seems to be acceptable in the eyes of the central bankers and that's one of the reasons they cut interest rates yesterday. More importantly they also have to try and maintain sustainable maximum employment. So when unemployment starts rising, which it has just started to do in America, and the job creation has been much worse than expected, and we talked about payrolls, uh, being the guide to how jobs are being created in America, that has come in much worse than expected and was revised down massively by nearly a million jobs over the last 12 months. That seems to be where their main focus was last night and why they decided to cut interest rates. And he he even made mention of it in the the press conference afterwards. He said it's not often we get a real tension between our two predominant targets and at the moment inflation was our focus for the past few years. Now the risk to inflation have somewhat they've dropped a little bit whereas the risks to the downside for the jobs market has become elevated. So therefore they've become more in balance and we need to focus on on employment don't we? So, did that signal the start of a a interest rate cutting cycle or do you think it was just a one-off? >> What tends to catch people's attention uh and gives a bit of momentum to sort of market moves is when you change direction in interest rates or you start a new a new sort of period of uh cutting interest rates. The last time the Americans cut interest rates was back in December 2024. So, you know, coming up a year or so ago. uh and basically yesterday was the first cut. Now the markets are anticipating that there will be another five or six cuts even between now and the end of next year. In fact, the the most probable outcome is for another five interest rate cuts. Three of those to come uh in the next few months. So you get one this month that's just gone, one next month in October when they next meet and then one in December before the end of the year. So you're going to see interest rates fall pretty steadily now, which is one of the reasons I've been positive on the US markets particularly because when you're in this period of steadily cutting interest rates, it's a good underpin for uh the economy and for ultimately share prices. >> And just to remind us why lower interest rates give uh a path towards higher asset values because of because of the timing factor. >> There are two ways uh that that works. One is if you're borrowing money as a company and you're paying interest on that that debt which most companies have debt in their balance shearies then basically your interest charge comes down. Now that gives you spare cash you can either go and employ more people or you can give it back to shareholders in the form of dividends or share buybacks or whatever you want to do. Uh and that helps support a share price. Uh the other thing that also helps obviously economic growth because as I say if you might employ more people with this spare cash then that's also good. the long-term prices of share pri share prices are driven by what's called the the long-term discount rate or discounted cash flows. So if you add up all the dividends in the future of a company that you're getting or all the and the earnings per share and you use an interest rate to discount it back to today's share price, the lower the interest rate, the higher today's share price should be. >> You're dividing the future profits by the interest rate. So if the interest rate's lower, it means you get to to value it. >> Exactly. A high share price today and vice versa, of course, when interest rates go up. >> Of course, you know, taking a bit of the devil's advocate view um on, you know, the events of yesterday, the market went in talking about six rate cuts, including the one of yesterday, and the market came out talking about five more rate cuts being the same number. So really one has to ask what's new and actually nothing is new. Nothing has changed. And so I think that's interesting in the first place. We've not come out discounting another two or three rate cuts or taken any away. We've actually come in at the same amount. Actually there there was some insight into the way this may evolve. So Trump managed to appoint a member of the um the Federal Reserve, a new member yesterday called Steven Moren, right? And Steven uh basically looks like he voted for half% interest rate cut rather than a quarter%. Now he's the only dent in there, the only one going against what the the chairman was suggesting. and he's gu if you look forward a year he's guiding in his expectations to interest rates in America being down at 2 and 3/4% to 3% and they're at four to four and a quarter as of today. If that's a guide to perhaps the way the Federal Reserve will start thinking as more people who are believers in Trump's way of doing things get onto the committee because remember the chairman of the Federal Reserve steps down in May. That's the end of his tenure. There'll be a new chairman. He undoubtedly will be more Trump friendly. If you get more and more people thinking like that, then you could get even bigger interest rate cuts than people think. >> Let's not sugar coat this. This is a guy who is still employed at the White House who has come in and dissented against the otherwise the committee voting all voting for 25 basis points and has come out with a hugely lower number than anybody else. And we only know this because we get the projections going forward four times a year. And if that is sign of things to come, CJ, that more and more of these important people in the committee are appointed by Trump and the only interview question is will you do what I say? Where's your Federal Reserve independence? >> We're obviously going to have a bit of a disagree agreeably moment on this sort of stuff. First of all, rates are four to four and a quarter. >> Yeah. >> Five rate cuts takes you to two and three/4ers three. >> Yeah. So actually what he's saying is what the market's pricing. So who cares how many more move? I don't care because the market's pricing it already, right? Number one. Number two, I'm totally with you. In comes a guy who would love to be the next chairman who says, "Oh, how can I imp Oh, I know what I'll do. I'll say I want a half a percent." And off comes half a percent. And he says he's going to do half a percent. And now I noticed this morning in the betting odds he is now favorite to be the next fair chair chairman and Chris Waller who was because he went half the week the month before is now second favorite. So this is just a game of musical chairs. The market's already there. The market's saying that's where we're going to get to in interest rates. Now I'm going to take the other side. What they said clearly yesterday pal said clearly this is an insurance cut. All right. Now, what he's saying by that is, I'm not sure about what's going to happen to inflation. I'm not sure what's happening to unemployment, but the unemployment numbers have definitely turned down a bit. So, I'm going to take out a bit of insurance, right? Insurance doesn't mean to me five cuts. I think it's very dangerous for us to sit here and say we've got five cuts baked in when I've got a stock market in the States flying higher all the time, massive liquidity, massive inflation. We talked about bubble. We we we clearly are in a process of building a bubble. I'm not suggesting we're at that end of that process in any way, shape, or form, but we're clearly we're clearly in that process. If we look at what's going on in some of the more esoteric asset classes like uh the crypto markets and all these digital treasuries and how much money has gone into these sorts of asset classes, it's not telling me there's any shortage of money out there. And normally we cut interest rates when we expect monetary conditions have tightened too much and we want to loosen them. >> All the signs out there is that money's cheap and plentiful. Inflation is above target >> and rising underis but under control >> and rising and rising. It's now at 3% and they're cutting rates. Five more cuts priced in and still the forecast. If you look at the Fed's forecast yesterday for inflation, they're still 3% in a year and a half's time. >> No, they're not. >> We'll have a look at that. We we can look at that cuz that's, you know, that's factual, right? What you know, whatever that number is, but it's not falling inflation down to 2%. That is not where the Fed is on its forecasts or where it's dots and everything else. So, to me, I don't really understand why everyone is so confident about five. I think there will be obviously some. I don't I'm not disputing. There'll be some, >> but it's do we think five? Where do you think they're going to get to? I don't think we're going to get five is what I'm trying to say. CJ, can I correct you there? Uh you're right for their forecast for uh inflation for the end of this year 3%. But by the end of 2026, they expect that to fall to 2.6% and then to 2.1% by the end of 2027. Uh now the interesting thing is they've been talking about two years forward getting to their target for the last four or five years and they've never achieved it. They've always been running ahead of it and that was a feature of last night's sort of press conference. >> I think that's called kicking the can down the road, isn't it? So what happens if we do get to the point of um policy mistakes? What are some of the consequences in in history when they've done the wrong thing? Well, I I mean over history there's been lots of examples where people have mist made mistakes and most of them actually been the big ones have been by the Federal Reserve or the European Central Bank. But the Federal Reserve coming up to the Great Depression uh actually basically continued to keep interest rates low um and basically let a bubble create and then burst. It was a property bubble. um and they basically didn't raise interest rates to control that bubble beforehand and that led to the Great Depression. In the 1970s when we had very big inflation numbers again the Fred Federal Reserve delayed putting interest rates up and let inflation get out of control and eventually they had to put interest rates up a lot. Um Vulkar the Federal Reserve chairman then had to put interest rates up significantly in the late 80s which is very damaging. Um but ultimately solved the problem. Uh but the most most recent time was uh in the early 2000s as we were running into the great financial crisis. The Federal Reserves again kept interest rates very very low when they were expected when there was a housing bubble and property bubble going on and people borrowing in huge amounts of money leveraging up as it's called borrowing more money they couldn't afford to pay back. And of course we know the con ultimate consequence of that was the the property bubble burst. lots of financial assets were uh were associated with that and banks particularly were exposed to the bad debts that came with the falling property prices and deflation. >> So and this was consequences of the obviously we had the dotcom bubble bursting we had 9/11 and the the effects of that on the on the US economy. So rates were at a low point, I think 2% for too long. They were kept too low for too long. And that stoked all these problems that were growing throughout 06 07. By the time they got rates higher, then it was too late. There was there was too much money in the system. There was too much flowing. What's to say that's not been the problem now? we were we threw all this cash into the economy to save us from COVID, right? So, there's way too much liquidity sloshing around. They were way too slow to get um rates higher. Now, in 2006 to 2008, there was a 2-year lag before they managed to get it under control. What's to say now we've already created the problems that are going to be in in the next 2 years? I think that's um very interesting um question and and it goes behind a bit about why I'm not so confident of of where rates will be because I think we do have history with central banks of as Mark says and thank you for the correction by the way Mark of of them not actually being able to forecast that well in the future but they are def deciding what interest rates are there's a wonderful episode in 2020 after co had hit Mark and I were sitting there at uh one of our many employments and we were listening to um the Federal Reserve in Dr. Pal in particular and he said um that in in August 2020 inflation had been averaging about 1.2 1.3 1.4% really low. He said that he was going to introduce the idea of average inflation targeting and the point of this was to say look maybe my target's 2% let's say I mean you could people can argue it's two and a half this isn't argu about what the level is if it's 1 and a half one and a quarter for 3 years then we could have it running at three for 3 years and the average will be fine and the obvious implication of this was my goodness me this is very bullish on top of a thing of a market that had been moving quite strongly upwards So Mark and I were very much aligned to to buy risk and belong the market. But at the same time, we feared that all this money flowing in would only lead to inflation at some stage and therefore we should be looking to buy inflation hedges. We went into a contract that would benefit if the market suddenly reversed course and thought, "Oh my god, interest rates might have to go up." And so we had lots of risk on for the markets doing well, but we had some a hedge on just in case they turned. Now let's go through the CPI inflation numbers. So inflation numbers of 1.4 1.3 August and September March 21, so we're talking 6 months later, 8 months later, 2.6. July 21, 5.4. Wow. >> So not even the year anniversary, August 21, 5.3. So a year after he came out with this speech, inflation's out of control. And that just shows you in my view that central bankers have no clue about forecasting. Oh, sorry. I say no clue. That's unfair. They they have the same forecasting ability as most other people. You've got to be more sensible about what's the market telling you? What's it showing you? And the market was clearly full of liquidity as you say, full of opportunity there. That was a clear mistake and led to some of the issues we've had over the past few years of higher inflation. >> But in fairness to them, there was the Russian invasion of Ukraine and oil prices doubled. Inflation that you just sort of pointed to them was just beginning to take hold because the oil price had doubled. That was banned to feed through into prices. It was a very difficult thing for them to to sort of forecast. Clearly, you couldn't work out what Putin was doing. >> I think that's right. But that's a bit like saying if I take out everything that's gone up, inflation's actually very well controlled. You know, you can't forecast things. You cannot. That's why I'm saying to to talk with the accuracy they talk about is ridiculous. Look at what your eyes tell you. The eyes your eyes tell you the money is flying into the financial system. The eye your eyes are telling you that every that the things are going fine. Why are you cutting rates so so desperately? >> I mean, to be fair, when when they started to put interest rates up, they did very fast. They were late to agree where I agree with you. They were very late to do that. >> And and if I wanted to be evenhanded with Pal, no reason why I should want to be evenhanded. I'm don't have to be fair. >> He did when they put rates up in the intervening period, they moved up quite sharply. The world thought they were going to get a recession. Everybody thought he's made a big mistake, but he actually fine-tuned it very well indeed. So, he's got one strike for him and one strike against him in that sense. But all I'm trying to make clear is we're all trying to work with this accuracy which is not there. >> You you're giving them credit there. But I I would ask a different question. I would say is monetary policy impotent? The thinking behind that is if we've got 10 the top 10% of us now control 50% of consumption, right? They are responsible for 50% of consumer spending. They don't have debt. They have cash. They've got the $7.5 trillion of cash sitting on the sidelines that you keep telling us about. Now, if you're giving a higher interest rate to $7.5 trillion and those are the people that go out and keep consumer spending going, then it's the opposite of what you're trying to do. You're trying to slow down the economy and take spending out. But what you're actually doing is you're giving stimulus. So, is monetary policy very different nowadays to how it was back when you guys had hair? >> Well, well, I've always had hair. Real hair, mom. >> That's a bit cheeky. That is a bit cheeky. That is a bit cheeky. >> But I look, we're we're arguing about what might be another one or one and a quarter% interest rate cuts over the next 12 months in the United States. To give you some perspective, uh, when the great financial crisis happened, when they started reacting to that, you basically see saw the fastest ever interest rate cuts, interest rates in America went from 5 and a/4% in September 2007, and by December 2008, they were 0 to 0.25%. They cut 5 12% in a straight line. And basically they'd really pushed it from basically September, October and December uh down to that zero level because they had they had to do that. They were worried about deflation. And that's one of the things that central banks absolutely paranoid about getting deflation. We've touched on it before. That was the biggest problem for Japan for 40 years. They couldn't get out of a deflationary spiral. In its simplest terms, why would you buy something today if it's going to be cheaper tomorrow? Once you get in that cycle, it's very, very difficult to reverse. which is why a bit of inflation is good. And I would argue as I've argued before that 3% 4% inflation is the right sort of and a really good number for equities. If you look over the past equities have performed very well when you've had 3 or 4% inflation uh in interest rates have been stable. Now that we're in a position where you're going to get let's say let's be generous and say Chris's numbers right and you get 3% uh inflation but interest rates are falling. That is so positive. I that's why I I remain as positive I have been even more positive after last night. >> This reminds me the bulls sing the loudest at the top of the market >> and the bears squeal the loudest as it goes higher. >> Fair. >> Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and £200. Make your first investment into an ISA, GIA, or SIT account by the 30th of September and benefit from commission-free investing as well as 4% variable interest on cash. Other fees may apply, terms and conditions found in the show notes or on ig.com/uk. Start your investing journey with IG today. I think this takes us into the the discussion around the portfolio. Okay, because we we've talked about monetary policy there that we've we've had a a decision last night that arguably is very important. Um, you've now got some visibility on rates going forward and the effect the White House is going to have on it. But the allimportant question, what does this do to our portfolio? especially when at the top we've got a blockchain ETF there that's gone up 25% in 6 weeks. Let's unpack that a little bit. So the the first thing I'd say is just on that final bid about seeing these interest rates come through. Um people who know me well know that I am not very keen on central bankers. I think they follow the market. They don't lead the market. So what I mean by that when we had that non-farm payroll number that was very poor the market immediately went to four or five rate cuts and all we've now seen is the Fed following the market and the same happens in the situations where the economy is doing very well and suddenly the market starts to sell off the bond market and the Fed follows it. So I would be much more looking at what the what what the market is telling me to really work out where the interest rate structure is going and that the market is fine at the moment. It's very relaxed with this five um rate cut view. So I think you have to say that generally the market conditions are going to stay pretty supportive for equities. Even if they only do three, which is what I think they might do, they're going to do a couple first before you get to whether you're going to have a pause. So, there's a nice little runway here still of the way the market moves. The real question is what therefore does that mean for our portfolio and what we've got in there at the moment? >> Um, and um we've got this rest of September which is this period of uncertainty for equities. Although they haven't done badly in September so far, it's been a moderately up month. So, that's that's good. So, that that's not been I mean, they haven't raced away, but they've done fine. I would like to see how the US reacts over the next few days because what you normally find um you mentioned earlier about 500 meetings that I've seen the Fed or not the Fed any central bank. >> Yeah. >> If I was to try to guess how many of those I got my instinctive reaction right on if I was trading, you know, if I'm sitting there watching and I trade something, how much how many times I made money? The answer is none. Because it's never right to look at the first reaction. It's always right after these big events to look how the market settles. And if if I'm right that people see it more as an insurance, then the market won't do very much here. If Mark's right and they see it as a step convincing them that we're still going and the and and and the bubble might be still moving upwards, then it's going to drive forward. So I I'd like to watch on on on that for a moment. net equity exposure I wouldn't really be looking to to to change. This does actually remind me of a a story back in my portfolio management days. And it was sitting in the offices of Brevan trading till uh 10 p.m. at night over the a big um it must have been the end of 07 a big um FOMC night on a decision. And it's the only time that I've ever been called into risk for having um excessive risk and and breaching all my limits. So, I was sitting trading, you know, over the the 4hour period. And that for me is my FA Cup final, right? I'm sitting in a hedge fund for, you know, I've been there six months, absolutely loving life and uh >> master of the universe. >> Master of the universe and trying to to go with my instinct on what every single line and and every word means that is coming out of uh Bernankei's mouth. So, I must have traded a thousand times, right? and 10 p.m. and and made about $50,000 out of it, which, you know, is a lot of money, but in terms of running a $und00 million book, wasn't that much for the the amount of trades that gone in. Anyway, next day, come in, sit down. My boss says, "Uh, Rich, can we can we go into the room?" So, I get taken into the room with the head of risk, >> naughty boy. >> Naughty boy. They say, "Um, can you just tell us what your what your risk limit is?" I said, "Certainly. I've got a, you know, I run $100 million. I I can be net long $50 million cuz it's a long short portfolio. That's right. Why the hell were you long half a billion dollars of futures last night? >> And I of obviously my brain just went, there's no way that could have been the case. So I tried to work out what on earth I had done wrong. And they went through it and they they showed me all the trades and I said, "Sorry, where where did you get this from?" They said, "Well, it's from the from the bookings we we saw. You know, you your trades have been booked this morning when the the guy came in middle office and this is your bookings." I said, "Yeah, he's booked all the buys and then he's booked all the sales." So, it looks like I was long half a billion, but I was never long, you know, more than probably 10 million at a time. And so they looked at each other, they laughed and they said, "Okay, yeah, you can go." >> What's known in the trade as squeaky bum time? >> It was a horrible feeling. So I always behaved very much after that with, you know, something like a a 25% return on on the blockchain ETF. We've got a question which came in from one of the viewers and it's what factors do you take into consideration on how to time your selling or taking profits? What do you think CJ? Yeah, I mean, um, you know, this this to me is the question of the week, which is we've got something in our portfolio that's gone up 25%. And as I've said before, I'm a raider, which on the book, The Art of Execution, the raider is someone who takes profits a little bit too early. And so, I'm itching to take the profit. Now, what makes me a little bit more uh keen on taking the profit is we bought it because we thought it would give us exposure to Bitcoin. That's why we bought it. We knew there were lots of other things in there, but it was the only way we could get that exposure. >> And remind us why we didn't just buy Bitcoin. >> Because we're not allowed to buy bit Bitcoin within the structures within the UK, although that is due to change, I'm reliably told. Um, at the start of October, we bought it on that basis. There's a number of things in there which are linked to Bitcoin, but there's a number of things in there linked to other things. Now, since we bought it, Bitcoin, I haven't got the numbers here, and having been fact checked by Spice already today, I better be careful. But I I think it's small down. I think it's small down bitcoin. >> Yeah, we've made 25%. And the reason is because we have in there data resources, we have data companies, we have data management, we have all that sort of side of real estate buying data centers and and that's been so popular with the AI crowd. How are we going to get our power? How are we going to get this energy? How are we going to get all this data? Oh, let's let's let's let's push these share prices up. It's pushed the whole of the fund up 25%. Now, this is one of my sort of golden rules, which I'm sure isn't right. I think also um there are similarities. I don't wish to say that Warren Buffett got from me. I probably got it from him. But if you don't understand what you're doing and you made some money, then take your money. So, to me, I made 25% in something which hasn't performed like I thought it was, like it should have done, which is the Bitcoin. So, me personally, I'm very tempted to sell it. Now, you said, how do you make that decision? What do you do? Now the question then has to be and and get more we'll get Mark's views on this. The question is do you sell it all? Do you sell a bit of it? Do you cover how much your you your your in prices is so you're just playing with profit. What is the right way? Everybody does it a different way. Let's hear from Mark because Mark's Mark has a different way of looking at these things. >> Cross over to Gordon Gecko to hear what his thoughts are on this. >> A reminder of course the movie Wall Street greed is good. So I and I've been doing some work on the back you know looking at what is in actually f crypto and blockchain and the interesting thing is about a third of the portfolio is in data centers. >> Wow. >> Now the reason it's had a big push in the last week or so is because there's been some fantastic news about data centers. You remember last week we talked about Oracle and having moved up nearly 40% in one single day. And basically that was because they announced that their data center business and the computing that they're putting into data centers was expected to rise eight times in the next 5 years in revenue terms. Eight times. Now if they're telling you eight, you bet your bottom dollar is at least 10 if not 12. So there is more to come of that. And there's been announcements all week and including the trade delegation that's come over from America today and yesterday talking about new deals for data centers. Now you've got a third of this portfolio in the Vanet crypto and blockchain ETF is in data centers exposed exactly to that and growth is going exponential. That means it's absolutely >> not the share price >> and the share price is is lagging. I would say it's lagging >> lagging up 25% and it's lagging. >> He's got Trump derangement syndrome. This guy >> that's not what we bought it for though was it? >> That's irrelevant. You you've got to assess what you have in there. Now we should have looked more into what we had. Right. So that's our that's our bad. Okay. As the kids are saying, that's bad to be honest. >> It was his stock. >> It was your stock and you didn't even know what it was. So the great thing is >> but better to be lucky >> than good as I said last week. >> Absolutely. So now we have this play on data centers. A third of it and including the top three stocks in the portfolio are all are all exposed to this area. And when something goes exponential, I mean I was looking back at history. Typically, you can get anywhere between 3 months to 12 months of this move. The raiders, they're in and out. A connoisseur like me, basically. Well, my I what I would normally do is when I get to a point where I've doubled my money, I'd take my original stake out and I'd run the rest for free effectively. We're not there yet. Obviously, we're only up 25%. If it were to go up 100%, then I might be saying, "Well, let's sell half of it and go on." But I do think genuinely because of what we've heard in the last few weeks around Oracle and around data centers, this game is only just beginning. Remember last year was all about the Magnificent 7 taking advantage of AI, beginning to spend money on that AI, investing billions and billions of dollars into new AI. Well, this is the next phase. As we said when we talked about Oracle last week, this is showing that the the spend from AI is spreading into other areas and it is now going very heavily into data centers and beneficial. We've got a lot of beneficiaries in this ETF and now we know it. We'd be mad to go, oh yeah, just because we know we thought it was Bitcoin, we're wrong. No, that we've got data center exposure there now, >> but but we don't have crypto exposure then. There is some crypto exposure in there, but it's mainly for the a lot of the data centers are for Bitcoin and crypto mining. So actually that's where you get your linkage there. >> That's why they bought them in the first place within the fund. That's why it was bought in there. And a lot of these miners in Bitcoin are moving their computer capacity to data because it's actually more profitable to them to do it. And the question is, do you thank your lucky stars or do you say no, we've now found a new case? And you know I I'm I mean Mark and I have been investing for a long long time and we would normally say remember it it's different this time is not a good way to run. We have just said we just had Mark saying it's different this time. I now know why it's going. I did not say it's different this I did not say it's different this time. What I said is what I said is there is you know the emergence now of this money that's been going for you know for the last 12 18 months into things like Nvidia and their chips is now spreading to other people and that that profitability is now being pushed into other companies and this this ETF has a big exposure to it. I I think we'd be foolish to sell any at the moment. >> The question of the week was what do you take into consideration when to take profit? So when would you take profit in this? >> When I see it go exponential. I I've seen a 25% move. That's not that's not exponential. Is when it doubles and then doubles again. And you know we talked we talked in earlier episodes about people getting out too early in bull markets. You got to run that last 6 months of a bull market where you make most your returns. And we're what six weeks into this. >> Okay. So is it a time or is it a percentage? >> It can be both. But ordinarily I think you have to look at it in the overall context of what's going on elsewhere in the world. You know I'm bullish of the US equities. These are largely US equities and they are basically have exposure to AI. I like AI. They have exposure to the US and everything that's going on there. And they will be beneficiaries of the the one big beautiful bill that we've talked about before. That's all to come. And now they're beneficiaries of falling interest rates. So, so how would you answer if I was to say if we look back at the share price? I haven't got it in front of me at the moment and therefore I've got a data issue. Yeah. I wasn't I'm I'm not that short term. Um in February it was trading at something like6. >> Mhm. >> So it's now trading 11 quid. So it's gone up 100%. >> Yeah. >> So you've got 100% already on it. Now it's only just since we've owned it. up the 25% but it's actually had a bloody good run from those lower levels and pushed all the way up there. Now I'm torn a bit. I'm if my gut feel is we stay with it >> but it has done a lot. >> Has it taken out its alltime high? >> It's very close to it's very no it's close to it. It's close to it. It's it's it's >> but the but the alltime high was several months ago. >> It was set in November but it was set when everybody loved crypto. So, Bitcoin was trading 120 110 $120,000 and every man and his dog was buying crypto. So, that was a peak for the crypto bit a bit. >> Yeah. >> Right. That's come right down now. So, those those strategies aren't there. But now it's the data center stuff that's moving. I mean, I don't know if we want to bring it together at that point, but I personally think that we stick with it for a bit longer and I'll sit on my hands and keep my my my uh my mind away from making that forced decision. >> Is it a waste of time to take 1% off? Cuz you you said that you take your original stake now. >> So, when it doubles, I'll take 5% out, >> right? There's no way that I'm going to still be as chairman holding this stock uh for that long. But I do what I think is a little bit is is more persuasive is we haven't taken the highs out. We need to take the highs out. If we take the highs out with an exponential type move, then I'm going to be taking this off and we're going to be saying it's the chairman's fault when it triples over the next week after. But uh to me, it's a really difficult just summing up to the the questioner. It's a really difficult thing to work out. Everybody does it differently. But I have a tendency to sell too early. So I'm going to try to be a little bit more patient here and let it run a bit. It's done wonderfully for us. Let's see what Let's see what the next couple of weeks bring. But this is not a commitment for the next six months. >> The other thing I would say is it is part of a portfolio. It is 5% of a portfolio. It is arguably the only real sex and violence apart from maybe some NASDAQ in that portfolio. the mining the mining has its time >> but it performing sort of middle of the road. It's not doing as well as many of the other markets. It's doing fine but it's not it's not shooting the lights out. And I would say that if you if you are going to take something that's higher risk out of the portfolio, you want to put it into something else that is also high risk. >> Spoken like a true bull. This is a committee. So the committee >> and you'll be putting into I know you'll put it into cash. Oh, >> this takes us into a wider conversation about where we are in asset markets because we made 3.46% in 6 weeks. >> So, we're 3.46 which is up 80 basis points. It's almost 1% up from last week >> and that we had benefit from the Niki. So, Nikkei up 1.9% in the week. India up 1.55. Our S&P 500 GBP hedged of course is up nearly a percent as was the Russell 2000. a great addition two weeks ago. The underperformer is the DAX and that has been the continual underperformer. We've now lost 3% in that since initiating the position. But overall, where do we feel assets are? Because for me, I'm like you. I I would be taking profit too early. For me, everything just feels a little bit excessive rational exuberance that we've talked about in the past. Um, we're trying to make 10% on the year. We've made 3.5% in 6 weeks. Is it time to be buying more risk and putting more risk on like you say, or is it time to consolidate for a little bit? >> I mean, I I am very happy with the risk we're running. I, you know, I would like to buy any dips we see. I've been very vocal about like in the US and, you know, there are lots of naysayers, not least in this room, um, about >> Wow. about about getting lifey. Now we're seeing who our friends are. >> The end of US exceptionalism I think was being thrown around you know certainly before even before we started this podcast and what has happened in the last sort of last couple of months is that people have realized the US is still a fantastic place to invest. It is still the best place to invest and get exposure to AI and it's got the what you know the benefits coming from the rate cutting and the one big beautiful bill. So people are that's irrelevant. That's not us. We have we have a hedged product. >> So we the NASDAQ isn't it's interesting too because the NASDAQ's actually only made since inception 1%. And that's because the dollar's moved and hurt it a little bit. Now the exceptionalism, the US exceptionalism. I don't think any one of us has ever doubted that the stock market, the the companies are are excellent and doing very well. That's never been an issue. So I'm I'm trying I'm going for the defense here. Well, my my lord, I'm defense. But what we've argued is the currency is the problem. And I still don't see why that isn't the case. I mean, when I look at the S&P 500 in dollar terms this year, it is just now at the peak it was at back at the start of the year. Whereas all these other asset classes are up 12, 13, 14, 15%. Now the big question is the dollar from here. totally accept that because it's had some weakness but maybe that's not going to um could continue. I personally think it will. However, no one should be doubting the excellence of some of these US companies. I totally agree with that. um is price then >> well I my personal view Mark will be really upset when I say this is I don't think it is in those mag seven names because as we were saying before if they grow their profits by 20% each year then what looks expensive today in their price per earnings ratio will look not very expensive going forward and you can see those earnings quite visibly they're not on 90 times 115 times the the palanteer type raising you were talking about which has only they're not then yes and that's that's been a great short they are holding at the right sort of level my worry is more about the rest of the US and that's where our mark and I disagree a little bit in that I'm not a fan of the big beautiful bill I've not got Trump derangement syndrome and therefore I don't think everything he does is going to work and if it doesn't work then you can have these seven companies are doing really really well and the rest is a bit underneath and that's my only issue with it But my point is I think that some of this benefit that Magnificent 7 have had is going to start spreading out into the rest of other companies in AI first but also into the broader economy which is one of the reasons I wanted to buy the Russell 2000. They are some of the biggest historically small and mid-size companies are big the biggest beneficiaries of interest rate cuts. As I said they tend to have more debt than the bigger companies. They tend to have to go to banks to borrow money rather than to go to investors to borrow money. and therefore falling interest rates are very beneficial for them. And I, you know, going back to the dollar, I don't disagree, you know, I've I've been in the, you know, believing like you do that dollar is going to be weaker. My fear we're getting too bearish of the dollar now is that if I'm right and growth begins to accelerate into next year, which by the way is not what the Federal Reserve is saying, but that's what my own sort of and that's what I think the stock markets are telling you. the stock markets are telling you that growth is going to be pretty good in the next 6 to 12 months, then you want to be in US assets and that could draw money from other countries and other investors back into the US. I mean, the dollar could actually at least stabilize here, if not go up a bit from here, >> but there's an inconsistency there, isn't there? If we we're being totally honest here, there's really consistency there. You're saying I'm comfortable with it because I think the growth is going to come through stronger than expected. >> Yeah. But if it's going to come to strongest bets, I ain't going to have five or eight cups. >> Oh yeah. Oh, but hang on. Hang on. See how is all the ways lead to bull markets. You see this, don't you? All the way leads to a bull market. >> Look, I think I think the Fed one of the reasons they they absolutely nailed home that they were worried about employment or un rising unemployment. And I think that they also like many people are beginning to worry about the impacts of AI on employment and the particularly in youth and younger people. And you're seeing you're seeing that the Goldman Sachs thing on AI a few weeks ago said that they expected over the next five or six years to see youth unemployment that 18 to 25 year olds rise by 6 to 7%. So the way you you then need to stimulate other parts of the economy to take up that slack of that that rising unemployment that may be coming from AI to gold if we're if we're talking about a lower dollar and we're talking about more stimulus and lower rates then gold why is gold not 25% of our portfolio like Jeremy Gunless >> well gold hit a new alltime high again this week as did is silver the silver 14 15 year high so I don't disagree with you and that's part of a portfolio >> okay so I'm putting forward that we blockchain and we buy gold. >> I think 10% in gold is is a good number. Is a good number. The thing about having 10% in gold. It's a that is a big that's our biggest, you know, one of our biggest allocations. What would you have in you? You you talked about before about having silver. Why why wouldn't you have silver? If you're like me, that's why I I would be more of advocate of buying silver because if the economy gets better, the industrial uses of silver is quite high. Silver should do better than gold in that environment. Now, in the greatest uh spirits of being chairman of the asset allocation committee, I now say we've got to that stage where everyone's throwing around, we've got to that stage where sensible conversation is disappearing quickly and now it's all very rampant idea generation. So, so I think I think we've really decided nothing is the right way for us to be going forward today and these will all fester in our minds. So, next week we can re uh rejoin the battle and work out what our next step should be. And you know, before people start to listen to this and say, "Oh, well, you don't make too many changes, you don't do that." This is what fund management is all about. The more we talk, the more we think and the more we make sure we refine our best ideas. And the fact is, we're up three and a half percent over six weeks against a 10% target. And we mustn't forget, we're not trying to be the best fund out there. We're not trying to be, you know, 100% gain every year. We're trying to make 10% in a sensible way so people following this can feel that they can understand what we're trying to do and help them along that financial journey. >> Now, thank you CJ. I am just getting breaking news. We have a rate decision from the Bank of England. Going over to you, Spice. >> Well, the market's correct. There's no change to interest rates in the UK. Sorry for those of you that have mortgages. We had that extra cut has been delayed and the vote was seven people voted in favor of no change and two people voted to actually cut. >> Okay, so as we see the committee is important that everybody gets a say every now and again. Hash sack the chairman. Thank you very much for joining us for episode 11. You can see the debate is heating up. The bulls sing the loudest at the top of the market or is the bear just bleeding? Now gents, if we have any questions from the viewers, where should they write to? >> The art of investing atig.com. >> We look forward to seeing you next week. [Music]
EP11 | Fed Interest Rate cuts, Timing your Exponential Exit & Elon Musks $17 Billion Trade
Summary
Transcript
for inflation. They're still 3% in a year and a half's time. >> No, they're not. >> We'll have a look at that. >> This reminds me, the bulls sing the loudest at the top of the market >> and the bears squeal the loudest as it goes higher. >> Now, we should have looked more into what we had. That's our bad. >> The chairman's bad. It was my stock. >> It was your stock. And you didn't even know what it was. But better to be lucky >> than good. So, I get taken into the room with the head of risk. >> Naughty boy. >> Naughty boy. They say, "Why the hell were you long half a billion dollars of futures last night?" >> What's known in the trade as squeaky bum time? >> It was a horrible feeling. Your capital is at risk. The value of your shares, ETFs, and ETCs can fall as well as rise, which could mean getting back less than you originally put in. This content is for information purposes only and is not investment advice. Past performance is not an indication of future results. [Music] Welcome to episode 11 of The Art of Investing, the Monetary Policy Special. Now, interest rates aren't just what you receive on your savings, pay on your credit cards, or give you stress about your mortgage refinancing. Today we're going to break down everything you need to know about the policy decisions, the language that's used, and also how it affects the valuation of every single asset out there. Most importantly, how is that going to play into our portfolio changes today? But first, as always, the spice market update. >> Thank you very much, Rich, and welcome back. Uh so as Rich says, this is a week where central banks have taken center stage and that's helped equity markets push to the high and we'll come into go into a bit more detail about that later on. But we've had new alltime highs in most the US markets and even the Russell managed to hit a year-to- date high last night uh after the FMC meeting. Uh but Asia doing very well. Gold and silver also popped up to new highs. So that's all very positive for as we have a lot of exposure for our portfolio in that. The lagards were in places like Europe, Germany, France, and of course the UK. Unfortunately, as we talked before, we've had some bad news um in the UK on inflation. There's a uh Bank of England meeting tomorrow, and we were hoping if the inflation data been good, that would give them an excuse to cut interest rates, but it wasn't. The inflation data was a the CPI, the consumer price index rose to 3.8%. Which is broadly in line with expectations, but didn't give them any sort of scope to be able to cut rates uh tomorrow. And that reminds me, we're going to be getting a Bank of England decision as we're on air, finishing this episode, aren't we? >> We are indeed. >> Waiting for us, >> but they will get it a day late if they do that. >> Very true. >> On a more positive note, the uh the US CPR, the consumer price inflation, uh which actually a little bit better than expected last week. Um and as we'll come to later, you'll see that has helped the Federal Reserve cut interest rates. The economy side of the US, apart from employment, uh is actually doing pretty well. Well, they had really strong retail sales, so people are still spending despite worrying about their jobs, etc., which is a good sign for for stock markets, I would tell you. >> Or is it an addiction over there? >> It takes a lot for retail sales to go negative. Even in recessions, retail sales, funny enough, rarely go negative. >> I heard a really interesting stat this week that 10% of the population now is accountable for 50% of consumer spending in the US. It used to be a third and now it's up to 50%. So that top 10% probably aren't worried about losing their jobs. >> No, exactly. That's helped at the sort of the the feel-good factor for equities and earnings. The US and China are in trade talks still and tomorrow President Z and Trump are meeting um to discuss their trade deals and hopefully they'll sign an agreement that takes things positively forward. Uh on the side for those of you like Tik Tok, it's expected that Trump is going to allow Tik Tok to continue to operate in America. Yeah, sorry spicy. What I know is tic tacs, >> but there was worries that that was going to be banned and uh obviously uh that would have hurt companies like Oracle who do all the uh the computer sort of power for Tik Tok in America. But probably some of the biggest moves this week have come from Elon Musk who clearly had his nose put out a joint by uh Larry Ellison having become the richest man in the world albeit very briefly when Oracle went up 40% last week uh because he went out and bought a billion dollars worth of shares in Tesla as you do and the Tesla share price has gone up 30% as a result in the following days. >> Amazing that is an amazing move. >> Yeah. So he's once again the richest man in the world. Also on a positive front in in the the mag seven, the magnificent seven, Alphabet or Google as we know it, uh joined the $3 trillion market capitalization club. So there's now only been four companies that have ever made that sort of had that accolade. Uh Apple was the first ever. Uh now it's Nvidia, Apple, Microsoft, and of course Google has just joined the alphabet. Cash on the sidelines. We've talked about this before. We had an update on that figure this week and it's up to $7.5 trillion just sitting on the sidelines in money market funds in the United States. >> It's cuz I sold some of my stocks >> and you put it in cash. Oh, you grizzly bear. >> The biggest risk position you own therefore is your cash. >> So you keep on telling me, but I sleep very well at night. >> A bit of a technical thing. Trump put forward what could be seen as quite a good idea actually for companies. He's suggesting that they start reporting their earnings every six months now instead of every three months. That's not come into into force yet, but it means that it should reduce the volatility around the earning season and uh reduce costs of companies because every time you have to report numbers to the stock market or to investors that has to be audited and that cost you a lot of money to do it. So he's suggesting in America you do that every six months rather than every three months. In the UK we do it every six months. uh that's what that's the minimum you you have to do that would also sort of help in terms of like less admin etc but it would also reduce investor news flow which I don't think would necessarily be a good thing that would be the negative that you don't get as much news flow up to date news flow on companies >> we tend to get trading statements to replace that don't we in in the UK I wonder if they'll move to that kind of model potentially >> I I would think they would do yeah the interesting thing I suppose is I mean I'm I'm supportive of it I think it say quite a lot and I don't really see quarterly adding too much but it would make it more difficult for them to um play the games they play quite so easily in setting expectations low and moving them up four times a year there would now be more time between those things I suppose more uncertainty being created in there but I think it's a good move I don't think it's a bad move at all >> anything that reduces the burden on companies has to be good they have to concentrate on running the business so as I mentioned this This has been a big week for central banks. Uh yesterday, the Bank of Canada cut interest rates earlier this week. Uh the Bank of England report today as we're recording at the end of this podcast recording. Uh the Bank of Japan report tomorrow. Uh but the big one was the Federal Reserve uh which sat last night which was Wednesday night uh on this week. Uh and they cut interest rates by 0.25% a quarter% or as we say in the city 25 basis points. Did much pop out to you this week, CJ, outside of the the monetary policy decisions? >> I thought there were a couple of things. Uh, one, the Office of Budget Responsibility in the UK um dropped some not too subtle hints that they are going to be cutting their productivity forecast. Now, before everybody switches off saying, "What the hell's that got to do with anything?" You need to remember that the OBR are the people who advise Rachel Reev on the size of her financing gap. And so with the budget coming up with them cutting back their productivity forecasts, that will give her more of a headache than she already had. It doesn't rain, but it pours. Uh not only has she now got to fill her own black hole created by um the policies that she unveiled last budget and the shortfall that that's that's come from there with growth not really pushing on at all in her expectation. But she's now going to have to cover maybe between another 10 and 20 billion. Now, that means that we're going to have to watch very carefully, even even more closely than we probably were going to, what she says in the budget at the end of November. We're going to have a couple of budget specials before that, but there's a little marker for us that things might be a little bit tougher than was originally thought. >> Yeah. >> The second thing that I think was noticeable for me this week, um, and we'll cover it in the portfolio review is the great performance of our VANC crypto fund. Once again, a fund that we bought to control our exposure to Bitcoin. >> Yeah. >> And in fact, Bitcoin's gone down and this thing's gone up by 25% since we bought it. But finally, just on the Federal Reserve meeting, I was quite surprised to to a degree that there wasn't really any reaction yesterday. The market closed pretty much unchanged. And that's because there's such a good discounting mechanism of what people were expecting. People were expecting a 25 basis point cut as Mark was saying, and that's what they got. So now we'll see in the next few days how the market responds to getting what they were expecting. Rachel Reeves, part of of her problem is the the growing debt in the country. Part of Trump's problem is the growing debt. We got to remember that interest rates come into everything. And it's so important and that might have been what caused the tension between Powell and Trump. These decisions are momentous. So, I I've done some maths and I think that you guys must have been through 500 interest rate policy meeting decisions between the two of you over the years and I would love to just garner some of your experience and and hear what you think. What does a decision mean when they choose to cut or increase interest rates? How does a consensus get reached at those meetings, Mark? >> Well, all of them have committees. um the chairman tends to have more power than everyone else and that's particularly true in America and I'm sure it's true in the UK or the Bank of England as well >> and and of this political. >> Oh yes, Mr. Chairman. Sorry, forgive me. I mean, you have to understand that all of the central banks have different mandates. Most of them have a inflation target of 2% or stable prices what they've got to try and achieve. But the Americans are a bit different. the Federal Reserve uh have to promote maximum sustainable employment. Along with that, they have to try and deliver stable prices or inflation of around 2%. Now, interestingly, there's quite a lot of interpretation because they cut interest rates last night and in inflation is running at about 3% in America and their target is 2%. So, why would you say they cutting interest rates even though they're well at 1% above their target? And it's because of this word stable pricing. If in inflation is steadily moving in one direction but not massively then that seems to be acceptable in the eyes of the central bankers and that's one of the reasons they cut interest rates yesterday. More importantly they also have to try and maintain sustainable maximum employment. So when unemployment starts rising, which it has just started to do in America, and the job creation has been much worse than expected, and we talked about payrolls, uh, being the guide to how jobs are being created in America, that has come in much worse than expected and was revised down massively by nearly a million jobs over the last 12 months. That seems to be where their main focus was last night and why they decided to cut interest rates. And he he even made mention of it in the the press conference afterwards. He said it's not often we get a real tension between our two predominant targets and at the moment inflation was our focus for the past few years. Now the risk to inflation have somewhat they've dropped a little bit whereas the risks to the downside for the jobs market has become elevated. So therefore they've become more in balance and we need to focus on on employment don't we? So, did that signal the start of a a interest rate cutting cycle or do you think it was just a one-off? >> What tends to catch people's attention uh and gives a bit of momentum to sort of market moves is when you change direction in interest rates or you start a new a new sort of period of uh cutting interest rates. The last time the Americans cut interest rates was back in December 2024. So, you know, coming up a year or so ago. uh and basically yesterday was the first cut. Now the markets are anticipating that there will be another five or six cuts even between now and the end of next year. In fact, the the most probable outcome is for another five interest rate cuts. Three of those to come uh in the next few months. So you get one this month that's just gone, one next month in October when they next meet and then one in December before the end of the year. So you're going to see interest rates fall pretty steadily now, which is one of the reasons I've been positive on the US markets particularly because when you're in this period of steadily cutting interest rates, it's a good underpin for uh the economy and for ultimately share prices. >> And just to remind us why lower interest rates give uh a path towards higher asset values because of because of the timing factor. >> There are two ways uh that that works. One is if you're borrowing money as a company and you're paying interest on that that debt which most companies have debt in their balance shearies then basically your interest charge comes down. Now that gives you spare cash you can either go and employ more people or you can give it back to shareholders in the form of dividends or share buybacks or whatever you want to do. Uh and that helps support a share price. Uh the other thing that also helps obviously economic growth because as I say if you might employ more people with this spare cash then that's also good. the long-term prices of share pri share prices are driven by what's called the the long-term discount rate or discounted cash flows. So if you add up all the dividends in the future of a company that you're getting or all the and the earnings per share and you use an interest rate to discount it back to today's share price, the lower the interest rate, the higher today's share price should be. >> You're dividing the future profits by the interest rate. So if the interest rate's lower, it means you get to to value it. >> Exactly. A high share price today and vice versa, of course, when interest rates go up. >> Of course, you know, taking a bit of the devil's advocate view um on, you know, the events of yesterday, the market went in talking about six rate cuts, including the one of yesterday, and the market came out talking about five more rate cuts being the same number. So really one has to ask what's new and actually nothing is new. Nothing has changed. And so I think that's interesting in the first place. We've not come out discounting another two or three rate cuts or taken any away. We've actually come in at the same amount. Actually there there was some insight into the way this may evolve. So Trump managed to appoint a member of the um the Federal Reserve, a new member yesterday called Steven Moren, right? And Steven uh basically looks like he voted for half% interest rate cut rather than a quarter%. Now he's the only dent in there, the only one going against what the the chairman was suggesting. and he's gu if you look forward a year he's guiding in his expectations to interest rates in America being down at 2 and 3/4% to 3% and they're at four to four and a quarter as of today. If that's a guide to perhaps the way the Federal Reserve will start thinking as more people who are believers in Trump's way of doing things get onto the committee because remember the chairman of the Federal Reserve steps down in May. That's the end of his tenure. There'll be a new chairman. He undoubtedly will be more Trump friendly. If you get more and more people thinking like that, then you could get even bigger interest rate cuts than people think. >> Let's not sugar coat this. This is a guy who is still employed at the White House who has come in and dissented against the otherwise the committee voting all voting for 25 basis points and has come out with a hugely lower number than anybody else. And we only know this because we get the projections going forward four times a year. And if that is sign of things to come, CJ, that more and more of these important people in the committee are appointed by Trump and the only interview question is will you do what I say? Where's your Federal Reserve independence? >> We're obviously going to have a bit of a disagree agreeably moment on this sort of stuff. First of all, rates are four to four and a quarter. >> Yeah. >> Five rate cuts takes you to two and three/4ers three. >> Yeah. So actually what he's saying is what the market's pricing. So who cares how many more move? I don't care because the market's pricing it already, right? Number one. Number two, I'm totally with you. In comes a guy who would love to be the next chairman who says, "Oh, how can I imp Oh, I know what I'll do. I'll say I want a half a percent." And off comes half a percent. And he says he's going to do half a percent. And now I noticed this morning in the betting odds he is now favorite to be the next fair chair chairman and Chris Waller who was because he went half the week the month before is now second favorite. So this is just a game of musical chairs. The market's already there. The market's saying that's where we're going to get to in interest rates. Now I'm going to take the other side. What they said clearly yesterday pal said clearly this is an insurance cut. All right. Now, what he's saying by that is, I'm not sure about what's going to happen to inflation. I'm not sure what's happening to unemployment, but the unemployment numbers have definitely turned down a bit. So, I'm going to take out a bit of insurance, right? Insurance doesn't mean to me five cuts. I think it's very dangerous for us to sit here and say we've got five cuts baked in when I've got a stock market in the States flying higher all the time, massive liquidity, massive inflation. We talked about bubble. We we we clearly are in a process of building a bubble. I'm not suggesting we're at that end of that process in any way, shape, or form, but we're clearly we're clearly in that process. If we look at what's going on in some of the more esoteric asset classes like uh the crypto markets and all these digital treasuries and how much money has gone into these sorts of asset classes, it's not telling me there's any shortage of money out there. And normally we cut interest rates when we expect monetary conditions have tightened too much and we want to loosen them. >> All the signs out there is that money's cheap and plentiful. Inflation is above target >> and rising underis but under control >> and rising and rising. It's now at 3% and they're cutting rates. Five more cuts priced in and still the forecast. If you look at the Fed's forecast yesterday for inflation, they're still 3% in a year and a half's time. >> No, they're not. >> We'll have a look at that. We we can look at that cuz that's, you know, that's factual, right? What you know, whatever that number is, but it's not falling inflation down to 2%. That is not where the Fed is on its forecasts or where it's dots and everything else. So, to me, I don't really understand why everyone is so confident about five. I think there will be obviously some. I don't I'm not disputing. There'll be some, >> but it's do we think five? Where do you think they're going to get to? I don't think we're going to get five is what I'm trying to say. CJ, can I correct you there? Uh you're right for their forecast for uh inflation for the end of this year 3%. But by the end of 2026, they expect that to fall to 2.6% and then to 2.1% by the end of 2027. Uh now the interesting thing is they've been talking about two years forward getting to their target for the last four or five years and they've never achieved it. They've always been running ahead of it and that was a feature of last night's sort of press conference. >> I think that's called kicking the can down the road, isn't it? So what happens if we do get to the point of um policy mistakes? What are some of the consequences in in history when they've done the wrong thing? Well, I I mean over history there's been lots of examples where people have mist made mistakes and most of them actually been the big ones have been by the Federal Reserve or the European Central Bank. But the Federal Reserve coming up to the Great Depression uh actually basically continued to keep interest rates low um and basically let a bubble create and then burst. It was a property bubble. um and they basically didn't raise interest rates to control that bubble beforehand and that led to the Great Depression. In the 1970s when we had very big inflation numbers again the Fred Federal Reserve delayed putting interest rates up and let inflation get out of control and eventually they had to put interest rates up a lot. Um Vulkar the Federal Reserve chairman then had to put interest rates up significantly in the late 80s which is very damaging. Um but ultimately solved the problem. Uh but the most most recent time was uh in the early 2000s as we were running into the great financial crisis. The Federal Reserves again kept interest rates very very low when they were expected when there was a housing bubble and property bubble going on and people borrowing in huge amounts of money leveraging up as it's called borrowing more money they couldn't afford to pay back. And of course we know the con ultimate consequence of that was the the property bubble burst. lots of financial assets were uh were associated with that and banks particularly were exposed to the bad debts that came with the falling property prices and deflation. >> So and this was consequences of the obviously we had the dotcom bubble bursting we had 9/11 and the the effects of that on the on the US economy. So rates were at a low point, I think 2% for too long. They were kept too low for too long. And that stoked all these problems that were growing throughout 06 07. By the time they got rates higher, then it was too late. There was there was too much money in the system. There was too much flowing. What's to say that's not been the problem now? we were we threw all this cash into the economy to save us from COVID, right? So, there's way too much liquidity sloshing around. They were way too slow to get um rates higher. Now, in 2006 to 2008, there was a 2-year lag before they managed to get it under control. What's to say now we've already created the problems that are going to be in in the next 2 years? I think that's um very interesting um question and and it goes behind a bit about why I'm not so confident of of where rates will be because I think we do have history with central banks of as Mark says and thank you for the correction by the way Mark of of them not actually being able to forecast that well in the future but they are def deciding what interest rates are there's a wonderful episode in 2020 after co had hit Mark and I were sitting there at uh one of our many employments and we were listening to um the Federal Reserve in Dr. Pal in particular and he said um that in in August 2020 inflation had been averaging about 1.2 1.3 1.4% really low. He said that he was going to introduce the idea of average inflation targeting and the point of this was to say look maybe my target's 2% let's say I mean you could people can argue it's two and a half this isn't argu about what the level is if it's 1 and a half one and a quarter for 3 years then we could have it running at three for 3 years and the average will be fine and the obvious implication of this was my goodness me this is very bullish on top of a thing of a market that had been moving quite strongly upwards So Mark and I were very much aligned to to buy risk and belong the market. But at the same time, we feared that all this money flowing in would only lead to inflation at some stage and therefore we should be looking to buy inflation hedges. We went into a contract that would benefit if the market suddenly reversed course and thought, "Oh my god, interest rates might have to go up." And so we had lots of risk on for the markets doing well, but we had some a hedge on just in case they turned. Now let's go through the CPI inflation numbers. So inflation numbers of 1.4 1.3 August and September March 21, so we're talking 6 months later, 8 months later, 2.6. July 21, 5.4. Wow. >> So not even the year anniversary, August 21, 5.3. So a year after he came out with this speech, inflation's out of control. And that just shows you in my view that central bankers have no clue about forecasting. Oh, sorry. I say no clue. That's unfair. They they have the same forecasting ability as most other people. You've got to be more sensible about what's the market telling you? What's it showing you? And the market was clearly full of liquidity as you say, full of opportunity there. That was a clear mistake and led to some of the issues we've had over the past few years of higher inflation. >> But in fairness to them, there was the Russian invasion of Ukraine and oil prices doubled. Inflation that you just sort of pointed to them was just beginning to take hold because the oil price had doubled. That was banned to feed through into prices. It was a very difficult thing for them to to sort of forecast. Clearly, you couldn't work out what Putin was doing. >> I think that's right. But that's a bit like saying if I take out everything that's gone up, inflation's actually very well controlled. You know, you can't forecast things. You cannot. That's why I'm saying to to talk with the accuracy they talk about is ridiculous. Look at what your eyes tell you. The eyes your eyes tell you the money is flying into the financial system. The eye your eyes are telling you that every that the things are going fine. Why are you cutting rates so so desperately? >> I mean, to be fair, when when they started to put interest rates up, they did very fast. They were late to agree where I agree with you. They were very late to do that. >> And and if I wanted to be evenhanded with Pal, no reason why I should want to be evenhanded. I'm don't have to be fair. >> He did when they put rates up in the intervening period, they moved up quite sharply. The world thought they were going to get a recession. Everybody thought he's made a big mistake, but he actually fine-tuned it very well indeed. So, he's got one strike for him and one strike against him in that sense. But all I'm trying to make clear is we're all trying to work with this accuracy which is not there. >> You you're giving them credit there. But I I would ask a different question. I would say is monetary policy impotent? The thinking behind that is if we've got 10 the top 10% of us now control 50% of consumption, right? They are responsible for 50% of consumer spending. They don't have debt. They have cash. They've got the $7.5 trillion of cash sitting on the sidelines that you keep telling us about. Now, if you're giving a higher interest rate to $7.5 trillion and those are the people that go out and keep consumer spending going, then it's the opposite of what you're trying to do. You're trying to slow down the economy and take spending out. But what you're actually doing is you're giving stimulus. So, is monetary policy very different nowadays to how it was back when you guys had hair? >> Well, well, I've always had hair. Real hair, mom. >> That's a bit cheeky. That is a bit cheeky. That is a bit cheeky. >> But I look, we're we're arguing about what might be another one or one and a quarter% interest rate cuts over the next 12 months in the United States. To give you some perspective, uh, when the great financial crisis happened, when they started reacting to that, you basically see saw the fastest ever interest rate cuts, interest rates in America went from 5 and a/4% in September 2007, and by December 2008, they were 0 to 0.25%. They cut 5 12% in a straight line. And basically they'd really pushed it from basically September, October and December uh down to that zero level because they had they had to do that. They were worried about deflation. And that's one of the things that central banks absolutely paranoid about getting deflation. We've touched on it before. That was the biggest problem for Japan for 40 years. They couldn't get out of a deflationary spiral. In its simplest terms, why would you buy something today if it's going to be cheaper tomorrow? Once you get in that cycle, it's very, very difficult to reverse. which is why a bit of inflation is good. And I would argue as I've argued before that 3% 4% inflation is the right sort of and a really good number for equities. If you look over the past equities have performed very well when you've had 3 or 4% inflation uh in interest rates have been stable. Now that we're in a position where you're going to get let's say let's be generous and say Chris's numbers right and you get 3% uh inflation but interest rates are falling. That is so positive. I that's why I I remain as positive I have been even more positive after last night. >> This reminds me the bulls sing the loudest at the top of the market >> and the bears squeal the loudest as it goes higher. >> Fair. >> Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and £200. Make your first investment into an ISA, GIA, or SIT account by the 30th of September and benefit from commission-free investing as well as 4% variable interest on cash. Other fees may apply, terms and conditions found in the show notes or on ig.com/uk. Start your investing journey with IG today. I think this takes us into the the discussion around the portfolio. Okay, because we we've talked about monetary policy there that we've we've had a a decision last night that arguably is very important. Um, you've now got some visibility on rates going forward and the effect the White House is going to have on it. But the allimportant question, what does this do to our portfolio? especially when at the top we've got a blockchain ETF there that's gone up 25% in 6 weeks. Let's unpack that a little bit. So the the first thing I'd say is just on that final bid about seeing these interest rates come through. Um people who know me well know that I am not very keen on central bankers. I think they follow the market. They don't lead the market. So what I mean by that when we had that non-farm payroll number that was very poor the market immediately went to four or five rate cuts and all we've now seen is the Fed following the market and the same happens in the situations where the economy is doing very well and suddenly the market starts to sell off the bond market and the Fed follows it. So I would be much more looking at what the what what the market is telling me to really work out where the interest rate structure is going and that the market is fine at the moment. It's very relaxed with this five um rate cut view. So I think you have to say that generally the market conditions are going to stay pretty supportive for equities. Even if they only do three, which is what I think they might do, they're going to do a couple first before you get to whether you're going to have a pause. So, there's a nice little runway here still of the way the market moves. The real question is what therefore does that mean for our portfolio and what we've got in there at the moment? >> Um, and um we've got this rest of September which is this period of uncertainty for equities. Although they haven't done badly in September so far, it's been a moderately up month. So, that's that's good. So, that that's not been I mean, they haven't raced away, but they've done fine. I would like to see how the US reacts over the next few days because what you normally find um you mentioned earlier about 500 meetings that I've seen the Fed or not the Fed any central bank. >> Yeah. >> If I was to try to guess how many of those I got my instinctive reaction right on if I was trading, you know, if I'm sitting there watching and I trade something, how much how many times I made money? The answer is none. Because it's never right to look at the first reaction. It's always right after these big events to look how the market settles. And if if I'm right that people see it more as an insurance, then the market won't do very much here. If Mark's right and they see it as a step convincing them that we're still going and the and and and the bubble might be still moving upwards, then it's going to drive forward. So I I'd like to watch on on on that for a moment. net equity exposure I wouldn't really be looking to to to change. This does actually remind me of a a story back in my portfolio management days. And it was sitting in the offices of Brevan trading till uh 10 p.m. at night over the a big um it must have been the end of 07 a big um FOMC night on a decision. And it's the only time that I've ever been called into risk for having um excessive risk and and breaching all my limits. So, I was sitting trading, you know, over the the 4hour period. And that for me is my FA Cup final, right? I'm sitting in a hedge fund for, you know, I've been there six months, absolutely loving life and uh >> master of the universe. >> Master of the universe and trying to to go with my instinct on what every single line and and every word means that is coming out of uh Bernankei's mouth. So, I must have traded a thousand times, right? and 10 p.m. and and made about $50,000 out of it, which, you know, is a lot of money, but in terms of running a $und00 million book, wasn't that much for the the amount of trades that gone in. Anyway, next day, come in, sit down. My boss says, "Uh, Rich, can we can we go into the room?" So, I get taken into the room with the head of risk, >> naughty boy. >> Naughty boy. They say, "Um, can you just tell us what your what your risk limit is?" I said, "Certainly. I've got a, you know, I run $100 million. I I can be net long $50 million cuz it's a long short portfolio. That's right. Why the hell were you long half a billion dollars of futures last night? >> And I of obviously my brain just went, there's no way that could have been the case. So I tried to work out what on earth I had done wrong. And they went through it and they they showed me all the trades and I said, "Sorry, where where did you get this from?" They said, "Well, it's from the from the bookings we we saw. You know, you your trades have been booked this morning when the the guy came in middle office and this is your bookings." I said, "Yeah, he's booked all the buys and then he's booked all the sales." So, it looks like I was long half a billion, but I was never long, you know, more than probably 10 million at a time. And so they looked at each other, they laughed and they said, "Okay, yeah, you can go." >> What's known in the trade as squeaky bum time? >> It was a horrible feeling. So I always behaved very much after that with, you know, something like a a 25% return on on the blockchain ETF. We've got a question which came in from one of the viewers and it's what factors do you take into consideration on how to time your selling or taking profits? What do you think CJ? Yeah, I mean, um, you know, this this to me is the question of the week, which is we've got something in our portfolio that's gone up 25%. And as I've said before, I'm a raider, which on the book, The Art of Execution, the raider is someone who takes profits a little bit too early. And so, I'm itching to take the profit. Now, what makes me a little bit more uh keen on taking the profit is we bought it because we thought it would give us exposure to Bitcoin. That's why we bought it. We knew there were lots of other things in there, but it was the only way we could get that exposure. >> And remind us why we didn't just buy Bitcoin. >> Because we're not allowed to buy bit Bitcoin within the structures within the UK, although that is due to change, I'm reliably told. Um, at the start of October, we bought it on that basis. There's a number of things in there which are linked to Bitcoin, but there's a number of things in there linked to other things. Now, since we bought it, Bitcoin, I haven't got the numbers here, and having been fact checked by Spice already today, I better be careful. But I I think it's small down. I think it's small down bitcoin. >> Yeah, we've made 25%. And the reason is because we have in there data resources, we have data companies, we have data management, we have all that sort of side of real estate buying data centers and and that's been so popular with the AI crowd. How are we going to get our power? How are we going to get this energy? How are we going to get all this data? Oh, let's let's let's let's push these share prices up. It's pushed the whole of the fund up 25%. Now, this is one of my sort of golden rules, which I'm sure isn't right. I think also um there are similarities. I don't wish to say that Warren Buffett got from me. I probably got it from him. But if you don't understand what you're doing and you made some money, then take your money. So, to me, I made 25% in something which hasn't performed like I thought it was, like it should have done, which is the Bitcoin. So, me personally, I'm very tempted to sell it. Now, you said, how do you make that decision? What do you do? Now the question then has to be and and get more we'll get Mark's views on this. The question is do you sell it all? Do you sell a bit of it? Do you cover how much your you your your in prices is so you're just playing with profit. What is the right way? Everybody does it a different way. Let's hear from Mark because Mark's Mark has a different way of looking at these things. >> Cross over to Gordon Gecko to hear what his thoughts are on this. >> A reminder of course the movie Wall Street greed is good. So I and I've been doing some work on the back you know looking at what is in actually f crypto and blockchain and the interesting thing is about a third of the portfolio is in data centers. >> Wow. >> Now the reason it's had a big push in the last week or so is because there's been some fantastic news about data centers. You remember last week we talked about Oracle and having moved up nearly 40% in one single day. And basically that was because they announced that their data center business and the computing that they're putting into data centers was expected to rise eight times in the next 5 years in revenue terms. Eight times. Now if they're telling you eight, you bet your bottom dollar is at least 10 if not 12. So there is more to come of that. And there's been announcements all week and including the trade delegation that's come over from America today and yesterday talking about new deals for data centers. Now you've got a third of this portfolio in the Vanet crypto and blockchain ETF is in data centers exposed exactly to that and growth is going exponential. That means it's absolutely >> not the share price >> and the share price is is lagging. I would say it's lagging >> lagging up 25% and it's lagging. >> He's got Trump derangement syndrome. This guy >> that's not what we bought it for though was it? >> That's irrelevant. You you've got to assess what you have in there. Now we should have looked more into what we had. Right. So that's our that's our bad. Okay. As the kids are saying, that's bad to be honest. >> It was his stock. >> It was your stock and you didn't even know what it was. So the great thing is >> but better to be lucky >> than good as I said last week. >> Absolutely. So now we have this play on data centers. A third of it and including the top three stocks in the portfolio are all are all exposed to this area. And when something goes exponential, I mean I was looking back at history. Typically, you can get anywhere between 3 months to 12 months of this move. The raiders, they're in and out. A connoisseur like me, basically. Well, my I what I would normally do is when I get to a point where I've doubled my money, I'd take my original stake out and I'd run the rest for free effectively. We're not there yet. Obviously, we're only up 25%. If it were to go up 100%, then I might be saying, "Well, let's sell half of it and go on." But I do think genuinely because of what we've heard in the last few weeks around Oracle and around data centers, this game is only just beginning. Remember last year was all about the Magnificent 7 taking advantage of AI, beginning to spend money on that AI, investing billions and billions of dollars into new AI. Well, this is the next phase. As we said when we talked about Oracle last week, this is showing that the the spend from AI is spreading into other areas and it is now going very heavily into data centers and beneficial. We've got a lot of beneficiaries in this ETF and now we know it. We'd be mad to go, oh yeah, just because we know we thought it was Bitcoin, we're wrong. No, that we've got data center exposure there now, >> but but we don't have crypto exposure then. There is some crypto exposure in there, but it's mainly for the a lot of the data centers are for Bitcoin and crypto mining. So actually that's where you get your linkage there. >> That's why they bought them in the first place within the fund. That's why it was bought in there. And a lot of these miners in Bitcoin are moving their computer capacity to data because it's actually more profitable to them to do it. And the question is, do you thank your lucky stars or do you say no, we've now found a new case? And you know I I'm I mean Mark and I have been investing for a long long time and we would normally say remember it it's different this time is not a good way to run. We have just said we just had Mark saying it's different this time. I now know why it's going. I did not say it's different this I did not say it's different this time. What I said is what I said is there is you know the emergence now of this money that's been going for you know for the last 12 18 months into things like Nvidia and their chips is now spreading to other people and that that profitability is now being pushed into other companies and this this ETF has a big exposure to it. I I think we'd be foolish to sell any at the moment. >> The question of the week was what do you take into consideration when to take profit? So when would you take profit in this? >> When I see it go exponential. I I've seen a 25% move. That's not that's not exponential. Is when it doubles and then doubles again. And you know we talked we talked in earlier episodes about people getting out too early in bull markets. You got to run that last 6 months of a bull market where you make most your returns. And we're what six weeks into this. >> Okay. So is it a time or is it a percentage? >> It can be both. But ordinarily I think you have to look at it in the overall context of what's going on elsewhere in the world. You know I'm bullish of the US equities. These are largely US equities and they are basically have exposure to AI. I like AI. They have exposure to the US and everything that's going on there. And they will be beneficiaries of the the one big beautiful bill that we've talked about before. That's all to come. And now they're beneficiaries of falling interest rates. So, so how would you answer if I was to say if we look back at the share price? I haven't got it in front of me at the moment and therefore I've got a data issue. Yeah. I wasn't I'm I'm not that short term. Um in February it was trading at something like6. >> Mhm. >> So it's now trading 11 quid. So it's gone up 100%. >> Yeah. >> So you've got 100% already on it. Now it's only just since we've owned it. up the 25% but it's actually had a bloody good run from those lower levels and pushed all the way up there. Now I'm torn a bit. I'm if my gut feel is we stay with it >> but it has done a lot. >> Has it taken out its alltime high? >> It's very close to it's very no it's close to it. It's close to it. It's it's it's >> but the but the alltime high was several months ago. >> It was set in November but it was set when everybody loved crypto. So, Bitcoin was trading 120 110 $120,000 and every man and his dog was buying crypto. So, that was a peak for the crypto bit a bit. >> Yeah. >> Right. That's come right down now. So, those those strategies aren't there. But now it's the data center stuff that's moving. I mean, I don't know if we want to bring it together at that point, but I personally think that we stick with it for a bit longer and I'll sit on my hands and keep my my my uh my mind away from making that forced decision. >> Is it a waste of time to take 1% off? Cuz you you said that you take your original stake now. >> So, when it doubles, I'll take 5% out, >> right? There's no way that I'm going to still be as chairman holding this stock uh for that long. But I do what I think is a little bit is is more persuasive is we haven't taken the highs out. We need to take the highs out. If we take the highs out with an exponential type move, then I'm going to be taking this off and we're going to be saying it's the chairman's fault when it triples over the next week after. But uh to me, it's a really difficult just summing up to the the questioner. It's a really difficult thing to work out. Everybody does it differently. But I have a tendency to sell too early. So I'm going to try to be a little bit more patient here and let it run a bit. It's done wonderfully for us. Let's see what Let's see what the next couple of weeks bring. But this is not a commitment for the next six months. >> The other thing I would say is it is part of a portfolio. It is 5% of a portfolio. It is arguably the only real sex and violence apart from maybe some NASDAQ in that portfolio. the mining the mining has its time >> but it performing sort of middle of the road. It's not doing as well as many of the other markets. It's doing fine but it's not it's not shooting the lights out. And I would say that if you if you are going to take something that's higher risk out of the portfolio, you want to put it into something else that is also high risk. >> Spoken like a true bull. This is a committee. So the committee >> and you'll be putting into I know you'll put it into cash. Oh, >> this takes us into a wider conversation about where we are in asset markets because we made 3.46% in 6 weeks. >> So, we're 3.46 which is up 80 basis points. It's almost 1% up from last week >> and that we had benefit from the Niki. So, Nikkei up 1.9% in the week. India up 1.55. Our S&P 500 GBP hedged of course is up nearly a percent as was the Russell 2000. a great addition two weeks ago. The underperformer is the DAX and that has been the continual underperformer. We've now lost 3% in that since initiating the position. But overall, where do we feel assets are? Because for me, I'm like you. I I would be taking profit too early. For me, everything just feels a little bit excessive rational exuberance that we've talked about in the past. Um, we're trying to make 10% on the year. We've made 3.5% in 6 weeks. Is it time to be buying more risk and putting more risk on like you say, or is it time to consolidate for a little bit? >> I mean, I I am very happy with the risk we're running. I, you know, I would like to buy any dips we see. I've been very vocal about like in the US and, you know, there are lots of naysayers, not least in this room, um, about >> Wow. about about getting lifey. Now we're seeing who our friends are. >> The end of US exceptionalism I think was being thrown around you know certainly before even before we started this podcast and what has happened in the last sort of last couple of months is that people have realized the US is still a fantastic place to invest. It is still the best place to invest and get exposure to AI and it's got the what you know the benefits coming from the rate cutting and the one big beautiful bill. So people are that's irrelevant. That's not us. We have we have a hedged product. >> So we the NASDAQ isn't it's interesting too because the NASDAQ's actually only made since inception 1%. And that's because the dollar's moved and hurt it a little bit. Now the exceptionalism, the US exceptionalism. I don't think any one of us has ever doubted that the stock market, the the companies are are excellent and doing very well. That's never been an issue. So I'm I'm trying I'm going for the defense here. Well, my my lord, I'm defense. But what we've argued is the currency is the problem. And I still don't see why that isn't the case. I mean, when I look at the S&P 500 in dollar terms this year, it is just now at the peak it was at back at the start of the year. Whereas all these other asset classes are up 12, 13, 14, 15%. Now the big question is the dollar from here. totally accept that because it's had some weakness but maybe that's not going to um could continue. I personally think it will. However, no one should be doubting the excellence of some of these US companies. I totally agree with that. um is price then >> well I my personal view Mark will be really upset when I say this is I don't think it is in those mag seven names because as we were saying before if they grow their profits by 20% each year then what looks expensive today in their price per earnings ratio will look not very expensive going forward and you can see those earnings quite visibly they're not on 90 times 115 times the the palanteer type raising you were talking about which has only they're not then yes and that's that's been a great short they are holding at the right sort of level my worry is more about the rest of the US and that's where our mark and I disagree a little bit in that I'm not a fan of the big beautiful bill I've not got Trump derangement syndrome and therefore I don't think everything he does is going to work and if it doesn't work then you can have these seven companies are doing really really well and the rest is a bit underneath and that's my only issue with it But my point is I think that some of this benefit that Magnificent 7 have had is going to start spreading out into the rest of other companies in AI first but also into the broader economy which is one of the reasons I wanted to buy the Russell 2000. They are some of the biggest historically small and mid-size companies are big the biggest beneficiaries of interest rate cuts. As I said they tend to have more debt than the bigger companies. They tend to have to go to banks to borrow money rather than to go to investors to borrow money. and therefore falling interest rates are very beneficial for them. And I, you know, going back to the dollar, I don't disagree, you know, I've I've been in the, you know, believing like you do that dollar is going to be weaker. My fear we're getting too bearish of the dollar now is that if I'm right and growth begins to accelerate into next year, which by the way is not what the Federal Reserve is saying, but that's what my own sort of and that's what I think the stock markets are telling you. the stock markets are telling you that growth is going to be pretty good in the next 6 to 12 months, then you want to be in US assets and that could draw money from other countries and other investors back into the US. I mean, the dollar could actually at least stabilize here, if not go up a bit from here, >> but there's an inconsistency there, isn't there? If we we're being totally honest here, there's really consistency there. You're saying I'm comfortable with it because I think the growth is going to come through stronger than expected. >> Yeah. But if it's going to come to strongest bets, I ain't going to have five or eight cups. >> Oh yeah. Oh, but hang on. Hang on. See how is all the ways lead to bull markets. You see this, don't you? All the way leads to a bull market. >> Look, I think I think the Fed one of the reasons they they absolutely nailed home that they were worried about employment or un rising unemployment. And I think that they also like many people are beginning to worry about the impacts of AI on employment and the particularly in youth and younger people. And you're seeing you're seeing that the Goldman Sachs thing on AI a few weeks ago said that they expected over the next five or six years to see youth unemployment that 18 to 25 year olds rise by 6 to 7%. So the way you you then need to stimulate other parts of the economy to take up that slack of that that rising unemployment that may be coming from AI to gold if we're if we're talking about a lower dollar and we're talking about more stimulus and lower rates then gold why is gold not 25% of our portfolio like Jeremy Gunless >> well gold hit a new alltime high again this week as did is silver the silver 14 15 year high so I don't disagree with you and that's part of a portfolio >> okay so I'm putting forward that we blockchain and we buy gold. >> I think 10% in gold is is a good number. Is a good number. The thing about having 10% in gold. It's a that is a big that's our biggest, you know, one of our biggest allocations. What would you have in you? You you talked about before about having silver. Why why wouldn't you have silver? If you're like me, that's why I I would be more of advocate of buying silver because if the economy gets better, the industrial uses of silver is quite high. Silver should do better than gold in that environment. Now, in the greatest uh spirits of being chairman of the asset allocation committee, I now say we've got to that stage where everyone's throwing around, we've got to that stage where sensible conversation is disappearing quickly and now it's all very rampant idea generation. So, so I think I think we've really decided nothing is the right way for us to be going forward today and these will all fester in our minds. So, next week we can re uh rejoin the battle and work out what our next step should be. And you know, before people start to listen to this and say, "Oh, well, you don't make too many changes, you don't do that." This is what fund management is all about. The more we talk, the more we think and the more we make sure we refine our best ideas. And the fact is, we're up three and a half percent over six weeks against a 10% target. And we mustn't forget, we're not trying to be the best fund out there. We're not trying to be, you know, 100% gain every year. We're trying to make 10% in a sensible way so people following this can feel that they can understand what we're trying to do and help them along that financial journey. >> Now, thank you CJ. I am just getting breaking news. We have a rate decision from the Bank of England. Going over to you, Spice. >> Well, the market's correct. There's no change to interest rates in the UK. Sorry for those of you that have mortgages. We had that extra cut has been delayed and the vote was seven people voted in favor of no change and two people voted to actually cut. >> Okay, so as we see the committee is important that everybody gets a say every now and again. Hash sack the chairman. Thank you very much for joining us for episode 11. You can see the debate is heating up. The bulls sing the loudest at the top of the market or is the bear just bleeding? Now gents, if we have any questions from the viewers, where should they write to? >> The art of investing atig.com. >> We look forward to seeing you next week. [Music]