Helen Thomas (3:50)

Absolutely. So the way I think people need to look at this, so let's. This is a physical issue. It's had an overlap into financial markets. It's got political beginnings and it may have political ends, but the physical side of this can't be undone. Right. So the way I found useful to look at this is the ever given ship, do we remember this? This big ship that got stuck in the Suez can five years ago last month. And there were all these memes and it was all kind of amusing at the time. There was a tiny little digger, little crane, trying to get it out the Suez Canal. People were worried about the Amazon packages. It kind of consumed everyone that was still locked down. And, you know, it was six days, actually. It was stuck for. That's one ship in one waterway. It was stuck for six days. Three million barrels of oil were stuck. And the oil price did go up by 6% back then. But it got cleared. It got cleared. There was a backlog. Now there was a backlog of 450 ships. Took a few days to get them through, but, you know, another couple of weeks because thick tankers are in the wrong place and other tankers have had to go round. And frankly, the whole thing took about two months to really get back to where it was before. That was one ship, six days. There are 800 ships sitting in the Persian Gulf. According to the latest piece of analysis I saw, we've also had a normal throughput of apparently around 150 ships per day through a strait of Hormuz. Apparently, you know, something like 150 have gone through the whole month of the last six weeks. So that to me gets the scale of this across what, what has, has missed and, and of course production. Then the oil production is shut down. Even if it were to reopen, it takes ages to just unload things, get people, get things started again. And if we go into the other end of it, if we go to Asia, which is one of the biggest recipients of a lot of this, it's not just oil, of course, it's all these other really important commodities. For fertilizer in particular, you've got the problem of unloading at the other end because of petrol shortages and diesel shortages. So can, can the gu to unload the tanker to put it on, whatever it goes on to get down to the fields to get the fertilizer out, etc, etc, and we're just hitting the key point of when fertilizer has to arrive in places such that in June it can be on the field ready to be deployed and then of course get you a harvest, proper harvest in September. So we're literally in like a really key window here. And it's exponential with things like fertilizer. If you don't get that, the yield will fall dramatically if you have 5 or 10 or 15% less fertilizer. So that is where we are today. Even whatever happens, even if this ceasefire is just remarkably brilliant and everything starts moving again by the end of our phone call today.

Maren Sumset Webb (6:33)

Yeah, okay, so whatever happens, there's already fairly serious inflation baked in. And not necessarily just inflation, but a genuine supply problem in that there's one type of supply problem where supply is more limited than it would be otherwise. And so prices go up. And then there's a more serious supply problem where it doesn't matter how much prices go up, you still can't get everything that you need.

Helen Thomas (6:56)

Absolutely. I mean, the jet fuel is a super interesting one. I'm kind of obsessed actually by air travel at the moment, because. So for example, I was reading that in March, 25% of US jet fuel came to the UK. We became their top export destination because we weren't getting it from the Middle east. And that's just sort of. That was just in March. Now what's happening then is people start to outbid one another because they desperately need this stuff. And then what do you do? I mean, I'm fascinated. I'd love it, Marin, if you can get one of the airline bosses on. I don't even know how they think about this. Right. The jets can't all get to where they need to. If they can get to somewhere long haul like Vietnam or something. Vietnam has said we're going to prioritize jet fuel for domestic flights.

Maren Sumset Webb (7:38)

So how do you get back?

Helen Thomas (7:39)

How do you get back? India is talking about, okay, we're going to cut, it's very domestic. Right. They're going to cut landing and parking fees for the Indian airlines for three months temporarily to try and ease the problem with the cost pressure. So, you know, you're going to get a lot more activity with the Indian airlines. What about airspace? I mean, Cathay. Well, here's the flip to this. Cathay apparently is now doing more flights to Europe because you could fly, they can fly over China and Russia and obviously a lot of the European airlines were not going over Russia. And there are worries about going over, over the Middle east still, of course, and I think that will persist for quite some time. So again, I don't, I don't want any of this to be alarming to people. I want them to be aware. This is a very significant shock, whatever the politicians figure. That's interesting, isn't it?

Maren Sumset Webb (8:25)

So really, when, when you're flying long haul, you've got to add another risk on the top of this. I may get there, but when I get there, is there a strong chance of my flight may be canceled or very seriously delayed or because the airline simply can't get hold of the fuel? When, when I get to where I'm going.

Helen Thomas (8:39)

Exactly. And, and I'm struck by that Mervyn King quote from the financial crisis where he said that, you know, banks are international in life, but national in death. You know, so it's a bit like that when you, when the supply crunch comes, of course countries will try and put domestic supplies first. And so, but, but then there's a quid pro quo there of, you know, the geopolitics on top. Because, okay, maybe the US Then suddenly becomes this big exporter to certain nations, but what about China, you know, the other way around. So, I mean, it's sort of fascinating, but it's, it's, it's volatile then that's the one, the one thing we sure of.

Maren Sumset Webb (9:14)

And having that dependence on the US when one of the things that Trump has tweeted, I understand it's hard to keep up with his social media activity, but that your own oil go get your own oil. And when you're the UK and you're going, well, you know, actually, we get quite a lot of it from. From. From you.

Helen Thomas (9:30)

Yes.

Maren Sumset Webb (9:31)

As it adds another element of, of uncertainty.

Helen Thomas (9:34)

So the one thing about Donald Trump that I always like to refer to is in 1987, he took out a newspaper advert, which by the way, is a bit strange for some, like real estate mogul in the US in the 80s, but here we go, because it's worth everyone having a look. It's. The headline is, it's an open letter to America. The headline, there's nothing wrong with America's foreign defense policy that a little backbone can't cure. Oh, and he says in it, he says at the beginning of this letter to the, to the world, the world is laughing at America's politicians as we protect ships we don't own, carrying oil we don't need, destined for allies who won't help. He said that in 1987.

Maren Sumset Webb (10:14)

God, he has not changed his mind on stuff, has he?

Helen Thomas (10:16)

He has not. By the way, the end of that letter, his, his analysis for sorting this out is end our huge deficits, reduce our taxes, and let America's economy grow unencumbered by the cost of defending those who can easily afford to pay us for the defense of their freedom. Which is pretty much, you know, where he's at. So, so there is this sort of. He is, you know, somewhat erratic in the way he conducts himself by tweet, but his theory of life is. Has been fairly consistent.

Maren Sumset Webb (10:42)

Very, very consistent. Fascinating. Anyway, anyway, thanks for that. Moving back to the situation the UK finds itself in.

Helen Thomas (10:53)

Yes.

Maren Sumset Webb (10:54)

So we have this inflation probably built in now for the next. I don't know how long, but for a fairly lengthy period of time, depending on.

Helen Thomas (11:03)

At least.

Maren Sumset Webb (11:03)

At least depending on how quickly things get resolved or not. What does that mean for us? We've already seen mortgage rates go up, for example. The housing market is in all sorts of trouble. It was before. But rising mortgage rates don't exactly help people who are already having a lot of trouble selling their houses, particularly in central, central London. But, you know, that's just, that's just an immediate impact. What happens over the next year?

Helen Thomas (11:24)

Well, I think in a way, you couldn't have come up with a more toxic shock for Britain because we already had some of the highest energy costs, which, Marin, I know you have been absolutely on top of over the last few years.

Maren Sumset Webb (11:37)

Yes, we are very irritated by that on this podcast, particularly as it is not necessary.

Helen Thomas (11:41)

Yeah, exactly. Indeed. So we have those very high energy and electricity costs. We've had politicians of various stripes making decisions over the years that have contributed to that and have contributed to a lack of storage, which of course is going to come into full salience at this point of supply shortages. So you've got the energy element to this and you've got the inflationary element where the UK has tended to be a slightly more inflationary economy. And again, political decisions have exacerbated that with minimum wage rises, national insurance increases, you know, other political decisions. So. So in a way, you've got this. It's very toxic. Now, the irony is that the UK apparently has this extremely big majority government which should be able to manage and master all of this. But as we well know, that alleged majority masks a huge, huge split underlying the Labour Party. So the Labour Party is both government and opposition. And at this moment of great volatility, effectively, you know, Keir Starmer has been sidelined and although he remains in office, he's not. There's this book about him where he talks, one of his. Someone in his world talked about him being like, at the front of the dlr, the Docklands Light Railway in London, that effectively someone put him at the front of the train, but he's not actually driving it and where Morgan McSweeney used to drive it and he's no longer around. Ed Miliband has very much stepped into the forefront, of course, as Energy Secretary, but also a standard bearer for the left of the Labour Party.

Maren Sumset Webb (13:16)

Yes, I mean, interesting. I mean, you would think that if Keir Starmer had any power, Ed Miliband would no longer be Energy Secretary. So the fact that he hangs out to that job suggests that the power lies much more with him than with anyone else in Government.

Helen Thomas (13:29)

Absolutely. And you can see from Ed Miliband, I mean, he's really quite got almost religious zeal about his position on moving to more renewable sources of energy and he has been doubling down on how this means that. And you know what? It's an argument. It's an argument to say it means that we must become more self sufficient. We should do that through heat pumps and we should do it through wind farms and we do it through solar and all of these.

Maren Sumset Webb (13:55)

There are other ways that the UK can become more self sufficient in energy.

Helen Thomas (13:59)

Oh, go on, Marin.

Maren Sumset Webb (14:00)

Perhaps we could use some of our own fossil fuels.

Helen Thomas (14:04)

Indeed, indeed. Exactly. But here's, here's the thing, because of the. Again, we're quite a key moment, of course, in, as I say, the leadership of of the Labour Party where there was this, you know, rumbling warfare that was going on and effectively sort of the centrist moderate element have been diminished by the demise of McSweeney and Mandelson and there's sort of been a rise in the left. And look, Ed Miliband is on track to become Chancellor. That's how this all looks After a very likely soggy set of elections in May.

Maren Sumset Webb (14:41)

How will that happen? Why would it be after these elections? And if it is after these elections, why would he do it in favour of Miliband?

Helen Thomas (14:47)

In effect, there already has been a change of leader because of that shift. I said where the sort of moderate right wing crew have gone and the left are much more dominant. It was already happening anyway, obviously. Look at all the U turns on totemic policies like the 2 child benefit cap.

Maren Sumset Webb (15:03)

Yeah.

Helen Thomas (15:04)

So it was already headed in that direction. You know, we got to that point on the 9th of February. I think it was where Anasawa was calling for Starmer to go and cabinet waited. Now, inaction also creates change politically. So effectively the left who are in the ascendancy know that they don't actually have to change Starmer.

Maren Sumset Webb (15:24)

Okay, so we're not. We're not talking about standing him down, leaving him as Prime Minister and replacing Reeves with Miliband.

Helen Thomas (15:31)

Correct.

Maren Sumset Webb (15:31)

Which takes away the last pillar of Starmer's power.

Helen Thomas (15:36)

Yeah, exactly.

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Helen Thomas (17:34)

So this is the other thing, right? There's been. This government's really, as we know, really struggled in the polls. Actually hasn't had a really bad economic shock to deal with until now. This is a, this is a real significant global shock. As we've just talked about the knock on ramifications for this. I mean think about, and I, I say this, I pick my words carefully because we're not alarmists here, we're sensible people. But some countries are now concerned about petrol shortages. There have been, you know, people dashing to the pump to fill up with diesel and petrol in Australia, in Sri Lanka, in Kenya and other places, places. It has happened before in the UK, it last happened in September 2021. I don't know if people remember when the HGV drivers couldn't get enough of them and there was like a sort of localized run on petrol in certain places. Now we are quite self sufficient in petrol in this country.

Maren Sumset Webb (18:21)

It has happened already. I mean, you know, quite a few of the garages, I live in Scotland as you know, quite a few of the garages here have been out of petrol recently.

Helen Thomas (18:29)

Exactly.

Maren Sumset Webb (18:29)

People, people topping up when they wouldn't have otherwise, just saying I better go fill the tank, whatever it is. And then suddenly four garages have run out and next thing you know, people notice that some have run out and they're accused. It doesn't take much.

Helen Thomas (18:41)

Correct. So we're on a bit of a hair trigger on shortages at the same time as the leadership of the country are very unpopular at the same time as a cost of living shock on top of cost of living problems that got us to this point. And finally for everyone listening to this, financial markets guilt, guilts are extremely volatile in both directions, it should be said. So we've had a rally back in bonds. Well, it's gone the other way again as time of us talking. But you know, every time they move, they sell off or they rally guilt, sell off more than everybody else will rally more than everyone else because of this political risk premium. So add it all together sort of political weakness, the lurch to the left, toxic energy shock, cost of living, rise of the greens and a. Oh, one more thing about guilt. One more thing about guilt. 252 billion pounds of gilt sales earmarked this year for the DMO for this fiscal year. I had a quick look back at 2022, 23, the famous sort of trust hunt year that was I think 170 billion pounds of gilts were issued. So although it went up by more and it has come down, that is that means this year there will, they'll need to sell, the government needs to sell half as many again gilts as they did back in 2020.

Maren Sumset Webb (19:54)

Does none of this make you feel that the UK might be relatively near a fiscal crisis?

Helen Thomas (20:00)

Yes, absolutely. And it's been.

Maren Sumset Webb (20:01)

How does that unfold? I mean, you know, no one's going to buy long term gilts at the moment. I mean certainly not for a balanced portfolio or maybe they would, I don't know. But when you look at, when you

Helen Thomas (20:10)

look at, you know, the yields are more attractive. I believe there's just been an auction and in the time of us talking actually and it went okay. And that's, there is an element to that, right?

Maren Sumset Webb (20:17)

There's a.

Helen Thomas (20:18)

If you get a high yield then you will get, you will get your auctions done and you know there will be interest.

Maren Sumset Webb (20:23)

No, absolutely agree. But is the yield high enough to compensate for the real risks here? I mean I think, you know, I don't know how many people spend their time trawling through the actuality of the UK public finances but they're absolutely appalling. And we did have a guest on the other day who suggested that at some point the government will have no choice but to slash the coupon on existing guilt. You know, old fashioned full on financial repressions left default.

Helen Thomas (20:49)

That is. Yeah, that is a. I think we, these are the kinds of things we need to consider because we are, you know, we are heading into it kind of a rolling, it kind of be a slow motion crisis. I mean it doesn't always have to be a kind of trussian implosion. It's it's just that constant ratchet. Because of course as there's, there is now going to be a repricing in the world. We've seen a bit of it but now we have to reprice to a more inflationary permanent loss of output world. Now there are going to be sort of stagflationary tendencies. So, so there is an element where maybe front end Yields and Bank of England and an ECB may, may actually just try and hold on and not do very much because you know that growth could be soggy. But if we go into a recession in the UK again, you'll need to issue more guilts because there'll be more automatic stabilizers and all of that going on. And if you get more inflation, you get higher coupon payments and all of it's, it's, it's a bit of a toxic mess. We all know about it. Marin, you have talked about it for many years and you've had a number of excellent guests talk about this on your podcast. I, I think. But the reason I think we're in a quite a key moment is general levels of volatility in markets are quite high. We'd had a very good run for quite some time. It was relatively benign. This is a genuine shock that no qe, no politician, nobody can sort it out. Even this SPR release, the draw from the Strategic Petroleum Reserve was going to get up to about 2 million a day. It hasn't got there yet, but they're 8 million barrels a day short. We're 8 million barrels a short. I mean, it's not there. So, again, I'm a genuinely optimistic person. I know I sound pessimistic, but I want people to be sort of realistic and prepared. I mean, one of the things that could happen is rather than guilt, it could be the currency, it could be the pound that takes some of the brunt. But again, unfortunately, if the pound falls, you tend to get more inflationary pressures again, it's just, I guess I would put it this way, we focused for quite a long time on the political risk. Now there's a genuine economic risk that's now sort of mixed in with that political risk, which is making the UK particularly vulnerable.

Maren Sumset Webb (22:56)

Well, I suppose that, you know, they're combined, aren't they? And that the political risk in the UK right now is that our political class is simply not up for the job of dealing with the problems that exist around us. So, you know, the political risk and the financial risk are almost as one at the moment. And previously, while we've had the last 20 years, we've had endless crises, but they've all been crisis that one way or another you can print your way out of. And this is the first crisis that we've had in the last couple of decades that you simply can' press the print button and may go away. It's not going away exactly.

Helen Thomas (23:26)

You can't just, you know, the bank of England cannot just produce diesel.

Maren Sumset Webb (23:31)

No. No. So we are, we are, we are at, as our regular guest Alec Cutler regularly says, we are the bit where platitudes meet physics.

Helen Thomas (23:40)

Oh, that's it. He's got it.

Maren Sumset Webb (23:42)

He's got it in A one. Right, so is there anything that we can say here at the end, Helen, to be optimistic? I mean, I suppose we can say that with markets rebounding, people, portfolios are going to look happier than they have in a while.

Helen Thomas (23:53)

Yes. And you started this actually by saying, you know, has anything really changed? It has changed because it could have got a lot worse, a lot quicker. So we, we, we pulled back from that abyss. There is now something. There is someone somewhere on either side, there's a dialogue and that is good. There will also be a redrawing of supply chains. That. That was kind of happening after Brexit for us. It was happening after Covid for everyone. Ukraine contributed. It's just more of the same sense of, okay, where do I get my stuff? Am I. Is it secure? Who do I trust? I should say, by the way, in some respects the UK is in a good position. Things like, we've got our link to Norway. Great that we're getting this American jet fuel. Heathrow's a massive airport and they've got loads of airlines here and people travel a lot. We're also. Actually, people might not feel it, but I can imagine people listening to this thing, sort of shaking their head, going, oh, God, not again. Actually, though, it breeds resilience. I mean, even if the political class have been failed.

Maren Sumset Webb (24:52)

I am rolling my eyes, Helen. Really? No, you know, it's like, it's like I would say, you know, with. When people, when bad stuff happen to your kids, everyone says, oh, it'll just make them resilient. It'll make. And sometimes you say, well, how much resilience do you need?

Helen Thomas (25:05)

There is. Okay, that's a fair point. That is a fair point.

Maren Sumset Webb (25:07)

Point.

Helen Thomas (25:08)

Well, we got through the 1970s in Britain and there are many respects in which our economy is better weathered to deal with this. But, but remember, we had quite a nasty political environment in the, in the 1970s. But then it leads, you know what? It leads to better outcomes in the end. We're now having the discussion about our energy security. You know, that that is.

Maren Sumset Webb (25:30)

Well, I suppose that the key thing to say, the key thing is that pretty much everything that is wrong with the UK is a political choice. All these things can be changed. Our energy security environment can be changed, our fiscal position can be changed. You know, our housing market can be changed. Everything that you look at, I can. Maybe it's not my place to do so right now, but I can tell you the solution to pretty much every single one of the UK's problems. It just takes a significant amount of political will and intelligence, rationality, and at some point, belief in the market. Well, we might be overstepping our brief here, Helen. We're supposed to be talking about markets.

Helen Thomas (26:10)

Well, it is about markets. No, but this is important. You're absolutely spot on because I often say, you know, business is about what works and politics is about what sells and, and, and the best politicians combine that, and that's when it works. And so, you know, Lord Ashcroft has just released some polls of the Green Party's policies, and it's quite interesting to see how, you know, many of the British public agree with. The one they agree with most is, you know, taxing energy companies more, and then the other one is taxing billionaires. I know, I know. So it's interesting, you know, you. What is entirely rational for you, and I think for many people in markets, and probably for many listening to this, the interesting question is, well, how do you prosecute that argument to the public? Now, they don't all have to be on board. In fact, with a very, very fragmented four or five parties to choose from, that means you only need to sort of win 25 plus 1 of the vote and you could get quite a big majority. So those are the reasons for optimism. It's like, do you trust the British people? It's probably more the question to end on about.

Maren Sumset Webb (27:06)

I'll let our listeners write in and tell us how they feel about that. But look, I tell you, what you have done for me today, Helen, is you've given this podcast a new slogan, which we will. Damn, I've forgotten to talk slowly, haven't I? Forgot almost immediately. Never mind. Sorry, everybody. I'll try talking slowly next time. But the slogan that you've given us is it could have been worse.

Helen Thomas (27:25)

There you go.

Maren Sumset Webb (27:26)

I think that suits us really well. Marin talks money. It could have been worse.

Helen Thomas (27:32)

Very British. I think that isn't it. Yeah.

Maren Sumset Webb (27:34)

Helen, thank you so much for joining us today.

Helen Thomas (27:36)

Thank you. It's been great.

Maren Sumset Webb (27:45)

Thanks for listening to this week's Mary and Talks. Manny Debrief if you like our show, rate, review and subscribe wherever you listen to podcasts. This episode was produced by Moses Andam and Sama Saadi, sound design by Aaron Casper and special thanks to Helen Thomas. Helen, what is your Twitter handle? Oh Arketblonds arketblond so do contact Helen on that if you'd like to argue with her on any of the points we've discussed today. Good luck with that. Helen.

Helen Thomas (28:10)

Please do.

Maren Sumset Webb (28:12)

And always questions and comments on this show and all our shows are always welcome. Our show email is merrimoneylumberg.net.

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