EP13| Government Shutdown, Soaring Global Markets & our FIRST Quarterly Portfolio review
Summary
Market Outlook: The podcast discusses the phenomenon where bad economic news, such as poor jobs data, is perceived as good news for equity markets due to the potential for interest rate cuts.
Quarterly Portfolio Review: The hosts conduct a detailed review of their portfolio performance, highlighting significant gains in non-fragile assets like gold and blockchain ETFs, and emphasizing the importance of quarterly assessments.
Global Market Performance: September was notably strong for global equities, with markets like the NASDAQ, S&P 500, and FTSE 100 reaching new highs, driven by interest rate cuts and economic stimulus measures.
US Government Shutdown: The podcast explains the implications of the US government shutdown, noting its potential impact on economic data availability and market sentiment.
Investment in Resources: The US government's investment in Lithium Americas Corporation is highlighted, reflecting a strategic move to control domestic resources.
Pharmaceutical Sector: Trump's deal with Pfizer to reduce drug prices in exchange for tariff relief is discussed, impacting the pharmaceutical sector positively.
European Economic Conditions: The European Central Bank's success in managing inflation and interest rates is contrasted with the challenges faced by the US and UK, affecting investment strategies.
Risk Management: The hosts emphasize the importance of understanding risk appetite and adjusting portfolio holdings accordingly, especially in volatile markets.
Transcript
Rich Footsie. Yeah, good old Footsie. So, thanks Rich. Let's move on. >> Well, of course, bad news is good news because they're going to have to create more jobs. They're going to have to cut interest rates to do that. And the equity market went, "Woohoo! We'll take that. We love interest rate cuts." So, bad news is still good news in equity markets. We are naturally keen on taking risk. We're professional risk takers. Each of us in our own little way is concerned at the valuation of some of these markets. Mark, not very much. Me, a little bit more than that. You petrified. Your capital is at risk. The value of your shares, ETFs, and ETCs can fall as well as rise, which could mean getting back less than you originally put in. This content is for information purposes only and is not investment advice. Past performance is not an indication of future results. [Music] Welcome to episode 13 of the art of investing brought to you by IG the global investment platform. Now this is the quarterly review and why is that? Because of course we are into October that is the fourth quarter and it means we get a chance to look back at our performance. so far. We're going to look through every single position, do a deep dive, and give ourselves a little bit of a grading. We're also going to take a look at the US shutdown hitting the headlines this week. What does it mean, and why has it come about? First, as always, the spice market review. Well, it's a new quarter, new all-time highs, and a new US government shutdown. As you say, this has been actually last month was the best September since 2020, which if you remember was in the midst of the COVID crisis and governments were throwing huge amounts of money at f furing people and trying to stimulate the economy and basically interest rates were being slashed by central bankers to try and restore confidence. So, it's been a good September when normally obviously seasonally September is a bad month, but global equities were up just over 4% in September. Do we have any data on how often that has ever occurred in the past? Is that sort of top 1% of occurrences ever? But the last 25 years, it's the second best September, I think. >> Wow. >> So 5% was the one back in September 2020 was because there was loads of interest rate cuts and money being thrown at the problems. >> So So it's been a great decision of mine to be long. It is. >> I'm sure that will come up in the Mr. Chairman. Well, given last week we were at all-time highs in many places, no surprise that this week we've pushed on again. The US highs have come in the NASDAQ and the S&P 500. Russell now at a 12-month high. Uh even the Footsie 100 eat another alltime high and we'll come on to the reasons for that again later. Gold really smashed through its highs, had another good week. Um, and we also saw multi-year highs in China, Hong Kong, and in silver as the pushing up to its nearly very close now to its all-time high, which has reached 14 years ago. It's also been the biggest month ever for debt issuance in America. So, it tells you companies are using this buoyant sort of these buoyant markets and the buoyant confidence that's around to actually issue more debt. Um, and that's that's good. That's been accommodated by markets and investors. So, they're going away happy. at the end of last month. People are still willing to pay up. Interestingly though, the the consortium included the Saudi Arabians and uh obviously Trump is quite friendly with them now and he's cut a very good deal with them and he's allowing them to now get involved in some of these American companies. I mean it's interesting but you know we're seeing governments get involved in these takeovers. We've seen the US do their own ones. And again this week, they made another investment in a small lithium mining company. The shares went up 25% or so on the day. They bought a stake in this company called Lithium America's Corporation. Uh it owns the biggest deposit of lithium in America. So yeah, they're they're hard at trying to control resources and keep resources in house as it were. >> Free capitalism. That's what it's all about, guys. >> Yeah. Trump's been busy this week, which has been good for all of our portfolios. Uh has done a big deal with um the pharmaceutical companies, but Fizer and particularly the American pharmaceutical company. He's done a deal where basically he's going to make FISA cut the price of their drugs that they sell to the consumers through them. And in return, he's not going to impose big tariffs on them or make them bring manufacturing more manufacturing into the US. So, it's good for FISA because they don't have to spend the 5 billion or so building new factories. Uh, but they have to take cost cuts on the some of their drugs or price cuts on their their drugs. But most of these drugs where the price cuts are coming down are going to consumers. And guess what? Trump has got a little internet company called Trump RX, Trump prescriptions basically, where you as a consumer in America can go and buy drugs at half the price you would normally do if you had buy them through your insurance company. It's a very interesting move because lots of markets around the world have big pharmaceutical companies and including the UK. Yeah, >> the UK's biggest company Astroenica um and Glaco Smith Klein are both based here. They're about 10% of the Footsie, over 10% of the Footsie 100. They were up over 10% this week. >> Wow. >> So, that's pushed part of the reason why the Footsie 100 has gone to this new all-time high. >> Fantastic. That's driven us driven us higher. It's also helped many of the European markets. Stock markets like the DAX in Germany have Merc and they also have Bayer, big pharmaceutical companies. They're also beneficiaries. That's about 8% of the DAX market. So that's helped European markets all around. On the data front, we had some good news in Europe. The inflation was down at just 2.2%. If you remember, the UK inflation is running at about 3.8%. Um, and so that's that's pretty good. European Central Bank have been cutting interest rates for a while now and have basically gone on pause. So they've sort of reached the 2%ish target that they were looking for. Now they're going to sit back and see how things evolve. It's going to be easy for them to do that because in America because of this government shutdown, there's no real data potentially coming out until the shutdown finishes. So this week everyone, all the analysts have jumped on this bit of data which is called the ADP jobs data. It's an an equivalent to the payrolls data that we get. And this week on Friday, tomorrow when this podcast comes out, the payroll's data was meant to come out. Now, we've had some very a bad run of payrolls data. And actually, the ADP data which came out yesterday was bad as well. It was negative, showed jobs rather than growing. And and that sort of scared a few people. Well, at first and then everyone went, "Well, of course, bad news is good news because if they're gonna have to create more jobs, they're going to have to cut interest rates to do that." And the equity market went, "Woohoo! We'll take that. We love interest rate cuts." So, bad news is still good news in equity markets. >> So, that was the first negative print on a on a jobs number. And it's not just positive is good, negative is bad, is it? that with these unemployment um reports, you you actually need a certain level of a positive number almost just to keep flat, don't you? Because of the the increase in the jobs market as a whole, of course, population growth, the workforce. >> Generally, it's thought that you need 70 or 80,000 positive. So, if we go into a negative number, that that is definitely signs of a slowing of growth. >> Yeah. I mean the next Federal Reserve meeting uh is on the 29th of October, so in a few weeks time. And clearly if they're not going to get de data from the main American sort of government offices that would be issuing data like payrolls, they're going to have to rely on these private companies like ADP for that data. And this is the first bad print they've got. Now, you know, the markets, like I say, are saying, okay, if the employment side is bad, and we know it's been getting worse over the last few months, they'll just accelerate the rate cuts in America, and the equity market loves that. Is there a reason that the Europeans can seem to be able to hit their target in inflation, but the rest of the world, it's it's a bit trickier. Is there a difference in Europe? >> I don't really think there's a a huge difference around. Um, I think you're more likely going to have faith that the ECB are going to hit their inflation target than almost anybody else. If you remember, the US has got a a twin target of not just inflation, but also the unemployment rate. So, they have to take things into balance. We in the UK, as you know, have not got a great track record as far as inflation's concerned, and we continue to do a poor job there. So I think that there's more reliability and more belief in the psyche of the Europeans that they will keep inflation low and at that lower level which they've always been searching for that two or just below 2%. >> I think the other thing is that the the growth rates in Europe are very low compared to the US and even compared to the UK they're very low. Um so the UK is just about you know sort of geeking out a little bit of growth 1% or so. In Europe, it's bouncing along the bottom at near zero. But America's up at sort of two and a half, 3%. That's helping the equity market. This nice sort of combination of cutting interest rates and growth being okay. Now, we got to keep an eye on those job numbers because if unemployment rises too far, that means companies are losing confidence because they're cutting people. Or maybe it's the AI factor coming in and they're beginning to get better productivity out of AI and, you know, being able to cut the workforce, particularly the younger people. that will increase margins and help the help the share prices. >> The I mean there used to be a word for it in the old days showing my age again called a Goldilocks economy. >> Um and that basically not too hot, not too cold. I think I think it refers to I'm not that clear on my fairy tales and those sort of things. The >> true >> three bears and and you know mummy bear, daddy bear, and baby bear or whatever and their porridge bowls. I'm not going to go any further cuz I'm I'm digging a hole already for myself. >> Well, there's one bear here. I'm not sure >> no no no no no there's one bear there's one who's hibernating and there's a rampant ball but apart from that there's you know this would be what they used to describe as the goldilocks economy where everything's just perfect not too much inflationary pressure because the economy is good but it's not it's not roaring and rates can therefore be cut and everyone you know is very very happy and can go off and look look look off into the landscape and be very happy with life. I mean, it sounds too good to be true. Well, you mentioned there that that So, we're not going to get data coming out because of the shutdown. I just want to dig a bit more more into that cuz everybody's going to see the headlines. Sometimes it can be particular worrying, you know, even across in the UK, the effect that this could have on the rest of the world. CJ, could you give us more of an idea what this shutdown is and why does it come about? Okay. So, the US fiscal year ends at the end of September. So, you know, which which is obviously different from everybody else's fiscal year, but that's the Americans for you. And they need to have a budget passed um where the financing is secured for the next year of operation. >> They're not too good at budgeting though, are they? >> No, they're not very good at budgeting, but that's but then we aren't very good either. So, let's not let's not pretend that we've got any uh PhDs in that. It doesn't have to be a a a bill for the whole year. It can be a bill for a short period of time to give you time to negotiate that budget for the next year. And this is what's failed in the US here on the 29th 30th of September. A bill was put forward to sto to say let's have an interim pause until the 26th of November and that will give us time between now and the 26th of November to negotiate how we're going to pay for everything and finance the um finance the government. The Republicans said this is what we want to do. The Democrats said not on your Nelly. we actually want you to sweeten some of the terms around the cost of of the medical assistance for the poor and that sort of thing. We want some of these things added in there. The Democrats said we won't vote for it. The Republicans said, "Well, this is what we're putting forward." But because with the budget, they need 60 of the senators out of 100 to agree to it. So it's 6040. It's not just straight 5149. they have to be 6040 or more. They fell short by I think about four. So the Republicans got 56 people saying yes, we agree to financing through to the 26th of November. But 44 Democrats said, "No, thank you. We're not doing it." And therefore, what happens then is the non-essential parts of the US government shut down and get effectively furled. Furoughed means that they are laid off. Their jobs are still waiting for them when they come back. They just can't go to work and don't get paid for that period. >> It's like during CO. >> Exactly. During COVID, the essential jobs people have to come in and do, but they don't get paid until the budget bill passes. So, police, army, these sorts of people have to come still to work. They can't just say on an aircraft, Gary, I'm stopping cuz I'm not getting paid. they're still going to get paid, but it it acrru for when the bill gets passed. So, we're in one of those situations now. I think Mark's got a few details of how often this occurs. I mean, in our experience, this has been a regular um concern. I don't know, once every two or three years there's some sort of shutdown. It's never been anything that's ever derailed anything for any length of time. Um, and it usually pays to ignore it and carry on investing as you were. Now Mari, how regularly does this happen? We we know that the last 10 months has taught us anything to do with Trump isn't regular and anything could happen, but this this is quite a common occurrence, isn't it? >> Well, it goes back to 1976 when basically they set a formal ceiling was the the maximum that a government could borrow. At the moment that ceiling is 41 and a bit trillion dollars US as Chris says that ran till the end of September. >> Is that like a credit card limit? >> A bit like that. Exactly. They can go a little bit overdrawn, but they're not meant to. They have to start taking cutting costs to try and get back within that. Basically, they're going to lay off, as Chris says, a lot of workers, government workers, non-essential, between 750,000 and 800,000 government employees in America are going to be laid off. That could affect as many as 3% of the working population in the States. So, if this is prolonged, and there's only been a few periods where this has been prolonged. So, since 1976, there's been about 20 or so shutdowns. Most of those have lasted less than a week. The ones that have lasted over a week, there's only been 10. And guess who caused the last one? >> It wouldn't be Mr. Trump, would it? >> Well, it might well be indeed. >> President Trump to you, Mr. Chairman. >> Yes. So back in 2018, sir, to you >> in in december 2018 that caused a lockdown because Trump wanted money to build the wall along the Mexican border and Congress wouldn't give it to him and so they hit the ceiling and so he had to go and negotiate and get they eventually got the money obviously because these things nine times out of 10 happen but at that time the the workers were laid off for seven weeks. So 35 days that is pretty punchy actually >> and that leads to problems with air traffic control with getting insulin from your pharmacy everything doesn't it? >> Absolutely. And you know there was some permanent layoffs that happened after that about about a third of the layoffs didn't come back from furow and Trump's already threatening to lay off a load of other people at the moment. And if you remember the doge which is the department of government efficiency that was run by Elon Musk when Trump first got back in. Guess what happens on the 1st of October? As in, you know, yesterday, the day we were day before we were recording this, there's 150,000 workers that were coming out of government are going to lose their jobs anyway. So, even if we were to get this employment data coming out in the next month or so, then there's going to be quite a big jump in unemployment potentially if you add that to some of the ones that going on now. So, we should brace ourselves for bad employment data out the US. Well, as I say, at the moment, equity markets are prepared to say that is potentially good news because it will lead to bigger interest rate cuts down the line. >> It can't be bad if if you don't see it. It's not happening surely. >> I mean, look, if it begins to affect economic growth and enough people are laid off for a long enough period of time, it will affect economic data as well. And companies may have to start to pull back on some of their expenditures and expansions. uh and that then starts to have a bit of a spiral effect. Um but it would take a lot to do that. >> Excellent. Right. I think it is time to look at how our performance has been for the last quarter. I've mentioned this quite often now. You know, we we're now gone into the fourth quarter. Why is it CJ that quarters are so important? Why break the year into four? >> I'm sure there's some really clever theories for why that's the case. I mean I've as I said before um when we spoke about this last week um I've run money for institutions for many many many many years and it naturally for for them falls well to think about things on a quarterly basis and so they will do a review of their investment performance once a quarter. Now they might not call the fund manager in every quarter. They might call them in once every six months. I told you some stories last week about some of the difficult meetings I've had um with my uh end clients. Um and so you know quarter seems about right. Now I think for the um private individual for the the people who were aiming this podcast at we've we've said all the way along the line that we want to take a long-term view of the markets. And so I don't really, you know, think that necessarily, I've said this before, that you need to look at your portfolio every day. At the end of the day, the big one is the quarterly because we should be checking, not too often, but often enough that what the assumptions that we were making are moving in the right direction. the markets are performing the way we thought they would and we should be sort of kicking the tires as to whether there's anything that we need to be doing having seen one quarter finish moving into the next one. Is there anything that we have got wrong? Anything that we want to remove from our portfolio, add to our portfolio um and you know try to review how things have done. Now the problem with this generally is it's a process um which needs to be um looked looked and and and and regarded in a professional way because if you don't do it that way I've sat through many meetings I think I mentioned last week where you talk about a position and of course if a position's worked everybody wants to talk about that position as if it's their position and oh yeah well this is this is why I put this one on and the next person will say yeah and that's why I put it on and someone will say that's why I put it on and it's absolute rubbish. The fact is it's on so it doesn't matter. Forget who put it on. What's important is what do we think about it now and where's it going? Equally you get you get a position that nobody likes cuz it's gone down and they don't want to be associated with it. Doesn't even get talked about in most meetings. You know, I've sat through meetings where they've never talked about something that's underperformed as if it's a bad smell and you don't want to be anywhere to do with that. The problem with those is they just hang around in the portfolio for a length of time >> and they can become even worse and then somebody says usually the boss comes along and says who's responsible for this? What the hell's going on? And then everybody looks the other way and points in the other direction. You know there's an old saying by Robert Kennedy 1961. He says success has many fathers while failure is an orphan. And never is that truer than in portfolio construction. So today we're going to review each of our positions one by one. Um for those watching the the YouTube um and we'll also be in the show notes. We've got a list of all the holdings that we've got, how they've done over the quarter with initials by uh people well actually with the names by these actual positions and then we will be going into how have they done, why have they done what they've done, has our view changed, if not do we want to do anything, if not let's move on to the next holding. Now before you do any of that, you've got to set the picture because it's really important that you you might have gone in thinking that um inflation was going to be really high and this is why you held this position that actually inflation turned out very low. So you need to be able to understand how that macro environment has changed over that period and has it supported what you've been trying to do. And of course every fund manager as you know has always got a view on the macro and so you need to start off with that macro view at the beginning. So, let's look at what we were saying when we started this portfolio. >> Are we going to do a a playback? >> Well, it would be good if we had a playback, but maybe it wouldn't be so good if we had a playback. >> So, actually, I'm going to play back in the way I want to play back. >> Cuz I'm I'm the chairman. Do we trust his memory? >> Chairman's always right. Now, we felt interest rates would be cut. We felt the bond yields would stay well behaved. We didn't think they'd fall very much. But we felt this that would make it be a good environment for equities. We believe the dollar which had been weak so far this year would remain weak as investors hedged against Trump uncertainty and that nonfragile assets would be in demand because you're a bit worried about what Trump may say or do. So those were the broad themes and I'm going to score us on an A to E rating where A is excellent and E is pants. Okay. And >> is that a technical term? >> It's it's a very technical term. It's important. Let me be upfront straight away. It's important we're honest with each other in in this in an asset allocation meeting so we know where we've got things like we haven't. We don't try and pull the wall over people's eyes and we'll we'll discuss how we're doing that as we go through. So >> is there any reason that it's a to is it because if it's really bad we'll end up in A&E or >> No, no, no. I I did actually think about should I make it 1 to 10, but then that gives too much variety, you know. was is a seven good is an eight good or you know slightly good slightly not let's go a A to E and just leave it like that of course that doesn't mean I can't have minuses and pluses but we'll we'll give that for a minute on bonds I give us a C in that most bonds did nothing but actually US bonds did pretty well because the weak data started coming through more interest rate cuts were expected and that drove 10-year US bond yields government bond yields lower i.e Prices went up, yields went >> down. >> Thank you. So, I'm giving us only a C because although we got it most of it right, we didn't get it right on the US side. On equities, I would give us a B in the equities did really well over the period. We've just talked about how well they've done, but if we're going to look at this properly, and we're going to look at this with AI to to trying to correct where we've got it wrong, we didn't have enough. >> Yeah. You know, we've been a little bit cautious at the edges. Um, I've been very positive, but Mark and you have been a bit a bit cautious. Just getting in to start with. No, clearly Mark's been absolutely dead right to be really, you know, all guns blazing and we've held him back a little bit now. Hasn't done our performance any harm over the period because the performance has been good. But we need to recognize the fact that September, you know, um, August, September being a lot stronger than we were thinking they were probably going to be. >> And the seasonality just didn't play out is what you're saying. >> The seasonality didn't play out at all. Um, God knows how much they would have been out if it had been April or May. On the dollar, I'm giving us a C as well in that the dollar's been pretty flat. It's not strengthened. It's not weakened. Where we get our best marks is in the nonfragile assets. We got we get an A because our blockchain ETF, gold, black rockck world mining and copper have done absolutely brilliantly with returns from copper being 7% since we've held it. Gold being 13%, world mining being 19% and Vanet crypto winning the prize at just over 32%. So nonfragile assets have done um extremely well. It's really interesting to see them like this in huge returns but also huge dispersion between the mining stocks and the German DAXs you know so it it gives you that flavor not necessarily check your portfolio every day or every week but looking at it for 3 months you can really see the differences >> well that's one of the big advantages one of the big advantages of looking at it with a bit of time in between is all the noise that's happened over the period are washed out what you look at is the actual number. The number's there. Yeah. I I I can't say, "Oh, German X did really well. It was my idea." When I can see a number that shows they went down. So to me, it is really good to have this sort of formality once a quarter. I mean, you might be at home having a cup of coffee, computer in front of you on a Saturday morning. Just look at what your holdings have done over the quarter. Has it done what you thought? Did it not do what you thought? >> And give yourself a mark. >> Give yourself a mark. Yeah. And if you if if if you come out with an A, then there's a job on this panel for you. >> So that's my scoring of where we um have been. Does anybody have any comments on that before we go to where are we going? Anybody think I've been a little harsh, a little bit less than honest with some of those scores or are we just about in the right spots? No, I I think um when it comes to portfolio construction, one criticism we may have of ourselves is that all the things that did best were our smallest holdings. So if you look at the top four positions we've had there, copper, gold, the mining trust, and blockchain, we had 5% in each of them. Now we had 10% in gold, and a couple of weeks ago we took that down by 5%. So if we were being more critical of ourselves, we probably should have had slightly bigger positions than we did have in those in those areas because actually we had 10% positions in things like US equities uh and other parts of the market. So that would be my only sort of critique of ourselves and say we should have been more confident to maybe put a little bit more capital into there. I'm going to push back very slightly on that, but I think for the benefit of people at home who are listening to this, when you think about the size of your holding, you need to think about the volatility of the asset that you're actually buying. And when I say volatility, I mean how much does it go up and down against the trend most of the time. Okay, that's really what we mean by volatility. So something doesn't go up and down very much and you have a big holding you does means if if it moves around it won't move your portfolio around very much at all. Whereas if you have a big holding in and I'm going to choose the Vanet crypto and blockchain just because it's up there at plus 30%. If it's up 30% you've had a great quarter if you had a big big holding in let's say you had 20% in it but if it had gone down 30% that would have cost you a lot of money. really it comes down to that risk appetite that we talked about right at the very start. So to me I think you've got to think very carefully about I'm looking at the quarterly performance. I wish I'd held more of the things that have gone up most because frankly we all wish we'd held most of what's gone up most and hadn't held anything and the things have gone down. I've spent my whole life wishing that it's what's sensible for the risk appetite of people. So I think you're right to say what you said. If you're at the more risky spectrum, if you want to have more volatility in your portfolio, you'd hold more of those sorts of things. Absolutely dead right. If you're more conservative, you're going to be a little bit less and maybe more where we are because remember, we're only going for 10% return per year. It's a great point, but you've really got to think about things in terms of what your risk appetite is. And I think we've got a risk appetite here which is quite a sensible one for most people, but clearly it won't reflect what everybody's risk appetite is. And if we get a selloff and we see everything come considerably lower, that might change. We might step up the risk curve a little bit because we feel the asset prices have come down to a level where there's perhaps better value rather than at the moment arguably um as the chairman of the Federal Reserve even pointed us out to us are perhaps looking a little bit expensive. Lots of things go into your risk appetite. How comfortable are you in waiting having a cup of coffee on a Saturday uh while looking at your portfolio and it's down 20%. But if everything's really cheap and you really believe in it, you might say, "Well, I'm going to buy more as you say, and I'm going to increase my risk appetite because I think my buying level is much more attractive." The issue we have, the issue we're going to have all day today, the issue we're going to have for the next two or three weeks is we are naturally keen on taking risk. We're professional risk takers. Each of us in our own little way h is concerned at the valuation of some of these markets. Mark, not very much. Me a little bit more than that. You suicidally >> Mr. Grizzly. >> Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and £200. Make your first investment into an ISA, general investment account or SIP 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. Okay, so that's we've talked about where we've come from. So let's I'm going to hand over to Mark to talk about set the picture which we can clearly disagree with as well but set the picture for what we might be expecting for the next 3 to four five months. >> Yeah. I mean I think it's particularly when the bulk of your assets are equities it's important to remember that most equities look forward 3 to six to maybe 9 months. So in the time horizon we're trying to look at the sort of economic or the the macroeconomic data. So what's happening in the in the big picture? That's the sort of time frame we're trying to get an idea of. There's no point in looking three years forward because stock prices don't look three years forward. They look like I say three to six to nine months is sort what and arguably they're looking six month to nine months forward at the moment. So if we looked at the UK at the moment purely in the next couple of months, obviously we've got the budget coming up at the end of November and we'll be doing some episodes as that approaches. that's constraining a lot of international investors looking at wanting to buy assets in the UK because they're worried that if it's a silly budget that um makes the bond market wobble as Liz trusted then you could end up with a sort of big backlash pound could go down a lot and there could be lots of negative consequences. So international investors will be standing back from the UK at the moment even though we're at all-time highs. Uh that is something that if they came in would help obviously but in the very short term people are going to be wary of that. The Bank of England is also going to be worried about that. So they're restrained on whether they're going to cut interest rates more. And remember, they've got inflation that's a bit too high. It's about 3.8% in the UK and their target, remember, is 2%. Now, if you look at forecasts, that's expected to fall down towards that 2% in the next 12 months or so. So they may have scope to cut interest rates as we go into next year, but in the next 3 to 6 months, it's going to be tough for them to do that with that backdrop. If you go to Europe, well, Europe, as I said earlier on, have sort of round their target on inflation. So, we've probably seen the best of the U of the European interest rate cuts. And remember, interest rate cuts are great for equities. They're also quite good for bonds or certain parts of the bond market. And their inflation is very low. It's come down to, like I say, down towards their target. And by this time next year, it's expected to be pretty flat. But so, so is growth is pretty flat in Europe at the moment. And so, if they cut interest rates, it will not be probably because of inflation. It will be because they're trying to get the economy going a little bit. even though their main target is on inflation. Uh if you look at the US on the other hand, and we've talked about this before, their growth rates are still pretty good. It's a their growth is about 2.8 nearly 3% at the moment, but this unemployment is beginning to pick up and we might have a lot of confusion about that in the next few months. Now, I say equity investors are natural optimists. So, they'll say, >> "Come on, bond guy, grizzly bear, honestly, come and join us. It's nice and warm over here. If you look elsewhere in the world, well, if you look at China, they're they're growing at about 5%. You think we we'd love to have that in this country. You know, we really would do. The trouble is they've got if prices are going down and they've got this thing called deflation. So, we've talked about it before. If prices are going down, you'll defer your decision to buy something because why buy something today if it's going to be cheaper tomorrow? So, you don't you defer it. And so they although they they've got this 5% GDP growth, people worry that that's not a true number. No, no one really trusts the Chinese numbers and that's been a problem the West has had for a long time. But nevertheless, their stock markets are pushing up really high. Um and that's because they are worried about this price, these price falling. So they're stimulating, they're they're trying to put more money into the economy. They're cutting interest rates and that's all helping their stock markets push to highs at the moment. Um, Japan, we're about to get a new prime minister as we've talked about last week. The odds are now that the lady, potential prime minister is now sort of odds on favorite. Uh, and she is very much expected to want to stimulate the economy and she is very positive on getting interest rates down or keeping interest rates where they are at the moment because remember in Japan interest rates just half percent as they are now. And in other emerging markets, well Chris, and I think our view consensus around here is we expect the dollar not necessarily to weaken much further from here, but maybe not to go up a lot to stay pretty weak. And as a rule, that helps commodities and that helps emerging markets. So emerging markets are basically beneficiaries of a weaker US dollar because they have to borrow quite a lot because they have weak currencies. They have to borrow in dollar debt. So when the dollar goes down, their interest payments fall as well. So that helps them in that sense. >> Now I would just throw in next week we're actually going to do a deep dive on the emerging market space uh very close to my heart as previous head of emerging markets and also you you know have uh spent some time in China and we're going to be looking at China, India and some others of the uh what used to be known as the bricks and Mark is going to invent a new acronym for Can you can you explain for every read just what bricks means? >> Yes. So back in the day when we were all young lads, Jim O'Neal from Goldman Sachs came up with this wonderful acronym for the emerging market world and that was bricks. So B for Brazil, R for Russia, I for India, C for China and then S for South Africa. So we had the full space covered and so whenever was someday you hear them talking about bricks then this was the high growth emerging market areas. Of course there's been some problems there hasn't there spice. >> There's no rut anymore. >> Well no there is a r >> there is a r in uninvestable. Yeah, I think that is the term and you know an institution even if they wanted to invest in Russia would be hardressed to do it and to get it through their compliance departments because it's just it's too high risk and um and your if you got it right let's say you got it right that decision and it did really well >> your clients wouldn't thank you either >> but if you got it wrong boy you'd lose your job you lose your job so that's a risk just not worth taking >> right so that's certainly one to look forward to for next week but Mr. Chairman, I think time to get on with this review. We've got 12 positions to get through. >> Yeah. So, um I don't I don't suggest that people need to talk for five minutes at a time, otherwise I'll be asleep as will be our listeners. And where we have an advantage over others is we have some charts that we're looking at as well. And I strongly suggest to people when they do their review at home, they think about it, get a chart of what it's done over the period because you can see from a chart what's actually happened. Whereas you can hear from well-informed people like me, Spice and Rich, what we say has happened. But a chart doesn't lie. A chart tells the truth. And so we will be looking at some charts here. They will be in the show notes as well. That's right. We will be putting the charts into the show notes below so you can follow along. Just click on the more option below and you'll find those. Our wonderful producer Sophie has reminded us, however, that not everybody is going to know what uh a candlestick chart is, what it looks like. So, in the future episodes, we are going to include one on technical analysis and we're going to explain exactly what those charts mean. But for now, follow along and uh you can see there in the show notes what we are talking about. Okay. So it's up to me then to start off because the most successful holding we have is normally the chairman's and in this case it was which is the VANC crypto and blockchain innovators ETF has done 32% since inception. We have 5% in it. We gave it a good talking about two weeks ago. Essentially we bought it for the Bitcoin exposure. This was our way of getting exposure to the crypto world. What's actually happened is that we've got a lot of exposure to Bitcoin mining companies in there. Now, the Bitcoin mining companies uh use a huge amount of um computer resource. And so with this move to AI, they suddenly realize that not only can they do Bitcoin mining, they can help the data centers, they can help with this problem of computer power. And therefore, they have found it a very good second earning stream and therefore their share prices have gone up massively. Now clearly I could state as I said previously that I know knew all about that which I didn't. So this has been a fairly fortunate outcome. Um and as I said when we were discussing it in the uh previous meetings I think a couple of weeks ago we're confidence it's going to go higher. It's starting to to move in a very exponential manner and therefore I don't think this will be a long-term holding in our portfolio but we'll hold it for a few more weeks. Okay. So now we'll go on to the Black Rockck World Mining Trust and Rich, you're going to say a few words on that one. >> That's right. So unlike the blockchain innovators ETF where Chris was better to be lucky than clever, we uh selected the world mining trust because this gave us these exposure to the big cap mining stocks. Rios, BHP, Anglo-American, that's the first 20% and then we've got the likes of Glen Core, Freeport, McMoran. Just to to summarize what exactly we have exposure to, it's about 32% of the precious metals. It's about 25% of copper, uh 11% of iron ore, and then all the other commodities um following in smaller size. Certain parts of the Chinese economy are are really struggling. there is a chance we get some stimulus to try and and get some of the deflation problems solved and that is going to help things like iron or uh things like copper. So, I'm still happy with this position. Um I'm certainly happy with the stocks that are inside it. It got off to a slow start the first six weeks. It didn't really do anything, but then it's it's come particularly strong in the last few weeks more globally. just I wonder where we are with global growth and specifically the US. We we mentioned they're at 2.8 to 3% GDP growth at the moment. Europe's a bit more sluggish. If we see the the stimulus from China, if we see the big beautiful bill from our friends in the US really get the economy moving, then there's potential that we we run a little bit too hot. So, we're not in Goldilocks any anymore. If we're running it too hot, commodities benefit, and that will be part of um I'll explain that more in in the next ETF that we cover in physical gold. But certainly at the moment, look, we've only got 5% of our portfolio invested in it. I think that might be enough because they're also the mining stocks are a big part of the Footsie and we've got some copper, we've got some gold. So, I would rubber stamp our 5% holding. I wouldn't be looking to increase it, but I'm certainly happy that we own it. >> Yeah. And I mean, to me, the charts very positive. If we when when people look in the show notes, they'll see that it's moved up very strongly. This is one thing I wouldn't be a miss adding to um when we when we discuss more. We're going to have a a long talk next week about the emerging markets. I don't suggest we do it this minute, but it's something I think we should keep up there. It looks to me like it's got a lot of momentum going its way. We'll do it next week, but I'm with you. I think it's a it's something that that looks, you know, pretty good and well set up at the moment. Let's move on swiftly to the physical gold. >> Physical gold. We've we've spoken about this a lot in previous weeks. It's something I think we all agree is a real stable necessary part of a portfolio. We've had 10%. It has moved so much. It went up 14% in a month and that is one of the biggest moves that gold has ever had. And I just get a little bit nervous when something moves that quickly. I think we all agreed last week there's just a chance a little bit of a sell-off. That's why we've we've moved from 10% down to 5%. But for me that would be a shortterm reduction. Just a reminder why you need gold in your portfolio. It's the ultimate scarce asset. And at a time when Trump is just writing the checks freely, when the the budget is out of control, not just in the US, but also elsewhere as well, including our own country, the term what we call fiat currency, euros, pounds, uh, yen, and dollars. Fiat currency is very easy to print. It's very easy to create. uh these debt levels have no limits by the by the look. Gold is the opposite. Gold is scarce. It's not the only thing that's scarce, but it's certainly the best known thing. And I don't see gold as an asset. I see it as the opposite of everything else because that's my ultimate currency. Okay, Rich, that's fantastic. Copper, right? Copper is another scarce resource. As Rich said, it comes down to basic supply and demand. And copper, as we've talked before, is expected to grow at twice the level of global GDP over the next 10 years. And that's because AI supercomputers are using it. And that's all great. And China still buy half of it. And if they stimulate, as Rich said, that would be great as well. Added to this little story, there is already a shortfall between supply and demand. And that's why the price should naturally go up. There's there's more demand than there is supply. We can see because we can see new mines being the the outlook for new mine builds. We can't see very many coming on in the next five years or so. And yet there's been some terrible disasters in in copper mines around the world. Most recently, unfortunately, in Grassburg, which is the second biggest copper mine in the world in Indonesia, that produces 4% of the world's copper that is basically going out of action and we've lost nearly 3/4 of that production. So 3% of the world copper supply is out of action until probably 2027. So this supply side is dipping again. I can only see this copper price going back up further. Now remember, we bought it because it had a big dip after Trump changed the tariffs on on copper. It fell the most ever in 30% in one day. We were lucky enough to be uninvested at that point. We came in, we were able to buy into that dip. And I suggest that if there are any more dips in this, we keep doing it because the fundamentals of copper are absolutely fantastic. >> Okay, thank you Mark. So, um, another request to, um, add. We're going to get so many requests to add here. We're going to be 400% invested soon. We'll carry on this process for the moment and see and see the next one, which is the Nicki. Mark, you've already talked about the equivalent of Margaret Thatcher for the Japanese in your piece on market review. Anything else to add apart from that? Well, the main thing I'd say is we bought it principally because the fundamentals for investing in equities in Japan are fantastic. Interest rates are half%. Inflation in Japan is around 2 and a half 2.7%. So companies basically can put their prices up every year by 2.7%. They can borrow money at half%. That leaves them a a difference between one and the other. As long as they can keep their costs low, which they are able to in Japan, then they can increase their margins, their profits go up, the share price go up. It's as simple as that, right? And Japan after 40 years in the doldrums because of this deflation problem have now got to the end of that. There is this potential as you say as a new of a new prime minister coming in which will obviously hopefully be stimulative. Interest rates are not expected to rise maybe half percent over the next 12 months but that's all. then that would still be a great backdrop for investing in equities there. >> Okay. So, we're happy with our current position in the Niki. I would agree with that. Uh NASDAQ and S&P. Maybe you want to take them together. >> I mean, you may not want to, but I I think you'll probably be saying the same message for each one, so we may as well hear it one. >> I mean, it's a broken record, but basically, let's call these large cap US equities. So, the S&P 500, the NASDAQ, they are blessed because they are very skewed towards growth. They've got a lot of growth companies in there. They're growing above average. They have lot of technology companies and they have a lot of AI companies in there or companies that are exposed to that trend. And we think this is a this is ongoing. It's not going to be over quickly. So you've got the one big beautiful bill benefits. Remember they're cutting taxes stimulating interest rate cuts are now being cut and that is why we're pushing on to highs here. I fully expect that to continue. I'm in the camp that the worse the employment data gets, the more the the chances are further rate cuts. And yet the underlying economy should do okay because of benefits of AI and the one big beautiful bill. Yes, the valuation if you're going to be bearish is towards its historic high levels, but I think there's very good fundamental reasons for that. And basically, I think any chances you get to buy any dips in these markets, we should do. Now, we took NASDAQ down from 10 to 5% the week a week or so ago, and that was because it was hitting all-time highs. If we get a chance, I would very much like to take it up 10%. We're not getting that chance at the moment, but we'll keep an eye on it. We're about to go into the earnings reporting season. Uh they start in two weeks time. >> Again, we only just finished it. >> I know. Well, they report every quarter. >> Happen quarterly. >> They happen. And by the way, with the shutdown in in US departments, you're not going to get other data. So investors are going to be looking at what these companies are saying to get a real clue as what's going on in the economy. So I think this reporting season could be more important than normal than ever before. The third, you know, the third quarter is never particularly important quarter, but they tend to set themselves up for a good run into Christmas and you get a Santa rally and and end the year well. So I've got to be positive. Still remain positive. No change there. >> Okay. So we're looking for a dip in those. Um and we may change, you know, the size of the dip is always the the correct thing. I'm sorry, but Santa rally getting called already on October the 3rd. >> Have you not put your decorations up yet? >> Yeah. When does the Santa rally start? October. >> Well, yeah. I mean, you know, many a joke about these things, but you know, the the the pattern of US and UK equities and and other equity markets in Venice rallying around Christmas time is strong, and we need to be mindful of that. The dip is the key point. How big is the dip that you expect? And I think, you know, whereas you might have been expecting a dip of five to 10% down in in prices, you're going to be lucky. It looks like if you get anywhere close to that. So, I think we will need to look very closely at that. Rich Footsie. Yeah. Good old Footsie. So, thanks Rich. Let's move on. >> Oh, ye of little faith. Look at that beautiful 3% we've made. >> Steady three on the steady. Berry Erie, our good friend, helped of course by Astroenica and Glaco this week as Spice Covered, helped by the news that Revolute is apparently considering a dual listing when it comes to its IPO, its uh initial public offering. Now, this is big news. We had good news about um perhaps Stamp Duty will be exempt on newly listed companies as well. It's got everything as our guest said to us two, three weeks ago. I mean, you know, I'm not saying we are setting the trend here at the arts investing, but people are listening to this podcast. >> And Charles was quoted in the financial times as well. So, yeah, look, Footsie, I can really sleep at night when I when I've got the Footsie. It consolidated around that 9,000 level. It's now moved on. It's going through the highs as we speak at this very minute of recording the podcast. So, we've got 10%. I see that as my gold equity holding and I could not sleep in the NASDAQ. I certainly um am not as comfortable um nearly. So if I was going to add to any equity position then I I feel it would be the Footsie. Okay, let's move on then to um the Russell U which I think Mark you would be saying much the same as you were as you were saying earlier. C can I can I paraphrase what you what you might say? They're smaller companies this time. >> They are these are the US mid and smalls size companies. >> Okay. >> Now, there are sort of certain conditions where they perform very strongly when you get strong economic recovery and or economic expansion and we're not quite seeing that yet. We're not we're doing okay at 3% in America, but if it rose to four or 5% the the do well, you need favorable monetary policy. In other words, interest rates should be being cut. Well, we are in that condition. So, there's a big tick there. the economic recovery and expansion is probably a sort of neutral at the moment. You need strong corporate earnings which means obviously the economyy's got to be doing well then the companies are growing well we're again we're sort of we're neutral as well on that one. Uh but you're getting good policy that cuts in in taxes from the one big beautiful bill interest rate cuts that's a positive as well. Now, finally, you want to see at some point for small caps to do really well is when there's money starts to rotate out of the biggest companies and begins to move into some of the smaller and mid-size companies because people like rich are scared of the valuations up there and they think, "Oh, I can buy this on nearly half the price." There's a reason they're on nearly half the price is because they're not as good and they're not growing as fast. But we'll go back to Ole investing another time. Wow. Wow. There's some nice I'll tell you that red car is getting close surely. >> I think I think all levels let me just check. Oh yeah, the 1980s, right? Sorry kids listing and O level was like an A level just not as good. >> Anyway, uh enough of that. Net net. I think we are sort of getting to an interesting point for the Russell 2000. These mid and smallsiz companies in the US. We've got 5% at the moment. It's a toe in the water. If we were to start to see economic growth in America pick up quite strongly because it's very Americanorientated and very focused on that, then we want to add to this. But not now. >> Okay. So, let's move on to India. Now, we can cut short a little bit of India because we're going to be having a in-depth review of India, China and rest of the emerging markets next week. Just a reminder of why we own it. We own it because it's got the biggest population in the world and unlike China which is the second biggest population, their population is still growing. So, you also at the same time have a growth in the middle classes. So the people earning between just $3,000 and $30,000 is considered middle class. Now the Indian people save at twice the rate we do in the UK and in the US. They they they save at about 30% of their their their sort of income they put in savings and they love their stock market. So 80% or 75 to 80% of the Indian stock market is owned by domestic Indian local people. adjust it where the UK could be if we >> because if people if people like Richard's there he would say the valuation's too high I'm not going to I'm going to sell that and most a lot of international investors think that so they don't invest in it but the local savings keep coming week in week out week in week out that's one of the reasons we do it great demographics great saving culture >> so so happy with India >> but more detail next week on some of those aspects >> absolutely >> then we've got a couple of holdings here which are very similar there's the guilt n to fiveyear ETF and the cash holding Essentially, the guilt ETF holding was there to provide us with some insurance in case there was a setback in the risk markets, in equity markets, that bonds would do quite well and people would start to think interest rates would be cut quicker in the UK, which would help this um this fund. Actually, that's not happened and it's, you know, performed slightly over the period, but it's it's not been anything for us. Um and one of the questions um which we will be answering uh probably next week will be when we're looking to fund some of our other purchases if we decide we're going to make some changes. Where's it going to come out of? It's going to come out of our cash and our short guilts. That's where it would have to be sourced from. And so finally we have our worst performer on the quarter, the DAX holding. Mark, >> well let's remember why you bought the DAX. The Germans for the first time in since 1989 when the Berlin wall came down and they unified East and West Germany are increasing their expenditure. They're spending more than they take in as a government. That should help German companies expand more than some of the other European companies. And we wanted some exposure to Europe. At the same time, we thought there might be a peace dividend which might come from the end of the war in Ukraine and Russia because Germany is so close to Ukraine that any rebuilding of those those terrible sort of ruins that have been bombed will a lot of German companies will benefit from that and they've got a lot of exposure to that sort of area that would benefit. So that's the logic why we bought the DAX which is the Germans main market in the first place. What hasn't happened is we haven't had the peace dividend yet. How long is a piece of string? That may or may not come. But when it happens, the market will move so quickly. You wouldn't have a chance to invest in it. So, I say we stick with it. Yes, we've lost a bit of money on it. It's just started to improve in the last few days. I would stick with it uh and see this one out. My tendency is to agree with that. When you're looking at these portfolio reviews, you're looking for things that have been real outliers. Being pretty flat with the quarter is not an outlier. You know, you're talking about something that's gone wrong badly or gone right. Well, but as with all asset allocation meetings I've ever chaired, which might be my problem as a chairman, of course, they tend to go on a bit because people want to talk about their views. And what we've managed to do is to cover part one of a portfolio review, which is what have we got? Are we really unhappy with anything? and we've expressed things that we're happy with or we actually want to buy more of. And if those eagle-eyed amongst our our listeners will see that we have 25% in cash and we were holding that 25% cash because we were worried about the timing and the seasonality. So I'm going to suggest that what we do is take away a little bit of homework like being school teacher here. We're going to go away with homework and say having heard what people saying about the sectors they were covering, what do we want to do next week? Do we want to add to anything or do we want to cut? So, I want each of us to come back with would you change your positions we've got given what we heard this week and do something with that cash we've got because I'm mindful that cash is the biggest risk position we have against long-term liabilities. But the cash is useful if you're worried about things in the shorter term. And it's that balance. That's the balance that everybody who's listening to this podcast will have. I've got cash. The market is still going up. Should I be buying it? Should be. We haven't answered that today. We're going to answer that next week. So, we've done part one. Part two to follow. Okay. So, that's us almost done for today. Just to take a very quick look at week eight's portfolio analysis and the performance. The World Mining Trust, that's mine, was the best performer on the week, up 777. What a move on the week. The Wisdom Tree Copper ETF followed shortly behind. Of course, Mark mentioned the accident that we saw that's taken some of the supply out. That boosted the copper price and gold following suit up 3%. The loser on the week was India that we've just mentioned. Uh we'll be going into that more next week in our deep dive into the emerging markets. But total portfolio return since its inception, Mr. Chairman, is 5.3%. So still going along at a very good rate um and showing the advantage of the chairmanship that I'm providing. >> Thank you very much for joining us. That has been a very enjoyable uh first part of the quarterly review. Tune in next week to see what our actual changes may turn out to be. Will there be reductions? Will there be increases? Or uh will there be some new players come onto the scenes with new ETFs? Having looked at the emerging markets. Gentlemen, any questions should go into where? >> The art of investing at.com. >> Please hit that like underneath the podcast. Tell your friends and make sure that you are subscribed so you get the notification when the new episode comes out each Friday. Thank you very much gentlemen. Thank you for joining. [Music]
EP13| Government Shutdown, Soaring Global Markets & our FIRST Quarterly Portfolio review
Summary
Transcript
Rich Footsie. Yeah, good old Footsie. So, thanks Rich. Let's move on. >> Well, of course, bad news is good news because they're going to have to create more jobs. They're going to have to cut interest rates to do that. And the equity market went, "Woohoo! We'll take that. We love interest rate cuts." So, bad news is still good news in equity markets. We are naturally keen on taking risk. We're professional risk takers. Each of us in our own little way is concerned at the valuation of some of these markets. Mark, not very much. Me, a little bit more than that. You petrified. Your capital is at risk. The value of your shares, ETFs, and ETCs can fall as well as rise, which could mean getting back less than you originally put in. This content is for information purposes only and is not investment advice. Past performance is not an indication of future results. [Music] Welcome to episode 13 of the art of investing brought to you by IG the global investment platform. Now this is the quarterly review and why is that? Because of course we are into October that is the fourth quarter and it means we get a chance to look back at our performance. so far. We're going to look through every single position, do a deep dive, and give ourselves a little bit of a grading. We're also going to take a look at the US shutdown hitting the headlines this week. What does it mean, and why has it come about? First, as always, the spice market review. Well, it's a new quarter, new all-time highs, and a new US government shutdown. As you say, this has been actually last month was the best September since 2020, which if you remember was in the midst of the COVID crisis and governments were throwing huge amounts of money at f furing people and trying to stimulate the economy and basically interest rates were being slashed by central bankers to try and restore confidence. So, it's been a good September when normally obviously seasonally September is a bad month, but global equities were up just over 4% in September. Do we have any data on how often that has ever occurred in the past? Is that sort of top 1% of occurrences ever? But the last 25 years, it's the second best September, I think. >> Wow. >> So 5% was the one back in September 2020 was because there was loads of interest rate cuts and money being thrown at the problems. >> So So it's been a great decision of mine to be long. It is. >> I'm sure that will come up in the Mr. Chairman. Well, given last week we were at all-time highs in many places, no surprise that this week we've pushed on again. The US highs have come in the NASDAQ and the S&P 500. Russell now at a 12-month high. Uh even the Footsie 100 eat another alltime high and we'll come on to the reasons for that again later. Gold really smashed through its highs, had another good week. Um, and we also saw multi-year highs in China, Hong Kong, and in silver as the pushing up to its nearly very close now to its all-time high, which has reached 14 years ago. It's also been the biggest month ever for debt issuance in America. So, it tells you companies are using this buoyant sort of these buoyant markets and the buoyant confidence that's around to actually issue more debt. Um, and that's that's good. That's been accommodated by markets and investors. So, they're going away happy. at the end of last month. People are still willing to pay up. Interestingly though, the the consortium included the Saudi Arabians and uh obviously Trump is quite friendly with them now and he's cut a very good deal with them and he's allowing them to now get involved in some of these American companies. I mean it's interesting but you know we're seeing governments get involved in these takeovers. We've seen the US do their own ones. And again this week, they made another investment in a small lithium mining company. The shares went up 25% or so on the day. They bought a stake in this company called Lithium America's Corporation. Uh it owns the biggest deposit of lithium in America. So yeah, they're they're hard at trying to control resources and keep resources in house as it were. >> Free capitalism. That's what it's all about, guys. >> Yeah. Trump's been busy this week, which has been good for all of our portfolios. Uh has done a big deal with um the pharmaceutical companies, but Fizer and particularly the American pharmaceutical company. He's done a deal where basically he's going to make FISA cut the price of their drugs that they sell to the consumers through them. And in return, he's not going to impose big tariffs on them or make them bring manufacturing more manufacturing into the US. So, it's good for FISA because they don't have to spend the 5 billion or so building new factories. Uh, but they have to take cost cuts on the some of their drugs or price cuts on their their drugs. But most of these drugs where the price cuts are coming down are going to consumers. And guess what? Trump has got a little internet company called Trump RX, Trump prescriptions basically, where you as a consumer in America can go and buy drugs at half the price you would normally do if you had buy them through your insurance company. It's a very interesting move because lots of markets around the world have big pharmaceutical companies and including the UK. Yeah, >> the UK's biggest company Astroenica um and Glaco Smith Klein are both based here. They're about 10% of the Footsie, over 10% of the Footsie 100. They were up over 10% this week. >> Wow. >> So, that's pushed part of the reason why the Footsie 100 has gone to this new all-time high. >> Fantastic. That's driven us driven us higher. It's also helped many of the European markets. Stock markets like the DAX in Germany have Merc and they also have Bayer, big pharmaceutical companies. They're also beneficiaries. That's about 8% of the DAX market. So that's helped European markets all around. On the data front, we had some good news in Europe. The inflation was down at just 2.2%. If you remember, the UK inflation is running at about 3.8%. Um, and so that's that's pretty good. European Central Bank have been cutting interest rates for a while now and have basically gone on pause. So they've sort of reached the 2%ish target that they were looking for. Now they're going to sit back and see how things evolve. It's going to be easy for them to do that because in America because of this government shutdown, there's no real data potentially coming out until the shutdown finishes. So this week everyone, all the analysts have jumped on this bit of data which is called the ADP jobs data. It's an an equivalent to the payrolls data that we get. And this week on Friday, tomorrow when this podcast comes out, the payroll's data was meant to come out. Now, we've had some very a bad run of payrolls data. And actually, the ADP data which came out yesterday was bad as well. It was negative, showed jobs rather than growing. And and that sort of scared a few people. Well, at first and then everyone went, "Well, of course, bad news is good news because if they're gonna have to create more jobs, they're going to have to cut interest rates to do that." And the equity market went, "Woohoo! We'll take that. We love interest rate cuts." So, bad news is still good news in equity markets. >> So, that was the first negative print on a on a jobs number. And it's not just positive is good, negative is bad, is it? that with these unemployment um reports, you you actually need a certain level of a positive number almost just to keep flat, don't you? Because of the the increase in the jobs market as a whole, of course, population growth, the workforce. >> Generally, it's thought that you need 70 or 80,000 positive. So, if we go into a negative number, that that is definitely signs of a slowing of growth. >> Yeah. I mean the next Federal Reserve meeting uh is on the 29th of October, so in a few weeks time. And clearly if they're not going to get de data from the main American sort of government offices that would be issuing data like payrolls, they're going to have to rely on these private companies like ADP for that data. And this is the first bad print they've got. Now, you know, the markets, like I say, are saying, okay, if the employment side is bad, and we know it's been getting worse over the last few months, they'll just accelerate the rate cuts in America, and the equity market loves that. Is there a reason that the Europeans can seem to be able to hit their target in inflation, but the rest of the world, it's it's a bit trickier. Is there a difference in Europe? >> I don't really think there's a a huge difference around. Um, I think you're more likely going to have faith that the ECB are going to hit their inflation target than almost anybody else. If you remember, the US has got a a twin target of not just inflation, but also the unemployment rate. So, they have to take things into balance. We in the UK, as you know, have not got a great track record as far as inflation's concerned, and we continue to do a poor job there. So I think that there's more reliability and more belief in the psyche of the Europeans that they will keep inflation low and at that lower level which they've always been searching for that two or just below 2%. >> I think the other thing is that the the growth rates in Europe are very low compared to the US and even compared to the UK they're very low. Um so the UK is just about you know sort of geeking out a little bit of growth 1% or so. In Europe, it's bouncing along the bottom at near zero. But America's up at sort of two and a half, 3%. That's helping the equity market. This nice sort of combination of cutting interest rates and growth being okay. Now, we got to keep an eye on those job numbers because if unemployment rises too far, that means companies are losing confidence because they're cutting people. Or maybe it's the AI factor coming in and they're beginning to get better productivity out of AI and, you know, being able to cut the workforce, particularly the younger people. that will increase margins and help the help the share prices. >> The I mean there used to be a word for it in the old days showing my age again called a Goldilocks economy. >> Um and that basically not too hot, not too cold. I think I think it refers to I'm not that clear on my fairy tales and those sort of things. The >> true >> three bears and and you know mummy bear, daddy bear, and baby bear or whatever and their porridge bowls. I'm not going to go any further cuz I'm I'm digging a hole already for myself. >> Well, there's one bear here. I'm not sure >> no no no no no there's one bear there's one who's hibernating and there's a rampant ball but apart from that there's you know this would be what they used to describe as the goldilocks economy where everything's just perfect not too much inflationary pressure because the economy is good but it's not it's not roaring and rates can therefore be cut and everyone you know is very very happy and can go off and look look look off into the landscape and be very happy with life. I mean, it sounds too good to be true. Well, you mentioned there that that So, we're not going to get data coming out because of the shutdown. I just want to dig a bit more more into that cuz everybody's going to see the headlines. Sometimes it can be particular worrying, you know, even across in the UK, the effect that this could have on the rest of the world. CJ, could you give us more of an idea what this shutdown is and why does it come about? Okay. So, the US fiscal year ends at the end of September. So, you know, which which is obviously different from everybody else's fiscal year, but that's the Americans for you. And they need to have a budget passed um where the financing is secured for the next year of operation. >> They're not too good at budgeting though, are they? >> No, they're not very good at budgeting, but that's but then we aren't very good either. So, let's not let's not pretend that we've got any uh PhDs in that. It doesn't have to be a a a bill for the whole year. It can be a bill for a short period of time to give you time to negotiate that budget for the next year. And this is what's failed in the US here on the 29th 30th of September. A bill was put forward to sto to say let's have an interim pause until the 26th of November and that will give us time between now and the 26th of November to negotiate how we're going to pay for everything and finance the um finance the government. The Republicans said this is what we want to do. The Democrats said not on your Nelly. we actually want you to sweeten some of the terms around the cost of of the medical assistance for the poor and that sort of thing. We want some of these things added in there. The Democrats said we won't vote for it. The Republicans said, "Well, this is what we're putting forward." But because with the budget, they need 60 of the senators out of 100 to agree to it. So it's 6040. It's not just straight 5149. they have to be 6040 or more. They fell short by I think about four. So the Republicans got 56 people saying yes, we agree to financing through to the 26th of November. But 44 Democrats said, "No, thank you. We're not doing it." And therefore, what happens then is the non-essential parts of the US government shut down and get effectively furled. Furoughed means that they are laid off. Their jobs are still waiting for them when they come back. They just can't go to work and don't get paid for that period. >> It's like during CO. >> Exactly. During COVID, the essential jobs people have to come in and do, but they don't get paid until the budget bill passes. So, police, army, these sorts of people have to come still to work. They can't just say on an aircraft, Gary, I'm stopping cuz I'm not getting paid. they're still going to get paid, but it it acrru for when the bill gets passed. So, we're in one of those situations now. I think Mark's got a few details of how often this occurs. I mean, in our experience, this has been a regular um concern. I don't know, once every two or three years there's some sort of shutdown. It's never been anything that's ever derailed anything for any length of time. Um, and it usually pays to ignore it and carry on investing as you were. Now Mari, how regularly does this happen? We we know that the last 10 months has taught us anything to do with Trump isn't regular and anything could happen, but this this is quite a common occurrence, isn't it? >> Well, it goes back to 1976 when basically they set a formal ceiling was the the maximum that a government could borrow. At the moment that ceiling is 41 and a bit trillion dollars US as Chris says that ran till the end of September. >> Is that like a credit card limit? >> A bit like that. Exactly. They can go a little bit overdrawn, but they're not meant to. They have to start taking cutting costs to try and get back within that. Basically, they're going to lay off, as Chris says, a lot of workers, government workers, non-essential, between 750,000 and 800,000 government employees in America are going to be laid off. That could affect as many as 3% of the working population in the States. So, if this is prolonged, and there's only been a few periods where this has been prolonged. So, since 1976, there's been about 20 or so shutdowns. Most of those have lasted less than a week. The ones that have lasted over a week, there's only been 10. And guess who caused the last one? >> It wouldn't be Mr. Trump, would it? >> Well, it might well be indeed. >> President Trump to you, Mr. Chairman. >> Yes. So back in 2018, sir, to you >> in in december 2018 that caused a lockdown because Trump wanted money to build the wall along the Mexican border and Congress wouldn't give it to him and so they hit the ceiling and so he had to go and negotiate and get they eventually got the money obviously because these things nine times out of 10 happen but at that time the the workers were laid off for seven weeks. So 35 days that is pretty punchy actually >> and that leads to problems with air traffic control with getting insulin from your pharmacy everything doesn't it? >> Absolutely. And you know there was some permanent layoffs that happened after that about about a third of the layoffs didn't come back from furow and Trump's already threatening to lay off a load of other people at the moment. And if you remember the doge which is the department of government efficiency that was run by Elon Musk when Trump first got back in. Guess what happens on the 1st of October? As in, you know, yesterday, the day we were day before we were recording this, there's 150,000 workers that were coming out of government are going to lose their jobs anyway. So, even if we were to get this employment data coming out in the next month or so, then there's going to be quite a big jump in unemployment potentially if you add that to some of the ones that going on now. So, we should brace ourselves for bad employment data out the US. Well, as I say, at the moment, equity markets are prepared to say that is potentially good news because it will lead to bigger interest rate cuts down the line. >> It can't be bad if if you don't see it. It's not happening surely. >> I mean, look, if it begins to affect economic growth and enough people are laid off for a long enough period of time, it will affect economic data as well. And companies may have to start to pull back on some of their expenditures and expansions. uh and that then starts to have a bit of a spiral effect. Um but it would take a lot to do that. >> Excellent. Right. I think it is time to look at how our performance has been for the last quarter. I've mentioned this quite often now. You know, we we're now gone into the fourth quarter. Why is it CJ that quarters are so important? Why break the year into four? >> I'm sure there's some really clever theories for why that's the case. I mean I've as I said before um when we spoke about this last week um I've run money for institutions for many many many many years and it naturally for for them falls well to think about things on a quarterly basis and so they will do a review of their investment performance once a quarter. Now they might not call the fund manager in every quarter. They might call them in once every six months. I told you some stories last week about some of the difficult meetings I've had um with my uh end clients. Um and so you know quarter seems about right. Now I think for the um private individual for the the people who were aiming this podcast at we've we've said all the way along the line that we want to take a long-term view of the markets. And so I don't really, you know, think that necessarily, I've said this before, that you need to look at your portfolio every day. At the end of the day, the big one is the quarterly because we should be checking, not too often, but often enough that what the assumptions that we were making are moving in the right direction. the markets are performing the way we thought they would and we should be sort of kicking the tires as to whether there's anything that we need to be doing having seen one quarter finish moving into the next one. Is there anything that we have got wrong? Anything that we want to remove from our portfolio, add to our portfolio um and you know try to review how things have done. Now the problem with this generally is it's a process um which needs to be um looked looked and and and and regarded in a professional way because if you don't do it that way I've sat through many meetings I think I mentioned last week where you talk about a position and of course if a position's worked everybody wants to talk about that position as if it's their position and oh yeah well this is this is why I put this one on and the next person will say yeah and that's why I put it on and someone will say that's why I put it on and it's absolute rubbish. The fact is it's on so it doesn't matter. Forget who put it on. What's important is what do we think about it now and where's it going? Equally you get you get a position that nobody likes cuz it's gone down and they don't want to be associated with it. Doesn't even get talked about in most meetings. You know, I've sat through meetings where they've never talked about something that's underperformed as if it's a bad smell and you don't want to be anywhere to do with that. The problem with those is they just hang around in the portfolio for a length of time >> and they can become even worse and then somebody says usually the boss comes along and says who's responsible for this? What the hell's going on? And then everybody looks the other way and points in the other direction. You know there's an old saying by Robert Kennedy 1961. He says success has many fathers while failure is an orphan. And never is that truer than in portfolio construction. So today we're going to review each of our positions one by one. Um for those watching the the YouTube um and we'll also be in the show notes. We've got a list of all the holdings that we've got, how they've done over the quarter with initials by uh people well actually with the names by these actual positions and then we will be going into how have they done, why have they done what they've done, has our view changed, if not do we want to do anything, if not let's move on to the next holding. Now before you do any of that, you've got to set the picture because it's really important that you you might have gone in thinking that um inflation was going to be really high and this is why you held this position that actually inflation turned out very low. So you need to be able to understand how that macro environment has changed over that period and has it supported what you've been trying to do. And of course every fund manager as you know has always got a view on the macro and so you need to start off with that macro view at the beginning. So, let's look at what we were saying when we started this portfolio. >> Are we going to do a a playback? >> Well, it would be good if we had a playback, but maybe it wouldn't be so good if we had a playback. >> So, actually, I'm going to play back in the way I want to play back. >> Cuz I'm I'm the chairman. Do we trust his memory? >> Chairman's always right. Now, we felt interest rates would be cut. We felt the bond yields would stay well behaved. We didn't think they'd fall very much. But we felt this that would make it be a good environment for equities. We believe the dollar which had been weak so far this year would remain weak as investors hedged against Trump uncertainty and that nonfragile assets would be in demand because you're a bit worried about what Trump may say or do. So those were the broad themes and I'm going to score us on an A to E rating where A is excellent and E is pants. Okay. And >> is that a technical term? >> It's it's a very technical term. It's important. Let me be upfront straight away. It's important we're honest with each other in in this in an asset allocation meeting so we know where we've got things like we haven't. We don't try and pull the wall over people's eyes and we'll we'll discuss how we're doing that as we go through. So >> is there any reason that it's a to is it because if it's really bad we'll end up in A&E or >> No, no, no. I I did actually think about should I make it 1 to 10, but then that gives too much variety, you know. was is a seven good is an eight good or you know slightly good slightly not let's go a A to E and just leave it like that of course that doesn't mean I can't have minuses and pluses but we'll we'll give that for a minute on bonds I give us a C in that most bonds did nothing but actually US bonds did pretty well because the weak data started coming through more interest rate cuts were expected and that drove 10-year US bond yields government bond yields lower i.e Prices went up, yields went >> down. >> Thank you. So, I'm giving us only a C because although we got it most of it right, we didn't get it right on the US side. On equities, I would give us a B in the equities did really well over the period. We've just talked about how well they've done, but if we're going to look at this properly, and we're going to look at this with AI to to trying to correct where we've got it wrong, we didn't have enough. >> Yeah. You know, we've been a little bit cautious at the edges. Um, I've been very positive, but Mark and you have been a bit a bit cautious. Just getting in to start with. No, clearly Mark's been absolutely dead right to be really, you know, all guns blazing and we've held him back a little bit now. Hasn't done our performance any harm over the period because the performance has been good. But we need to recognize the fact that September, you know, um, August, September being a lot stronger than we were thinking they were probably going to be. >> And the seasonality just didn't play out is what you're saying. >> The seasonality didn't play out at all. Um, God knows how much they would have been out if it had been April or May. On the dollar, I'm giving us a C as well in that the dollar's been pretty flat. It's not strengthened. It's not weakened. Where we get our best marks is in the nonfragile assets. We got we get an A because our blockchain ETF, gold, black rockck world mining and copper have done absolutely brilliantly with returns from copper being 7% since we've held it. Gold being 13%, world mining being 19% and Vanet crypto winning the prize at just over 32%. So nonfragile assets have done um extremely well. It's really interesting to see them like this in huge returns but also huge dispersion between the mining stocks and the German DAXs you know so it it gives you that flavor not necessarily check your portfolio every day or every week but looking at it for 3 months you can really see the differences >> well that's one of the big advantages one of the big advantages of looking at it with a bit of time in between is all the noise that's happened over the period are washed out what you look at is the actual number. The number's there. Yeah. I I I can't say, "Oh, German X did really well. It was my idea." When I can see a number that shows they went down. So to me, it is really good to have this sort of formality once a quarter. I mean, you might be at home having a cup of coffee, computer in front of you on a Saturday morning. Just look at what your holdings have done over the quarter. Has it done what you thought? Did it not do what you thought? >> And give yourself a mark. >> Give yourself a mark. Yeah. And if you if if if you come out with an A, then there's a job on this panel for you. >> So that's my scoring of where we um have been. Does anybody have any comments on that before we go to where are we going? Anybody think I've been a little harsh, a little bit less than honest with some of those scores or are we just about in the right spots? No, I I think um when it comes to portfolio construction, one criticism we may have of ourselves is that all the things that did best were our smallest holdings. So if you look at the top four positions we've had there, copper, gold, the mining trust, and blockchain, we had 5% in each of them. Now we had 10% in gold, and a couple of weeks ago we took that down by 5%. So if we were being more critical of ourselves, we probably should have had slightly bigger positions than we did have in those in those areas because actually we had 10% positions in things like US equities uh and other parts of the market. So that would be my only sort of critique of ourselves and say we should have been more confident to maybe put a little bit more capital into there. I'm going to push back very slightly on that, but I think for the benefit of people at home who are listening to this, when you think about the size of your holding, you need to think about the volatility of the asset that you're actually buying. And when I say volatility, I mean how much does it go up and down against the trend most of the time. Okay, that's really what we mean by volatility. So something doesn't go up and down very much and you have a big holding you does means if if it moves around it won't move your portfolio around very much at all. Whereas if you have a big holding in and I'm going to choose the Vanet crypto and blockchain just because it's up there at plus 30%. If it's up 30% you've had a great quarter if you had a big big holding in let's say you had 20% in it but if it had gone down 30% that would have cost you a lot of money. really it comes down to that risk appetite that we talked about right at the very start. So to me I think you've got to think very carefully about I'm looking at the quarterly performance. I wish I'd held more of the things that have gone up most because frankly we all wish we'd held most of what's gone up most and hadn't held anything and the things have gone down. I've spent my whole life wishing that it's what's sensible for the risk appetite of people. So I think you're right to say what you said. If you're at the more risky spectrum, if you want to have more volatility in your portfolio, you'd hold more of those sorts of things. Absolutely dead right. If you're more conservative, you're going to be a little bit less and maybe more where we are because remember, we're only going for 10% return per year. It's a great point, but you've really got to think about things in terms of what your risk appetite is. And I think we've got a risk appetite here which is quite a sensible one for most people, but clearly it won't reflect what everybody's risk appetite is. And if we get a selloff and we see everything come considerably lower, that might change. We might step up the risk curve a little bit because we feel the asset prices have come down to a level where there's perhaps better value rather than at the moment arguably um as the chairman of the Federal Reserve even pointed us out to us are perhaps looking a little bit expensive. Lots of things go into your risk appetite. How comfortable are you in waiting having a cup of coffee on a Saturday uh while looking at your portfolio and it's down 20%. But if everything's really cheap and you really believe in it, you might say, "Well, I'm going to buy more as you say, and I'm going to increase my risk appetite because I think my buying level is much more attractive." The issue we have, the issue we're going to have all day today, the issue we're going to have for the next two or three weeks is we are naturally keen on taking risk. We're professional risk takers. Each of us in our own little way h is concerned at the valuation of some of these markets. Mark, not very much. Me a little bit more than that. You suicidally >> Mr. Grizzly. >> Grow your portfolio with IG. Invest £50 with IG and get a free share bundle worth between4 and £200. Make your first investment into an ISA, general investment account or SIP 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. Okay, so that's we've talked about where we've come from. So let's I'm going to hand over to Mark to talk about set the picture which we can clearly disagree with as well but set the picture for what we might be expecting for the next 3 to four five months. >> Yeah. I mean I think it's particularly when the bulk of your assets are equities it's important to remember that most equities look forward 3 to six to maybe 9 months. So in the time horizon we're trying to look at the sort of economic or the the macroeconomic data. So what's happening in the in the big picture? That's the sort of time frame we're trying to get an idea of. There's no point in looking three years forward because stock prices don't look three years forward. They look like I say three to six to nine months is sort what and arguably they're looking six month to nine months forward at the moment. So if we looked at the UK at the moment purely in the next couple of months, obviously we've got the budget coming up at the end of November and we'll be doing some episodes as that approaches. that's constraining a lot of international investors looking at wanting to buy assets in the UK because they're worried that if it's a silly budget that um makes the bond market wobble as Liz trusted then you could end up with a sort of big backlash pound could go down a lot and there could be lots of negative consequences. So international investors will be standing back from the UK at the moment even though we're at all-time highs. Uh that is something that if they came in would help obviously but in the very short term people are going to be wary of that. The Bank of England is also going to be worried about that. So they're restrained on whether they're going to cut interest rates more. And remember, they've got inflation that's a bit too high. It's about 3.8% in the UK and their target, remember, is 2%. Now, if you look at forecasts, that's expected to fall down towards that 2% in the next 12 months or so. So they may have scope to cut interest rates as we go into next year, but in the next 3 to 6 months, it's going to be tough for them to do that with that backdrop. If you go to Europe, well, Europe, as I said earlier on, have sort of round their target on inflation. So, we've probably seen the best of the U of the European interest rate cuts. And remember, interest rate cuts are great for equities. They're also quite good for bonds or certain parts of the bond market. And their inflation is very low. It's come down to, like I say, down towards their target. And by this time next year, it's expected to be pretty flat. But so, so is growth is pretty flat in Europe at the moment. And so, if they cut interest rates, it will not be probably because of inflation. It will be because they're trying to get the economy going a little bit. even though their main target is on inflation. Uh if you look at the US on the other hand, and we've talked about this before, their growth rates are still pretty good. It's a their growth is about 2.8 nearly 3% at the moment, but this unemployment is beginning to pick up and we might have a lot of confusion about that in the next few months. Now, I say equity investors are natural optimists. So, they'll say, >> "Come on, bond guy, grizzly bear, honestly, come and join us. It's nice and warm over here. If you look elsewhere in the world, well, if you look at China, they're they're growing at about 5%. You think we we'd love to have that in this country. You know, we really would do. The trouble is they've got if prices are going down and they've got this thing called deflation. So, we've talked about it before. If prices are going down, you'll defer your decision to buy something because why buy something today if it's going to be cheaper tomorrow? So, you don't you defer it. And so they although they they've got this 5% GDP growth, people worry that that's not a true number. No, no one really trusts the Chinese numbers and that's been a problem the West has had for a long time. But nevertheless, their stock markets are pushing up really high. Um and that's because they are worried about this price, these price falling. So they're stimulating, they're they're trying to put more money into the economy. They're cutting interest rates and that's all helping their stock markets push to highs at the moment. Um, Japan, we're about to get a new prime minister as we've talked about last week. The odds are now that the lady, potential prime minister is now sort of odds on favorite. Uh, and she is very much expected to want to stimulate the economy and she is very positive on getting interest rates down or keeping interest rates where they are at the moment because remember in Japan interest rates just half percent as they are now. And in other emerging markets, well Chris, and I think our view consensus around here is we expect the dollar not necessarily to weaken much further from here, but maybe not to go up a lot to stay pretty weak. And as a rule, that helps commodities and that helps emerging markets. So emerging markets are basically beneficiaries of a weaker US dollar because they have to borrow quite a lot because they have weak currencies. They have to borrow in dollar debt. So when the dollar goes down, their interest payments fall as well. So that helps them in that sense. >> Now I would just throw in next week we're actually going to do a deep dive on the emerging market space uh very close to my heart as previous head of emerging markets and also you you know have uh spent some time in China and we're going to be looking at China, India and some others of the uh what used to be known as the bricks and Mark is going to invent a new acronym for Can you can you explain for every read just what bricks means? >> Yes. So back in the day when we were all young lads, Jim O'Neal from Goldman Sachs came up with this wonderful acronym for the emerging market world and that was bricks. So B for Brazil, R for Russia, I for India, C for China and then S for South Africa. So we had the full space covered and so whenever was someday you hear them talking about bricks then this was the high growth emerging market areas. Of course there's been some problems there hasn't there spice. >> There's no rut anymore. >> Well no there is a r >> there is a r in uninvestable. Yeah, I think that is the term and you know an institution even if they wanted to invest in Russia would be hardressed to do it and to get it through their compliance departments because it's just it's too high risk and um and your if you got it right let's say you got it right that decision and it did really well >> your clients wouldn't thank you either >> but if you got it wrong boy you'd lose your job you lose your job so that's a risk just not worth taking >> right so that's certainly one to look forward to for next week but Mr. Chairman, I think time to get on with this review. We've got 12 positions to get through. >> Yeah. So, um I don't I don't suggest that people need to talk for five minutes at a time, otherwise I'll be asleep as will be our listeners. And where we have an advantage over others is we have some charts that we're looking at as well. And I strongly suggest to people when they do their review at home, they think about it, get a chart of what it's done over the period because you can see from a chart what's actually happened. Whereas you can hear from well-informed people like me, Spice and Rich, what we say has happened. But a chart doesn't lie. A chart tells the truth. And so we will be looking at some charts here. They will be in the show notes as well. That's right. We will be putting the charts into the show notes below so you can follow along. Just click on the more option below and you'll find those. Our wonderful producer Sophie has reminded us, however, that not everybody is going to know what uh a candlestick chart is, what it looks like. So, in the future episodes, we are going to include one on technical analysis and we're going to explain exactly what those charts mean. But for now, follow along and uh you can see there in the show notes what we are talking about. Okay. So it's up to me then to start off because the most successful holding we have is normally the chairman's and in this case it was which is the VANC crypto and blockchain innovators ETF has done 32% since inception. We have 5% in it. We gave it a good talking about two weeks ago. Essentially we bought it for the Bitcoin exposure. This was our way of getting exposure to the crypto world. What's actually happened is that we've got a lot of exposure to Bitcoin mining companies in there. Now, the Bitcoin mining companies uh use a huge amount of um computer resource. And so with this move to AI, they suddenly realize that not only can they do Bitcoin mining, they can help the data centers, they can help with this problem of computer power. And therefore, they have found it a very good second earning stream and therefore their share prices have gone up massively. Now clearly I could state as I said previously that I know knew all about that which I didn't. So this has been a fairly fortunate outcome. Um and as I said when we were discussing it in the uh previous meetings I think a couple of weeks ago we're confidence it's going to go higher. It's starting to to move in a very exponential manner and therefore I don't think this will be a long-term holding in our portfolio but we'll hold it for a few more weeks. Okay. So now we'll go on to the Black Rockck World Mining Trust and Rich, you're going to say a few words on that one. >> That's right. So unlike the blockchain innovators ETF where Chris was better to be lucky than clever, we uh selected the world mining trust because this gave us these exposure to the big cap mining stocks. Rios, BHP, Anglo-American, that's the first 20% and then we've got the likes of Glen Core, Freeport, McMoran. Just to to summarize what exactly we have exposure to, it's about 32% of the precious metals. It's about 25% of copper, uh 11% of iron ore, and then all the other commodities um following in smaller size. Certain parts of the Chinese economy are are really struggling. there is a chance we get some stimulus to try and and get some of the deflation problems solved and that is going to help things like iron or uh things like copper. So, I'm still happy with this position. Um I'm certainly happy with the stocks that are inside it. It got off to a slow start the first six weeks. It didn't really do anything, but then it's it's come particularly strong in the last few weeks more globally. just I wonder where we are with global growth and specifically the US. We we mentioned they're at 2.8 to 3% GDP growth at the moment. Europe's a bit more sluggish. If we see the the stimulus from China, if we see the big beautiful bill from our friends in the US really get the economy moving, then there's potential that we we run a little bit too hot. So, we're not in Goldilocks any anymore. If we're running it too hot, commodities benefit, and that will be part of um I'll explain that more in in the next ETF that we cover in physical gold. But certainly at the moment, look, we've only got 5% of our portfolio invested in it. I think that might be enough because they're also the mining stocks are a big part of the Footsie and we've got some copper, we've got some gold. So, I would rubber stamp our 5% holding. I wouldn't be looking to increase it, but I'm certainly happy that we own it. >> Yeah. And I mean, to me, the charts very positive. If we when when people look in the show notes, they'll see that it's moved up very strongly. This is one thing I wouldn't be a miss adding to um when we when we discuss more. We're going to have a a long talk next week about the emerging markets. I don't suggest we do it this minute, but it's something I think we should keep up there. It looks to me like it's got a lot of momentum going its way. We'll do it next week, but I'm with you. I think it's a it's something that that looks, you know, pretty good and well set up at the moment. Let's move on swiftly to the physical gold. >> Physical gold. We've we've spoken about this a lot in previous weeks. It's something I think we all agree is a real stable necessary part of a portfolio. We've had 10%. It has moved so much. It went up 14% in a month and that is one of the biggest moves that gold has ever had. And I just get a little bit nervous when something moves that quickly. I think we all agreed last week there's just a chance a little bit of a sell-off. That's why we've we've moved from 10% down to 5%. But for me that would be a shortterm reduction. Just a reminder why you need gold in your portfolio. It's the ultimate scarce asset. And at a time when Trump is just writing the checks freely, when the the budget is out of control, not just in the US, but also elsewhere as well, including our own country, the term what we call fiat currency, euros, pounds, uh, yen, and dollars. Fiat currency is very easy to print. It's very easy to create. uh these debt levels have no limits by the by the look. Gold is the opposite. Gold is scarce. It's not the only thing that's scarce, but it's certainly the best known thing. And I don't see gold as an asset. I see it as the opposite of everything else because that's my ultimate currency. Okay, Rich, that's fantastic. Copper, right? Copper is another scarce resource. As Rich said, it comes down to basic supply and demand. And copper, as we've talked before, is expected to grow at twice the level of global GDP over the next 10 years. And that's because AI supercomputers are using it. And that's all great. And China still buy half of it. And if they stimulate, as Rich said, that would be great as well. Added to this little story, there is already a shortfall between supply and demand. And that's why the price should naturally go up. There's there's more demand than there is supply. We can see because we can see new mines being the the outlook for new mine builds. We can't see very many coming on in the next five years or so. And yet there's been some terrible disasters in in copper mines around the world. Most recently, unfortunately, in Grassburg, which is the second biggest copper mine in the world in Indonesia, that produces 4% of the world's copper that is basically going out of action and we've lost nearly 3/4 of that production. So 3% of the world copper supply is out of action until probably 2027. So this supply side is dipping again. I can only see this copper price going back up further. Now remember, we bought it because it had a big dip after Trump changed the tariffs on on copper. It fell the most ever in 30% in one day. We were lucky enough to be uninvested at that point. We came in, we were able to buy into that dip. And I suggest that if there are any more dips in this, we keep doing it because the fundamentals of copper are absolutely fantastic. >> Okay, thank you Mark. So, um, another request to, um, add. We're going to get so many requests to add here. We're going to be 400% invested soon. We'll carry on this process for the moment and see and see the next one, which is the Nicki. Mark, you've already talked about the equivalent of Margaret Thatcher for the Japanese in your piece on market review. Anything else to add apart from that? Well, the main thing I'd say is we bought it principally because the fundamentals for investing in equities in Japan are fantastic. Interest rates are half%. Inflation in Japan is around 2 and a half 2.7%. So companies basically can put their prices up every year by 2.7%. They can borrow money at half%. That leaves them a a difference between one and the other. As long as they can keep their costs low, which they are able to in Japan, then they can increase their margins, their profits go up, the share price go up. It's as simple as that, right? And Japan after 40 years in the doldrums because of this deflation problem have now got to the end of that. There is this potential as you say as a new of a new prime minister coming in which will obviously hopefully be stimulative. Interest rates are not expected to rise maybe half percent over the next 12 months but that's all. then that would still be a great backdrop for investing in equities there. >> Okay. So, we're happy with our current position in the Niki. I would agree with that. Uh NASDAQ and S&P. Maybe you want to take them together. >> I mean, you may not want to, but I I think you'll probably be saying the same message for each one, so we may as well hear it one. >> I mean, it's a broken record, but basically, let's call these large cap US equities. So, the S&P 500, the NASDAQ, they are blessed because they are very skewed towards growth. They've got a lot of growth companies in there. They're growing above average. They have lot of technology companies and they have a lot of AI companies in there or companies that are exposed to that trend. And we think this is a this is ongoing. It's not going to be over quickly. So you've got the one big beautiful bill benefits. Remember they're cutting taxes stimulating interest rate cuts are now being cut and that is why we're pushing on to highs here. I fully expect that to continue. I'm in the camp that the worse the employment data gets, the more the the chances are further rate cuts. And yet the underlying economy should do okay because of benefits of AI and the one big beautiful bill. Yes, the valuation if you're going to be bearish is towards its historic high levels, but I think there's very good fundamental reasons for that. And basically, I think any chances you get to buy any dips in these markets, we should do. Now, we took NASDAQ down from 10 to 5% the week a week or so ago, and that was because it was hitting all-time highs. If we get a chance, I would very much like to take it up 10%. We're not getting that chance at the moment, but we'll keep an eye on it. We're about to go into the earnings reporting season. Uh they start in two weeks time. >> Again, we only just finished it. >> I know. Well, they report every quarter. >> Happen quarterly. >> They happen. And by the way, with the shutdown in in US departments, you're not going to get other data. So investors are going to be looking at what these companies are saying to get a real clue as what's going on in the economy. So I think this reporting season could be more important than normal than ever before. The third, you know, the third quarter is never particularly important quarter, but they tend to set themselves up for a good run into Christmas and you get a Santa rally and and end the year well. So I've got to be positive. Still remain positive. No change there. >> Okay. So we're looking for a dip in those. Um and we may change, you know, the size of the dip is always the the correct thing. I'm sorry, but Santa rally getting called already on October the 3rd. >> Have you not put your decorations up yet? >> Yeah. When does the Santa rally start? October. >> Well, yeah. I mean, you know, many a joke about these things, but you know, the the the pattern of US and UK equities and and other equity markets in Venice rallying around Christmas time is strong, and we need to be mindful of that. The dip is the key point. How big is the dip that you expect? And I think, you know, whereas you might have been expecting a dip of five to 10% down in in prices, you're going to be lucky. It looks like if you get anywhere close to that. So, I think we will need to look very closely at that. Rich Footsie. Yeah. Good old Footsie. So, thanks Rich. Let's move on. >> Oh, ye of little faith. Look at that beautiful 3% we've made. >> Steady three on the steady. Berry Erie, our good friend, helped of course by Astroenica and Glaco this week as Spice Covered, helped by the news that Revolute is apparently considering a dual listing when it comes to its IPO, its uh initial public offering. Now, this is big news. We had good news about um perhaps Stamp Duty will be exempt on newly listed companies as well. It's got everything as our guest said to us two, three weeks ago. I mean, you know, I'm not saying we are setting the trend here at the arts investing, but people are listening to this podcast. >> And Charles was quoted in the financial times as well. So, yeah, look, Footsie, I can really sleep at night when I when I've got the Footsie. It consolidated around that 9,000 level. It's now moved on. It's going through the highs as we speak at this very minute of recording the podcast. So, we've got 10%. I see that as my gold equity holding and I could not sleep in the NASDAQ. I certainly um am not as comfortable um nearly. So if I was going to add to any equity position then I I feel it would be the Footsie. Okay, let's move on then to um the Russell U which I think Mark you would be saying much the same as you were as you were saying earlier. C can I can I paraphrase what you what you might say? They're smaller companies this time. >> They are these are the US mid and smalls size companies. >> Okay. >> Now, there are sort of certain conditions where they perform very strongly when you get strong economic recovery and or economic expansion and we're not quite seeing that yet. We're not we're doing okay at 3% in America, but if it rose to four or 5% the the do well, you need favorable monetary policy. In other words, interest rates should be being cut. Well, we are in that condition. So, there's a big tick there. the economic recovery and expansion is probably a sort of neutral at the moment. You need strong corporate earnings which means obviously the economyy's got to be doing well then the companies are growing well we're again we're sort of we're neutral as well on that one. Uh but you're getting good policy that cuts in in taxes from the one big beautiful bill interest rate cuts that's a positive as well. Now, finally, you want to see at some point for small caps to do really well is when there's money starts to rotate out of the biggest companies and begins to move into some of the smaller and mid-size companies because people like rich are scared of the valuations up there and they think, "Oh, I can buy this on nearly half the price." There's a reason they're on nearly half the price is because they're not as good and they're not growing as fast. But we'll go back to Ole investing another time. Wow. Wow. There's some nice I'll tell you that red car is getting close surely. >> I think I think all levels let me just check. Oh yeah, the 1980s, right? Sorry kids listing and O level was like an A level just not as good. >> Anyway, uh enough of that. Net net. I think we are sort of getting to an interesting point for the Russell 2000. These mid and smallsiz companies in the US. We've got 5% at the moment. It's a toe in the water. If we were to start to see economic growth in America pick up quite strongly because it's very Americanorientated and very focused on that, then we want to add to this. But not now. >> Okay. So, let's move on to India. Now, we can cut short a little bit of India because we're going to be having a in-depth review of India, China and rest of the emerging markets next week. Just a reminder of why we own it. We own it because it's got the biggest population in the world and unlike China which is the second biggest population, their population is still growing. So, you also at the same time have a growth in the middle classes. So the people earning between just $3,000 and $30,000 is considered middle class. Now the Indian people save at twice the rate we do in the UK and in the US. They they they save at about 30% of their their their sort of income they put in savings and they love their stock market. So 80% or 75 to 80% of the Indian stock market is owned by domestic Indian local people. adjust it where the UK could be if we >> because if people if people like Richard's there he would say the valuation's too high I'm not going to I'm going to sell that and most a lot of international investors think that so they don't invest in it but the local savings keep coming week in week out week in week out that's one of the reasons we do it great demographics great saving culture >> so so happy with India >> but more detail next week on some of those aspects >> absolutely >> then we've got a couple of holdings here which are very similar there's the guilt n to fiveyear ETF and the cash holding Essentially, the guilt ETF holding was there to provide us with some insurance in case there was a setback in the risk markets, in equity markets, that bonds would do quite well and people would start to think interest rates would be cut quicker in the UK, which would help this um this fund. Actually, that's not happened and it's, you know, performed slightly over the period, but it's it's not been anything for us. Um and one of the questions um which we will be answering uh probably next week will be when we're looking to fund some of our other purchases if we decide we're going to make some changes. Where's it going to come out of? It's going to come out of our cash and our short guilts. That's where it would have to be sourced from. And so finally we have our worst performer on the quarter, the DAX holding. Mark, >> well let's remember why you bought the DAX. The Germans for the first time in since 1989 when the Berlin wall came down and they unified East and West Germany are increasing their expenditure. They're spending more than they take in as a government. That should help German companies expand more than some of the other European companies. And we wanted some exposure to Europe. At the same time, we thought there might be a peace dividend which might come from the end of the war in Ukraine and Russia because Germany is so close to Ukraine that any rebuilding of those those terrible sort of ruins that have been bombed will a lot of German companies will benefit from that and they've got a lot of exposure to that sort of area that would benefit. So that's the logic why we bought the DAX which is the Germans main market in the first place. What hasn't happened is we haven't had the peace dividend yet. How long is a piece of string? That may or may not come. But when it happens, the market will move so quickly. You wouldn't have a chance to invest in it. So, I say we stick with it. Yes, we've lost a bit of money on it. It's just started to improve in the last few days. I would stick with it uh and see this one out. My tendency is to agree with that. When you're looking at these portfolio reviews, you're looking for things that have been real outliers. Being pretty flat with the quarter is not an outlier. You know, you're talking about something that's gone wrong badly or gone right. Well, but as with all asset allocation meetings I've ever chaired, which might be my problem as a chairman, of course, they tend to go on a bit because people want to talk about their views. And what we've managed to do is to cover part one of a portfolio review, which is what have we got? Are we really unhappy with anything? and we've expressed things that we're happy with or we actually want to buy more of. And if those eagle-eyed amongst our our listeners will see that we have 25% in cash and we were holding that 25% cash because we were worried about the timing and the seasonality. So I'm going to suggest that what we do is take away a little bit of homework like being school teacher here. We're going to go away with homework and say having heard what people saying about the sectors they were covering, what do we want to do next week? Do we want to add to anything or do we want to cut? So, I want each of us to come back with would you change your positions we've got given what we heard this week and do something with that cash we've got because I'm mindful that cash is the biggest risk position we have against long-term liabilities. But the cash is useful if you're worried about things in the shorter term. And it's that balance. That's the balance that everybody who's listening to this podcast will have. I've got cash. The market is still going up. Should I be buying it? Should be. We haven't answered that today. We're going to answer that next week. So, we've done part one. Part two to follow. Okay. So, that's us almost done for today. Just to take a very quick look at week eight's portfolio analysis and the performance. The World Mining Trust, that's mine, was the best performer on the week, up 777. What a move on the week. The Wisdom Tree Copper ETF followed shortly behind. Of course, Mark mentioned the accident that we saw that's taken some of the supply out. That boosted the copper price and gold following suit up 3%. The loser on the week was India that we've just mentioned. Uh we'll be going into that more next week in our deep dive into the emerging markets. But total portfolio return since its inception, Mr. Chairman, is 5.3%. So still going along at a very good rate um and showing the advantage of the chairmanship that I'm providing. >> Thank you very much for joining us. That has been a very enjoyable uh first part of the quarterly review. Tune in next week to see what our actual changes may turn out to be. Will there be reductions? Will there be increases? Or uh will there be some new players come onto the scenes with new ETFs? Having looked at the emerging markets. Gentlemen, any questions should go into where? >> The art of investing at.com. >> Please hit that like underneath the podcast. Tell your friends and make sure that you are subscribed so you get the notification when the new episode comes out each Friday. Thank you very much gentlemen. Thank you for joining. [Music]