EP16| Exploring Oil & Unloved UK Stocks in the FTSE 250
Summary
Gold and Oil Dynamics: The podcast highlighted a significant change in the gold-to-oil ratio, with gold now buying more barrels of oil than 18 months ago, indicating potential shifts in commodity markets.
Market Performance: Despite a challenging week with a 1.3% portfolio decline, global markets like the FTSE and US equities are near all-time highs, driven by buying the dips and positive corporate earnings.
Corporate Earnings: US corporate earnings have been strong, with 86% of companies beating expectations, highlighting the importance of the reporting season amid the US government shutdown.
Sector Highlights: The podcast discussed mixed performances in sectors, with Tesla and Mattel struggling, while General Motors and some banks showed resilience.
Investment Opportunities: The hosts considered adding exposure to the FTSE 250, citing its attractive valuation and potential for growth, especially with possible changes in UK investment policies.
Oil Market Insights: The discussion included a detailed analysis of oil supply and demand dynamics, with OPEC's influence and potential investment opportunities in oil-related ETFs.
Economic Indicators: The potential impact of the US government shutdown on the economy and employment was noted, with upcoming Federal Reserve meetings being crucial for market direction.
Portfolio Strategy: The podcast concluded with a decision to adjust the portfolio by increasing exposure to the FTSE 250 while reducing holdings in the DAX and gilts, reflecting a strategic shift towards UK mid-cap stocks.
Transcript
18 months ago, if you took an ounce of gold, you could buy 25 barrels of oil. Now, 1 oz of gold buys you 67 barrels of oil. It's 2 and 1/2 times as much. There were cues outside of bullion shops in Australia, in Sydney, in Singapore, in China, in Vietnam. People were queuing for four or five hours to go and buy gold, bullion, and silver. Yes, that is a pointer to the point we're getting it. It's going a bit mad. In the end of the day, it's worth what people will pay. But that's about as useless as a chocolate fire guard as a prediction statement. I mean, what does that mean? So, looking at our portfolio this week, I'd say that this is where the the horror show begins. So, our first real down week. If you're going to have a down week, do it properly. We're down 1.3%. Which does sound painful, but where do we go from here? 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. Welcome to the art of investing brought to you by IG, the global investment platform. It is episode 16, Revenge of the Bears. Please join me in welcoming the UK Finance very own celebrity traitors. But will you be looking to banish one of them after seeing this week's performance? Because yes, we've had a roller coaster week in global financial markets. here to tell you all about them. It's the Spice Market Updates. >> Thanks, Rich. Uh, as you say, it's been a very interesting week. Uh, obviously last week in the market review and as part of the podcast, we we focused on the crypto crash that we'd seen the week before and crypto cryptocurrency and the coins have had a very difficult week again. They're sort of towards the low end of uh the sell-off that they had last time. So they're under pressure, but elsewhere there's a lot of evidence of buying the dips, as we call it. So each time the market's had a bit of a dip, people have come in and bought it. And US equity markets, even the Footsie, are back up towards their all-time highs within a whisper of it. Even France managed to make an all-time high this week, despite despite all their ongoing political worries. You may have noticed there was an outage to some of your apps this week. if you use Snapchat which I know the youngans use uh but those of us who looked at the you know our Lloyd's Bank app etc uh and or had to have a conversation with HRMC which we don't like to do but if you did do you'll have noticed that they had quite a big outage and that was because Amazon who provide cloud services and web services for a lot of these companies uh had a big outage they had sort of a problem uh but interestingly the Amazon shares actually went up on the day which is bizarre Oh, normally >> bull market bull market. >> Well, absolutely. Absolutely. >> That news is good. >> Well, we're going to get Amazon results uh in just over a week's time on the 30th of October. So, that'll be very interesting. Maybe people will think they're going to be better than they expected. On the corporate front, remember corporate reporting season is ever so important at the moment because we are now into the fourth week of the US government shutdown. And I have to say uh you know unfortunately for those people who are currently being laid off or furoughed in the US uh it doesn't look like they're getting close to a deal. Um and it's now being speculated that may well run into November before they get some sort of settlement. So as we've said before looking at the corporate reporting season which we're in the midst of now is increasingly important and very important because we're not getting data from these other government bodies. Uh so on that front actually it's been another very good week for corporate America particularly but also in the UK we've had good results we've had good results from the banks Barklay's had good results HSBC pers and the house builder red red row all good uh and that's one of the reasons the footsy managed to push up towards its high uh and that's the same sort of things have been happening in America the the regional banks which were were were hit quite hard the last week when we saw some of these bankruptcies which were unexpectedly coming out. Uh they got hit quite hard, but they had results this week and actually they were all reassured on their lending book and so the bad debt fears that people had have actually eased a bit and their shares rose and that's helped the index like the Russell 2000 which has quite a lot of regional banks in it. But it's not been all good news. Uh so names you'll have heard they've had a tough week this week Tesla uh you know electronic vehicles having a very tough time at the moment and Tesla disappointed on that front. Ironically, on the other side, General Motors, who had been investing a lot in electric vehicles, has said they're pulling back from that. Their shares went up 15%. Wow. Because they did better than expected. Uh Tesla's shares fell about 4%. If you you're getting ready to buy your toys for Christmas, Mattel will probably be discounting pretty soon because they're struggling to sort of uh deal with the tariffs that have been imposed on China, etc. And then the value B&M group, you know, if you go and you go and buy your sort of kitchen wares and all the rest of it from B&M, they've also disappointed this week. And then, you know, one closer to your heart, Hermes have had a difficult week, too. And, you know, for people like me who like to watch a bit of TV and a bit of Netflix, uh, they disappointed. >> Yeah. What happened there? >> Yeah, they're basically they've had some great shows. Um, but at the end of the day, people they've been asking people not to look at the subscriber numbers and the advertising was a little bit disappointing on that front. And that's despite them having some really good blockbuster shows like Squid Games. >> And I know the the Mag Seven companies aren't really used to it, but they actually had to pay tax for once. So, they had to pay the Brazilian authorities 600 million and that's what actually hit them. Made the missed numbers and the and the stock down 7%. Imagine Mag 7 paying tax. >> They they need a good accountant. Yeah. So apply now. >> So yeah, it was it was it was a good week overall. And so the US reporting season we're sort of now quite a long way through it basically are coming in about 86% of the the numbers that have been released are beating expectations. Normally you would expect that to be in the high 70s because the Americans as I said before are very good at managing expectations. But also in the third quarter, you normally see a small downgrade in numbers so that then the the companies can beat expectations at the end of the year in the fourth quarter which is when they get all their bonuses paid. Funny old game, but basically you've actually seen small upgrades coming through in the earnings this time rather than small downgrades. And that's good. So the the growth in in American earnings is running at about 6%. But next week is going to be a huge week because next week we have uh we have the big magnificent 7 start to report. Obviously we had Tesla last night. They were a bit disappointing. I mentioned they're not really considered part of the big magnificent 7. Some some people are sort of suggesting they get different different names now. >> Like the magnificent eight nines tens there are all sorts of other sort of names being banded around. >> Wonderful how they were a member and now they're not doing so well. So they're rejected. Get rid of them. >> Well, there's sort of names like the Great Eight are being banded around. All right. The Golden Dozen is another one that's out there. 10 AI or Gen AI, which you would orderly now include things like Broadcom, Oracle, um AMD, uh Taiwan Semiconductor, and Palanteer, one of your favorite bear stocks, which has been struggling as interesting last week. But as you say, we've got a really big reporting season that starts next week on Wednesday. In fact, they start um and then you'll start to see the the Magnificent 7 report and they're expected to deliver revenue growth of around 14% earnings growth a bit higher than that. So this is more than double what the rest of the market is doing and so for the overall direction of equity markets that will really set the tone. Do you think if they disappoint that will be a a real test for the market or do you think that the optimism on interest rate cuts still and remember we've talked before about interest rate cuts coming through meaning bond yields stay low meaning equities get a kicker and a helpful push. Do you think that they will suffer badly if they miss? I think if a if a company single company does it will get punished very badly because the markets are pretty brutal at the moment uh particularly after the big rises we've seen but I think for the you know for the market as a whole you'd have to have more than one just miss you'd have to have several of them or say that they seeing a topping out of capital expenditure which there's no evidence of that really coming through at the moment if someone said were to say that that then that could spook a few people uh but that's not expected as I say results are expected to be very good. Everyone will be looking very closely at their outlook statements because like I say, people are looking for the top of these things. Bears like yourself there, Rich, are sort of saying, well, this is this is going to be over very soon. But as long as people can still see an acceleration or a sort of, you know, a sort of continued build in the momentum of the the demand for for capex, >> I wonder if they they read the room correctly because obviously we've seen this circular investment idea put round and the market's not liking it. The proposed market cap of OpenAI when it IPOs, if it ends up IPOing, has actually dropped 10% this week. So there are questions. Oracle's really been hit hard. So I wonder if some of the MAG 7, it's not about putting out the biggest capex number there, you know, your metas and alphabet. So I do wonder if it'll just be rained in a little bit and they'll point towards some kind of discipline on their balance sheets rather than putting out a huge way of spending more and more and more. One of the big differences between what's going on with AI and the spend on capex now compared to what was going on in the internet bubble back in the in the late 90s and early 2000s was that most of this capex is being self-funded. So companies like Microsoft, Apple, etc. are spending their internal cash flows. They are not going to the banks and borrowing money. So they're not putting risk of this all going wrong on the banks. This is all about their internal cash generation and the fact that they are able to do it and still pay dividends and still do billions of dollars of share bitebacks I think is very impressive. What we don't know and this is the big uncertainty is what the return on that investment will be because you need to make profit on all this expenditure to justify it in the but we don't know whether they're going to make that profit. That profit may come by having to employ less people going forward. As we've talked a lot about potentially, you know, youth unemployment particularly picking up because AI is replacing a lot of those jobs. That may be where the profit comes from when improved efficiencies etc. So those are the things people are going to be looking at really closely and we haven't got any any real feel for that and I don't think we will for the you know next six or even 12 months. It's too early. We're in the spend mode at the moment rather than looking in the return mode. And interestingly, a lot of equities perform very well when you don't have the answer to that question where you can think, you know, I could have an argument with you. I could say it's going to be 20% and you could say it's 10%. We've got no proof to say whether I'm right or you're right. And markets if they're an optimistic move will come towards me and go for the higher end expectations. If they're in bearish moves, they'll go to the other end of >> it's what's changed this week, right? Quantum computing stocks are down 33% from the bubble levels of last week. Oracle's getting killed. The this blind optimism has actually really changed in in the past 7 days. And yet the S&P 500 and NASDAQ are back towards their all-time highs. They're they're within a whisper. You know, the S&P is within 1% of its all-time high. NASDAQ's within 2% of its all-time high. And that's despite this going on. So, there is rotation within the market, which we've talked about before. And one of the reasons we bought the Russell 2000 was we expected some money to come out of these things, some of the more highly rated stocks and begin to trickle down into other parts of the market. And that is what is going on. So the overall index is still able to sustain reasonably high levels despite the odd pocket here where things have have gone wrong. >> The real question is maybe the Mag 7 or the Glorious 8 or whatever it was, the Golden Dozen or whatever it is, you know, are fine. Is there more danger underneath the surface that we should be watching out for? Are we looking at the wrong place basically for the trouble to come from? The trouble's not going to come from the Mag 7. They've well researched. Everybody knows they've got you they're going to do absolutely fine. But it's that next next layer down where the problem lies. >> Well, I think you've touched on it before and I I'm with you on this. The problems probably lie most within the private equity and the private markets which we can't see. They don't have the same reporting standards, you know, to the external world to be able to see and analyze. They only have to justify themselves to a few sort of internal shareholders as it were. I suspect that's where the problems will lie. And Jamie Diamond obviously is considered one of the the world's best bank executives if not the world's best bank executive talked about because of the problems with First Brands and the bankruptcy last week where his words were where there's one cockroach there are normally many more implying that first brands would not be the only company to go bust and very quickly trickle went bust as well. Interestingly they were both related to the car industry. Interestingly, Lloyds this morning have brought out the results and the results are actually okay, but they've had to take an 800 million pound hit on potential misselling on into the car industry and car finance and that sort of dampened down their results. But I think that there seems to be a problem with the car industry and you know maybe they were just manufacturers were producing too many cars. They were desperate to sell them. So they were making it cheap finance selling them to people who couldn't really afford them. And with this slight rise tick up in the unemployment with the scene in America that's causing a few problems. But it does seem to be very much focused on that part of the market at the moment. But going back to your point, I think if there are problems, they're not being seen in the public markets yet. And that's what drives stock markets. >> Okay. So we just got to watch out. We have to watch somehow the observations we can see of the private markets to see that they're still okay because as we said before there's a lot of the previous risk that would have been in the banking sector is actually in the private debt market. So we just need to keep our eyes open but interest rates are still pretty steady and things are pretty good. I I just wanted to add one thing to what Mark said. Uh he talked about the um closure of the US government. has a wonderful website called Poly Market. >> And on Poly Market, you can take a view on so many different things. It's a city um uh place to go for people who just want to bet on anything. >> And you can bet on anything. So, for example, I'm just looking now. You can bet on who's going to be the World Series champion in baseball, what the Fed decision in October is going to be, will Trump meet with Putin again by a certain date. You can do everything. They do one on when will the government shutdown end? And previously they were very highly priced. I lots of people were saying it would be only last a few days. Looking at it now the most popular bet on poly market for when will the government shut down is after November the 16th. So that is still another look at my what probably 3 to four weeks away. So as Mark says the markets have changed cons completely from thinking this is only just going to be a short-term thing. It's not really much of a problem to no sign of anything happening here in terms of trying to solve it. >> I mean, I think the reality is the longer it lasts, the more damage it does to the real economy potentially underneath because these people are not being paid. They won't be spending. They'll be trying to save money because they're having to live off of their savings until they start getting paid again. Uh, and that, as you say, could be several weeks. In fact, it could be just before Thanksgiving, which of course is the big holiday in America at the end of November, and then the run into Christmas. So let's hope that this gets resolved because it is hurting real people in their real pockets and is probably could lead to some sort of you know really sort of skewed new data when when the data starts being reported in America. But I do worry that then that there could be particularly an impact on the employment numbers as we go forward. But interesting of course then the Federal Reserve who have as part of their mandate they have to worry about the employment markets as well as the growth of the economy as well as inflation. The Federal Reserve may focus much more on that and the impact on the employment market. And we have a Federal Reserve meeting this time next week. So we'll know again it's a very big week. You've got all the magnificent sevenstar reporting and the Federal Reserve meet on Wednesday. and we'll find out the result of that in the Wednesday evening uh where they're expected to cut by a quarter%. And people will be listening very closely to what they say and what they think might be going on with this government shutdown and its impacts on the real economy. >> Well, talking about next week, we uh we have Halloween to look forward to as well. But looking at our portfolio this week, I'd say that this is where the the horror show begins. So, our first real down week. >> If you're going to have a down week, do it properly. and we managed that. All right, there it is. The Vanet Crypto and Blockchain Innovators ETF down 15% on the week. Of course, very wisely, the chairman decided to cut that exposure in half a couple of weeks ago. So, we only have 2.5% of the portfolio in there. However, the World Mining Trust also was hit 7% partly because the same reason as the asset just above it there you see gold down 4% remember in the World Mining Trust 32% of exposure is from the gold miners on the plus side and this really underlines that benefit of a diversification we see India was up 3.7% on the week the Footsie shining bright there up% steady Eddie And as the prime minister in Japan was sworn in under the coalition, then the Nikai 225 also up 1% on the week along with emerging markets just under that. So overall, chairman, what does that give us as a week-on-week performance? >> We're down 1.3%. >> Which does sound painful, but in the grand scheme of things, gents, we're still up 7 12% since inception. But where do we go from here? Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and 2000. Make your first investment into an ISA general investment account or SIM by the 31st of October and benefit from commissionfree investing as well as 4% variable interest on your cash. Other fees may apply. terms and conditions found in the show notes or on ig.com/uk. Kickstart your investing journey with IG today. Well, I mean I I think it's wise to just think about the things that have done badly this week and just to see whether we want to change any of those. >> I I'm going to start with with gold. I mean, we talk we've talked it seems like ad nauseium >> for the last two to three weeks about bubbles and exponential price action. And I think we've made it quite clear that in our view the things that have looked like that have mainly been in our portfolio uh not just the VANC but also gold. And so it was very interesting to see that big falloff in gold that we have seen from those higher levels. But we need to be um realistic here. You know, gold has done brilliantly. It's still up 55% this year and 97% since the start of 2024. To me, when I've looked at gold, and I I don't put myself up as a gold expert. There's better people on this pod than myself in looking in talking about gold. But gold trades sideways for a long time. then it has a really good move then it trades sideways for a time. It doesn't trade down very often because it's a good asset in that sense. Um and it does make me wonder whether we have now seen the big upward revaluation in gold and whether now gold is pretty much dead money for a period of time. I don't I'm not trying to say I'm bearish on gold in any way, shape or form, but maybe there's better returns to be had elsewhere. that the problem for me with gold is how do you put a value on it? You know, should it be 10,000? Should it be 5,000? Should it be 2,000? It's really about a it's preference by investors and it's the same really as crypto. That's exactly what cryptos. I mean, you say Bitcoin should be 100,000, you'd be 200, be 300,000, should be 50,000. In the end of the day, it's worth what people will pay. But that's about as useless as a chocolate fire guard as a prediction statement. I mean, what does that mean? I get I get why people want to buy it. The question is who else is left to buy it? If you haven't bought it already, will you ever buy it? You know, the arguments have been there forever. Alternative to the dollar, uh huge fis fiscal deficits from the US, from Europe, from Japan, um currency debasement. We've been talking about these for a year and a half now, two years now. So the question so the thing to me is is there still people left to buy gold or have we got as far as we're going to go in the short term. So that's something that does concern me a bit. And then of course our vanet crypto and blockchain innovators I mean it's had a it's had a shotfall um done brilliantly for us but we've we've already realized with that that a you should take some profit but b having a little bit of exposure those data centers is a good thing if you believe in the way that I AI is going. So I I I think to me when I look at the bottom three there you've got Black Rock Money Trust which is a lot of gold in there. I have some concern over that gold, but I'm not um going to recommend in my view changes. But what about you guys? You know, what what do you think about gold? What do you think about the VANC? You know, give us your thoughts. >> I'll say on gold. I think that um the one bit you left out of the jigsaw was the fact that actually central banks are still buying gold and particularly in Asia and the Chinese are are rebuilding building a big position in gold because they don't want to buy as many American assets. Right? This is part of the tradeoff with the Trump tariffs that they want to build other reserves and so they're they're happily buying gold day in day out. The other thing is that people have noticed the rise in gold and it's becoming a momentum trade. The trouble is when ordinary people get involved in these things. They're not very price sensitive. They don't understand that there's no really way of valuing it like there is in a comp when you value companies. And so I mean this is a classic point case. There were there were cues outside of bullion shops in in Australia, in Sydney, in Singapore, in China, in Vietnam. People were queuing for four or five hours to go and buy gold bullion on and silver. Yes, that is a pointer to the point we're getting. It's going a bit mad. The trouble is what is the right level? You can't no one knows whether it's now. I personally think it will hit $5,000 an ounce. That's my view. We're at about 4,100 at the moment 4,300 earlier in the week. Uh where it hit that new high and has come back 5%. Silver's come back 10% or so. Personally, I think these things tend to move towards a big figure level. It's a bit like equity investing. So, when it gets to a th00and or 10,000 or 100, there tends to be a bit of a sort of consolidation. For me, I think gold will get to around that $5,000 mark. Then, it will start to consolidate and maybe come back a bit, but I don't know how long that's going to take, right? That could take another year, could take two years, could take two weeks. And that's the reality of it. The way it's been moving this year, the momentum is with it. We've had a blowoff which has been very healthy I would argue and actually if you're bullish you'd say that was very healthy. It's got some of the little bit of frothy money out and it can go again. Now I'm very happy to keep holding it and we have it there as a reason that if there's a big geoc geopolitical problem or other problems of the world then gold tends to do well anyway. uh and it's done better this year despite there being no real big geopolitical problems and stock markets doing well and normally they work in opposite ways. So I I think it's still a useful sort of asset within our portfolio. >> We took it down from 10% to a 5% holding. Um I I completely agree with Spice that central banks have definitely still got appetite for it because they just don't trust Trump. They don't trust government debt, the the discipline around government debt levels. So the question whether it it you know was this safe haven I think went out of the water as soon as we we had that move from 4,000 to 4,400 then it was a risk asset. But I think we've we've seen the the pull back. Now we get consolidation and maybe it is relatively dead money for 3 months, but then I agree with Mark, we we move up towards 5,000. I like it there because it I can still sleep easy at night with it being there. >> So it's a sort of insurance asset still in your book and in Mark's book really. And and I think I think there is a case for that. I I don't think that as I said, you can't put a price on it. You know, if something does blow up, it might be trading 10,000 literally within 10 minutes. You just can't say it's not going to. And I don't see a lot of downside to it. You know, I don't want to push for too long, but in in the sense you're not giving me any new information as to why you should buy it. You're telling me exactly the same story. I should have bought it at 2,600, 3,000, 3,200. And of course, the Chinese could stop buying it. We won't know that, you know. So, but I do think it's got a point part to play in the portfolio. And I where I where I where I do think that it benefits along with the World Mining Trust is if we believe that the world economy is going to get some some impetus from whether it's the Chinese trying to drive things forward, whether it's the American with a big beautiful bill and all these other things or or even Trump's just buying those companies with mineral rights to whatever. All these things point to that sort of those sorts of investments doing quite well. So I think I'm happy there. I think just to point out on the World Mining Trust, obviously it's the mining companies that dig out the ground right now. If they dig out the ground for $1,000 an ounce, their margins up here are huge. So gold can go sideways and we don't make any money there. >> Yes. And that can still do. Yeah. Oh yeah. Yep. Yep. >> Interesting. when they make that much profit, they're quite often tempted to go and buy other assets or other companies with this excess profit they have or give it back to shareholders, which by the way, as a shareholder, I'd rather give it back to me in forms of dividend or share buybacks rather than going waste it on a very expensive acquisition. >> So, so I suppose when when I look at those things, I'm not hearing anybody against the vanet crypto either in the sense we've cut half our position anyway. So, we've only got a small bit there. Although it's disappointing to see those chunky falls, we're happy with what we've got in those areas at the moment. I I suppose the other thing that I was thinking about and it's just literally from looking down at a list of things that you can invest in and thinking thinking what's our our thoughts and views has has come a little bit more into the crosshairs at the moment and and that's oil. We haven't talked about oil really but I think you know if you believe this case about economic growth if you think that things are pushing forward there then you know you can make a case for thinking bit more positive oil and oil of course has done very badly. We're very lucky we have an expert on this pod who um knows about oil and that's Mark here. So Mark's going to give us a little bit of a a chat on oil just to help everybody understand a little bit how it moves, what influences it, and a bit more about our expectations for it and whether this could be something we could be investing in. >> Sure. Well, like going back to basics, like all commodities, it comes down to supply and demand that will drive the price one way or the other. However, unlike many other commodities, in fact, all of them, they have a cartel that tries to control the price called OPEC. Let me talk a little bit about OPEC. So, for those of you who want to know what the anacronym OPEC stands for, it's the Organization of Petroleum Exporting Countries, right? It consists of 13 members. Like I say, was set up in 1960. Uh the biggest producers of OPEC are basically Saudi Arabia, Iraq, and Iran, mainly the Arab states. and they also have some of the biggest reserves in the world. The plus bit is Russia has now been included in OPEC. Their job is to try and stabilize the oil price when things get too low and introduce more production and supply when the price goes too high. Like when Russia invaded Ukraine, the oil price doubled and people like OPEC started to pump some more oil and the Americans who have big reserves of oil started to release some of that. had added to the supply side that offset the the demand that was still there that helped the demand but the supply that had been held back by Russia and Ukraine being at war that was an offset. Now OPEC in total produce about just under 31 millions barrels of oil a day and the whole world consumes about 104 million barrels of oil a day. So the rest of it is made up by Russia which produce about another just under 11 million barrels a day. So OPEC and OPEC plus get to about 40 just over 40 million barrels a day. The rest of the world which is led by America, the United States make up the difference. Uh so 60 odd million barrels a day is produced by the United States, Canada, China, Brazil. Those are the big what big countries producing countries. And by far in a way the biggest is the United States. They produce they're the biggest producer in the world about 13.4 million barrels a day. Um and so they're they're very powerful organization because OPEC control about 40% of the market. OPEC plus as it's called with Russia control about 40% of the market. They can try and manipulate the price. And a good guide to what sort of price they want to keep it at is to look at what Saudi Arabia use in their budgets when they're they're sort of doing their their main budget for their economy. and they're currently looking for around $70 a barrel oil price. Right now, Brent oil is at about $65 a barrel. So, they're some way below the $70 that they use in their internal budgets that they want to use to fund their economy. So, oil is supply demand, but it has a carton in the backland that likes to control the price. So Mark, before you go any further, you you you listed how big some of the suppliers are of oil and I mean a lot of people listening to this pod will remember that we have our own industry or or rather we had our own industry, you know, based around Abedine, but up there in Scotland and I I don't want people saying I'm I'm not focusing on Scotland for my colleagues. >> When you say we >> Okay, we sorry. We we Yeah, sorry. How much do we produce? So we produce a mere 600,000 barrels of oil a day, but just about half percent of the world's oil production, but we consume about 1.4 million barrels of oil a day. So we import around 800,000 barrels of oil a day into the UK to fuel our cars, uh, etc. >> So we import oil in even though we have the North Sea. >> Yes. >> I make no other points there. And and Milliband I make no point. Let's hope they don't tax the North Sea even further. And that, by the way, that's one of the reasons that the North Sea production has gone down is previous governments have taxed them beyond compare. They think it's a super tax. They oh, we can just we can just go and take and pillage the oil industry. And so the oil industry said, "Well, sod you lot. We're not going to invest." And so UK production in the North Sea has gone down and down and down. If they reverse the taxes, you might see a pick up in production, but they'd have to reverse the taxes a lot because oil is taxed very heavily in this country. There are two main prices that that are used in the oil market. One is called Brent and that came from ironically the North Sea. We had a field there called the Brent oil field and that became the the standard price for that type of oil. It's quite a heavy oil. Uh I mean it's quite high in sulfur but it gets used in lots of refineries. It's very valuable. Uh and it trades right now at about $65 a barrel. Uh their alternative oil which is cheaper is in America called the West Texas Intermediate WTI and that trades well and it has done historically trade at four or five dollar a barrel discount and right now it trades at about $61 a barrel. So it's about $4 discount to Brent and part of the reason you have this difference in prices. Brent uh is is made around Europe and Saudi Arabia. Again, we're in the central sort of part of the world. So Brent has to be transported in ships etc. and it goes to Asia, it goes to Africa, it goes to Europe. Uh but West Texas Intermediate tends to only go to America. And that's why there's a lower cost. There's less less travel costs involved in doing it. And also if there if there is geopolitical problems, which unfortunately tend to happen in the Middle East, which is where the where a lot of Brent oil is produced. So it has a risk premium that the area may hit production problems because of a a civil war in a big oil producing country. >> So Spice, that's a fantastic background then and gives us the difference between WTI and Brent. What are your feelings on the uh on the price at the moment? >> Well, it's been very very weak. Uh you know, we've seen the oil prices down something like 12% this year and that's despite it having a bounce of about 8% this week, just this week alone that we're we're talking here. Uh and part of the reasons it's having a bounce is because uh there is maybe some money come out of cryptocurrency, maybe some money come out of gold and some of these other areas and because oil has been so weak. Um people have switched into it. Some there there is it known that some of the big hedge funds like to basically either own lots of gold and short oil. So they're long oil and short gold or vice versa. And because gold's gone up so much, there may be a bit of rotation back the other way which has helped. after a very weak 12 months or so. >> In fact, I I looked at 18 months ago, if you took an ounce of gold, you could buy 25 barrels of oil. Now, because of the moves in both assets, 1 ounce of gold buys you 67 barrels of oil. >> So, it just it's 2 and a half times as much. >> Shows you how things have moved. Um you some might say out of line, some might say into line, you know, depending on what your view is. But it does show you how well gold has done and other minerals have done and metals have done, but how badly oil has done >> and it's just it shows you that that use case. You know, oil obviously has a use case whereas gold is just more that store of value. So I do wonder if we're about to get a some kind of snapback. There was a period which we have to remember where the oil price of West Texas Intermediary WTI actually went negative. If you remember that was during COVID in April 2020 and that was partly because the Americans were producing all this oil. No one was driving any cars and they had nowhere to store it. They'd run out of storage space. So it was cheaper for them to literally give it away or pay other people to take it away rather than to shut down their production because if you shut down production it's very expensive. So they basically the oil price went negative all very briefly. West Texas Intermediate went negative. Brent didn't but it was a very tough time for the industry and the industry learned from that two things. One is they had to increase the amount of storage capacity they have which they have been doing. I think they've increased it by about 25% since the since the the the lows of 2020 during COVID, but they've also been very very um controlled about the amount of capital investment they do in producing and looking for more oil. So, they're very restrained on their investment in building new production, which means there's a natural sort of restraint on supply. And remember, this comes down to supply and demand. So if you're just beginning to restrain the supply then that will should help in the supply demand balance because if the world picks up and growth picks up then the demand for oil will go up. In the old days the oil demand used to grow at the same level of global GDP. So if global GDP or gross domestic product was about 3 and a half% a year which it has been for a long period of time. Oil demand would grow at about 3 and a half% a year. Now that that has dropped because of the energy transition, people wanting to use electric vehicles, trying to move away from oil as a as a sort of they think it's a dirty fuel. So people have been using alternatives. So now oil still grows despite all of this is growing at about one to half a percent a year compared to global GDP at about 3 and a half. But nevertheless, if global GDP picks up, so will the demand for oil. But in the meantime, most of the oil companies have all restrained their capex and not investing in new production. The only people who have been adding new supply has been OPEC. Uh and they've been adding about 1 and a half to two million barrels of oil a year over the last couple of years. And they've been doing it monthly, just steadily incrementally increasing it. That's beginning to come to an end now. We've got OPEC month meetings every month for the next few months and then there'll be once a quarter and that increase in production is beginning to plateau. So we're getting to this point where they won't be supplying the market as much but demand should start to pick up with the one big beautiful bill and the rest of the world may be picking up. So you should see this demand supply balance kick back in favor of price rises and after such a big fall that they've had over the last few years in oil price we should see a pickup. So there's a sim there's a big similarity here. I think it's worth drawing people's attention to that bullcase for the various metals that we've talked about where companies have learned from past errors that spending too much money, investing too much money in capacity tends to lead to a fall in prices and therefore let's be really really careful and that's helped drive these metal prices up strongly. We've got the same situation here in oil. And what you're really saying is this this might be the start of a a decent runup in the oil price and something that we should be looking at. >> The bare bull argument around at the moment is there are 1.3 billion barrels at sea at the moment. Okay. So there is a lot of supply floating around and that's what the bears are saying. Bank of America think it's going to $50 a barrel on WTI. >> That makes me even more bullish. Carry on. what the what the the bulls are saying at the moment. Exactly what what Mark says. The the break even price for new production is $61 a barrel in the Perian. So the Peran basin is around West Texas and New Mexico. So to really get these projects up and running, it's got to be above $60 a barrel. Otherwise, you're not going to have supply come on in the future. and the the you know 37 billion barrels a year that are in demand, they're going to take the price up naturally. So definitely in the medium term, I I would agree I'm I'm bullish. I just wonder if there's some of that supply has to be has to find >> isn't Isn't that the surprise? I I think you know I I would be generally of the view that oil has been in a downtrend for some time and therefore you need to be you need some proper evidence that it's breaking upwards before you get that optimistic. But we had that we had the surprise yesterday where Trump has sort of started talking about more sanctions on Russian oil companies. How much of this supply slopping around the world in oil tankers is Russian crude which won't be able to get in and used as much as it has done in the past 6 months year. I I don't know the answer to that question but you could see a situation where if Trump made it difficult enough for people >> for especially there might be oils hanging around but if it's too expensive to actually engage with it because you're going to get big tariffs on you you actually say no thank you. Therefore, that oil that's out there isn't going to be so much of a a downer. It's an interesting idea. And and if we were going to buy oil, what would we buy, Mark? And is it ETFs or or do you buy a stock or a thematic index? What what's your sort of way of playing it? >> I mean, you you can play it in various you can either buy oil companies individually like BP or Shell. You can buy a manager bit like Black Rockck World Mining. You can buy there are people who manage oil investments in different companies around the world. That's one way to do it. But then you're paying a management fee. You know, you have to work out the valuation of companies. If you basically want to get exposure to a rising oil price, then you want to buy something that gives you exposure to the rising oil price and go with that. Now, you can buy ETFs or exchange traded funds or exchange ETCs as they're called, exchange traded commodities that track things like the Brent oil price, and there's one called Wisdom Tree uh Brent Oil, which you can put in your pension fund, you can put in your ISIS, so it's us compliant. Uh, and basically, actually, it it's not very expensive. It's only cost you about half percent a year of management fee, which is not expensive for these sort of things. uh and that gives you that replicates basically exactly what's going on with the oil price. So if we're going to be bullish on the oil price, we buy something like that. We don't want to go and buy oil companies or exploration companies or refining companies which you get with doing the other ways of doing it. >> It's always an interesting choice between you can go for the majors. So like you said, BP, Shell, Exxon, you can go for the oil services, which um you know, if you've got a a relatively um bullish outlook on oil, then the services companies can really get some >> an example of those would be >> uh so you got Slumber, Hallebertton. >> Okay. And they're and and and they are both US listed companies. Yes. >> Yeah. and they tend to do things like seismic testing to see what's underneath the the the ground or the sea and they can tell the sort of different densities of the the the sort of the the land beneath. >> So you've got oil services and then you can go for the real lottery tickets and they get very spicy and that's the oil explorers the >> and have you got any examples of those spicy? Have you got any examples of the explorers? >> I knew this would come into the podcast at some point. There is a company of which I've made a lot of money and lost a lot of money in but is a perfect example. It's called Borders and Southern. It it drills for had drilled for oil uh in the South Atlantic around the Falkland Islands. You remember about 10 years ago there was a huge sort of excitement about potential oil in the Falkland Islands and they did find oil and they found borders of sudden found gas condensate. So they're sitting on a massive reserve but no one's got the money to get it out of the ground. >> That's enough. That that's enough of the bull story spicy. You got to stop just at borders and sub. I I I I think we do all need to accept though there is a conflict of interest here when we talk about border sub. >> Exactly. >> All three of us have all things. >> But it it was >> one day Roers say it was definitely a big part of your career, wasn't it, Spice? >> It was. I learned a lot of lessons, good and bad. >> So that's definitely one brand new asset that we uh should consider um when we're looking at adding to the portfolio this week. CJ, is is there anything else that you've uh caught your eye this week? >> Well, there is one thing actually which I think is a very interesting observation that was um highlighted by the Financial Times on Saturday where they talked about Rachel Reev, our our chancellor, and her her budget. I mean, that's nothing special. We all know there's a budget coming up and we all know it's going to be very difficult. The story mentioned the fact, some might say, that she was finally going to look at how to um push the UK equity market better and start getting more people to realize that we have got a good strong financial sector in the UK in terms of the stock market and we need to support it because by supporting it uh we can drive investment within the UK. Remember we had in podcast 10 we had Charles Hall from Peele Hunt who came gave us a wonderful presentation on why it's important to have a strong UK stock market. What did Rachel Reeves say? Uh she said basically that that they were contemplating changes to the ISA in the UK. >> That's individual savings accounts. >> Thank you. That's the individual savings account, which has been one of the best ways of saving in the UK and something that all our listeners, if they can, should be looking to fund each year. Tax-free savings >> available at a platform near you. >> Available at a platform not very far from us at all. Three things that are being talked about. One, the cash is being reduced from £20,000 to £10,000. I don't intend spending too long on that at the moment. As you know our view is you should hold cash um as part of your investment strategy to case of unexpected occurrences but we should most of the time be invested in assets. What she talked about though was whether going forward I think going forward it may be looking backwards as well but I think going forward there should be a certain percentage of the ISA in UK stocks. I encouraging people to not go and buy Nvidia or Oracle or whatever and get tax relief, but to buy them in UK stocks and do it that way. I don't quite know how it all works, but it sounds quite good. And the final thing was that within the ISA, you wouldn't have to pay UK stamp duty. Now to me I'm not sure how many of these will actually keep their place in the idea uh menu because we all know that everybody will start canvasing their views and you know some wealth wealth management companies will be saying this some will be saying that some people will reject this some people object to that. The fact is, I think though, it makes it clear to me, and maybe it's just my optimistic goggles on. Um, it it makes it clear to me that the chancellor and the Treasury and maybe the government generally realize that without a strong stock market in the UK, their chances of growth are severely limited. And therefore, there are some things they can do which get the UK stock market moving which can help to provide a great backdrop to all this private equity they're looking to fund and all this scale up capital they're looking to do. A good stock market helps with all those things. And so to me, I think that's a really really important thing. But I think it's important to remember in the UK there are a number of ways you can buy your exposure to the UK. >> Um there's a footsy 100 we've talked about already. We have a holding in the Footsie 100. >> Yeah. 10%. >> But I think this is probably more relevant to the smaller companies indices. And for example, I hear I'm talking about the Footsie 250. Mark and I have often had exchanges about the Footsie 250. We've often had investments in the Footsie 250. Mark, maybe you'd just give a couple of words on what the Footsie 250 actually is and what it's giving you exposure to. >> So, we know about the Footsie 100. They're the top 100 companies by market capitalization in UK. Well, the next 250 down below that are what we refer to as the Footsie 250 or the midcaps in the UK. Below that, you go to the small cap and there's a big number of those and then you get AIM which are the really tiny tiny sort of companies. Now, the Footsie 250 is a big market. It's valued at about 400 to 450 billion in market capitalization terms. >> 1% move in Nvidia, isn't it? Well, but to give you some perspective, the Footsie 100 market capitalization is about 2 and a half to three trillion. So, it's a lot smaller in terms of market capitalization. Now, if you bring in the, you know, if you look at it relative to the size of the ISA pots that are out there, I was doing some work on this. There are around there's around about 285 billion pounds held in cash ISIS but there is about456 billion pounds currently held in the stocks and shares ISIS and the market capitalization the whole of the mid250 is only about450. So, let's think if they were to say you've got to put half of your stocks and shares Iser into the market and let's say you're being really bullish and say you're not allowed to buy any Footsie 100. You could put a lot of money into that midcap and it would squeeze it up a long way and you know the valuations are actually pretty attractive. These are underressearched companies. They've been left behind. Uh they tend to be sort of pretty domestically exposed. That would help the British economy. They do struggle these companies to get capital for to borrow money to to invest. But if the money was coming in in terms of a stronger share price which they could use then basically that would help them grow as well. So it could become a nice virtuous circle. Um and that's what Charles Hall was talking about the other day and other countries like Australia do this and encourage people and it helps their companies invest. It helps them grow and it helps the underlying economy and it helps with tax receipts ultimately. Now, you're not going to get the tax receipts if it's in an ISA, but the government will get taxed from companies doing better investing and making more profit giving it back to the the checker. >> And we know they're cheap because companies from other countries keep on coming and buying them. >> Well, I I I think that's a really good point. The the fact is the Footsie 250 has been a pretty poor performer. I mean I looked at it uh yesterday and um we are trading 8 12% below the high which was achieved in September 20121. So let's go back September 2021. We've got all the money flowing into financial assets from from the COVID time when interest rates are zero. The money's getting pumped in. We're doing whatever it takes to keep the economy going. Every other asset class in the world, you know, is going up. Footsie 250 is going up as well. gets to September 21 and it's never gone any higher and is still 8 and a half% below. Now I haven't got the calculations here of how well other things have done. The Russell 2000 which is the worst performing of the US indices which we have a holding because we're very bullish about the smaller companies in the US took out that high just recently and is driven further forward and we are still well below. So we've got a stock market in the Footsie 250 which has been hurt and it's been hurt by a number of things. It's been hurt mainly by the fact that we haven't had any growth in the UK. Taxes have gone up. The changes to capital gains tax, the changes to other taxes have led national insurance and and all these sorts of things have not helped the outlook for the UK. And of course, every year we go through this what taxes we're going to raise in the next budget because we can't cut public spending. But we'll do more on this sort of topic um in in in the coming weeks because we're getting close to the budget and we will have some a couple of programs on the budget. But to me, what this says is they are now understanding that they need to get this market higher, get it it trading better so it helps the rest of the um UK. And the thing I note about it is although it's still trading 8 and a half% below its high, it's broken out over the last few weeks and starting to push higher. And I think this could really really trade well. So I'm going to suggest that we want to buy 10% of the uh Footsie 250 within our portfolio as something we should do this week. Uh now there'll be people listening to this podcast who have known me for a long time who will say, "Oh, so CJ wants to buy." He's coming, guys. it's going to work this time. So, I'm going to say we should do 10%. Uh the real question is what do we sell it or or fund it out of? Do we sell some of our existing holdings? We've got some guilts and we've got some cash. Do we fund it out of there? I'd love to hear other people's thoughts and views on that. Rich, what about yourself? Um first of all, do you do you like the idea? >> I love the idea. >> Oh, brilliant. Excellent. I I won't have to use my veto then and say we're doing it anyway. That's brilliant. Okay, carry on. As we know, I am very proud Brit and I have the Footsie 100, I have the Footsie 250 in my investments and have been waiting for this kind of outperformance that is just starting. So the question where to finance it from, I don't like the idea of adding to our risk at this moment as we come up to what feels like a a bit of a shaky time. We've got through the anniversary of 1987 that you both survived your uh in your own careers, but I I'm still I'm nervous around this um the popping of the bubbles that has taken place already in quantum. It's taken place in gold now. Are we going to get further follow through to AI? So, I would be more comfortable if we took 5% out of the S&P 500 um or sold Vanic. So that I'd be looking to reduce risk by a little bit in those to buy 10% footy 250. And I can imagine Mark will agree with me as well. >> I don't disagree with when it comes to saying I'd like the the mid 250 in the UK, the footy 250. I do like that. And the reason I've got a very quick tick list that I use when it comes to investing in mid and smalls size companies that I need, you need an attractive valuation. Well, the the the mid 250 at the moment trades on a price earnings multiple we talked about of just under 14. That compares with America that's about 23 24 at the moment and yet it's delivering the same sort of statistics in revenue and earnings growth as the the S&P 500 as a whole. So it trades on a massive discount to that. So I think there is room for revaluation there. So yes, I tick that box. The other one is are we in a period of falling or stable interest rates? Well, the UK has already cut interest rates and we had some slightly better than expected inflation data this week in the US which I was going to mention in the market report but I was saved on that. So we we had 3.8% inflation which was expected. So it's slightly you know in line which is good not worse than now the Bank of England >> 0.0% month on month. That was the big >> that was the big one. Now the Bank of England think inflation is going to peak at 4% in the next month or so. So they they making excuses or getting ready to be able to say well now we're going to cut again. So I think interest rate cuts could be coming in. So again a potential tick there where we're not quite there yet as we we're not seeing the economy the the domestic economy in the UK grow. Now if Rachel Reeves does a half decent job I think then the economy could do a bit better. That would be good for these companies. uh and I think you know their ability to beat expectations. Well, we're seeing that at the moment they are beating expectations which is good. That's another tick. Finally, we get a rotation out of these big mega cap stocks. That's why in the reasons we brought the Russell 2000 in America, we'd see some money come out of the big companies going into the smaller companies. I think you could see the same in the UK too. So, I I think it ticks most those boxes are there. Yes, I I like the idea of buying the mid 250, but where I differ, surprise, surprise, is I wouldn't be selling things like the S&P 500. I think that's the best index in the world, but it also stands to to benefit greatly from the upcoming one big beautiful bill. So, the tax cuts that come with that, the accelerating US economy that will come with that as well, and falling interest rates in America. I think you ignore the American markets at your peril into this period where they are the Federal Reserve is cutting interest rates on a regular basis. It's very difficult to see equity markets go down in that background. >> They're only cutting rates because unemployment is getting worse and worse and worse. That doesn't give a great backdrop for the SP5. If the growth is going up and unemployment is going up too, that means company profitability should widen because unemployment saves companies costs unfortunately. Not good for the people being made. >> You're assuming that growth goes up though. That's not my assumption. >> Well, that's you're making is that AI effectively is the reason why unemployment is going up. Whereas my friend here might be working on basis the economy is slowing which is why unemployment is going up. >> But that's the difference between the bull view. >> Exactly. >> And the bear view. And while I was out earlier I saw a lovely little golden chocolate bear here for young >> rich cuz I'm like him to be known as the golden bear. We'll put it on the on the thing forward. But but that's the difference really between the bull and the bear view here. >> Yeah. The bull and the bear view is that >> we've heard it before. efficiencies of AI going to lead to increased profitability. Yes, higher unemployment, but higher growth and the won't be beautiful bill will fuel it along with interest rate cuts. I I've got to stick with America. I have to where I I feel it's important when you're looking at portfolios and a great lesson I think and I've heard this from other people as well is you should you should water your flowers and cut your weeds. Right? So, we shouldn't be cutting the things that have done well, like our beautiful flowers, like things like uh Japan and like the the S&P 500. But an area that I'm disappointed in and we we I talked about it at the portfolio review, the quarterly review, is the DAX, the German market. >> And now that we bought that because we thought that there was a potential peace dividend to come. And I still believe that's the case. But clearly with Trump now ramping up pressure again on on Russia to stop the Ukraine war now maybe that will happen. But it does seem that that the prospect of a peace there has drifted a bit to the right and the DAX is just treading water. It's not really doing a it's not hurting us but it's not really helping us very much either. So it's a bit of a weed. The choice we've got for everybody here is we could just add 10% footy 250 to our existing holdings which would increase our risk a reasonable amount >> or we can fund it with things. Now, we can fund it with the American market, but I'm with Mark in the sense that whilst the bond market is behaving itself, I find it's a struggle to see why the US is going to um um fall, we clearly got a lot of big numbers due this week. >> Where's the risk? >> And there is a risk there without a shadow of a doubt. We could sell some of our Japan. I mean, Japan, if we look up there on our total return since inception, is a very strong equity return, >> our best equity market, >> but I think we feel that we've only just started that ride with the new Mrs. Thatcher in charge. So, it really comes down to um is there anything else we'd like to sell? Now, we could sell Footsie 100. There's no real point selling footsy 100 because it's a pretty cheap index as well and it looks pretty good and it's performed and it's performed in by the way some of the ISA money if it if that will feed in there will feed in it will feed in there as well. Good point. Extremely good point. >> So I I mean I'm I'm to be honest I'm I'm with you. You know the one I cast that's really been disappointing has been the dags. >> I'm going to ignore the the bear on my left. I mean one day he's going to be right and I'm going to look an absolute idiot. So, um, but at the moment, just just for this week, I'm going to ignore my friend on the left, and I'm going to suggest we buy 10% Footsie 250, we sell half of our that DAX. That'll take us down to 5%. And then take the other 5% out of the guilt um portfolio. Um, and that's what I think we'll do for this week. We'll consider the the oil. I like the oil um view. I'm a little bit I'm I still think it's in a bit of a downtrend. I'd like to see more confirmation it's going in the uptrend, but there's a lot to be there's a lot of upside to be had if it's right. So, I think we should keep that one on the back burner to look at. >> It's just rallied 8% already. So, it's difficult to sort of >> slightly unlucky on the taming there. >> Few days we talked about a few days ago. >> So, lovely. >> Lovely. So, we've decided what we want to do on the portfolio, but how do we express it, Mark? So you could buy an investment trust, but in trouble investment trusts, they cost you quite a lot of money and they normally sit at a discount to the actual value of the assets you're investing in. So I don't think that's a very good way of doing it. So we're going towards exchangeraded funds which we've talked about before. These are very lowcost vehicles from which to do it. So there's one called the Vanguard Footsie 250 ETF which I'm recommending we go into. It is about 2.2 2 billion pounds in size against a footsie 250 market that in total is about 300 400 billion as we talked about before. Uh and it only charges you 0.1% as a management fee. So it's really cheap. It does the job. It tracks what we want. >> Good idea. Okay, let's do that. So we can buy the Vanguard Footsie 250 ETF uh which we can represent our views. We'll put 10% in there and you know the let's hope she has indeed seen the light as we have been talking about. Yeah, hands off our investments. I really hope that she doesn't go and change pensions or dividend tax or capital gains. Excellent. That is us for the week then. If you want to ask any questions to the experts here, these celebrity traders, they are taking your emails. Gentlemen, where do our viewers send their emails to? The art of investing at.com. >> I think it was better with our colleague here last week. Thank you very much for joining us. We'll be back the same time next week. Best of luck.
EP16| Exploring Oil & Unloved UK Stocks in the FTSE 250
Summary
Transcript
18 months ago, if you took an ounce of gold, you could buy 25 barrels of oil. Now, 1 oz of gold buys you 67 barrels of oil. It's 2 and 1/2 times as much. There were cues outside of bullion shops in Australia, in Sydney, in Singapore, in China, in Vietnam. People were queuing for four or five hours to go and buy gold, bullion, and silver. Yes, that is a pointer to the point we're getting it. It's going a bit mad. In the end of the day, it's worth what people will pay. But that's about as useless as a chocolate fire guard as a prediction statement. I mean, what does that mean? So, looking at our portfolio this week, I'd say that this is where the the horror show begins. So, our first real down week. If you're going to have a down week, do it properly. We're down 1.3%. Which does sound painful, but where do we go from here? 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. Welcome to the art of investing brought to you by IG, the global investment platform. It is episode 16, Revenge of the Bears. Please join me in welcoming the UK Finance very own celebrity traitors. But will you be looking to banish one of them after seeing this week's performance? Because yes, we've had a roller coaster week in global financial markets. here to tell you all about them. It's the Spice Market Updates. >> Thanks, Rich. Uh, as you say, it's been a very interesting week. Uh, obviously last week in the market review and as part of the podcast, we we focused on the crypto crash that we'd seen the week before and crypto cryptocurrency and the coins have had a very difficult week again. They're sort of towards the low end of uh the sell-off that they had last time. So they're under pressure, but elsewhere there's a lot of evidence of buying the dips, as we call it. So each time the market's had a bit of a dip, people have come in and bought it. And US equity markets, even the Footsie, are back up towards their all-time highs within a whisper of it. Even France managed to make an all-time high this week, despite despite all their ongoing political worries. You may have noticed there was an outage to some of your apps this week. if you use Snapchat which I know the youngans use uh but those of us who looked at the you know our Lloyd's Bank app etc uh and or had to have a conversation with HRMC which we don't like to do but if you did do you'll have noticed that they had quite a big outage and that was because Amazon who provide cloud services and web services for a lot of these companies uh had a big outage they had sort of a problem uh but interestingly the Amazon shares actually went up on the day which is bizarre Oh, normally >> bull market bull market. >> Well, absolutely. Absolutely. >> That news is good. >> Well, we're going to get Amazon results uh in just over a week's time on the 30th of October. So, that'll be very interesting. Maybe people will think they're going to be better than they expected. On the corporate front, remember corporate reporting season is ever so important at the moment because we are now into the fourth week of the US government shutdown. And I have to say uh you know unfortunately for those people who are currently being laid off or furoughed in the US uh it doesn't look like they're getting close to a deal. Um and it's now being speculated that may well run into November before they get some sort of settlement. So as we've said before looking at the corporate reporting season which we're in the midst of now is increasingly important and very important because we're not getting data from these other government bodies. Uh so on that front actually it's been another very good week for corporate America particularly but also in the UK we've had good results we've had good results from the banks Barklay's had good results HSBC pers and the house builder red red row all good uh and that's one of the reasons the footsy managed to push up towards its high uh and that's the same sort of things have been happening in America the the regional banks which were were were hit quite hard the last week when we saw some of these bankruptcies which were unexpectedly coming out. Uh they got hit quite hard, but they had results this week and actually they were all reassured on their lending book and so the bad debt fears that people had have actually eased a bit and their shares rose and that's helped the index like the Russell 2000 which has quite a lot of regional banks in it. But it's not been all good news. Uh so names you'll have heard they've had a tough week this week Tesla uh you know electronic vehicles having a very tough time at the moment and Tesla disappointed on that front. Ironically, on the other side, General Motors, who had been investing a lot in electric vehicles, has said they're pulling back from that. Their shares went up 15%. Wow. Because they did better than expected. Uh Tesla's shares fell about 4%. If you you're getting ready to buy your toys for Christmas, Mattel will probably be discounting pretty soon because they're struggling to sort of uh deal with the tariffs that have been imposed on China, etc. And then the value B&M group, you know, if you go and you go and buy your sort of kitchen wares and all the rest of it from B&M, they've also disappointed this week. And then, you know, one closer to your heart, Hermes have had a difficult week, too. And, you know, for people like me who like to watch a bit of TV and a bit of Netflix, uh, they disappointed. >> Yeah. What happened there? >> Yeah, they're basically they've had some great shows. Um, but at the end of the day, people they've been asking people not to look at the subscriber numbers and the advertising was a little bit disappointing on that front. And that's despite them having some really good blockbuster shows like Squid Games. >> And I know the the Mag Seven companies aren't really used to it, but they actually had to pay tax for once. So, they had to pay the Brazilian authorities 600 million and that's what actually hit them. Made the missed numbers and the and the stock down 7%. Imagine Mag 7 paying tax. >> They they need a good accountant. Yeah. So apply now. >> So yeah, it was it was it was a good week overall. And so the US reporting season we're sort of now quite a long way through it basically are coming in about 86% of the the numbers that have been released are beating expectations. Normally you would expect that to be in the high 70s because the Americans as I said before are very good at managing expectations. But also in the third quarter, you normally see a small downgrade in numbers so that then the the companies can beat expectations at the end of the year in the fourth quarter which is when they get all their bonuses paid. Funny old game, but basically you've actually seen small upgrades coming through in the earnings this time rather than small downgrades. And that's good. So the the growth in in American earnings is running at about 6%. But next week is going to be a huge week because next week we have uh we have the big magnificent 7 start to report. Obviously we had Tesla last night. They were a bit disappointing. I mentioned they're not really considered part of the big magnificent 7. Some some people are sort of suggesting they get different different names now. >> Like the magnificent eight nines tens there are all sorts of other sort of names being banded around. >> Wonderful how they were a member and now they're not doing so well. So they're rejected. Get rid of them. >> Well, there's sort of names like the Great Eight are being banded around. All right. The Golden Dozen is another one that's out there. 10 AI or Gen AI, which you would orderly now include things like Broadcom, Oracle, um AMD, uh Taiwan Semiconductor, and Palanteer, one of your favorite bear stocks, which has been struggling as interesting last week. But as you say, we've got a really big reporting season that starts next week on Wednesday. In fact, they start um and then you'll start to see the the Magnificent 7 report and they're expected to deliver revenue growth of around 14% earnings growth a bit higher than that. So this is more than double what the rest of the market is doing and so for the overall direction of equity markets that will really set the tone. Do you think if they disappoint that will be a a real test for the market or do you think that the optimism on interest rate cuts still and remember we've talked before about interest rate cuts coming through meaning bond yields stay low meaning equities get a kicker and a helpful push. Do you think that they will suffer badly if they miss? I think if a if a company single company does it will get punished very badly because the markets are pretty brutal at the moment uh particularly after the big rises we've seen but I think for the you know for the market as a whole you'd have to have more than one just miss you'd have to have several of them or say that they seeing a topping out of capital expenditure which there's no evidence of that really coming through at the moment if someone said were to say that that then that could spook a few people uh but that's not expected as I say results are expected to be very good. Everyone will be looking very closely at their outlook statements because like I say, people are looking for the top of these things. Bears like yourself there, Rich, are sort of saying, well, this is this is going to be over very soon. But as long as people can still see an acceleration or a sort of, you know, a sort of continued build in the momentum of the the demand for for capex, >> I wonder if they they read the room correctly because obviously we've seen this circular investment idea put round and the market's not liking it. The proposed market cap of OpenAI when it IPOs, if it ends up IPOing, has actually dropped 10% this week. So there are questions. Oracle's really been hit hard. So I wonder if some of the MAG 7, it's not about putting out the biggest capex number there, you know, your metas and alphabet. So I do wonder if it'll just be rained in a little bit and they'll point towards some kind of discipline on their balance sheets rather than putting out a huge way of spending more and more and more. One of the big differences between what's going on with AI and the spend on capex now compared to what was going on in the internet bubble back in the in the late 90s and early 2000s was that most of this capex is being self-funded. So companies like Microsoft, Apple, etc. are spending their internal cash flows. They are not going to the banks and borrowing money. So they're not putting risk of this all going wrong on the banks. This is all about their internal cash generation and the fact that they are able to do it and still pay dividends and still do billions of dollars of share bitebacks I think is very impressive. What we don't know and this is the big uncertainty is what the return on that investment will be because you need to make profit on all this expenditure to justify it in the but we don't know whether they're going to make that profit. That profit may come by having to employ less people going forward. As we've talked a lot about potentially, you know, youth unemployment particularly picking up because AI is replacing a lot of those jobs. That may be where the profit comes from when improved efficiencies etc. So those are the things people are going to be looking at really closely and we haven't got any any real feel for that and I don't think we will for the you know next six or even 12 months. It's too early. We're in the spend mode at the moment rather than looking in the return mode. And interestingly, a lot of equities perform very well when you don't have the answer to that question where you can think, you know, I could have an argument with you. I could say it's going to be 20% and you could say it's 10%. We've got no proof to say whether I'm right or you're right. And markets if they're an optimistic move will come towards me and go for the higher end expectations. If they're in bearish moves, they'll go to the other end of >> it's what's changed this week, right? Quantum computing stocks are down 33% from the bubble levels of last week. Oracle's getting killed. The this blind optimism has actually really changed in in the past 7 days. And yet the S&P 500 and NASDAQ are back towards their all-time highs. They're they're within a whisper. You know, the S&P is within 1% of its all-time high. NASDAQ's within 2% of its all-time high. And that's despite this going on. So, there is rotation within the market, which we've talked about before. And one of the reasons we bought the Russell 2000 was we expected some money to come out of these things, some of the more highly rated stocks and begin to trickle down into other parts of the market. And that is what is going on. So the overall index is still able to sustain reasonably high levels despite the odd pocket here where things have have gone wrong. >> The real question is maybe the Mag 7 or the Glorious 8 or whatever it was, the Golden Dozen or whatever it is, you know, are fine. Is there more danger underneath the surface that we should be watching out for? Are we looking at the wrong place basically for the trouble to come from? The trouble's not going to come from the Mag 7. They've well researched. Everybody knows they've got you they're going to do absolutely fine. But it's that next next layer down where the problem lies. >> Well, I think you've touched on it before and I I'm with you on this. The problems probably lie most within the private equity and the private markets which we can't see. They don't have the same reporting standards, you know, to the external world to be able to see and analyze. They only have to justify themselves to a few sort of internal shareholders as it were. I suspect that's where the problems will lie. And Jamie Diamond obviously is considered one of the the world's best bank executives if not the world's best bank executive talked about because of the problems with First Brands and the bankruptcy last week where his words were where there's one cockroach there are normally many more implying that first brands would not be the only company to go bust and very quickly trickle went bust as well. Interestingly they were both related to the car industry. Interestingly, Lloyds this morning have brought out the results and the results are actually okay, but they've had to take an 800 million pound hit on potential misselling on into the car industry and car finance and that sort of dampened down their results. But I think that there seems to be a problem with the car industry and you know maybe they were just manufacturers were producing too many cars. They were desperate to sell them. So they were making it cheap finance selling them to people who couldn't really afford them. And with this slight rise tick up in the unemployment with the scene in America that's causing a few problems. But it does seem to be very much focused on that part of the market at the moment. But going back to your point, I think if there are problems, they're not being seen in the public markets yet. And that's what drives stock markets. >> Okay. So we just got to watch out. We have to watch somehow the observations we can see of the private markets to see that they're still okay because as we said before there's a lot of the previous risk that would have been in the banking sector is actually in the private debt market. So we just need to keep our eyes open but interest rates are still pretty steady and things are pretty good. I I just wanted to add one thing to what Mark said. Uh he talked about the um closure of the US government. has a wonderful website called Poly Market. >> And on Poly Market, you can take a view on so many different things. It's a city um uh place to go for people who just want to bet on anything. >> And you can bet on anything. So, for example, I'm just looking now. You can bet on who's going to be the World Series champion in baseball, what the Fed decision in October is going to be, will Trump meet with Putin again by a certain date. You can do everything. They do one on when will the government shutdown end? And previously they were very highly priced. I lots of people were saying it would be only last a few days. Looking at it now the most popular bet on poly market for when will the government shut down is after November the 16th. So that is still another look at my what probably 3 to four weeks away. So as Mark says the markets have changed cons completely from thinking this is only just going to be a short-term thing. It's not really much of a problem to no sign of anything happening here in terms of trying to solve it. >> I mean, I think the reality is the longer it lasts, the more damage it does to the real economy potentially underneath because these people are not being paid. They won't be spending. They'll be trying to save money because they're having to live off of their savings until they start getting paid again. Uh, and that, as you say, could be several weeks. In fact, it could be just before Thanksgiving, which of course is the big holiday in America at the end of November, and then the run into Christmas. So let's hope that this gets resolved because it is hurting real people in their real pockets and is probably could lead to some sort of you know really sort of skewed new data when when the data starts being reported in America. But I do worry that then that there could be particularly an impact on the employment numbers as we go forward. But interesting of course then the Federal Reserve who have as part of their mandate they have to worry about the employment markets as well as the growth of the economy as well as inflation. The Federal Reserve may focus much more on that and the impact on the employment market. And we have a Federal Reserve meeting this time next week. So we'll know again it's a very big week. You've got all the magnificent sevenstar reporting and the Federal Reserve meet on Wednesday. and we'll find out the result of that in the Wednesday evening uh where they're expected to cut by a quarter%. And people will be listening very closely to what they say and what they think might be going on with this government shutdown and its impacts on the real economy. >> Well, talking about next week, we uh we have Halloween to look forward to as well. But looking at our portfolio this week, I'd say that this is where the the horror show begins. So, our first real down week. >> If you're going to have a down week, do it properly. and we managed that. All right, there it is. The Vanet Crypto and Blockchain Innovators ETF down 15% on the week. Of course, very wisely, the chairman decided to cut that exposure in half a couple of weeks ago. So, we only have 2.5% of the portfolio in there. However, the World Mining Trust also was hit 7% partly because the same reason as the asset just above it there you see gold down 4% remember in the World Mining Trust 32% of exposure is from the gold miners on the plus side and this really underlines that benefit of a diversification we see India was up 3.7% on the week the Footsie shining bright there up% steady Eddie And as the prime minister in Japan was sworn in under the coalition, then the Nikai 225 also up 1% on the week along with emerging markets just under that. So overall, chairman, what does that give us as a week-on-week performance? >> We're down 1.3%. >> Which does sound painful, but in the grand scheme of things, gents, we're still up 7 12% since inception. But where do we go from here? Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and 2000. Make your first investment into an ISA general investment account or SIM by the 31st of October and benefit from commissionfree investing as well as 4% variable interest on your cash. Other fees may apply. terms and conditions found in the show notes or on ig.com/uk. Kickstart your investing journey with IG today. Well, I mean I I think it's wise to just think about the things that have done badly this week and just to see whether we want to change any of those. >> I I'm going to start with with gold. I mean, we talk we've talked it seems like ad nauseium >> for the last two to three weeks about bubbles and exponential price action. And I think we've made it quite clear that in our view the things that have looked like that have mainly been in our portfolio uh not just the VANC but also gold. And so it was very interesting to see that big falloff in gold that we have seen from those higher levels. But we need to be um realistic here. You know, gold has done brilliantly. It's still up 55% this year and 97% since the start of 2024. To me, when I've looked at gold, and I I don't put myself up as a gold expert. There's better people on this pod than myself in looking in talking about gold. But gold trades sideways for a long time. then it has a really good move then it trades sideways for a time. It doesn't trade down very often because it's a good asset in that sense. Um and it does make me wonder whether we have now seen the big upward revaluation in gold and whether now gold is pretty much dead money for a period of time. I don't I'm not trying to say I'm bearish on gold in any way, shape or form, but maybe there's better returns to be had elsewhere. that the problem for me with gold is how do you put a value on it? You know, should it be 10,000? Should it be 5,000? Should it be 2,000? It's really about a it's preference by investors and it's the same really as crypto. That's exactly what cryptos. I mean, you say Bitcoin should be 100,000, you'd be 200, be 300,000, should be 50,000. In the end of the day, it's worth what people will pay. But that's about as useless as a chocolate fire guard as a prediction statement. I mean, what does that mean? I get I get why people want to buy it. The question is who else is left to buy it? If you haven't bought it already, will you ever buy it? You know, the arguments have been there forever. Alternative to the dollar, uh huge fis fiscal deficits from the US, from Europe, from Japan, um currency debasement. We've been talking about these for a year and a half now, two years now. So the question so the thing to me is is there still people left to buy gold or have we got as far as we're going to go in the short term. So that's something that does concern me a bit. And then of course our vanet crypto and blockchain innovators I mean it's had a it's had a shotfall um done brilliantly for us but we've we've already realized with that that a you should take some profit but b having a little bit of exposure those data centers is a good thing if you believe in the way that I AI is going. So I I I think to me when I look at the bottom three there you've got Black Rock Money Trust which is a lot of gold in there. I have some concern over that gold, but I'm not um going to recommend in my view changes. But what about you guys? You know, what what do you think about gold? What do you think about the VANC? You know, give us your thoughts. >> I'll say on gold. I think that um the one bit you left out of the jigsaw was the fact that actually central banks are still buying gold and particularly in Asia and the Chinese are are rebuilding building a big position in gold because they don't want to buy as many American assets. Right? This is part of the tradeoff with the Trump tariffs that they want to build other reserves and so they're they're happily buying gold day in day out. The other thing is that people have noticed the rise in gold and it's becoming a momentum trade. The trouble is when ordinary people get involved in these things. They're not very price sensitive. They don't understand that there's no really way of valuing it like there is in a comp when you value companies. And so I mean this is a classic point case. There were there were cues outside of bullion shops in in Australia, in Sydney, in Singapore, in China, in Vietnam. People were queuing for four or five hours to go and buy gold bullion on and silver. Yes, that is a pointer to the point we're getting. It's going a bit mad. The trouble is what is the right level? You can't no one knows whether it's now. I personally think it will hit $5,000 an ounce. That's my view. We're at about 4,100 at the moment 4,300 earlier in the week. Uh where it hit that new high and has come back 5%. Silver's come back 10% or so. Personally, I think these things tend to move towards a big figure level. It's a bit like equity investing. So, when it gets to a th00and or 10,000 or 100, there tends to be a bit of a sort of consolidation. For me, I think gold will get to around that $5,000 mark. Then, it will start to consolidate and maybe come back a bit, but I don't know how long that's going to take, right? That could take another year, could take two years, could take two weeks. And that's the reality of it. The way it's been moving this year, the momentum is with it. We've had a blowoff which has been very healthy I would argue and actually if you're bullish you'd say that was very healthy. It's got some of the little bit of frothy money out and it can go again. Now I'm very happy to keep holding it and we have it there as a reason that if there's a big geoc geopolitical problem or other problems of the world then gold tends to do well anyway. uh and it's done better this year despite there being no real big geopolitical problems and stock markets doing well and normally they work in opposite ways. So I I think it's still a useful sort of asset within our portfolio. >> We took it down from 10% to a 5% holding. Um I I completely agree with Spice that central banks have definitely still got appetite for it because they just don't trust Trump. They don't trust government debt, the the discipline around government debt levels. So the question whether it it you know was this safe haven I think went out of the water as soon as we we had that move from 4,000 to 4,400 then it was a risk asset. But I think we've we've seen the the pull back. Now we get consolidation and maybe it is relatively dead money for 3 months, but then I agree with Mark, we we move up towards 5,000. I like it there because it I can still sleep easy at night with it being there. >> So it's a sort of insurance asset still in your book and in Mark's book really. And and I think I think there is a case for that. I I don't think that as I said, you can't put a price on it. You know, if something does blow up, it might be trading 10,000 literally within 10 minutes. You just can't say it's not going to. And I don't see a lot of downside to it. You know, I don't want to push for too long, but in in the sense you're not giving me any new information as to why you should buy it. You're telling me exactly the same story. I should have bought it at 2,600, 3,000, 3,200. And of course, the Chinese could stop buying it. We won't know that, you know. So, but I do think it's got a point part to play in the portfolio. And I where I where I where I do think that it benefits along with the World Mining Trust is if we believe that the world economy is going to get some some impetus from whether it's the Chinese trying to drive things forward, whether it's the American with a big beautiful bill and all these other things or or even Trump's just buying those companies with mineral rights to whatever. All these things point to that sort of those sorts of investments doing quite well. So I think I'm happy there. I think just to point out on the World Mining Trust, obviously it's the mining companies that dig out the ground right now. If they dig out the ground for $1,000 an ounce, their margins up here are huge. So gold can go sideways and we don't make any money there. >> Yes. And that can still do. Yeah. Oh yeah. Yep. Yep. >> Interesting. when they make that much profit, they're quite often tempted to go and buy other assets or other companies with this excess profit they have or give it back to shareholders, which by the way, as a shareholder, I'd rather give it back to me in forms of dividend or share buybacks rather than going waste it on a very expensive acquisition. >> So, so I suppose when when I look at those things, I'm not hearing anybody against the vanet crypto either in the sense we've cut half our position anyway. So, we've only got a small bit there. Although it's disappointing to see those chunky falls, we're happy with what we've got in those areas at the moment. I I suppose the other thing that I was thinking about and it's just literally from looking down at a list of things that you can invest in and thinking thinking what's our our thoughts and views has has come a little bit more into the crosshairs at the moment and and that's oil. We haven't talked about oil really but I think you know if you believe this case about economic growth if you think that things are pushing forward there then you know you can make a case for thinking bit more positive oil and oil of course has done very badly. We're very lucky we have an expert on this pod who um knows about oil and that's Mark here. So Mark's going to give us a little bit of a a chat on oil just to help everybody understand a little bit how it moves, what influences it, and a bit more about our expectations for it and whether this could be something we could be investing in. >> Sure. Well, like going back to basics, like all commodities, it comes down to supply and demand that will drive the price one way or the other. However, unlike many other commodities, in fact, all of them, they have a cartel that tries to control the price called OPEC. Let me talk a little bit about OPEC. So, for those of you who want to know what the anacronym OPEC stands for, it's the Organization of Petroleum Exporting Countries, right? It consists of 13 members. Like I say, was set up in 1960. Uh the biggest producers of OPEC are basically Saudi Arabia, Iraq, and Iran, mainly the Arab states. and they also have some of the biggest reserves in the world. The plus bit is Russia has now been included in OPEC. Their job is to try and stabilize the oil price when things get too low and introduce more production and supply when the price goes too high. Like when Russia invaded Ukraine, the oil price doubled and people like OPEC started to pump some more oil and the Americans who have big reserves of oil started to release some of that. had added to the supply side that offset the the demand that was still there that helped the demand but the supply that had been held back by Russia and Ukraine being at war that was an offset. Now OPEC in total produce about just under 31 millions barrels of oil a day and the whole world consumes about 104 million barrels of oil a day. So the rest of it is made up by Russia which produce about another just under 11 million barrels a day. So OPEC and OPEC plus get to about 40 just over 40 million barrels a day. The rest of the world which is led by America, the United States make up the difference. Uh so 60 odd million barrels a day is produced by the United States, Canada, China, Brazil. Those are the big what big countries producing countries. And by far in a way the biggest is the United States. They produce they're the biggest producer in the world about 13.4 million barrels a day. Um and so they're they're very powerful organization because OPEC control about 40% of the market. OPEC plus as it's called with Russia control about 40% of the market. They can try and manipulate the price. And a good guide to what sort of price they want to keep it at is to look at what Saudi Arabia use in their budgets when they're they're sort of doing their their main budget for their economy. and they're currently looking for around $70 a barrel oil price. Right now, Brent oil is at about $65 a barrel. So, they're some way below the $70 that they use in their internal budgets that they want to use to fund their economy. So, oil is supply demand, but it has a carton in the backland that likes to control the price. So Mark, before you go any further, you you you listed how big some of the suppliers are of oil and I mean a lot of people listening to this pod will remember that we have our own industry or or rather we had our own industry, you know, based around Abedine, but up there in Scotland and I I don't want people saying I'm I'm not focusing on Scotland for my colleagues. >> When you say we >> Okay, we sorry. We we Yeah, sorry. How much do we produce? So we produce a mere 600,000 barrels of oil a day, but just about half percent of the world's oil production, but we consume about 1.4 million barrels of oil a day. So we import around 800,000 barrels of oil a day into the UK to fuel our cars, uh, etc. >> So we import oil in even though we have the North Sea. >> Yes. >> I make no other points there. And and Milliband I make no point. Let's hope they don't tax the North Sea even further. And that, by the way, that's one of the reasons that the North Sea production has gone down is previous governments have taxed them beyond compare. They think it's a super tax. They oh, we can just we can just go and take and pillage the oil industry. And so the oil industry said, "Well, sod you lot. We're not going to invest." And so UK production in the North Sea has gone down and down and down. If they reverse the taxes, you might see a pick up in production, but they'd have to reverse the taxes a lot because oil is taxed very heavily in this country. There are two main prices that that are used in the oil market. One is called Brent and that came from ironically the North Sea. We had a field there called the Brent oil field and that became the the standard price for that type of oil. It's quite a heavy oil. Uh I mean it's quite high in sulfur but it gets used in lots of refineries. It's very valuable. Uh and it trades right now at about $65 a barrel. Uh their alternative oil which is cheaper is in America called the West Texas Intermediate WTI and that trades well and it has done historically trade at four or five dollar a barrel discount and right now it trades at about $61 a barrel. So it's about $4 discount to Brent and part of the reason you have this difference in prices. Brent uh is is made around Europe and Saudi Arabia. Again, we're in the central sort of part of the world. So Brent has to be transported in ships etc. and it goes to Asia, it goes to Africa, it goes to Europe. Uh but West Texas Intermediate tends to only go to America. And that's why there's a lower cost. There's less less travel costs involved in doing it. And also if there if there is geopolitical problems, which unfortunately tend to happen in the Middle East, which is where the where a lot of Brent oil is produced. So it has a risk premium that the area may hit production problems because of a a civil war in a big oil producing country. >> So Spice, that's a fantastic background then and gives us the difference between WTI and Brent. What are your feelings on the uh on the price at the moment? >> Well, it's been very very weak. Uh you know, we've seen the oil prices down something like 12% this year and that's despite it having a bounce of about 8% this week, just this week alone that we're we're talking here. Uh and part of the reasons it's having a bounce is because uh there is maybe some money come out of cryptocurrency, maybe some money come out of gold and some of these other areas and because oil has been so weak. Um people have switched into it. Some there there is it known that some of the big hedge funds like to basically either own lots of gold and short oil. So they're long oil and short gold or vice versa. And because gold's gone up so much, there may be a bit of rotation back the other way which has helped. after a very weak 12 months or so. >> In fact, I I looked at 18 months ago, if you took an ounce of gold, you could buy 25 barrels of oil. Now, because of the moves in both assets, 1 ounce of gold buys you 67 barrels of oil. >> So, it just it's 2 and a half times as much. >> Shows you how things have moved. Um you some might say out of line, some might say into line, you know, depending on what your view is. But it does show you how well gold has done and other minerals have done and metals have done, but how badly oil has done >> and it's just it shows you that that use case. You know, oil obviously has a use case whereas gold is just more that store of value. So I do wonder if we're about to get a some kind of snapback. There was a period which we have to remember where the oil price of West Texas Intermediary WTI actually went negative. If you remember that was during COVID in April 2020 and that was partly because the Americans were producing all this oil. No one was driving any cars and they had nowhere to store it. They'd run out of storage space. So it was cheaper for them to literally give it away or pay other people to take it away rather than to shut down their production because if you shut down production it's very expensive. So they basically the oil price went negative all very briefly. West Texas Intermediate went negative. Brent didn't but it was a very tough time for the industry and the industry learned from that two things. One is they had to increase the amount of storage capacity they have which they have been doing. I think they've increased it by about 25% since the since the the the lows of 2020 during COVID, but they've also been very very um controlled about the amount of capital investment they do in producing and looking for more oil. So, they're very restrained on their investment in building new production, which means there's a natural sort of restraint on supply. And remember, this comes down to supply and demand. So if you're just beginning to restrain the supply then that will should help in the supply demand balance because if the world picks up and growth picks up then the demand for oil will go up. In the old days the oil demand used to grow at the same level of global GDP. So if global GDP or gross domestic product was about 3 and a half% a year which it has been for a long period of time. Oil demand would grow at about 3 and a half% a year. Now that that has dropped because of the energy transition, people wanting to use electric vehicles, trying to move away from oil as a as a sort of they think it's a dirty fuel. So people have been using alternatives. So now oil still grows despite all of this is growing at about one to half a percent a year compared to global GDP at about 3 and a half. But nevertheless, if global GDP picks up, so will the demand for oil. But in the meantime, most of the oil companies have all restrained their capex and not investing in new production. The only people who have been adding new supply has been OPEC. Uh and they've been adding about 1 and a half to two million barrels of oil a year over the last couple of years. And they've been doing it monthly, just steadily incrementally increasing it. That's beginning to come to an end now. We've got OPEC month meetings every month for the next few months and then there'll be once a quarter and that increase in production is beginning to plateau. So we're getting to this point where they won't be supplying the market as much but demand should start to pick up with the one big beautiful bill and the rest of the world may be picking up. So you should see this demand supply balance kick back in favor of price rises and after such a big fall that they've had over the last few years in oil price we should see a pickup. So there's a sim there's a big similarity here. I think it's worth drawing people's attention to that bullcase for the various metals that we've talked about where companies have learned from past errors that spending too much money, investing too much money in capacity tends to lead to a fall in prices and therefore let's be really really careful and that's helped drive these metal prices up strongly. We've got the same situation here in oil. And what you're really saying is this this might be the start of a a decent runup in the oil price and something that we should be looking at. >> The bare bull argument around at the moment is there are 1.3 billion barrels at sea at the moment. Okay. So there is a lot of supply floating around and that's what the bears are saying. Bank of America think it's going to $50 a barrel on WTI. >> That makes me even more bullish. Carry on. what the what the the bulls are saying at the moment. Exactly what what Mark says. The the break even price for new production is $61 a barrel in the Perian. So the Peran basin is around West Texas and New Mexico. So to really get these projects up and running, it's got to be above $60 a barrel. Otherwise, you're not going to have supply come on in the future. and the the you know 37 billion barrels a year that are in demand, they're going to take the price up naturally. So definitely in the medium term, I I would agree I'm I'm bullish. I just wonder if there's some of that supply has to be has to find >> isn't Isn't that the surprise? I I think you know I I would be generally of the view that oil has been in a downtrend for some time and therefore you need to be you need some proper evidence that it's breaking upwards before you get that optimistic. But we had that we had the surprise yesterday where Trump has sort of started talking about more sanctions on Russian oil companies. How much of this supply slopping around the world in oil tankers is Russian crude which won't be able to get in and used as much as it has done in the past 6 months year. I I don't know the answer to that question but you could see a situation where if Trump made it difficult enough for people >> for especially there might be oils hanging around but if it's too expensive to actually engage with it because you're going to get big tariffs on you you actually say no thank you. Therefore, that oil that's out there isn't going to be so much of a a downer. It's an interesting idea. And and if we were going to buy oil, what would we buy, Mark? And is it ETFs or or do you buy a stock or a thematic index? What what's your sort of way of playing it? >> I mean, you you can play it in various you can either buy oil companies individually like BP or Shell. You can buy a manager bit like Black Rockck World Mining. You can buy there are people who manage oil investments in different companies around the world. That's one way to do it. But then you're paying a management fee. You know, you have to work out the valuation of companies. If you basically want to get exposure to a rising oil price, then you want to buy something that gives you exposure to the rising oil price and go with that. Now, you can buy ETFs or exchange traded funds or exchange ETCs as they're called, exchange traded commodities that track things like the Brent oil price, and there's one called Wisdom Tree uh Brent Oil, which you can put in your pension fund, you can put in your ISIS, so it's us compliant. Uh, and basically, actually, it it's not very expensive. It's only cost you about half percent a year of management fee, which is not expensive for these sort of things. uh and that gives you that replicates basically exactly what's going on with the oil price. So if we're going to be bullish on the oil price, we buy something like that. We don't want to go and buy oil companies or exploration companies or refining companies which you get with doing the other ways of doing it. >> It's always an interesting choice between you can go for the majors. So like you said, BP, Shell, Exxon, you can go for the oil services, which um you know, if you've got a a relatively um bullish outlook on oil, then the services companies can really get some >> an example of those would be >> uh so you got Slumber, Hallebertton. >> Okay. And they're and and and they are both US listed companies. Yes. >> Yeah. and they tend to do things like seismic testing to see what's underneath the the the ground or the sea and they can tell the sort of different densities of the the the sort of the the land beneath. >> So you've got oil services and then you can go for the real lottery tickets and they get very spicy and that's the oil explorers the >> and have you got any examples of those spicy? Have you got any examples of the explorers? >> I knew this would come into the podcast at some point. There is a company of which I've made a lot of money and lost a lot of money in but is a perfect example. It's called Borders and Southern. It it drills for had drilled for oil uh in the South Atlantic around the Falkland Islands. You remember about 10 years ago there was a huge sort of excitement about potential oil in the Falkland Islands and they did find oil and they found borders of sudden found gas condensate. So they're sitting on a massive reserve but no one's got the money to get it out of the ground. >> That's enough. That that's enough of the bull story spicy. You got to stop just at borders and sub. I I I I think we do all need to accept though there is a conflict of interest here when we talk about border sub. >> Exactly. >> All three of us have all things. >> But it it was >> one day Roers say it was definitely a big part of your career, wasn't it, Spice? >> It was. I learned a lot of lessons, good and bad. >> So that's definitely one brand new asset that we uh should consider um when we're looking at adding to the portfolio this week. CJ, is is there anything else that you've uh caught your eye this week? >> Well, there is one thing actually which I think is a very interesting observation that was um highlighted by the Financial Times on Saturday where they talked about Rachel Reev, our our chancellor, and her her budget. I mean, that's nothing special. We all know there's a budget coming up and we all know it's going to be very difficult. The story mentioned the fact, some might say, that she was finally going to look at how to um push the UK equity market better and start getting more people to realize that we have got a good strong financial sector in the UK in terms of the stock market and we need to support it because by supporting it uh we can drive investment within the UK. Remember we had in podcast 10 we had Charles Hall from Peele Hunt who came gave us a wonderful presentation on why it's important to have a strong UK stock market. What did Rachel Reeves say? Uh she said basically that that they were contemplating changes to the ISA in the UK. >> That's individual savings accounts. >> Thank you. That's the individual savings account, which has been one of the best ways of saving in the UK and something that all our listeners, if they can, should be looking to fund each year. Tax-free savings >> available at a platform near you. >> Available at a platform not very far from us at all. Three things that are being talked about. One, the cash is being reduced from £20,000 to £10,000. I don't intend spending too long on that at the moment. As you know our view is you should hold cash um as part of your investment strategy to case of unexpected occurrences but we should most of the time be invested in assets. What she talked about though was whether going forward I think going forward it may be looking backwards as well but I think going forward there should be a certain percentage of the ISA in UK stocks. I encouraging people to not go and buy Nvidia or Oracle or whatever and get tax relief, but to buy them in UK stocks and do it that way. I don't quite know how it all works, but it sounds quite good. And the final thing was that within the ISA, you wouldn't have to pay UK stamp duty. Now to me I'm not sure how many of these will actually keep their place in the idea uh menu because we all know that everybody will start canvasing their views and you know some wealth wealth management companies will be saying this some will be saying that some people will reject this some people object to that. The fact is, I think though, it makes it clear to me, and maybe it's just my optimistic goggles on. Um, it it makes it clear to me that the chancellor and the Treasury and maybe the government generally realize that without a strong stock market in the UK, their chances of growth are severely limited. And therefore, there are some things they can do which get the UK stock market moving which can help to provide a great backdrop to all this private equity they're looking to fund and all this scale up capital they're looking to do. A good stock market helps with all those things. And so to me, I think that's a really really important thing. But I think it's important to remember in the UK there are a number of ways you can buy your exposure to the UK. >> Um there's a footsy 100 we've talked about already. We have a holding in the Footsie 100. >> Yeah. 10%. >> But I think this is probably more relevant to the smaller companies indices. And for example, I hear I'm talking about the Footsie 250. Mark and I have often had exchanges about the Footsie 250. We've often had investments in the Footsie 250. Mark, maybe you'd just give a couple of words on what the Footsie 250 actually is and what it's giving you exposure to. >> So, we know about the Footsie 100. They're the top 100 companies by market capitalization in UK. Well, the next 250 down below that are what we refer to as the Footsie 250 or the midcaps in the UK. Below that, you go to the small cap and there's a big number of those and then you get AIM which are the really tiny tiny sort of companies. Now, the Footsie 250 is a big market. It's valued at about 400 to 450 billion in market capitalization terms. >> 1% move in Nvidia, isn't it? Well, but to give you some perspective, the Footsie 100 market capitalization is about 2 and a half to three trillion. So, it's a lot smaller in terms of market capitalization. Now, if you bring in the, you know, if you look at it relative to the size of the ISA pots that are out there, I was doing some work on this. There are around there's around about 285 billion pounds held in cash ISIS but there is about456 billion pounds currently held in the stocks and shares ISIS and the market capitalization the whole of the mid250 is only about450. So, let's think if they were to say you've got to put half of your stocks and shares Iser into the market and let's say you're being really bullish and say you're not allowed to buy any Footsie 100. You could put a lot of money into that midcap and it would squeeze it up a long way and you know the valuations are actually pretty attractive. These are underressearched companies. They've been left behind. Uh they tend to be sort of pretty domestically exposed. That would help the British economy. They do struggle these companies to get capital for to borrow money to to invest. But if the money was coming in in terms of a stronger share price which they could use then basically that would help them grow as well. So it could become a nice virtuous circle. Um and that's what Charles Hall was talking about the other day and other countries like Australia do this and encourage people and it helps their companies invest. It helps them grow and it helps the underlying economy and it helps with tax receipts ultimately. Now, you're not going to get the tax receipts if it's in an ISA, but the government will get taxed from companies doing better investing and making more profit giving it back to the the checker. >> And we know they're cheap because companies from other countries keep on coming and buying them. >> Well, I I I think that's a really good point. The the fact is the Footsie 250 has been a pretty poor performer. I mean I looked at it uh yesterday and um we are trading 8 12% below the high which was achieved in September 20121. So let's go back September 2021. We've got all the money flowing into financial assets from from the COVID time when interest rates are zero. The money's getting pumped in. We're doing whatever it takes to keep the economy going. Every other asset class in the world, you know, is going up. Footsie 250 is going up as well. gets to September 21 and it's never gone any higher and is still 8 and a half% below. Now I haven't got the calculations here of how well other things have done. The Russell 2000 which is the worst performing of the US indices which we have a holding because we're very bullish about the smaller companies in the US took out that high just recently and is driven further forward and we are still well below. So we've got a stock market in the Footsie 250 which has been hurt and it's been hurt by a number of things. It's been hurt mainly by the fact that we haven't had any growth in the UK. Taxes have gone up. The changes to capital gains tax, the changes to other taxes have led national insurance and and all these sorts of things have not helped the outlook for the UK. And of course, every year we go through this what taxes we're going to raise in the next budget because we can't cut public spending. But we'll do more on this sort of topic um in in in the coming weeks because we're getting close to the budget and we will have some a couple of programs on the budget. But to me, what this says is they are now understanding that they need to get this market higher, get it it trading better so it helps the rest of the um UK. And the thing I note about it is although it's still trading 8 and a half% below its high, it's broken out over the last few weeks and starting to push higher. And I think this could really really trade well. So I'm going to suggest that we want to buy 10% of the uh Footsie 250 within our portfolio as something we should do this week. Uh now there'll be people listening to this podcast who have known me for a long time who will say, "Oh, so CJ wants to buy." He's coming, guys. it's going to work this time. So, I'm going to say we should do 10%. Uh the real question is what do we sell it or or fund it out of? Do we sell some of our existing holdings? We've got some guilts and we've got some cash. Do we fund it out of there? I'd love to hear other people's thoughts and views on that. Rich, what about yourself? Um first of all, do you do you like the idea? >> I love the idea. >> Oh, brilliant. Excellent. I I won't have to use my veto then and say we're doing it anyway. That's brilliant. Okay, carry on. As we know, I am very proud Brit and I have the Footsie 100, I have the Footsie 250 in my investments and have been waiting for this kind of outperformance that is just starting. So the question where to finance it from, I don't like the idea of adding to our risk at this moment as we come up to what feels like a a bit of a shaky time. We've got through the anniversary of 1987 that you both survived your uh in your own careers, but I I'm still I'm nervous around this um the popping of the bubbles that has taken place already in quantum. It's taken place in gold now. Are we going to get further follow through to AI? So, I would be more comfortable if we took 5% out of the S&P 500 um or sold Vanic. So that I'd be looking to reduce risk by a little bit in those to buy 10% footy 250. And I can imagine Mark will agree with me as well. >> I don't disagree with when it comes to saying I'd like the the mid 250 in the UK, the footy 250. I do like that. And the reason I've got a very quick tick list that I use when it comes to investing in mid and smalls size companies that I need, you need an attractive valuation. Well, the the the mid 250 at the moment trades on a price earnings multiple we talked about of just under 14. That compares with America that's about 23 24 at the moment and yet it's delivering the same sort of statistics in revenue and earnings growth as the the S&P 500 as a whole. So it trades on a massive discount to that. So I think there is room for revaluation there. So yes, I tick that box. The other one is are we in a period of falling or stable interest rates? Well, the UK has already cut interest rates and we had some slightly better than expected inflation data this week in the US which I was going to mention in the market report but I was saved on that. So we we had 3.8% inflation which was expected. So it's slightly you know in line which is good not worse than now the Bank of England >> 0.0% month on month. That was the big >> that was the big one. Now the Bank of England think inflation is going to peak at 4% in the next month or so. So they they making excuses or getting ready to be able to say well now we're going to cut again. So I think interest rate cuts could be coming in. So again a potential tick there where we're not quite there yet as we we're not seeing the economy the the domestic economy in the UK grow. Now if Rachel Reeves does a half decent job I think then the economy could do a bit better. That would be good for these companies. uh and I think you know their ability to beat expectations. Well, we're seeing that at the moment they are beating expectations which is good. That's another tick. Finally, we get a rotation out of these big mega cap stocks. That's why in the reasons we brought the Russell 2000 in America, we'd see some money come out of the big companies going into the smaller companies. I think you could see the same in the UK too. So, I I think it ticks most those boxes are there. Yes, I I like the idea of buying the mid 250, but where I differ, surprise, surprise, is I wouldn't be selling things like the S&P 500. I think that's the best index in the world, but it also stands to to benefit greatly from the upcoming one big beautiful bill. So, the tax cuts that come with that, the accelerating US economy that will come with that as well, and falling interest rates in America. I think you ignore the American markets at your peril into this period where they are the Federal Reserve is cutting interest rates on a regular basis. It's very difficult to see equity markets go down in that background. >> They're only cutting rates because unemployment is getting worse and worse and worse. That doesn't give a great backdrop for the SP5. If the growth is going up and unemployment is going up too, that means company profitability should widen because unemployment saves companies costs unfortunately. Not good for the people being made. >> You're assuming that growth goes up though. That's not my assumption. >> Well, that's you're making is that AI effectively is the reason why unemployment is going up. Whereas my friend here might be working on basis the economy is slowing which is why unemployment is going up. >> But that's the difference between the bull view. >> Exactly. >> And the bear view. And while I was out earlier I saw a lovely little golden chocolate bear here for young >> rich cuz I'm like him to be known as the golden bear. We'll put it on the on the thing forward. But but that's the difference really between the bull and the bear view here. >> Yeah. The bull and the bear view is that >> we've heard it before. efficiencies of AI going to lead to increased profitability. Yes, higher unemployment, but higher growth and the won't be beautiful bill will fuel it along with interest rate cuts. I I've got to stick with America. I have to where I I feel it's important when you're looking at portfolios and a great lesson I think and I've heard this from other people as well is you should you should water your flowers and cut your weeds. Right? So, we shouldn't be cutting the things that have done well, like our beautiful flowers, like things like uh Japan and like the the S&P 500. But an area that I'm disappointed in and we we I talked about it at the portfolio review, the quarterly review, is the DAX, the German market. >> And now that we bought that because we thought that there was a potential peace dividend to come. And I still believe that's the case. But clearly with Trump now ramping up pressure again on on Russia to stop the Ukraine war now maybe that will happen. But it does seem that that the prospect of a peace there has drifted a bit to the right and the DAX is just treading water. It's not really doing a it's not hurting us but it's not really helping us very much either. So it's a bit of a weed. The choice we've got for everybody here is we could just add 10% footy 250 to our existing holdings which would increase our risk a reasonable amount >> or we can fund it with things. Now, we can fund it with the American market, but I'm with Mark in the sense that whilst the bond market is behaving itself, I find it's a struggle to see why the US is going to um um fall, we clearly got a lot of big numbers due this week. >> Where's the risk? >> And there is a risk there without a shadow of a doubt. We could sell some of our Japan. I mean, Japan, if we look up there on our total return since inception, is a very strong equity return, >> our best equity market, >> but I think we feel that we've only just started that ride with the new Mrs. Thatcher in charge. So, it really comes down to um is there anything else we'd like to sell? Now, we could sell Footsie 100. There's no real point selling footsy 100 because it's a pretty cheap index as well and it looks pretty good and it's performed and it's performed in by the way some of the ISA money if it if that will feed in there will feed in it will feed in there as well. Good point. Extremely good point. >> So I I mean I'm I'm to be honest I'm I'm with you. You know the one I cast that's really been disappointing has been the dags. >> I'm going to ignore the the bear on my left. I mean one day he's going to be right and I'm going to look an absolute idiot. So, um, but at the moment, just just for this week, I'm going to ignore my friend on the left, and I'm going to suggest we buy 10% Footsie 250, we sell half of our that DAX. That'll take us down to 5%. And then take the other 5% out of the guilt um portfolio. Um, and that's what I think we'll do for this week. We'll consider the the oil. I like the oil um view. I'm a little bit I'm I still think it's in a bit of a downtrend. I'd like to see more confirmation it's going in the uptrend, but there's a lot to be there's a lot of upside to be had if it's right. So, I think we should keep that one on the back burner to look at. >> It's just rallied 8% already. So, it's difficult to sort of >> slightly unlucky on the taming there. >> Few days we talked about a few days ago. >> So, lovely. >> Lovely. So, we've decided what we want to do on the portfolio, but how do we express it, Mark? So you could buy an investment trust, but in trouble investment trusts, they cost you quite a lot of money and they normally sit at a discount to the actual value of the assets you're investing in. So I don't think that's a very good way of doing it. So we're going towards exchangeraded funds which we've talked about before. These are very lowcost vehicles from which to do it. So there's one called the Vanguard Footsie 250 ETF which I'm recommending we go into. It is about 2.2 2 billion pounds in size against a footsie 250 market that in total is about 300 400 billion as we talked about before. Uh and it only charges you 0.1% as a management fee. So it's really cheap. It does the job. It tracks what we want. >> Good idea. Okay, let's do that. So we can buy the Vanguard Footsie 250 ETF uh which we can represent our views. We'll put 10% in there and you know the let's hope she has indeed seen the light as we have been talking about. Yeah, hands off our investments. I really hope that she doesn't go and change pensions or dividend tax or capital gains. Excellent. That is us for the week then. If you want to ask any questions to the experts here, these celebrity traders, they are taking your emails. Gentlemen, where do our viewers send their emails to? The art of investing at.com. >> I think it was better with our colleague here last week. Thank you very much for joining us. We'll be back the same time next week. Best of luck.