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- [00:04]
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Every small business owner has that one moment that could have broken them. But remarkably, it didn't. Hi, I'm Ben Walter, CEO of Chase for Business. And on season three of the Unshakeables, my co host Kathleen Griffith and I are bringing you more incredible stories of overcoming the impossible. We're really proud to share that the Unshakeables is nominated for Best Branded podcast at the 2026 iHeart Podcast Awards. Listen to the Unshakeables wherever you get your podcasts and learn more@chase.com podcast JPMorgan Chase bank and a member FDIC Copyright 20 and 26 JPMorgan Chase Co. So there's a lot of noise about AI. But time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.
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B
With Valley from Ishares, you get access to both monthly income and growth potential in one simple ETF. It's the best of both worlds. Discover Bali iShares Large Cap Premium Income Active ETF iShares the market is yours. Visit www.ishares.com to view perspectives for investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Risks include principal loss and the use of derivatives which could increase risks and volatility. Monthly income is not guaranteed. Prepared by BlackRock Investments LLC.
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Bloomberg Audio Studios Podcasts Radio News. Welcome to the Marin Talks Money Markets Wrap where we talk about the biggest moves in markets this week and what is driving them. I'm Marin Somerset Webb, Editor at large of Bloomberg UK Wealth.
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A
And I'm John Stepek, senior reporter at Bloomberg and author of the award winning Money Distilled newsletter.
- [02:14]
C
John Their problem this week is that the answer to pretty much every question is I don't know. I don't know. Where's the oil price going to go? I don't know. How long will the war last? I don't know. Is releasing the reserves enough? I don't know. What about private credit? How dangerous is it? I'm not really sure. I mean, it's a very difficult time, isn't it? It's, you know, normally we can, we can really come up with quite strong opinions on things. We're quite Good at that. But this is hard because the moving parts are so many and so various. And the conversation about the war and about the supply crunch that comes as a result now moved away from just oil. And people are talking about sulfur, sulfuric acid, fertilizer, then agriculture in general. And once you start looking through those supply pains, supply chains, then you have to start thinking really very seriously about what happens with interest rates. And once you start thinking about that, then you have to worry even more about where the cracks come if interest rates go up, not down and we move into a stagflationary era. I was going to introduce this in a very short way by just saying there are things we don't know. And now I've told you about even more things that I don't know about. So let's, let's start with oil. This is unbelievably volatile. In fact, we were introduced the other day to the idea that there's a, there is such thing as a bull market, there is such thing as a bear market, and there is also now such thing as a kangaroo market, one that goes up and down, up and down so fast, up and down so fast that you never know if you're in a bull market or a bear market anymore.
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A
Okay, so that was, that was Monday's round trip in oil, wasn't it? Yeah, we got, everyone gets so panicked over the weekend that it spiked up to nearly $120 on Monday morning and then by the end of the day was back below 90, which was where it had ended Friday night.
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C
Yeah, yeah.
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A
I mean, yeah, you can see what I mean. That was at least broadly explainable in the, at the end of that day, Donald Trump had said something along the lines of we're kind of nearly almost done here and gave a sense that it would be a short war rather than a long war. But most of the rest of this week has been people realizing that a, it's not just up to Donald Trump if the war actually ends or not. And also that, you know, it was quite a throwaway comment. And now the straight of Hormuz is pretty much blocked, which, you know, knocks out a large chunk of the global oil supply as well as all the other things that you just talked about. And again, we are sort of back to, I think, where we were on Monday. I mean, the oil price is just under $100 a barrel, as we're recording just now. But the point is it is back to that thing of we don't know what's going to happen. And the Big variable is how long the war lasts for. And I think the only thing you can really see is that markets are starting to, or certain markets are starting to price in, particularly the kind of bond markets are starting to see. And also today we got the Royal Institution, the Chartered Surveyors report for February. And one of the kind of ironic things about this is I was actually quite surprised at first when it came out because it did show signs of estate agents and other property professionals being worried about the market because the war and I hadn't realized. But about half of the responses to the survey came just after the end of February, hence it showing up. And so you can already see it's the same way. Mortgage rates have gone up a bit and the surveyors have got a bit more nervous. And it's because of this, because they realize that if oil stays where it is, the chances is getting another cost of living shock and of interest rates not coming down, maybe not even at all this year can go up. And that obviously if mortgage rates are higher than they would have been, that means house prices are probably lower than they would have been, less demand, et cetera, et cetera. But again, it is all dependent on how long it lasts, I suppose. The one thing is the longer it goes on for, the more kind of scarring is baked in.
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C
Yeah, and we're slight, we're slightly at the point where we can recognize that pretty much everyone's a loser here. And apart from the, you know, the very obvious losers, the people actually involved in the war and the human cost outside that, it's hard to look around and say, well, you know, which asset class wins here? How does this work? You know, you have economies that are losers, you have asset classes that are losers. You now you have that worry about the future of chip production. I mean, I talked earlier about agriculture and the oil price itself, gas prices, you know, that it's hard to look around and think that really anybody is winning from this.
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A
Yeah. And I mean, I suppose the only big picture thing that we can see is that it's all weirdly part of the same thing we've been talking about for a while, which is the move from a just in time world to a just in case world. And some of the people who think that Trump's playing 5D chess. And honestly, I'm absolutely on the fence about this, I think he probably isn't because I've seen more than enough of politics to see that most of the time they seem to be winging it. But certainly in terms of the US's stated military and economic strategy. And if you look at what they did in Venezuela as well, then there is an element of having a desire to have control over the world's supply choke points. Is there somewhere? And if the outcome of this is that the US effectively has the ability to open and shut the Strait of Hormuz when it wants to, then that is a sort of potential strategic goal that would also, you know, it kind of makes sense. Along with the desire to take over Greenland, for example, and the fact that they got rid of the guy in Venezuela because he wasn't cooperating with them, all those sorts of things, you can see that the US is strategically interested in these areas that are important to global supply chains. So I kind of, whatever the outcome, it's all playing into that thing of we need to be more resilient. And if you like, you can apply that to your own portfolio and to your own personal finances. You need to be more prepared for a world we are, you know, disruption could actually come very close to home, infrastructure could be disrupted, et cetera.
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C
I mean, on the subject of infrastructure, I mean, as you say, yes, you're right. These are things we've been talking about for ages. You know, stop thinking you live in a peaceful world, stop thinking you live in a globalized world, stop thinking that all the things at the top of the pyramid of need are the important things and start looking at the bottom. Start thinking about your portfolio in terms of energy security, food security, financial security. We'll come back to that with private credit, industrial security, et cetera. And that all feeds into, no more fomo, lots more halo hard assets, low obsolescence. I can remember that now feeds into, into, into that bit. And then there are, you know, we can, we can say there are some, some markets that may be bigger losers in other markets that we can say that obviously Asian markets, which import economies that import an awful lot of, of their fossil fuels from the Middle east are in more, more medium and long term danger than say economies in Latin America that, that do not. So you have kind of that, that. But I suppose then what you and I might ask is how does one hedge against that? And of course gold has been not a bad performer into this, but not as good as one might have expected, possibly because it's already quite expensive. I don't think we need to bother talking about, yeah, I don't even need to bother talking about Bitcoin. It's unclear that any sovereign bonds make a good hedge against this in this kind of environment. On the basis that if we have stagflation, who wants to be holding UK bonds or US bonds? And that's particularly the case in the Middle east. And money starts to be withdrawn in particular from, from the U.S. right. There's a lot of rebuilding and infrastructure restating to do in the, in the Middle east, maybe that the amount of money that usually flows into the US won't be flowing in there. And the other thing that I've been thinking about a little bit is water. I don't know if you remember, John, but, you know, 10, 15 years ago, I think you and I both used to write relatively frequent stories about, about fresh water supply globally and water is the new oil and that kind of thing. And lots of, lots of future wars would, would be about water as opposed to about oil. And kind of didn't happen. You know, desalination really, really got so much better. And Saudi and Iran and a lot of these Middle Eastern countries rely incredibly heavily on their desalination plants. But of course, that is a point of enormous weakness. Enormous weakness. You know, you can, you can, you can cause an extraordinary amount of suffering by hitting Saudi Arabia's desalination plants. And I know that Iran already had a water shortage before we even got to this point. So that's another piece of infrastructure. And bottom, bottom of the pyramid, that one. Think about water security.
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A
It's scary stuff, unfortunately, and you know,
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C
we can just round it up there. It is indeed scary stuff. Yeah.
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A
And I suppose the other problem is one of the lessons from the 70s particularly. And you know, if we're starting from the point where gold is already, you know, pretty highly priced, that doesn't mean it can't go higher. I don't know. But it's not cheap. Nothing really did that well in the 70s in terms of assets or certainly not during the big inflationary moments. Equities didn't deliver in real terms and bonds certainly, obviously didn't deliver. Sometimes your portfolio is just harder than others. We've been through a good few decades where you could hold equities or bonds and you would get decent returns from both. Unfortunately, we might be going into an era where whatever you hold, your returns are rubbish, you know, or, you know, it's much harder to get decent returns.
- [12:18]
C
Yeah, yeah. Unless you get it right at every level. And, you know, it's perfectly reasonable to say, well, this is just, this is just a perfectly normal turning point in moving into a new era of value investing and investing in real assets rather than the rest, and that's that.
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A
Yeah.
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C
And really? Really. This isn't hard. It's only hard because you're not used to it.
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A
Yes, yes. That's.
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C
Speaking of things that we don't really understand and that are hard because we're not used to it. Private credit, I know you have been grappling with this. I have been grappling with this. We both looked at me go, okay, we've watched, we watched this sector grow. We watch it got kind of big. We kind of worried about the lack of transparency. We kind of worried when private, when private credit made its way into funds available for retail investors. But we're never quite certain whether it's so embedded in the system that it creates any kind of systemic risk if and when it goes wrong. And we're kind of about to find the answer to that, aren't we?
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A
Yeah, I think we probably will. My gut feeling is that this is more a recession amplifier than a financial crisis issue. So.
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C
Right. Why is that?
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A
Well, okay, so we've heard people talking about 2008 in connection with us a bit. And that's partly because. So what's happened is that basically you've got these, you've got investment trusts and open ended funds in America, let's call them those, they're business development companies, but BDCs. But some of them are open ended, some of them are kind of investment trusts or closed end. So the ones that are investment trusts are traded the same way as private equity trusts do here. Big discounts to the underlying value of the portfolios of loans that they've made to these companies. So that's what private credit is, just loans made direct to companies not involving or technically not involving the banking sector. So because, I mean the trigger point for this, obviously there's been some concern about them anyway because of rising interest rates. But the main trigger point has been AI getting a lot better in this sense that software as a service companies are just going to get wiped out. So if you're looking at software and
- [14:32]
C
a lot of the loans were to those companies.
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A
Exactly.
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C
And software as service are very closely connected.
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A
And if you're looking at a big listed one of these companies taking a 20% hit in a day, then you've got to think, wait a minute, this is the market leader, it's a FTSE 100 listed or S&P 500 listed company is falling off. What's happening to the ones that these companies have loaned money to. And so that's the reason that if you like, confidence has been shaken in these assets. And one of the reasons it's grabbing headlines just now is because people are rushing to take their money out of the open ended funds. Now obviously open ended funds that own illiquid assets, we've seen that here before in the UK with commercial property companies funds. After 2016, everyone rushed to get their money out but you can't sell an office block in a day so the funds had to be gated. Now the funds in America are actually much better set up. They've already warned people when you go into it, it's quarterly liquidity, so you can only get your money once a quarter and there's a kind of maximum or a technical maximum withdrawal of 5% of the total assets of the fund. So if everyone chips in and says they want more than 5% as a total of the fund, then it's every right to say, well actually no, we're not going to do that. We're going to, you know, we're going to give you back the 5% but that's it, you can't get any more back right now.
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C
And they can do that perfectly rationally simply by saying, you know, these are long term loans you were in for the long term. This is not like, you know, not like a run on a bank. Yeah, you just can't have your money
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A
full stop and this is it. And from that point of view, this is that that bit of it is just a liquidity issue as far as I'm concerned. And all it is is that at the end of the day, if you were daft enough to invest in this and knowing these rules in advance, then you know, you kind of got to suck it up. You know, that's just the way that these things work. I think the bigger issue is, well, what happens if all of these loans are actually also going bad. And for example, JP Morgan, there's a piece in the FT kind of this week where it was saying that they were starting to cut back on the amount because these BDCs have lines of credit with banks which enable them either realize redemptions whenever they haven't can't sell enough or to leverage up a bit, but they don't leverage up a lot. To be clear, they are a bit like investment trust from that point of view. JP Morgan has said we expect you to write down the value of some these loans you've made to software companies because we are not going to lend you more money against those ones. And so they've been keeping an eye on what's actually in these portfolios and they're saying actually your mark to market thing is what you're valuing these are, we're not taking that as red. So I suppose one of the problems is, well, what happens if there's much bigger defaults in this space than anyone had expected? It's like who ends up holding the bag for that? For example, insurers apparently own quite a lot of this stuff because they were investing in private assets because they've got high yield and the high yield matches with their liabilities. But that only works if the yield actually gets paid out. So I can see that there are connections there. But the difference with 2008 is that in 2008 the actual banking system was insanely over leveraged and it only took a small bit of the housing market going bad for that to tip them over the edge. As far as I can see, there just isn't that level of leverage in the banking sector these days. So I can see that what for example, if all these loans start going bad, then it will be much harder as a small or medium sized company to get a loan from anywhere. And that could end up, you know, killing a whole swathe of businesses that are basically zombie firms, you know, or that are currently only managing to stay afloat with their payments by using payment in kind, which is basically a way to avoid having to pay, you know, your cash loan. And it's a way for, you know, them having them being able to avoid writing down the loans. But I don't, so I think it would make a bad situation worse. But I don't think it's the sort of thing where we see, you know, the whole of global credit is drying up and you're, you know, you might not be able to get cash out of the bank on Friday morning unless government step in, you know, do what they did in 2008.
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C
That thought hadn't really occurred to anybody and now you've put it in people's heads.
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A
Good work. Well, you know, you know, I'm just testing the resilience of our financial system.
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C
So maybe don't panic if you do have your money in a private credit fund, but maybe now's not the time to go out actively looking to put your money in one.
- [19:21]
A
You know what, there is something interesting because the BDCs, the ones that are investment trust style ones because they're trading at discounts. So if you are the kind of person, because, I mean, what's his name, Boaz Weinstein, who obviously has made a big name for himself over here, you know, kind of annoying people in the investment trust industry he's also really annoying them. Oh, really annoying them. I mean, they, they maybe need to be annoyed. But anyway, that's, let's go part that for a second. But, you know, he's been talking about buying some of these assets, fire sale prices, you know, saying, well, look, if you guys want it, then sell me the loans, but I won't. I'll buy them for, you know, whatever, a third off. And if somebody like that is doing that, then you're kind of like, well, okay, I mean, this stuff can't be totally toxic, it's just mispriced. And maybe if you're paying a lot of attention and you get a lot more time and patience than say, I have, then you may run down some of these BDCs, go into how they're structured and all the rest of it and maybe work out that actually this is not bad value. But I mean, again, we're talking to UK investors here, so the chances are that most of you aren't even in a particular position to do that. But I'm struggling to see how. I don't think the 2008 comparisons are reasonable, but I will keep looking at it.
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C
Well, okay, well, more, more on this later, I am sure. And fingers crossed that John is right and this is not a 2008 moment. Although I got to say, as a year, it's been, been quite a year so far, hasn't it? If you list all, list all the extraordinary and unexpected things that happened, you're up to quite a. Quite a long list.
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A
Well, I suppose we've got enough to worry about. It sort of feels like this is, this is an issue, but it's not,
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C
it's not as big as some of the other issues.
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A
Yeah, yeah, yeah.
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C
And I suppose we can end on a tiny little up note. You mentioned the, the bricks survey and it's all a little disappointing in the UK housing market, but I saw in the papers this morning that London agents are very excited because lots of people who are coming back from Dubai are renting expensive houses off them and looking to buy.
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A
Yeah.
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C
So there's a silver lining. It's the only one I've managed to pull out so far that London estate agents are feeling a little bit more cheery.
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A
Well, I guess London always benefits from capital flight and for a wee while, capital flight. Except for when the capital flight is from London. Exactly, exactly.
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C
Briefly, we look less bad than everywhere else.
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A
Yes, yes, Give it time.
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C
That's something. Give it time. Exactly. And I would also say, by the way, that we are now. The FTSE 100 is now one of the very few markets that is up on the air.
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A
That's true. That is true.
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C
Yeah. So it's not all bad foreign thanks for listening to this week's Marantalks Money Markets wrap. If you like our show, rate to review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter marionsw and jonstapek. This episode was produced by Samasadi and Moses Andam.
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B
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