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- [00:01]
John Foley
As a global leader in alternatives today, PGM is capturing the potential of tomorrow. So as you look to diversify your portfolio, PGM offers expertise in seeding, developing and managing a broad range of liquid and illiquid strategies. With over $320 billion in alts across public and private markets, we are helping clients achieve their long term goals. PGM, our investments shape tomorrow today.
- [00:36]
Aidan Reiter
Pushkin, if you read the FT imprint, you definitely know the Lex column. It's the back page of the FT every day. It's a variety of takes on companies, finance and markets and it's an institution. Today on the show we're taking three stories from Lex. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. My name is Aidan Reiter. I'm filling in for the delightfully British Katie Martin and the grotesquely American Rob Armstrong. And today I'm joined by John Foley.
- [01:11]
John Foley
The head of the Lex column, also delightfully British.
- [01:16]
Aidan Reiter
Yes, and I guess I'm also grotesquely American. Well, John, we have a couple topics to Talk about today. 24 hour trading, tech earnings and robotaxis. Let's start with 24 hour trading. Why in the world is this a thing?
- [01:29]
John Foley
Yeah. So what's happening is that the London Stock Exchange, we reported the FT reported a few days ago, is considering extending its trading hours. At the moment. Trading in London happens basically between 8 o' clock in the morning and 4:30pm What a shonda.
- [01:44]
Aidan Reiter
How terrible.
- [01:44]
John Foley
I know, Imagine that. But it sort of does feel a little old fashioned, I guess.
- [01:48]
Aidan Reiter
Yeah.
- [01:49]
John Foley
I mean it's also true in the U.S. like the, you know, U.S. trading hours are like NASDAQ and 9:30 to 4:00 clock. And that hasn't really changed since the lazy.
- [01:57]
Aidan Reiter
Over here it's just 9:30 to 4:00', clock, but it's like 30.
- [02:00]
John Foley
But the world has changed and everything is crypto and crypto is 24 hours.
- [02:03]
Aidan Reiter
Yes. And this is the, I think the key thing every time we talk to crypto bugs, you try to get them really talking about why do they love crypto? And one of the many, many reasons they'll throw at you, which I'm not sure is so valid, is that, well, obviously we're all constrained by the limited hours of NASDAQ or LSAG. We need to have 24 hour trading.
- [02:22]
John Foley
Right.
- [02:22]
Aidan Reiter
But who actually wants this? I mean, what's the point?
- [02:25]
John Foley
So there is trading has changed, right? Retail investors and investing from your cell phone. The Gamestop meme stock saga showed that there is an army of traders who are doing stuff from their phone after dinner, in the middle of the night, whenever they want to. So the idea that trading should only happen in this kind of not even full office hours. Right. It's not like 9 to 5 in London, it's like 8 to 4, 30. That trading should only happen then does seem a little bit antiquated. Now, as it turns out, you can already, if you are a retail investor, there are lots of ways that you can trade 24 hours. If you use Robinhood, if you use interactive brokers, if you use that trading.
- [03:01]
Aidan Reiter
If the market is closed, how is that actually 24 hour trading?
- [03:04]
John Foley
Because what they do is they're using basically dark pool. So off exchange trading platforms where you can make a trade, you can basically sell your stocks, they don't clear until the next day, but you can. And you may not get the absolute best price because you're not getting all of the information that you get during the day with all of that liquidity. All those institutions trading, I see you don't have what they call the tape, you know, the record of all the trades that happen during the day that only goes through official trading hours. So it's not quite as good as the real thing, but you can get almost as good as the real thing. So what the exchanges are talking about now, and it's not just the lse, it's also NYSE has also applied to extend its trading hours. It would be having official trading hours that go on, if not fully 24 hours, then you know, 22 hours in some cases.
- [03:47]
Aidan Reiter
So New York is also applying for this. It's not just London.
- [03:49]
John Foley
Yeah. So in the US you have a new exchange called 24x which has been given approval to trade not quite 24 hours, but like more or less 24 hours. The new York Stock Exchange has also applied and so is nasdaq, to trade much longer hours. They will all have a kind of break. A lot of the time we talk not about 247 but 24 5. So five days a week and often it involves a stop for like maybe two hours overnight for people to reset their computers, install software, whatever it may be. But this is not just a UK thing. And actually, interestingly, even in the 80s when nicely last changed its trading hours by like half an hour, people were talking then about the inevitability of 24 hour trading. So Dick Grasso, who was the CEO of the New York Stock Exchange, always said in the 90s that they would move towards 24 hour trading. Interesting. It just hasn't happened for various reasons.
- [04:38]
Aidan Reiter
In the 80s and 90s they were all running high on cocaine and you know, they could go all night also that.
- [04:42]
John Foley
But also the reasons to not do it in the 80s and 90s were in some ways much more compelling because it was all about people. So it's a very people based business. And one of the concerns, even when they moved the trading hours, they talked at one point about moving the New York trading hours back by half an hour to staying open for an extra half hour. And that created a lot of consternation over the idea that it would create overtime charges for companies that had to pay people who process trades when the market closes.
- [05:09]
Aidan Reiter
So what's the solution now? In theory you have more algorithmic trading. You could have desks across the world trading. Is that the idea?
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John Foley
Yeah, well, I guess it's a less people intensive business, but there are still lots of problems with this and it is ultimately still a people affair. When is your tech person going to sleep? If the market is 24 hours. Right. You have to have software updates. You have to have some kind of latency in case things go wrong. What if you're the CEO of a company and like do you now have to wake up at 2 in the morning because your share price moved by 15%? Yeah, like you know, in the middle of the night.
- [05:39]
Aidan Reiter
I mean it seems like a terrible idea to me, especially in New York. Right. We already have the most liquid deep capital markets here. The benefit of being in New York is you get to decide when the world is truly trading. So while there might be trading going on in London or in Asia at different hours of the day, it makes more sense for them to go 24 hour trading to align with the New York style.
- [05:58]
John Foley
I can't believe like that is the most American centric.
- [06:00]
Aidan Reiter
No, it's true. I'm not as American centric or should I say grotesquely American as Rob, But I like that is the benefit of being in New York. Right. Why would you want to give up that privilege?
- [06:10]
John Foley
No, it's, I mean it is true, like there are other challenges too with extending trading. Like you have to extend the kind of regulatory oversight you have to extend clearing. I mean there is talk about clearing moving to a 24 hour business as well. And also a lot of the big institutions don't really want this because they say like it's fine for a retail investor who wants to buy a couple of shares of AMC at 4 in the morning, but if you're T. Rowe Price, are you really going to be able to do a massive trade. Is there going to be enough liquidity to do that trade in the middle of the night? Probably not. And one of the things that there's various research that has shown that having kind of compressed or, you know, 9 to 5 or 8 to 4, whatever is trading hours does kind of focus liquidity into a window. And in particular, you get a lot of liquidity at the very beginning of the day and at the very end of the day.
- [06:51]
Aidan Reiter
So this would just be dispersed liquidity, which has its own risks.
- [06:54]
John Foley
It has its own risks.
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Aidan Reiter
And then on top of that, you need regulators and other people staying up all night to make sure things don't, right, you know, hit the wall.
- [07:01]
John Foley
So this is a very early proposal. We've reported that the LSE is talking about it. This is part of a bigger process that the LSE is going through that London is going through as it tries to work out how to be more competitive on a global level with other exchanges.
- [07:16]
Aidan Reiter
It seems like having only, you know, beleaguered and not sleeping people in London is not necessarily the best way to be competitive to me. But I digress.
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John Foley
I agree. As obviously, as a journalist writing about companies do I love the idea of events happening. You know, companies releasing profit warnings at 1am not so, not at all. But then again, if that is the way the world is working and if more stuff becomes automated and if other markets, you know, Currencies, crypto are 24 hours, maybe this is the way things are going to go.
- [07:42]
Aidan Reiter
Well, at the very least, this like knocks the legs underneath crypto of why they think they're special. Right. It's not just your 24 hours. Okay, next topic. So this week we have big tech earnings. What should we expect? Who should we expect to report?
- [07:54]
John Foley
So tech is a really interesting one at the moment. You know, we've got Alphabet and Tesla coming on Wednesday. Tech earnings, like all earnings, used to be about what happened to earnings in the last quarter.
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Aidan Reiter
Yeah.
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John Foley
Then when, when we moved to this like, AI era, it became about how much of the company's spending, everyone was competing to spend more and more money on future AI infrastructure. And we've now got more than $300 billion of tech spending by the big firms this year. The market then started to slightly freak out about this, saying, like, you know, what if this doesn't produce concrete returns? So now what investors are looking at is less what's happening with earnings. They're looking at guidance, obviously. They're looking at like signs of what's going to happen in the future. But also what's really interesting is they're looking for detail on how and whether AI is producing actual financial outcomes.
- [08:40]
Aidan Reiter
I remember over the last two years it seems like, you know, earnings are important, but you have to really, really overshoot the Runway to actually be rewarded by this market. Right. You have to show that despite all the capex spending, you are actually having some other profit, etc. So it sounds like, is it fair to say people are kind of getting off of that, not even focusing on the earnings at all and just looking at how much of your code base is done by AI or you know.
- [09:02]
John Foley
They'Re looking at what's the actually doing. So if you think about Google, Alphabet, Facebook, at meta platforms, these are kind of advertising businesses. So what they're now under more pressure to tell us is how AI is helping them to sell more advertising at higher prices. And they actually are starting to do matter. In particular, meta is has been talking a lot about how advertising is getting more effective and how click through rates are rising because of the AI that it's deploying. Google has come out with these little snippets like that Gemini, its AI model now accounts for about 30% of its new code. Also they've talked a lot about AI Overviews is a huge thing at Google. You'd have seen if you search for certain topics, you now get a blurb at the beginning instead of just getting the links. But you get an answer, basically an AI generated answer. For a while there was some concern that that was going to take attention away from ads, but actually Google said recently that it's getting as much money from an AI overview result as it did from the traditional links. That's the kind of stuff investors really care about. Right.
- [09:58]
Aidan Reiter
So investors are focusing on how these companies, not only are they successfully building AI for consumers, but actually turning it back in on themselves and generating revenue.
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John Foley
From that commercial outcomes.
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Aidan Reiter
It's interesting, I spoke with someone yesterday and as you mentioned before, where guidance is actually almost the most important at this point. Right. There's still a ton of uncertainty over tariffs growth, all of the big questions for the market and the economy and oftentimes we are relying upon these companies to tell us how tariffs are impacting them so far, how they expect them to impact them in the future. So it seems like guidance is particularly important to that investor. And it sounds like you're saying that's important for everyone.
- [10:31]
John Foley
I think it is, yeah. How can it not be when you're talking about AI, which is like a long term investment plan. I mean it does exist, but like it doesn't really exist in the way that we think it will in a few years time. So Google earnings per share from the last quarter? Yeah, sort of. Who cares unless it's an enormous mission. Even if it's an enormous, you know, if they massively exceed what people are expecting, it's not that important. What we're looking at is where is this 300 plus billion dollars investment going and what are the returns going to be? Because the thing that we've said over and over again when we've been writing about this and you know, we've talked to the companies about this too, like they're not giving you any sense of what returns on investment they expect from this money. They're just expecting us to believe that.
- [11:07]
Aidan Reiter
Those returns will believe AI will turn into something.
- [11:10]
John Foley
But at the same time they're saying like if we don't do this, the risk of being left behind. It's better to basically waste money y in order to remain build giant data.
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Aidan Reiter
Centers for almost no purpose.
- [11:21]
John Foley
Literally saying it's better to do that and lose a ton of money than it is to.
- [11:24]
Aidan Reiter
Yeah, but now the market is saying okay, well let's see what you're actually using this, all this investment for internally, not just how many people you've reached with your ChatGPT or name your model. It's very interesting, especially on the big tech earnings as I said over the past few years, not only do they have to do well on earnings, they had to super overshoot for the market to be at all happy with how much spending they were doing on AI. If you look at their earnings per share growth year over year by quarter, I mean it seems like these companies are slowing down. Part of that is because of normalization, right? You have a year ago you had so much spending and you know, X amount of earning that was so great. This year it feels like less. I'm just curious, I mean, should we expect lower earnings or your point is nobody even could be paying attention.
- [12:03]
John Foley
I think these businesses are huge, right? They're huge and they're kind of mature in some ways. So you can't forever have like 30, 40% growth rates. I mean if you're like Palantir for example, if you're in a really hot set sort of software of sector, then maybe you can. But Google advertising is not going to grow at 20%. I think Google's expected to grow advertising revenue about 7%.
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Aidan Reiter
Cloud still very good?
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John Foley
Yes, pretty good. It's high.
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Aidan Reiter
It's twice as most Of S&P 500.
- [12:27]
John Foley
Cloud computing is growing faster, more like in the 20s. But these businesses are so huge that they can't defy gravity forever in that way.
- [12:34]
Aidan Reiter
Interesting. Yeah. So tomorrow we get Tesla and we said that's part of the Max 7. But their performance and what they've been doing so far doesn't really put them in the Max seven. I mean, they've had negative earnings per share growth over the last few years. They've had a slew of issues related both to their CEO and to the company itself.
- [12:50]
John Foley
Yeah.
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Aidan Reiter
One thing that seems to be leaping out to people is what is the future of Robo Taxis? And you have some thoughts?
- [12:56]
John Foley
Yeah. So Robotaxis are a big part of the Tesla valuation story. They are not a big part of the earnings story. So think about Tesla. When you're looking at its earnings, you're seeing the earnings from a carmaker and a carmaker that has relied until now largely on credits, EV credits, which are going away. So you will see earnings reflect that. Its valuation reflects things that Tesla is only just starting to even make. So Robotaxis is one Optimus, the robot.
- [13:24]
Aidan Reiter
I said on the last episode that those robots creep me out and I stand by that.
- [13:27]
John Foley
They are basically murder bots. But those are what the valuation tells you. It tells you that people think Elon Musk is going to create this incredible Robotax business.
- [13:34]
Aidan Reiter
I've heard someone say that.
- [13:35]
John Foley
Trillions of dollars.
- [13:37]
Aidan Reiter
Tesla is a, you know, it's a company that has the revenues of a car company, which is always good, but not amazing. And then it has the VC potential of Elon Musk. Right. What are the other things in future projects we're going to put all this car money into? And Robo Taxis has been the big one. It seems like Tesla's robo taxis are falling behind. I mean, Waymo is out there picking up people on the streets of San Francisco as we speak.
- [13:59]
John Foley
Yeah.
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Aidan Reiter
Robo taxis aren't out. Are they falling behind?
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John Foley
So the thing about Robo taxis that I think is interesting is that the idea of Robo taxis is super simple. Right. It's that you call a car, it shows up, it takes you where you want to go, and there isn't a driver in it. It's just Uber with no driver. It's so simple to imagine. It's really hard to implement. It's so hard to do. And it's hard because the cars themselves are hard to design. Waymo is by far the leading robo taxi provider. Now. It's everywhere. In San Francisco, not so much elsewhere. They are going into other cities gradually. But their cars are expensive to make. They've got all kinds of crazy stuff on the roof, like the radar, spinning thing, spinny thing. They're also like, they're fighting the fact that a lot of people don't trust cars with no drivers. And San Francisco is a very tech forward city. People have got comfortable and it's taken them a while got comfortable with the idea of getting in a car. You know, we all know people who've done it and love it and yeah.
- [14:51]
Aidan Reiter
Everybody who does it is obsessed.
- [14:52]
John Foley
But turning this into a really big market is really hard because you've got the technology barrier, you've got the cost, you've got the trust barrier and the regulatory barrier. The regulatory barrier, but mostly the cost. And because at the moment the cost of owning a car in the US is about a dollar a mile roughly the cost of a rideshare in uber is maybe $2amile. The cost of a Waymo, the cost of a Robo taxi is about $3amile. So you're not going to take a Robo taxi when a car will do because it's just more. You're not going to take a Robotaxi for your commute to work because it's just too expensive.
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Aidan Reiter
Unless you're trying to get really good reading done, right?
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John Foley
Well, unless, yeah, I guess.
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Aidan Reiter
But at the point you would hire.
- [15:28]
John Foley
Somebody three times more than you value. So this is why Robotax is struggling to develop scale Even Waymo at 1,500 cars, it's probably not making anything like a profit for quite a long time.
- [15:40]
Aidan Reiter
So where does Tesla fit into this?
- [15:41]
John Foley
So Tesla, if it can get it right, Tesla could actually crack this code. Because Tesla can make cars potentially quite cheaply. He's talking about making like a 25, $30,000 robo cab, which is about a quarter of the cost of a Waymo.
- [15:54]
Aidan Reiter
Car, as opposed to Waymo which is buying or partnering with other car companies. Tesla makes their own cars and they can make it special.
- [16:01]
John Foley
Tesla thinks it can do it without all the spinny stuff on the roof, which is unclear whether that's true or not.
- [16:06]
Aidan Reiter
Less expensive tech cameras are less expensive.
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John Foley
Cameras and AI rather than radar and lidar, which is specialist equipment.
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Aidan Reiter
Interesting.
- [16:12]
John Foley
If Tesla can do it cheaply, if they can get to that $1amile, then theoretically the sky's the limit. That's when you start taking a Tesla Robotaxi to work and that's when you decide to not bother owning a car or not taking your driving test. In theory.
- [16:27]
Aidan Reiter
In theory.
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John Foley
So Tesla, if it gets that right. But there are so many ifs is the big threat in robo taxis. You can see that. And that's showing up like Uber for example, which did a deal with an electric vehicle maker lucid last week to buy a bunch of their cars. Uber has got to be freaking out about the possibility that Tesla successfully cracks robo taxis.
- [16:46]
Aidan Reiter
Yeah, but you know, I don't know how much we should actually expect from this. Earnings. I mean a lot of Tesla earnings talk about robo taxis without giving you real numbers.
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John Foley
I mean you'll get nothing in these earnings at all.
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Aidan Reiter
Very distinctly they put out like, I think it was a chart for Robotaxis where it's like long chart, like what robotaxis could do, low chart, what others can do. And there was no actual numbers on the chart.
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John Foley
Right.
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Aidan Reiter
Or like when he said the total addressable market for the optimum was every human being on the planet.
- [17:10]
John Foley
Yes. So Elon Musk is great at saying things like this. He has said about robotaxis, he said that, you know, Tesla could have 99% of the market or will have 90 to 99% of the robo taxi market. He may be right. If you're buying Tesla share, if you own Tesla shares, it's probably because you think he's right, which is why Tesla is a trillion dollar company and why analysts are not and investors are not attributing really any value to Waymo within Alphabet. Interesting at the moment.
- [17:35]
Aidan Reiter
Got it. So Alphabet's not getting that much of a boost from Waymo, even though it's right now the leader.
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John Foley
It's the leader. But if Tesla gets this right, it will pretty effortlessly take over. But again, you either believe in Elon Musk or you don't.
- [17:48]
Aidan Reiter
And that's always the question. With that, we'll be back with long and short.
- [17:53]
John Foley
Foreign. The latest PGYM real estate outlook is out now. So 2025 to be an attractive vintage year. So based on history, based on historical cycles. In fact, the opportunity for capital value growth to be stronger is obviously a key theme we're going to be focusing on over the next 12 months from a research perspective. But it also investors need to adapt to changing markets condition. Explore the report at www.pgimrealestate.com globaloutlook.
- [18:31]
Aidan Reiter
This is long and short, the part of the show where we go long things we like and short things we don't like. John, do you have a long or short for us?
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John Foley
I do. Aidan My short, I'm sad to say, is bank holidays.
- [18:41]
Aidan Reiter
Oh.
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John Foley
France's prime minister has suggested getting rid of two holidays. And you remember that President Trump has also expressed concern that there are too many days off in the US And I fear that our beloved, beloved bank holidays, which of course in Europe we have many of them, might be going away.
- [18:59]
Aidan Reiter
It's so funny to me that, you know, this government of France has struggled with likability and their first budget solution is to get rid of people's holidays.
- [19:05]
John Foley
Right. You'll have like people working longer, being angrier, less productive, I suspect.
- [19:11]
Aidan Reiter
Yeah, well, I am long Measurement Nigeria There's a great story in the FTSE today. Nigeria's economy is now 30% bigger after they recalculated GDP. As we learned in the first quarter this year in the US which had a GDP contraction because of some strange stuff around imports, calculating GDP is weird and wonky and especially hard in emerging markets. And I'm just kind of long the conversation.
- [19:33]
John Foley
Great. Who doesn't love measurements? Aidan?
- [19:35]
Aidan Reiter
Yes, I always keep a ruler in my back pocket. Well, with that, we'll be back in your ears on Thursday. Until then, stay sharp out there. Unhedged is produced by Trina Menino and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of Audio. Special thanks to Laura Clark, Alice Tremaki, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30 day free trial is available to everyone else. Just go to FT.comUnhedged Offer. That's FT.comUnhedged Offer. I'm Aiden Reithman. Thanks for listening.