D (3:48)

You think about how much money you need to keep.

B (3:51)

Yes.

D (3:52)

Before you start to give it away. And I think that although the baby boomers, we're going to live longer and we're going to be very expensive, the last 10 years of our lives are going to be very, very expensive in terms of care. And you can't afford to give it away. You need to keep it in terms of that. And I think a lot of people do a lot of cash flow modelling to show that you can afford to give it away. My experience is that most of the clients are not prepared to give away that much. And I think that one of the big issues is going to be the change in the pensions legislation. Because when the pensions were inheritance tax free, they were your third line of defence. You always knew that the pension fund was there, it was inheritance tax free, so it could go to the kids, but if you needed it for care, it was there. It was that third line of defence. Because that care issue for the baby boomer is the big elephant in the room.

B (4:57)

Do you think that maybe the numbers are just wrong? Because when we talk about 4 trillion, 5 trillion, 6 trillion, 7 trillion, whoever correlates those numbers is not taking into account the fact that a lot of people are going to spend four or five years in a care home and it's going to cost them 120 grand

D (5:11)

a year and the rest.

B (5:14)

Oh, okay.

D (5:18)

In a care home, maybe if you have Care at home, probably more.

B (5:22)

Right.

D (5:23)

If you need 24 hour care, that's three shifts of staff, you're looking at probably twice that.

B (5:31)

Okay. So a lot of people who are thinking that they have money to hand down and people who are thinking they have money to inherit may well not.

D (5:38)

I think you may well find, you know, it comes into the assisted dying, which is in Canada where people are being pushed whatever one's view on assisted dying. And I personally think I would rather go if I was sort of half dead anyway. But nevertheless.

B (5:54)

But you wouldn't want your kids to make sure you went.

D (6:00)

Okay, well you never know. But I think that the first thing for anybody to think about is are you going to have enough money for care. I was talking to somebody funnily enough the other day, they were saying it's a great pity that we don't have a product that enables us to spend our pension but gives us an income if we are, if we survive to a say age 90. Because that's really what the pension was there for. It was giving you that longevity support.

B (6:29)

So effectively a delayed annuity of some kind.

D (6:32)

Yeah, it used to be called a contingent annuity. It doesn't exist in the market anymore, sadly. It would be an interesting thing.

B (6:38)

Interesting. That feels like the kind of product that might be coming back in the same way as the annuity market might be coming back.

D (6:45)

I think the annuity market is back.

B (6:46)

Is it?

D (6:47)

But it's back in terms of an investment proposition. It's a different way of buying a fixed interest investment getting a much better return. You're getting a fixed return and you're playing the longevity for the client or for the advisors, they're playing the longevity game. I remember a client doing an extreme lease on his parents who were very elderly and him saying I'm doing an extreme lease, I'm going to buy an annuity because that handles my longevity risk on my parents wealth. Which I thought was quite tough actually.

C (7:30)

Is the annuity revival partly been helped by pensions, inheritance tax coming in? Is that something that's in people's minds?

D (7:38)

I think people are given that the pension fund is now going to be. I've had people saying before it was tax free and now it's going to pay tax at 67%. It was never tax free. It was tax free from an inheritance tax perspective. But to get to 67% you've got a 40% and then a 45% tax rate to get it out. The 45% tax rate to get it out. If you died post 75 was always

B (8:06)

there, but it provided options. But to your heirs. Right. And they could withdraw from it when they had a lower income and all those kind of things. There were lots of ways to make it a low tax event, a lower.

D (8:17)

Well, no, because once you died, the pension fund had to go to somebody at that point. So you couldn't say, your dad dies and you couldn't say, well, I'll have it. Actually, no, I think I want it to go down to the grandchildren. You had to make a decision at that point. It wasn't.

B (8:37)

But it stayed in the wrapper.

D (8:38)

You could stay in the wrapper with

B (8:39)

that, draw it at will. So you could choose to withdraw from it at a low income period in your life.

D (8:44)

You could, yeah, you could choose to withdraw at a lower. And you can still choose to withdraw it at a lower thing. So you won't be paying 67%. I've seen more angry people about this. You know, I tell the story. I've got a client and she's. I don't know how old they are. She's coming up to 80 and she's incandescent. She has £125,000 in her pension fund and that is her money for her grandchildren. The fact they're worth 25 million is neither here nor there. People are very.

B (9:19)

She should spend it on herself, definitely. But nonetheless, if you know that you're going to be paying that amount of tax, your family's going to be paying that amount of tax, you may as well buy an annuity and have the security of that income flow up front. Yeah.

D (9:32)

And I think people will start to spend their pension funds down, which, if they are going to do that. There are two things in terms of efficiency. First of all, if you're drawing income out of a pension fund, it is income. If it is surplus income, and I've got clients who are drawing it out, paying the tax, 45% tax, better than 67% tax. But it then gives them income which they can then give away. And because it is now surplus income, it's clearly surplus income because they didn't have it before and they were living perfectly comfortably, they can give it away and it's immediately inheritance tax free. So you're split, you're stripping it over say three or five years. And I think certainly we're seeing clients that are doing that kind of thing. But you need to do that, you need to have enough other assets, you're having to rethink your assets so that you are then thinking about, okay, what I'm going to do is I'm going to spend this pot of money, but that will then mean that I've got this pot here.

B (10:37)

Yeah. So it's a general reshaping of the way you do it.

D (10:41)

Shaping.

B (10:41)

So let's go back to our. Our couple worried about their care bills and they've decided how much they need to keep and that they've got a pot that they want to give away. Obviously the best way to do that is just to give it away and not die for seven years.

D (10:55)

Yeah. Buy an insurance policy to cover it.

B (10:58)

Can you buy an insurance. You buy an insurance policy to cover that.

D (11:00)

Okay.

B (11:01)

Yeah. An expensive one, presumably, depending on your age.

D (11:03)

Depends how old you are. It's about 6% of your 80. About 1% if you're 70 and you pay that over seven years. So it's 1% over seven years if you're 70. I think that's cheap.

B (11:14)

Yeah, that does sound quite cheap.

D (11:16)

It's quite expensive if you're 80.

B (11:17)

Yes.

D (11:18)

More problematical is that you've got to pass a medical. Oh, okay.

B (11:24)

So it's only 1% if you're very healthy.

D (11:26)

You have to be healthy. The insurance companies didn't put the price of life insurance up post Covid. What they did was they increased the bar. So where before we would have got standard rates for somebody, now they'll load the premium by 50%. So they've changed the pricing without looking as though they've changed the pricing. Good marketing.

B (11:50)

Okay, definitely. Okay, so give it away. Buy an insurance policy.

D (11:53)

Give it away and buy an insurance policy.

B (11:55)

What about putting it in a trust?

D (11:58)

If you're going to put it in a trust, if it is agricultural land or business assets. Business assets are trading. Trading businesses which are unquoted. So there's a. Which is not property assets. If you constitute yourself as a builder, that is a trade. If you are holding assets for rent, then it is not a trading asset. I would say that's the easiest way to remember because everybody knows what a builder is and they know what holding an asset is for rent. So if it's a building, if it's a trading asset and you give it away into a trust before the 5th of April.

B (12:36)

Haven't got long here. Haven't got long.

D (12:39)

Then you will not pay. You will be able to transfer it without any tax.

B (12:43)

Okay. Those assets, the new rules after the 15th will only allow you to that to a million pounds.

D (12:52)

No, that's only on death. You will be paying a 10% entry charge on those assets. You've got 325,000 of allowance which you can reuse every seven years, but apart from that, you will pay the 10% as a lifetime entry charge and the allowance is only on death, it's not a lifetime.

B (13:16)

Is all this worth the bother?

D (13:18)

Depends how much you care about what the tax. I think you have some clients. Marion didn't say. I largely spend my life doing life insurance and we look after a very large number of very large estates and for them, inheritance tax and the transitioning of the wealth to the next generation is a key driver for them and they know who's going to inherit it from the time that probably something is born and they spend a great deal of time and they buy insurance to cover it and they are making huge gifts of transfer of assets now and they care very much. I have other clients who maybe have made the wealth and they care very much about income tax and capital gains tax and they don't care about inheritance tax because from their perspective, what the children, they started with nothing and they don't tend to then care. If their children, they get 60% of it, they'll be well off. That changes when they get grandchildren, when staggeringly, they're not prepared to ruin their own children by giving them loads of money, they're delighted to ruin the grandchildren. Yes. I've had lots of clients who you've talked to for years and said, well, you ought to be thinking about giving it away and no, no. And particularly if it's business assets, there's much more of a problem because the giving away of the business assets is about succession in the business and transfer. And that's all about, do you trust the children to do the transfer? Is that going to be appropriate? Are they appropriate for running the business? Are they interested in running the business? All those other things. So you may or may not want to give the asset away if it's a business asset and you don't want to ruin them and they must get on with their lives and then these grandchildren arrive and boom, boom, off they go.

B (15:23)

Off they go. It's all different.

D (15:25)

It's all different.

B (15:25)

Yeah. And is skipping a generation a good way to go? I mean, that surely caused some friction between parents and their next generation. If the money skips a generation, I

D (15:41)

haven't really seen that because I think if it's going down a generation like that, the generations are being skipped, tend to be involved. I think, as with all of these things, it's all about communication.

B (15:56)

Yeah. Because I suspect as we were talking about this earlier that there's this missing generation when it comes to pensions, which is people born sort of late 60s to late 80s or middle 80s, people who missed out on having a defined benefit pension and then had no pension provision at all until the introduction of auto enrollment and so have pretty much no pension provision at all and will generally be relying on inheritance to get through their last 20 years and pay for that care. So it would make sense if the boomers left their money to that generation.

D (16:32)

They might or might not realize that the boomers need the money. Well, Manu, because money has a. You have a reference point. My father who's dead would be 100 almost now. But when he started working, he earned 50 pounds a year working in Lloyds in London and then his first pay rise went to £250 a year. But it's very difficult as you spend £3 50 buying a cup of coffee on the way to work for him to understand that he moved his reference point up. But I think that's in terms of the transfer of wealth. I think that reference point that the children, you know, the children have got 50,000 a year or so, they're fine. Because in their reference point there's a point at which people stick.

B (17:29)

Yeah, interesting. There's probably an educational need on both sides. Right. And one of the things you mentioned, the inheritance systems of big estates and families that have been rich for generations have a system for passing wealth down and an education system as well for the recipients. But most people don't. You know, it's relatively new, this idea that a lot of people will have money to pass down and a lot of people will inherit. And there's an education gap possibly on both sides.

D (17:58)

Yes, I think so. And I think it was never talked about within the big estates. It's talked about as a commercial thing. It's part of the commercial planning for the estate. They're very long term investors and it's very long term planning and people are involved in it. And they also are quite good. If they have a generation who aren't maybe very commercial, they're quite good at finding a way around that so that then they just get an income and they're not going to impact on the estate, not impact on the business, business, but it's a commercial thing. They have a whole ramp of advisors who talk about it and you just join that conversation, which has gone on for years. I think what's much more difficult is if you've suddenly got what's really quite a lot of wealth and you don't have that sort of range of advisors and you don't have that forum which is we discuss, you know, how we're investing for the long term and we do it at the annual meeting. And there's almost always a trust, so there are always external people. They're called the trustees and they're probably outside the family. Yeah.

B (19:19)

So how do you educate a new generation of inherited this fabulous opportunity for the wealth management community? Right.

D (19:26)

I think they're trying. I think the wealth management community is trying, but I think they're trying more to get to the much younger ones. Certainly the wealth management industry is going to lose as things stand. They keep about 25% of the wealth when people die and their population.

B (19:53)

So they get the cash, they go around to the wealth manager and they say, well, you've been looking after that gorgeously for 40 years, but now I'll have it.

D (20:00)

Yeah, because they pay off the mortgage, they hand the money on to the next generation. They get the children on to. They pay off their student loans, they get the grandchildren on to if they don't need it. And if they do need it, they've got their own managers who swoop it, swoop it up.

B (20:18)

That seemed to me, I was going to ask you that seems to me to be one of the best possible ways to pass down some inheritance as to pay for all your grandchildren to go to university and pay all their living expenses so they don't leave with one of these awful loans that John complains about all the time.

D (20:33)

It's not tax deductible for an inheritance tax. If you pay your children's education, that is not considered a gift for the inheritance tax. If you pay your grandchildren's education, that is a gift. So it goes on the clock even

B (20:48)

if it's out of surplus income. That's the way to do it.

D (20:50)

Well, if you can create the surplus income, then you can do it. Yeah. You used to give people, you used to give grandchildren quite a bit of money under deed of covenant, which was a way to make it very tax efficient. But that was then shut down.

B (21:07)

Nothing left, is there? Everything's been shut down.

D (21:10)

No, you buy insurance just to pay the tax. So you pay the premium every year rather than paying 40% as a bullet. You do think about putting some of it into trust. You fund an insurance policy by drawing money out of the pension fund. That's very efficient. And then you give it away.

B (21:32)

Okay, ask your final question. Do you think it's a good tax? Inheritance tax?

D (21:37)

I think that's from where you are on the political spectrum. If you believe in the redistribution of wealth, then I think it probably redistributes wealth. If you think that people have worked terribly hard and paid an awful lot of tax to have accumulated money, that's what makes people very cross.

B (22:02)

Chauvhans, who'd like to see inheritance tax abolished. For those who aren't here, I'd say that's about 40%. Yeah. Yeah. I'm surprised that the young aren't putting up their hands. You'd inherit more, you know, if it was abolished, not less. It'd be good. I think we'll have to leave it there. Although I didn't ask John. John, should it be abolished? Bad tax, good tax?

C (22:26)

I think at the moment, yes. Yes. It's too low and then think it worries too many people at the low end.

B (22:32)

It's too low. The threshold is too low.

D (22:34)

Yeah.

C (22:34)

Sorry, the threshold is too low. Yeah. There are too many people panicking about inheritance.

D (22:41)

You shouldn't. Exactly. There are an awful lot of people and they will spend quite a lot of it. That's when people really get into a panic, is when you look at the care costs.

B (22:53)

Let's not talk about care anymore. I'm going to end one of these sessions on and up. Let's just end it with, you can all go out and buy insurance so you don't have to pay inheritance tax. Will that do? Well, brilliant. Paula, thank you so much.

D (23:05)

My pleasure.

B (23:05)

Thank you so much. The last bit. So this is the question answer session. John's going to stay here because I know you always have questions for him. And we've got Moena coming up to join us. She is on our Markets Live team. And I think you've probably all heard Moena speaking before because she's been on. You've been on quite a few of the Friday roundups, haven't you?

E (23:31)

Yes, I have.

B (23:32)

Yeah. Excellent. So all things markets and you've given us some really brilliant contributions. So let's just start with a question just for you about, I mean, markets. We've talked about a bit with Sebastian, but what I think we're really interested in is interest rates and where we might expect them to go next. We've got quite a lot of questions about mortgages and that kind of thing. So let's start there. Expectations have changed quite a lot over the last few weeks, haven't they?

E (23:55)

Yes, they have. Particularly from the end of last month into March. Of course, with the conflict escalating in the Middle east, we had seen markets expecting to Full quarter point cuts from bank of England this year with quite a strong chance of that happening this week since the invasion that has quite dramatically reversed. At one point we really had a full cut priced in. I'm sorry, for the year and that's paired back a little bit. But markets are still looking quite hawkish at the moment. We've got about 50% chance of a hike priced in. So it's really quite a dramatic change. Although I think some people maybe feel that that's a little extreme. Whether the bank of England actually feel that what's happening justifies a hike at this point is certainly something that we'll be looking very closely at. To them, what they say on Thursday they may be looking to temper some of those, those fears. They had for a very long time been expressing their desire to cut rates and the question was really just about the pace. So whether sort of their approach has completely changed or not, I think we'll have to see. But it's quite early days to be pricing that far ahead. But I think we're looking for things to stay on hold for quite some time.

B (25:28)

And as Sebastian says, there's quite a lot of room here for policy mistake in both directions.

C (25:33)

Yeah, John, I mean, yeah, I think the fact that the problem is oil and an oil price rise is both inflationary in terms of it drives up the consumer price index, but it's also very disinflationary because it steals money from people's pockets. So not disinflationary so much as recessionary. So the longer it goes on for, the more likely we get some kind of stagflation. Equally, the problem is the bank of England's only got one target and its CPI at 2% and they haven't had it for six years now.

B (26:04)

And they changed that target, isn't it?

C (26:05)

Well, I think they would quite like to. I mean, some people think that it's a daft idea and to a great extent I kind of agree with that, except that you need some kind of target and the problem is if you change it then they'll just make life easier for themselves. So I can see almost, I can see a policy mistake and I do think it would be a mistake to put up interest rates. I can see it almost happening as a result, embarrassment and a sort of commitment to this idea that there's an inflation expectations channel because inflation is too high. We keep thinking it's going to keep being high even though I don't actually, I kind of struggle with that. I don't think that's how people actually generally think about inflation. So, long story short, it's not ideal. I think the bank will probably hold this week because they'll want to keep their options open.

B (26:57)

Yeah, difficult people. We have one question came in earlier about buying houses. Is this a good time to buy a house?

E (27:07)

I think that's an incredibly difficult, very difficult question to answer. And I think what we would always say on the blog, and John and I were just talking about this earlier and ultimately, you know, it's, it's the right time when it's actually the right time for you to do it, because it's not, it's not a speculative asset for most people. It's actually somewhere you live. And there's a lot of other considerations that come into account. But in terms of the actual mortgage rates, I mean, the way in which mortgages are priced, we have been seeing that rising and we have also seen lenders actually increasing their rates, but not, not a huge amount. So some have actually reported to us that they've been encouraging people who are coming up to refinance to perhaps do it now and not in six months time. So it is seen as actually a good time in the context of the uncertainty ahead. But at the same time, I think as we were discussing earlier, we're seeing some of those expectations for the bank of England calming down a little bit. And you wouldn't want to jump the gun on a major decision, I think, purely based on a couple of weeks of very fraught uncertainty.

D (28:16)

Yeah.

B (28:16)

Okay, John, here's one for you. I think you probably agree with all that on houses, but here's a, here's something you write about all the time, which is UK equities. Right. With the UK stuck between weak growth and fiscal constraints, do you think markets are still giving too much benefit of the doubt to UK assets? I mean, it's interesting, I think when looking at this in the Footsie 100 is one of the very few developed markets that's still up on the air. Considerably up on the air.

C (28:40)

I mean, 5100 I think makes sense to be less vulnerable. I mean, still down since the war kicked off, despite the fact it's got oil and resources and all the rest of it. But the Footsie 100, I think if you're going to be in equities, that's not the worst place to be. The 250 and the kind of UK mid caps and smaller caps. I know that we've kind of been broadly bullish on the UK assets and think that they've been possibly hit with the ugly stick too much. At the same time, there is, you know, they have come some way. We do have this problem that, you know, we are quite vulnerable. I absolutely don't want to catastrophize, but, you know, the kind of gilts market is quite sensitive to changes. We still, unfortunately, are kind of stricken by political uncertainty. People had hoped, and I must admit I was kind of willing, I was certainly willing to give the new government the benefit of the doubt. Kind of hoped that that was going to go away, but clearly it hasn't. In May, obviously, obviously Keir Starmer's position has flipped off the front pages because we've got other things taken over. But come the May local elections, I think it's pretty clear that, you know, there's going to be a pretty nasty outcome for the incumbents and that will again raise questions about whether have we got the right guy leading the party just now? Is it worth the risk of changing it? So I guess I can see there's a lot of pain points coming up for the UK that I'd hoped weren't going to be an issue.

B (30:17)

There are so many questions on UK credibility coming in.

C (30:21)

Absolutely. I mean, at the same time, you know, companies are companies and companies just have to put up with stuff. We've been through plenty of traumatic times before and the companies themselves are not hugely expensive relative to their own history. One issue with the 250, I guess, is a lot of things like house builders and all the rest of it that are quite cyclical. I'm not ready to give up on UK equities yet, but I might be edging closer to that.

B (30:49)

Edging closer to not being so bullish. Yeah. And we did have probably all listened to the Edward Chancellor podcast earlier this week, and one of the things that he said was, if you're looking for a place to invest, maybe don't choose the place with incredibly high electricity costs and there's no chance that they might be coming down because it's just a bad signal. And that did. That did make us go. Yeah, maybe we should be slightly, slightly less positive. Are there any questions in the room? Because we've got mics. I've got loads of questions here, but I'd much prefer to take them from the room if you have them. Really. Okay, one at the back here. Thank you. There is a mic coming to you.

C (31:29)

Hi. How do you view the strategy of treating a guaranteed pension from, like a workplace pension as a proxy for a fixed income allocation, thereby justifying 100% equity strategy in a portfolio.

B (31:44)

Very young to have a DB pension.

C (31:47)

So like a workplace pension. So using that as like if you had a 9010 portfolio, your workplace pension is your bond. So it's not a DB pension. It's not a guaranteed. No, not guaranteed public sector pension. Yeah, I guess that's really just a question about your asset allocation. I mean, if you're talking about yourself and I think without being too. We're not giving personal financial advice, we can't do that. But the rule of thumb is the younger you are, the more risk you can take. So I mean, even at my age of like 50ish. 50ish, I'm so coy. I'm kind of mostly in equities because I'm thinking, well, it's going to be at least 20 odd years before I retire, so I may as well take the maximum amount of risk that I can get, the maximum growth.

B (32:39)

But nonetheless, a workplace pension, if it's not a guaranteed income is also equity. It's not a replacement for a. Yeah, that's what. Same thing.

C (32:46)

It's just part of it.

B (32:47)

It's the same thing. It's still equity exposure in the main, unless it's lifestyled into bonds as you age.

C (32:53)

Yeah, I was treating it as a form of like lifetime capital. So it's kind of guaranteed as long as you're still in a career. So that would act as your safety net. So then that allows someone young like me to be fully risk on.

B (33:10)

I suppose what you mean is that you would have a higher risk equity portfolio out with your pension. Yeah, yeah, yeah, that makes some sense.

C (33:18)

Yeah, that seems pretty logical, I think.

B (33:21)

But. But just to be clear, it's still an equity portfolio. Yeah, still a slightly lower risk equity portfolio. Still don't have a bond style balance around that.

C (33:29)

No, nothing.

B (33:30)

You'll be needing some gold. Thank you. Thank you for that question. Listen, there's quite a few questions on. Does the. Does the UK need a crisis? Will the government change the other one? How many do we need? Do you think that maybe you can have a go at this one, Moana. Do you think the UK needs a crisis, something similar to the UK's IMF bailout in the late 70s, for policymakers to confront the underlying issues with the economy, energy policy, taxis, et cetera? In other words, do things need to get worse before they get better? There are a couple of others along the same zone. Same thing about the bond market and the extent which we might destroy it by cutting yields, et cetera. And we have had this conversation that things eventually they'll get so bad that they have to get better.

E (34:16)

I mean, things haven't been good for quite a long time. I think if you look at the longer dated gilt yields, you know, we saw them hitting sort of 1998 levels earlier in the year, and that suggests that we haven't really recovered, actually, from what we saw in 2022 with the Mini budget. Actually, things have been getting a bit better this year until this recent sort of turmoil, which is a global one. But actually their longer data guilds haven't been too badly affected in context. So I wouldn't say that we've sort of reached a point where things have got much better. Whether they could get worse. I mean, I think they always could. And I don't know what the answer is to that, except I think to Johan's point, there is a lot of uncertainty. We've seen quite a lot of political risk priced in. And so I suppose something that would add to that and destabilize it further.

B (35:18)

Do we need it, John? Do we need a crisis or can we muddle along? It feels to me like the bit where we can just keep muddling is nearly over.

C (35:28)

No, I think so. And I actually think where we make it a crisis is in energy provision or infrastructure, because we've already seen things like I'm from, or I live near Tunbridge Wells and thankfully didn't get caught up. But, like, you know, the water system was out in, like, a major town. I'm sure probably some of you kind of live there or thereabouts for, you know, the best part of, like, six weeks. And that was nothing to do with. It was nothing to do with cyber attacks. It was nothing to do with, you know, warfare or anything like that. It was. It was just degraded facilities, bad management, whatever it was. And we've got the highest industrial electricity prices pretty much in the world. And you got to turn around and think, well, what happens if we keep on going down the pathway that leads away from energy security and towards energy speculation, maybe overloading our grid with renewable assets before it's ready. Not saying that's a bad thing, but we go out, take baby steps towards this stuff and then maybe we start seeing things like extensive blackouts or the sort of thing that gets people properly worried and makes us make some hard decisions about where we need to focus. I think something like that actually probably more than a gilts market crisis is actually more likely where there really is a sense that things are falling apart.

B (36:51)

Okay, crisis then. Yeah. Proper crisis question right here in the front. I'm going to answer some quickly. Do you think we will see a mass exodus from the UK of the high earning individuals in light of the punitive Labour government tax policies? I think we already have, but we might see that decline because there's nowhere to go now, is there? People are going back, coming back, not going.

A (37:12)

Yeah, thank you. Yeah, My name is Brian Swind, I'm a mortgage advisor. So I wanted to bring it back to the housing market if possible. It seems to me that there's a huge scope on Thursday for surprises from the bank of England, not because of necessarily a policy move, but because of what they say. If it appears there's consensus that because of the energy crisis now they're inclined to raise rates that could push bond yields up much higher than we've gone so far. But they might also say they're still inclined to raise rates which could push yields down. So I just want to know what your take is. What do you expect them to say and what are the risks for the housing market the rest of the year as you see it?

E (37:49)

I mean, from my perspective I, you know, I can look at what the, what the market are saying and they have seemed quite actually uncertain. So whilst I said that they'd move towards pricing in a hike, you know, they've moved back again and we've also seen that fluctuate in both directions just in the last few trading sessions. So I would say there's a huge amount of uncertainty. The only real indications we've heard from the bank. Last week we had Alan Taylor speaking and he said that if the oil price spike sort of stayed where it was for just a few weeks, then by the time we get to the end of the year, it wouldn't necessarily make any difference to overall cpi. But of course we're already moving on and things maybe look like they're going to be a bit more protracted. So I think there's going to be a huge amount of uncertainty and the bank do tend to be quite cautious. I don't think they're going to be looking to say anything that's going to trigger extreme market reactions. I think how they vote will be very important. You know, we're expecting it to be a hold, but whether anybody feels like it's worth sort of stepping out of that consensus view will be interesting. And now we get the commentary published as well and of course their guidance, you know, changing wording to the guidance and just really anything of their inflation predictions as well for the Rest of the year I think really going to be incredibly closely watched. But I'd probably hedge to say that we'll see no big surprises because I think they'll probably want to try and give a massive stability.

B (39:23)

Housing market. John?

C (39:24)

Yeah, I mean, I think I agree with Morgan. I don't think they're going to want to rattle the horses at this meeting. I think the April one will be the scarier one because if it's still going on by that point they're going to actually have to commit in some sort of direction. As far as the housing market goes, I mean it really boils down again, if you're buying a house for yourself, then there are so many other factors that matter more. It is a buyer's market, I think that's one thing I would say. And this, if anything, makes it more of a buyer's market because you can turn around people and say, well, there's a borrower and he's not going to get many other buyers. So I sort of feel that from that point of view, if you are a buyer, you're probably in a decent position as long as you've got all the usual stuff, you know, get your mortgage lined up, make sure you get enough money, that kind of thing. And also if you're buying in London, which I think is where the questioner came from, I mean the London housing market is basically flat for about a decade now and probably and actually down in real terms. So I mean. But can it go lower? Yeah, of course it can go lower but at the same time, you know, you're not buying when it's at the peak if you're worried about that kind of thing.

B (40:34)

But the market across the board, I mean it is interesting, isn't it? And we were talking to Sebastian about the turn in yields and interest rates starting to go up and interest rate normalizing. And now we're moving into an environment we can easily expect rates to stick around the, you know, 3,000 year historical normal, 4 to 5%. And only just now is it really beginning to turn up in all the asset classes that you would have expected it to turn up in a few years back. So housing being one of them, you know, house prices were ridiculously high on the basis of a very, very free and and easy capital. Have those things anymore. You begin to see the housing market crack, you start to see the private equity market crack, you start to see private credit crack. All these things are a function of this regime change in yields. And I find it so interesting that it's taken so long, you know, we started talking about all these things, well, this will crack and that'll crack and this will crack three, four years ago. But it's just, it's much slower than you think. But of course it's slower than you think in the asset classes that are not particularly liquid and not particularly transparent. And housing, while obviously it's not the same kind of asset price class as private credit and private equity, it has the same dynamics when it comes to liquidity and transparency. That was an attempt to answer another five questions in a one, because there are quite a few about should you have private credit, should you have private equity, how should you hold infrastructure inside your portfolio? And the answer, I would say from all of us is with extreme care. Sebastian nodding with extreme care. You know, we feel very strongly, John and I, well, I do anyway, that if you're going to hold pretty much any asset, you should hold it in the most transparent way way possible, which is why we are such great fans of the listed markets over the private markets. You want to be able to trade something, you want to be able to understand it, you want to be able to talk to the directors, all these things. And you can do that in listed markets in a very different way. And of course listed markets react much more quickly. So that that covers pretty much all of those. Anything else from the floor? There were a couple at the back there, I think. Thank you.

C (42:32)

Hi Phil Job, thank you for this. And just wanted to ask if you assume a new investor, no equity exposure to begin with, very young, and they were looking at having a split of UK and American etf, how would you think about framing the question of do you hedge the US ETF back into pound sterling or do you just leave it in American dollars to roll up in that US side of the investments?

B (43:08)

I think you're going to make your life far too complicated by even thinking about that. When you invest in a country, you take the currency risk at the same time, they come as a package. So I would never begin to start trying to, particularly in a small young portfolio, to start trying to hedge that away. But maybe the others have a different view.

C (43:26)

I don't at all. No. I think the Forex exposure is one of those things that goes into the buffet too hard bucket. And if you are buying and also part of the benefit of investing overseas is you do get that diversity. So you get the dollar as well as the pound exposure and often the dollar, sorry, often in recent years having dollar exposure has been a good thing for a sterling investor at Some point, it probably wouldn't be the best thing, but it's not something to worry about. On top of all the other things that go into choosing that in the first place.

B (44:00)

We have run out of time, but I'm still going to take another question because I don't feel we've done quite enough on the back here. Thank you. There is a question, by the way, in here about do you have any thoughts on the upcoming SpaceX IPO and will this lead to Tesla merging with SpaceX down the road? Now, I'm not going to answer that one because Kathy Wood has answered it for us and you can listen to my podcast with her on Monday and you can hear the answer to that. I'm not going to tell you so that you all will listen to the podcast. Your question. So prior to the events of the

A (44:32)

Middle east, obviously one of the dominant conversations in the in the markets was

B (44:35)

around cracks in private credit and elevated valuations in sort of AI boom equities.

A (44:41)

And in one of your recent podcasts there was sort of conversation about a

C (44:44)

potential catastrophic event pulling the rug under

A (44:47)

those valuations in AI equities and, you know, potential inflationary impact downstream. Do you see a prolonged situation of conflict in the Middle east as one of those potential scenarios causing a crash in those, you know, and an adjustment in those equities?

B (45:03)

Yeah, I mean, it usually could be. I mean, that's the thing with any kind of bubble level of valuation is you don't know. You never know what it's going to be, but it's going to be something. So, yes, that could be it. But again, I got to listen to Kathy because we talk about that quite a lot in the podcast with her about what it might be. But of course she doesn't believe it'll be anything. She believes that all those stocks will grow into their valuations over the next few years and this won't happen. But that very rarely happens. That's very rarely the answer to overpriced stocks. The answer is, is usually that they fall. Anything to add to that, John or Moana?

E (45:35)

No, I think you hit me now, to be honest.

C (45:38)

Yeah. Yeah. The one thing I say about, see, the private credit thing, this is something I'm curious about. If anyone in the audience is an expert on this, then do please come up and chat to us after. But I still don't quite see because some people have mentioned about it being kind of like 2008, 2007, and that always kind of, you know, raises alarm bells because obviously 2008 was pretty catastrophic. But I don't quite see yet how we get from. Sure, a lot of these things could go bad, but how do we get from that to infecting the entire financial system? I believe there is a sort of like insurance angle there. Even then, I'm still struggling to see exactly how that goes to, you know, not being able to get cash at your atm, you know, on Friday kind of morning. So anyway, so, yeah, I was just. Yeah. If anyone thinks they've worked that one out, then please come up to me later.

B (46:22)

Okay, I'm going to allow one more question, but please can it be something to which we can answer in an upbeat manner? Because I want to finish this on an up. We finished every session on a low. You look like a happy person. Go for it.

C (46:38)

What one policy change could a UK government do that would turbocharge our economy?

B (46:44)

Cancel net zero.

C (46:46)

Cancel net zero.

E (46:50)

If you're talking about the housing market, I must say, get rid of stamp duty.

B (46:54)

Great one.

C (46:54)

I can't believe you both took my options. Net zero stamp duty. Yeah, no, God, that is a really good one. Actually, do you know what? Kill off all these marginal tax rates. That's the other irritating one. So, like when somebody earns over 100 grand, they immediately jump up to a 60% tax rate. And also. And that the other side as well, because whenever you're on benefits, if you get a job or you get a job going over a certain number of hours, you get a similarly insane marginal tax rate. And know that people say, oh, you're still getting 40p, you're still getting this, you're still getting a bit more money. It definitely holds people back. And we've spoken to people on both ends of the spectrum who are put off extra hours by those marginal tax rates. So getting rid of them I think would be really helpful.

B (47:39)

Ok, so cancel a lot of taxes, sort out the tax system, get rid of net zero, make life cheaper. Okay, thank you for that question that. I think those answers were quite positive. How fantastic. None of these things are going to happen, of course, but, you know, there you go. Right. So do listen to the podcast, do read John's newsletter, Money Distilled. Award winning. Do read my newsletter out on Saturdays. Do read the Markets Today blog Moana and enjoy them all, I hope. And thank you so much for coming this evening. You've been a really good audience and we will be hanging around to answer more questions. Thank you. And so will our other panel guests. So thank you all. Thanks for listening to this week's Marian Talks yous Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also be sure to follow me and John on X or Twitter errinesw and John underscore Stepeck. This episode was produced by Sama Saadi and Moses Andam. Questions and comments on this show and all our shows are always welcome. Our show email is merrinmoneyloomberg.net sound designed by Aaron Casper and special thanks of

A (48:44)

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