John Stevik (2:59)

I mean that is interesting because the, I suppose and people have a little bit of, you know, skepticism or the kind of skepticism about charting. But the truth is if there is A, if you're talking about short term moves and B, if you're talking about an asset that has no obvious fundamental pricing, you know, you can't price something that doesn't generate a cash flow easily. So technical analysis actually is pretty useful when it comes to stuff like gold and bitcoin specifically.

Marcus Ashworth (3:29)

Yeah, I mean, well indeed some of these markets, like a lot of FX markets are everyone praised tactical. So you don't. I think gold is reasonably important factor to it. So I think this puts gold into a different paradigm in the sense it's now perhaps a bit more normal. I wrote a piece basically saying that some central banks who have been buying may look to cash out, you know, raid the piggy bank and their hour of need as we clearly can see, both if they're energy resource poor or indeed requiring a lot more bangy things because a little military need. So I think it's going to be quite an interesting time where you know, certain Asian and Middle Eastern countries may, may decide just to trim a little bit of what's been a fabulous returning asset in gold and that will help smooth the sort of pain on their, on their, on their properties. But equally some still believe in gold, still want to move away from the dollar for whatever reason. You know, the gold has attraction. So as that sense, I don't think, you know, gold is going to collapse like that. I just think it's going to do better but chop some wood and there's good reasons to buy and good reasons to sell it and that makes it a little bit more, possibly a little bit more predictive than it has been over the last year or two.

John Stevik (4:41)

I think that's really interesting. I mean the point of central banks buying reserve assets is to an extent to have something they can rely on in emergencies. And so we've had an emergency. So anyone who's selling gold at the moment from a central bank, I mean they're basically showing that it's what is done, what it was meant to do.

Marcus Ashworth (5:01)

Yeah. And I think all the talk of interest rate hikes among major central banks. Well one, I think it's madness because an external supply shock, there's very little you can control. Control it. And more importantly with labor markets weakening and general overall economic sogginess, the actual price mechanism isn't going to be quite so bad this time. Likely not to be quite so bad in the sense that second round effects and wage demands and all the things that followed clearly in 2022 is unlike to be anywhere near as strong. However, clearly central banks aren't taking any risks on that and there's a lot of talk at the moment. I hope that will calm down a bit. But clearly bond markets and fixed income have not been anything like a haven you would expect because they're seeing straight through into inflation and potential changes of certainly no more rate cuts and potentially rate hikes that will work its way out I hope. But we've got to really have a clearer end to the war for that to really have any form of level of confidence at some point if bond yields keep on rising and it does make me feel a little bit sick, this will move credit spreads wider and it will move equity markets down. But we are holding on. Everyone's hoping that they don't want to miss out on the relief rally when any of it ever properly comes.

John Stevik (6:21)

Well there is that, isn't there? There's that element the Trump put still works, but it doesn't work the same way that the Greenspan or the central bank put used to. It's like with central banks it was like well they'll actually print money and do something that props the market up. But at some point Trump's kind of like social media output has to lose its potency.

Marcus Ashworth (6:42)

I think we've seen it maybe at sort of 6,500 on the S&P, $100 on certainly West Texas crude and maybe 5% on the 30 year yield or four and a half, what do you want to call it? Or more on the 10 year is where clearly he doesn't find very comfortable and that's when you get slightly more dovish comments coming from him. But I mean there's no point trying to guess where the war is going to go or it's going to stop. And I think that's where it's quite tricky to choose markets. I do see plenty of talk about even SpaceX IPOs and the electronic Arts LBO deal going through. Clearly in the US primary bond markets are open, less so in Europe, but there's still the odd deal came through a few today, six I think mostly from Coca Cola. But the point is that the Markets already want to go back. Perhaps that's front running a little bit too aggressively. What really will happen with this war. But no one's really willing to cash in and bail out of all equities. They expect them to bounce back hard when it does end. So it's a bit of a strange market. As I said, bond markets are trading very poorly. Currencies are again, the dollar is a bit stronger, but not that much stronger.

John Stevik (8:00)

It's not obvious, is it?

Marcus Ashworth (8:02)

And gold as we know hasn't worked very well, nor is bitcoin or anything like that. So there's no logical place to hide other than dol cash.

John Stevik (8:09)

Bitcoin has actually gone up since the war started, but only because it fell so hard before. So yeah, it's kind of splitting hairs, but I think the bitcoin people would say, oh, wait a minute, it's up 7, 6%. The one thing I was going to ask about, the fiscal side. So going back to bond yields, how much of the concern is not so much or not just about the fear that central banks will actually raise interest rates and instead about, well, what happens whenever governments start to try and bail out people for their energy bills? How much is that going to drive up borrowing costs? Like in Britain, for example, get an energy bailout when Rachel Reeves is already looking at her fiscal headroom vanishing down the pattern. Is there any of that?

Marcus Ashworth (8:59)

I mean we calculated about 3 to 5 billion extra if prices persist this high. That's not really going to change the dial. They're clearly not talking about any packages anywhere. Like the Liz Truss style bailout, which of course that was the real mover and shaker. The unfunded taxes was a minor, very minor thing compared to the huge potential energy which ended up only being a quarter of what it could have been. But that's the real driver then. So there's nothing like that now yet anyway. And clearly the government isn't ready to start opening North Seoul or anything like that. So for the moment, I think currently in the UK there is a window because the way the off gen price cap works out till June, July, July and then if it's the next time, which will be higher. But you know, clearly, but I mean it's just not necessary. They've got a few months of hoping, praying that this war goes away, but nonetheless growth in the UK is set to head towards zero again, which is staggering. So that's what I personally don't think the bank of England will be able to really bring themselves to hike rates. But you know the market gilt yields up close to 5%. You know, this doing all the hard work for them anyway. It's pricing. Mortgage deals have gone through, you know, the roof and likewise, you know, corporate loans and things like that, which are priced off gilts. You know, it is already, the pinch is already happening. So one hopes that will do a lot of the heavy lifting for the bank and they won't feel they need to do much more because the economy

John Stevik (10:27)

will be mulled anyway.

Marcus Ashworth (10:28)

Well, I mean, I think, I think we're looking. They, they were predicting less than 1% growth this year anyway, which was a bit on the low side. The OBR had been much more optimistic. They trimmed it back, but just over 1 1.2, something like that. But I think now we'll be lucky. We'll get half a percent at this rate. So bear in mind the first quarter, the last two or three years has been the big quarter and the rest of the year has been pretty much flat. And it's a real kick in the teeth to get. First quarter is going to go be flat probably at best on a very, very small up. So that's going to kick the momentum out of the economy, stop it dead. And I think that's a worry because if we were to get rate hike in the UK and likewise in Europe again, I don't see it happening for them. But bear in mind their rates are at 2%, we're at 3/4, so we're nearly double. Though we do have stickier inflation where they are index everything and up at ratchets and people demand higher wage rises. It's very hard to get out of the system in the uk but it was looking like it was going to start coming out. But I think if they do have to cut hike rates maybe one just to, you know, preemptively, I suspect it won't last very long. And I see the bank of England turning around to, to cutting rates again, possibly quite sharply if the economy really does collapse. I don't think this is going to happen. But we have to be aware that all bets are off now and we have to look at things in a much more philosophical way.

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John Stevik (13:31)

We touched on the housing market there briefly on mortgage rates, but it did catch my eye yesterday. Although, you know, I've been aware of this for a while. But like London prices from the ons, the official house price index, which I don't pay that much attention to because it's very late in arriving, but they've gone down for about six months in a row now and it was down something like 1.7% or something like that year on year it was quite a significant drop. I mean clearly if mortgage rates go up, that's going to get worse this year presumably.

Marcus Ashworth (14:03)

Well, there was sign of it turning around. It had fallen so hard and so fast and I just think that's kicked the momentum out of it again. And then yeah, that knock on effect of like the marginal buyer, you know, buying on a 80 or 90% loan to value is, is going to be put off. It won't alter the bulk of transactions these days which are 60% or indeed in cash. But again, people will be more cautious and not the knock on effect for the whole rest of the economy won't be great, but it's going to take a while to filter through that and I think that, you know, London property will probably go to my mind, probably almost nowhere in that sense. I don't think it's going to collapse much further. I think we've seen, you know, towards the bottom but as I said, that momentum, when you're starting to look like it's going to turn around is. Ain't happening no more.

John Stevik (14:55)

And just a final question, which really is take your pick, take your guess. I mean, how much longer do you think this goes on for before we actually start to see something very unpleasant? Because, I mean, there are signs that countries elsewhere, like in Asia, I mean, they're having to start rationing fuel supplies in some place, which, yeah, as we

Marcus Ashworth (15:16)

know, it's not just the, the visible stuff, it's. It's the stuff that comes off it. You know, fertilizers, Naptha for plastic bags, apparently, is a huge. Russian, South Korea for plastic bags. You know, it's all, it's all the other products which, you know, the heavier stuff, you know, diesels and bitumen and all these sorts of things which, you know, products from hydrocarbons are what really makes the world go round. And I think, I mean, Deutsche bank did a quite interesting survey when everyone thought the war would come to an end. And I think most people view it as the early to mid part of April. That's really where everyone's tolerance and patience will put pressure on Trump to say, enough already. And that may well be earlier than that. But I think we know the deadline, end of Friday, is normally where obviously, if there were any further big pickup hostilities that will happen over this weekend, if it carries on after that for much longer, I think it will become increasingly less and less effective, increasingly less and less easy for the US administration and Israel to carry on. So I'd rather they get on with it very quickly and accelerate it right here, right now and see if they can break the Iranians or indeed there are. There will be some success. And so I don't think many people see it extending out into late April, but, you know, these things, like a lobster pot, crazy to wander your way into these things and very, very difficult to turn around and get back out. So, you know, but I mean, I sense what I'm talking about is, is a cessation, some form of ceasefire, some form of, yeah, partial opening the straits for me, I don't think the, you know, this will drag off for a long while, but in a sense that the worst bit of it may be open fairly soon. One would, One would hope.

John Stevik (17:03)

Well, fingers crossed and thank you very much again, Marcus. I think.

Marcus Ashworth (17:09)

Yeah, I wish I could be clearer on this stuff, but it is. It's clear as mud and it's very difficult to navigate one's way through this without, you know, keep it tight, keep it, keep it close to home and, you know, try not to obviously panic out of anything but you know, liquidity if you have it, is clearly where the sensible thing to be. But there does seem to be quite a lot of movement into cash and reduction of equity positioning and outright market sort of position that's definitely had a huge shakeout. So a lot of leverage has come out the system and that'll calm things down once we get some.

John Stevik (17:44)

Yeah. I mean that's not unhealthy.

Marcus Ashworth (17:46)

No, exactly. I don't think the markets are in bad shape structurally, but you know, there is still quite a lot of hope and expectations. As I said, they know that this will be over and done in a few weeks and we can get back to, you know, rallying like whatever. But if it does drag on there's going to be some more more pain. But let's hope that hasn't the case.

John Stevik (18:07)

No more by the dip. Well, thanks for listening to this week's Myrntox Money Debrief. If you like the show, rate, review and subscribe, subscribe wherever you listen to podcasts and also be sure to follow me and Marcus on x Twitter. I'm at johnstepec and Marcus is arcusashworth all one words. The episode was produced by Moses Andam and Summer Saadi and special thanks to Marcus Ashworth. As always,

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