 Okay, hello, and welcome to episode 80 of the market maker podcast and in this episode Going to have a predominant focus on the forex market over three key areas one I read a pretty scary headline on Bloomberg earlier this week, which was talking about pound parity against the US dollar which is Crazy talk, but we'll see how crazy that is when we talk to our head of trading Pierce Curran And then going to talk a little bit about the Japanese yen It's broken a very symbolic level against the US dollar 140 this morning Friday. We're recording this That's a 24 year low for the Japanese yen And there's lots of talk on the rumor mill about a potential currency intervention So what is that? Is it important? How does it work? Does it mean there's going to be subsequent impact elsewhere on other currency markets? We'll discuss and then in mainland Europe, even though we're in the midst of a severe energy crisis The fixed income market is pricing in the likelihood of a 75 basis point rate hike now from the ECB so Incredibly late as we've always talked about to the party on pulling the trigger Now it seems they're playing better capture, but at what cost and that's what we're going to discuss And then if we've got time I also want to throw in an interesting ft piece that came out talking about why Funds are now the biggest fans of the Oracle of Omaha Warren Buffett, which seems like a bit of an odd pairing but Pierce is going to explain all However, before I begin and if you're watching this on the video format on our youtube channel You can probably see there's three of us on the call and a new face To the amplify team Steven who? Yeah, Steven great to have you on great to be here. Thank you so much for having me. This is a delight because usually Uh, i'm listening to the podcast and to actually be able to be on i'm i'm slightly kind of overalled by it But but i'm delighted to be here So tell us a little bit about you and then tell us a little bit about the the the reason you're here Yeah, absolutely. Well, thank you guys. I'm going to start right back at the beginning. It's always a good place to start so Let's start back in schools and maybe you guys can go back to your You know your kind of classroom lessons and things like that I just remember knowing nothing about finance knowing nothing about investing kind of Got on with my got on with my university applications knew nothing applied for a job in finance knew very little And just really was incredibly ignorant of the world of finance and investing And so I went through the kind of early part of my career I worked for an investment bank. I started a financial technology company And then I went into teaching I taught business and economics and I saw you know first hand Just how necessary You know basic teaching about finance and investing and the industry of finance Where it fits within the wider world It doesn't get taught at schools. It even if you study economics, it doesn't get taught So I was kind of scratching my head thinking god these kids need a little bit more than what I can provide them in the classroom So thankfully I got in touch with amplify They came over and did a couple of uh finance accelerators a couple of simulations In our big hall at school got 150 kids in there And it was buzzing Um, the kids had a brilliant time 16 to 18 year olds Uh economics and business backgrounds, but also politics students Art students math students. They all came away going my gosh This was better than I thought it would be which is a good thing Which is a good thing and most of them ended up putting it on their personal statements connecting with the guys at amplifier and linkedin Doing the amplify summer course So, you know what better kind of way to continue that momentum than by joining amplify So I joined amplify about five weeks ago as head of schools And my goal is to get Into as many schools as possible and talk and you know and talk to the kids about finance Use these simulations that amplifies got to Really really educate 16 to 18 year olds at that really really pivotal age So in order to do so I need your help So please we want to get introductions to as many schools as possible Please do direct message me on linkedin. My name is steven barnett connect with me follow me I would love to see myself in as many schools as possible I'm really really look forward to hearing from everyone on the pod Yeah, and in the in the show notes, I'll put the direct linkedin Of steven. I'll also put his email address there as well. So please do reach out and yeah Whatever school you go to if you think that we can help in any way then just get in touch with steven You know, we'd love to to really help at that level where we can have You know, hopefully a huge impact on on people's then decisions that they do going forward in life in their education As well. So thank you, steven Yeah, this is this isn't usually, you know, we don't usually support spamming, but please do Clog my inbox up if possible, that would be fantastic Cool. Thank you very much. I'm sure we'll we'll have you back again the next time. There's a big deal Going on we'll get you back on for your expertise on that error as well for sure. Looking forward to it. Thanks guys Cool. Thank you, steven The other thing I wanted to add as well is that we've just announced today that we've actually got 30 New team members joining amplify today in the form of our regional representatives So these are people basically who are students still in study that help us run the free finance Accelerator we put out to places all around the world. So I was just having a look at the list with George and our team this morning and there's there's everywhere from Spain Sweden, Ireland out to Miami, which I know is a favorite of yours, of course Yeah, I love a bit of Miami So, yeah, I just wanted to welcome all of those people I did jump on a call with them a few weeks back and yeah, super excited to have Having the the simulation pushed out all over really so yeah the mission continues and Serena is still alive at the US Open. So if you're a longtime listener our search for Serena Needs to accelerate because time is ticking on the real Serena and we needed a replacement at the top of the table I missed that. Did she win in the second round as well? I think so. Yeah, I think she might Imagine Yeah, I mean this would be one of the Greatest sporting stories in history if she can if she wins this tournament I think the second round the Person she beat was cd number two. I think yeah. Well, I saw who she was coming up. Yeah next I thought okay That's that's obviously that then but she beats it. Did she yeah? Wow, it's on right Andy's still alive as well for now. I think Yeah With his metal hip But anyhow, let's get straight into it and let's talk about the pound first because yeah I saw this word parity and I thought wow, they're really they're really pushing the envelope looking for parity. I mean as far as The British pound against US dollar this morning. We're trading a 115 handle at the moment So a full 15 points. That's a big distance to go But you know, we were talking euro and the euro at the time when you call for parity I think was at what 110 or something like that. I mean, it was a long way off at the time so These things aren't completely off the table But the areas the article was highlighting were the looming threat of recession obviously everyone in the uk is feeling the pain at the moment of The cost of living crisis for sure The acute dependence on foreign capital Soaring debt costs and the likelihood of the bank of england's independence being called into question given Some of the noises coming out with the likelihood not guaranteed successor of borris johnson lis trust of which we'll hear confirmed on monday actually fifth and she will begin work at number 10 the day after it also comes After this week. We had goldman sacks the us of vessel bank came out and they are now leading on the street calling for uk inflation To hit a top at 22 point four percent They're saying that's if natural gas prices remain elevated in the coming months And if that view on inflation materializes the consequence on growth would be 3.4 percent decline in GDP So in context goldman's are at 22.4 City were a bit of a shock last week at 18.6. The boe are still sat at 13.3 on their official forecasting at the moment. So uk pound what do we reckon? well I mean obviously parity it's obviously it's a great sensationist headline. Let's just can we just start there please? I think it was the guy from capital economics, wasn't it? Capital economics are infamous for being huge bears. They're like the bearable bears right the the uber bear So I think it was him. I can't remember his name now apologies for whatever his name is but He's calling parity, right? It's such a great. It's clickbait on the one hand, you know sensation I'm like what parity do I click on that? What's what? So great for click-throughs But look we're at one fifth. I guess we're at 115 now, right? And I mean this is a really big level at 114 is a really huge level um, this was the 2016 low the 2020 low and you know really incredibly important levels that we're at now can it break lower Definitely and it definitely will well hang on not definitely, but I'm very confident that the travel the direction of travel is definitely down The pay has been incredibly weak. I think it was down about four and a half percent against the dollar in august Continues the slide that we've seen for the whole year And I can't see anything at all. There's zero On the pathway ahead That leads me to believe that that direction is going to reverse So I definitely think we're going to continue to go down Which means we'll break those those lows right breaking the brexit 2016 low Which means we'll be at the lowest that the pound has been against the dollar since 1985 And actually in 1985 Well, it was like december 85 january 86 February 86 it was like three months, right? There's only ever been three months in the history of The sterling dollar exchange rate That it's been lower than Basically where we're trading now three months in history where it's been lower. Okay very briefly in 1985 1986 it blipped down Spent three months there and then popped. Okay So we're talking like radical like unbelievably Unusual price levels here. So I mean, we know why it's happening And the direction of travel is going to continue because all of the reasons as to why The pound's been weak this year already are going to continue to get worse. So as you're saying inflation It's going to be a much bigger problem in the uk and europe fanatism you in the u.s So it's got to be all about a comparison here It's the differential when you're thinking about exchange rates the differential What's happening in the uk Versus what's happening in the u.s when you're looking at those two currencies and europe is way more vulnerable to The kind of gas price explosion Which is a function of the russia ukraine crisis europe's way more exposed in the us. It's just fact Secondly the us economy is recovering and is more resilient and is larger and is more self-sufficient And will recover better has recovered better from covet They're not going to have as big an inflation problem as we do They will probably have a softer recession as a result. So all the way along you plot the course and the us is always better off than the uk So the fed are going to hike rates more They're going to end their hiking cycle probably later They'll start a cutting cycle later Probably because their economy's in better shape So for all these reasons you're going to see the exchange rate continues to slide. So how low can it go? And as I said, we're really into open almost uncharted territory In 1985 it hit 108 It might have spiked. I'm trying to get the data like intraday. It may well have hit 105 It's hard to get the Sort of intraday data back then, but we're kind of let's just call it 105, right? And that's the all-time ever low ever ever ever in history Now when that when I say that you're thinking wow, that's like centuries worth of Operation here, but but it's not Because this whole fiat currency system has only been going since 1970 We're not going to get into the history of it today. You need a whole about five podcasts to kind of get through You know the history behind currency and exchange rates and the gold standard and XYZ and then we got peg to the dollar post second world war and then that dollar peg got lifted in 1970 This is where the kind of fiat currency system started where your currency Its value at any moment in time is driven entirely by market forces So really the modern exchange rate system. It's only been alive for 50 years So in that 50 years only three months has been we've seen a weaker pound Will it go to parity? I mean, I I think you're going to need to see the absolute worst case scenario play out in the UK for parity so base case known But worst case. Yes. I mean worst case when you think about 22 inflation When you think about that, I was reading a piece in the Times that my brother sent me Now, you know, you know, it's kind of like out there in the wider psyche Like outside of the kind of financial bubble when you start getting your friends and family sending you stuff You know, my brother doesn't work in the financial sector But he sent me a piece and there was this I can't remember his name now. See Anyway, an uber bear talking about how, you know, we're about to get a depression And the bounce in stocks In the last, you know, through the summer Is a classic it's exactly the same pattern that we saw in stock markets during previous major crashes like the Depression in the end of the 1920s and into the 1930s. It's a classic, you know, huge bear market banks And then the worst hasn't even started yet kind of scenario of doomsday You know, and look it could happen. I mean the chances of a doomsday scenario have never been higher in my lifetime than now In the uk if you think about what's happening inflation at 22 percent, you know interest rates going to have to rise super sharply You know cost of living crisis It looks pretty Pretty desperately bad, right? So if it all plays out in the worst case scenario, you know, who knows all bets are off It could go anywhere But my base case is it probably won't it'll carry on down but won't get down there As I hear you talk all of that through I can't help but think Is there not going to be a huge opportunity in uk assets or the uk market Let's say the visibility over the next 18 months is going to be severely challenging Does that not offer in some shape or form? A good opportunity of looking at the longer term multi-decade pattern of A lot of these products were sterling for example Would that not be severely undervalued? Yeah, I would say well Two angles on that. That's an interesting one. Is it undervalued? Hmm, but I mean I guess in in the sense of We are I'd say in the period of between now and the end of the year Probably going to be in like peak bearish Psyche about the prospects for the uk economy Because what's happened is we know the direction of travel it's just accelerated each time beyond what we thought I mean can inflation go to like 40 percent 50 percent I mean it could I mean in some circumstance on on of certainly if Russia played played a part but I guess my question is is like Tactically, could you wait and is there some degree of opportunity on the horizon in 18 Months two years that type of time horizon Yeah, I think like the value of something right certainly when you're thinking about financial assets And to be honest the value of anything Is what humans perceive its value to be okay? And if the perception is That the value of the pound. Yes, it's Radically cheap Right looking at that historical 50 year chart radically cheap Um So but human perception is it's going to get even cheaper And until you mentioned there, you know what until we hit peak bearishness on the uk economy I think that's the moment where it reaches its lowest point But I in my opinion at least I don't think we've reached peak bearishness yet So that's my opinion. I might be wrong and maybe the goldman's 22 inflation forecast Who knows maybe in hindsight that turns out to be the peak worst sort of forecast moment And then things improve But I don't know you can't say that now and I and I doubt it but so that's that's one thing the other thing I got really cool Because you know, is it cheap? I don't know. Is it cheap? Is it not? one thing to look at on the Purchasing price parity perspective There's a really cool thing It's called the big mac index Because it's like right well, how much does it cost for you to buy a an item that you can buy any in any country on the planet And the big mac is considered to be and this is the economist came up with this great Purchasing price parity measure. How much is a big mac? in every single country And therefore how cheap or expensive is any currency at any moment in time? Okay Right now. Well, here's a test for you How much is a big mac? in the uk Right now if you stepped into macky d's forget about forget about supersizing or meal deals here If you stepped up and said just one big mac, please How much is that going to say? I feel like I'm a uk mp or politician And I'm gonna say like a pint of milk is like 10 quid or something And then if I'm all like think that's ludicrous. Come on. Come on So not a meal just a big mac outright. Just just straight up not interested in fries or a or a milkshake 475 Big macs you're knocking about It's three pounds 69 Okay, three pounds 69. Well, that's that's my perception is that's that's the Steel then I'll take two, please Now in the so then what happens with this index you go, all right, it's three pounds 69 Well, how much is it in the u.s in dollars right the base currency? So in the u.s at the moment it's five dollars 15 Okay, so from that they work it out using the current exchange rate between the two They work out right is big mac are big macs cheap in the uk or are they expensive in the uk and by how much And that calculation is currently showing That the big mac in the uk with the current exchange rate is 13.8 percent cheaper Than it is in the u.s. Which means from this measure that the uk is penned the the Sterling is 13.8 percent undervalued Based on the big mac index Okay Now this is like right now. It doesn't I mean it doesn't mean right. Oh, it's undervalued on the big mac index Right by it. It's got to go up You know, we still think that it's going to get even cheaper right and so this is quite a cool measure google it the big mac index it's something that um, it sounds a bit of a Fat, but it is something that actually the industry do kind of look at and use and I reckon that the uh, the new york big mac is probably like 13 percent bigger In the london big mac So actually it's a parity trade there Looking at a product basis I mean, I can't comment on on that the size of the big mac, you know, well, that's the whole thing about mcdonald's though, isn't it? It's like It that it's the fast food formula It's you spit out exactly the same thing the the unit output is so formulaic That it's just copy and paste and all these franchises around the planet. It's just right. Here's the Here's how you do it copy paste bang. You spit out a big mac. That's exactly the same as it is everywhere else um, maybe you can sneak in a few extra pickles But yeah, so that that's that's one thing we'll come on and talk about the yen later, which on the big mac index is I mean that is that is that's out of there. Um, you think that you think big max is cheap in in come on then in london So so it's 13.8 percent undervalued the pound. Let me just i'm just trying to find it yet The yen we'll come on and talk about it, but the yen is currently 45.1 percent undervalued According to the big mac index um, you're talking about 390 yen for uh, for a big mac in tokyo um Well, but well gone finish finish your Yeah, i'm allowed to finish your big mac. No, i'm done with big mac's lunchtime's over I was just going to move on and talk about well, what happened last time in 1985 When the pound got to this level Um, do you want to go there now? Yeah. Yeah hit me it kind of ties into something. We're going to talk about A bit more broadly which is intervention because well, maybe we should talk about You know, well, hang on is it is it good to have a cheap currency? Is it obviously for anyone who's got a cheap currency, you've got to have an equal and opposite Other side of that where they've got an expensive currency And you know right now at the moment i mean looking at the big mac index. There's only One two three four. There's only five currencies There's only five countries That have a big mac that's more expensive than the us right now How on don't you can you name any five? There's another little tester for you Well, sorry, it's four not five apologies And it needs quite a table of like outrageous inflation rates Well, it's i'll i'll tell you it's the swedish krona Um where the big mac is Eight eight and a half percent more expensive the uroguyan peso 18.1 percent more expensive norwegian krona 21.6 percent more expensive and then the swiss franc actually 30 percent more expensive for a big mac in juneva than new york, but otherwise the other whatever hundred plus currencies Or however, i don't even know how many currencies there are i guess it's more than 100 right but um Yeah, we're all undervalued but um, you know, is it good to have an undervalued currency and yes Is the short answer But there are some negatives and then it depends how quickly your currency is devaluing as to whether it's Because if your currency devalues too quickly, then it can very quickly turn into an absolute economic disaster But if you've got a mild Downward trending currency value That's stably downward trending then it can be a good thing particularly for your exporters Because obviously goods that you manufacture in the uk become cheaper for your international customers Um because the pounds value is getting cheaper relative to their currency right and your products in pounds Okay, so your exporters Often really enjoy periods of currency weakness and they can often see sales Going up as well as then You know, well, yeah sales going up. So, you know revenues increasing profits are increasing You could also say a couple of other ones maybe in terms of positives it starts to attract in foreign investment I think you've kind of hinted at that earlier where it's you know at some point it's like wow so cheap people are going to come in and Right i'm buying a you know your your big guns will start coming in and right i'm going to start hoovering up real estate in london because it's like 20 cheaper for me, you know, your you know Cataris will come in and start hoovering up more london property. Okay. Um, so that'll attract an investment perhaps which can be a positive internally for the economy and then A tiny one that's probably insignificant, but maybe more stacations Because it's more expensive to go abroad now For the uk people i mean so they maybe they'll holiday in the uk Which can be good obviously internally for tourism industry So there your positives the nega the big negative Which is a monster negative right now It's inflationary and oops We've already got a massive inflation problem. So this if the pound continues to devalue It is just going to pour more fuel Onto the inflation surge and this is why your goldman sacks of this world are going look 20 plus percent inflation So if the currency did collapse to parity that inflation problem is going to be worse and more prolonged. Okay It's inflationary because we import a lot of stuff obviously as a developed nation And the cost of imports goes up Because our currency doesn't buy us much as much anymore. So the price is going up is inflationary But if the currency drops super fast People start to panic the whole mindset reverses And rather than those foreign investors looking to come in and invest It's the opposite foreign investors panic And flee And they want to get the money the hell out of there As quickly as possible which involves them selling uk Stirling denominated assets. So let's say you own A property or you own us stocks or whatever right you sell these assets Stirling denominated so that means you have now sterling you then sell sterling To get out So you sell sterling and buy dollars or buy euros or buy croners or whatever right wherever you are But that is the selling of the sterling there in that exchange rate transaction that piles more downside pressure Onto the onto sterling and the value of it continues to slide and then you can often get freefall And then those inflationary issues really spiral And then you have to come come in with proper intervention like capital controls and Things like this But that's more extreme but like russia implemented capital controls You know, you've had other currencies like the like the like the lira Turkish lira You know recently in recent years has been under severe severe pressure so Intervention because what do you what do you do about this? Because obviously it's not great for the dollar. Well, it's not great for the us though, right? Because if ours is cheap theirs is expensive. So for us exporters, this is a nightmare So there is precedent here Where European Currencies Became so cheap against the dollar That they actually did something about it And it was in 1985 The last time we got to these levels Um, have you ever heard of something called the plaza accord? Yes, but give give me the Give me this the well 22nd of september 1985 There's a bit of a meeting where it's in the in the plaza hotel New york city. So are we talking diehard or are we talking? We're talking. Well, you know that yeah, I mean the plaza hotel, right is the The iconic, uh New york hotel, that's where you take the you take the presidential suite. Don't you when you're over in the big apple Well, not at the moment the exchange rates too bad But that was you know, that's the one that on the corner of central park and Obviously very iconic. I was actually just looking at the plaza hotel because I was just interested in who owns it Um, I'm always interested in these kind of big iconic pieces of real estate in in big global cities and like who owns it Guess who owns it? Donald Trump Oh Wow, funny. You should say He used to own it um Doesn't anymore, but the the big donald did have his paws on that one for a while But it's um, it's currently owned By the uh, I was trying to get the official name of the Company, but I can't find it now, but it's the Qataris Who seem to have hoovered up, you know premium real estate in a lot of these big cities Um anyway big meeting 22nd of september 1985 And this is where the us france west germany japan and the united kingdom And all the kind of the heads of the central banks convened And they decided enough's enough The currency exchange rates because it wasn't just the pound that was collapsing then it was everything else All the other currencies against the dollar And by the way, the move there was more extreme than we're seeing now I mean to give you a context march 1984 cable was trading at 148 That's march 1984 by december It was trading at 106 148 to 106 Okay, so obviously a much more accelerated slide than than what we're seeing this year so far Um, but they came together and they said right enough's enough. We're going to intervene And they went ahead and intervened Um, and that led to them the bottom being put in place and actually quite radical reversal because february 1985 We were 105 and by the time you got to that by the time you got to february By the time you got to that summer. We're basically back up to 150. Oh, wow Yeah, so this was quite radical in terms of volatility, but um, yeah, they intervened and I guess Yeah, this is where we perhaps need to talk about how maybe that When you say you intervene Hmm, I mean, what does that even mean? Yeah, so with the japanese yen, I mean that has been On a continuous weakening trend and we've hit 140 area Which as I mentioned before is like a 24 year low for the for the yen But if you cast your mind back only about two months That was when there was a three-way party meeting between in japan The ministry of finance the bank of japan and their financial services agency the fsa That was in june And so one of the things I was explaining to some of our kind of interns at the moment was about this this central banking approach of verbal Intervention before actually physically going in the market and buying or selling of a currency And so They basically kind of posture that they're serious enough that they would do something And obviously the market is using a reference point of the previous historic milestones of wet action took place before Yeah, 140 is one of these these areas I was just reading the last time But one of the major times japan propped up the yen was the asian financial crisis in the late 90s It reached 146 At the time but they have previously intervened at 130 which were well above at the moment because we've breached 140 this morning so Yeah, it was one of those things where it's about there's an incremental kind of build up To the point of then Pulling the trigger and I think one of the ones That you'll remember i'm sure because I remember you were trading at the time Was in switzerland. Yeah And the floor in euro swiss was it 120 at the time and I remember it was like I remember a lot of the prop trading guys at the time It was like no brainer hits 120 and it just bounces back up again hits 120 bounces back up again So it was like a surefire thing Only until Completely unannounced they decided you know what? We're not going to protect the floor and I guess someone like Switzerland is a bit of a unique case because in that case it was that their currency is getting too strong, right? But they're an exporting led nation Yeah, which is problematic Well, I mean, I remember that very very well It was in 2011 during the euro zone crisis where the euro was collapsing in value against the swiss franc that the swiss central bank stepped in And this is enough and we are we are going to And their their words. I remember very clearly we're going to use unlimited amounts of money To protect this floor. We're going to put a floor in at 120 We will use unlimited amounts of money To protect that floor and obviously they're a central bank. So in theory they can print money So in theory they do have unlimited amounts and so That floor was in place and as you say it was like It was like a brick wall. You shall not pass So obviously from a trader's point of view and actually it was a bit like a few episodes ago Those regular listeners will remember us talking about Mario Draghi's bazooka And if you whip out the bazooka, you know, you don't need to fire it As long as people believe That you're prepared to fire it and so actually the swiss francs Yeah, they pulled off this trick. They they actually spent very little money protecting that floor because market forces did it for them until William DeLucy's birthday On the 15th of January 2015 Which was Will's best ever trade of his life on his birthday 15th of January Because as you said the central bank because by then the euro was was devaluing the eurozone was in deflation They were forced into finally rolling out a massive quantitative easing program The euro was devaluing again and this time the central bank were having to prop it up And it was costing them money And they thought this is we're fighting against an impossible tide here So they just pulled the peck and it dropped from 120 down to What was it like 80 0.82. I think it was it's even well, I think at the time I know it dropped like 30 percent in like bang like minutes and will got in early like shorted Can I just say how did you get in early? Well, I mean early as in Very quick in what he heard the news very quickly. Did he yeah, I see. Yeah, I mean we had such a phenomenal new service provider Yeah, you might have heard of him Anthony Chung Yeah got well ahead of that. I mean seriously. I mean, yeah, it probably was your Intervent your kind of skill that led to us getting Being aware of the news being conscious of it, you know early in that kind of news cycle and he shorted the currency pair And then it just started to go into free fall But actually the market closed because these markets they got these mechanisms if they drop or go up By too much too quickly. There's like this circuit breaker Where the market then closes Like for 15 minutes and then they kind of reopen it So he was naked he was in a short position but unable To do anything about it because the market was closed not that he was worried because we were looking at the futures Markets or like the spread betting markets that were still open That didn't have the same kind of breakers and it was going down town So it was like this is an amazing trend no matter what happens This is like the best trade I've ever done We've just got to wait until the market reopens and then I can decide what to do and cash in and yeah It was on his birthday Happy birthday Well, I can only imagine what that night out looked like Well, look on that on that no, let's let's There's two more things I want to cover So one the final conclusion to the kind of forex mix which is talking a little bit about the euro And it's this idea now because I know we've been if anything probably a little bit critical about the ECB in terms of How they've approached this inflation crisis and You know inflation is heading double digits now in in the eurozone And likely still some way to go the market has now shifted its focus towards next Thursday's meeting Next week they're going to hike by an anticipated 75 basis points Which is obviously bigger than that first Executive move of 0.5 And one of the things I thought was quite interesting was the ECB board member isabel schnabel She spoke this week and she said that central banks must tighten policy even into a recession And you remember the jackson hall power speech. He said that taming inflation will cause quote some pain So, I mean This language that's coming out now is pretty unprecedented, right Talking about pain talking about doing whatever it takes irrespective of the consequence essentially Yeah, it's valka 2.0 The this is what paul valka did in the 1780s to tame the inflation beast. We're gonna hike It's gonna hurt Deal with it. We've got a bigger problem here. It's inflation We're gonna cause a recession But we know that and we consciously know that and we are consciously going ahead anyway Because there's a bigger problem. So, yeah Yeah with the ECB, I mean look they hiked once as you said by 50 basis points. They're always behind You know Behind the cut. I mean like the bank of england have already hiked five times Um Taken rates now to 1.75 percent, but the ECB have hiked once to get rates up to 0.5 Meetings next week. Are they going to hike by 0.75 percent? I think they are I think that's I think that's a shoe in personally. It's like the new The new modus operandum isn't it 75 basis points. It's just what we do as central bankers Here's a pop quiz who hiked by 75 basis points Yesterday Yesterday. Yeah, come on. You're supposed to be the man of the news The mexican central bank Hiked by 75. I mean ever at least like 75s The new norm, isn't it? Hmm. So I just think they'll go 75. They're behind the curve I mean, I don't I mean, I don't think they should But they will Um, it's probably mine. So one thing thinking about these kind of basket of currencies against the dollar What probably doesn't help as well with sterling's prospects is the fact that Um, I was looking at net short positions of the euro So this is where you can look at weekly data that comes out From the cftc in the us, which basically is just tracking Um, open positions and you can determine whether they're long or short and essentially they're currently the most bearish Since the first week of the of march 2020 You remember what was going on in march 2020, of course Yeah, so yeah the your faith in the euro is Equally bearish at this point Yeah It's the same with the pattern. It's a parity, but it doesn't really matter. It's going to carry on going down Like the pound is Against the dollar. I mean how low I've got to be honest. I don't know 95 90 I don't know in the year 2001, which is the record low for the euro against the dollar hit 84 so 0.84 so I mean there's From that historical range point of view. There's there's plenty of room still to go. I know parity seems so radical in recent times, but Yeah back 20 years and that's that wasn't radical. Yeah, and you mentioned earlier about the the extra layer of I guess Given its proximity to russian dependency on its gas flow of that situation So a couple of things there are stats the european gas prices last week. They're more They've more than doubled in one month They're seven times the price at the same time this time last year And right now we're in the middle of the latest three-day holds of the Nord Stream pipeline So those antics are still happening at the moment one thing to put a number on it Goldman Sachs were talking about the level of risk they see of russia permanently Going beyond maintenance to just turning the tap off They said the permanent Nord Stream hold is not their base case I'd say that's very much uniform shared on the street And they're expecting flows to restart a pre-maintenant levels of 20 So I would suggest the same. This is all just tactical on the half of russia at this point The context of course comes as germany's gas reserves They're only about 83% Full and even reaching the country's 95 target would cover less than three months of heating industrial power All these sorts of things so Yes, again, it remains optimal conditions almost for leverage for For putin right now, which is obviously uncomfortable for europe going into Uh this this situation actually the thing I was reading is the one thing that's out of all parties control europe Putin as much as these are real risks is actually the weather Indeed if we get an early On set of cooler temperatures and a more long lasting Deeper winter Essentially that could be at the uncontrollable silver bullet that really Heaps whole ton of more pressure on the euro. It's just going to be sod slaw, isn't it? We're going to have the coldest Windsor. Yeah that on record or something You know, you could just just well after we hit what was it 40 degrees? Yeah, I hate to say that anecdotally when we have a extremely hot Period is followed by extreme cold snap but at the moment just to alleviate some tension temperatures are expected to be above average in early october at least as well The major weather stations are forecasting at the moment in europe But just to point like from an economic damage perspective, right this high gas price situation obviously the The the the obvious thing is to go while people are spending more money on energy So then then therefore spending less money Elsewhere and that's a huge problem, right going into the winter But when you're talking about the level of reserves being way under What they really should be or need to be this is when you get a secondary negative economic impact where you don't have enough power And uh industrial businesses have to close or just not operate at full capacity Which is happening in china, right? Right. Yeah. And so that that just has a double whammy kind of negative impact on On the economy because then what do you do as a business if all of a sudden you've got to cut your output You know from 100 to 75 percent. Well, I don't need as many staff now So right i'm going to make those lot redundant. Thanks very much And then this is where your unemployment situation turns And this is where it's like this big snowball effect people losing their jobs They're not only can they not afford to buy as much because of energy when they haven't got a wage coming in You know and it starts to kind of spiral and this is where these kind of Yeah, that that kind of outlayer of the nightmare scenario is the depression scenario is if that snowball Really really gathers momentum as we go through. Let's say a really cold winter. So Okay, final final topic then this quickly is the ft reported this morning that quant funds have been Hoovering up shares in warren buffett's berkshire hathaway and they were putting out some big names in that space The renaissance technologies de shore bridge water others Are said to have bought stock worth more than 900 million u.s. Dollars in the second quarter Why Yeah, it's a bit of a funny one, isn't it like and actually buffett himself's been pretty critical of quant funds, let me look he's an old guy and I think you know When he started investing Literally computers didn't exist But they hadn't been invented but the personal he was investing back in the 50s, right? Anyway, he's kind of been a let's just call him a slow adopter Um, but so it's a bit ironic then when yeah, you're getting the quant funds piling into berkshire hathaway So renaissance technologies for example Bought I'm just trying to look here. It's like 1.7 million shares in Berkshire hathaway and by the way, what are their shares trade at they're insane aren't they? Yeah, I'm just going to check now. It's um It's upwards. It's like 200 odd thousand per share, isn't it? Let me let me just check they're the most expensive share in the footsie 100 Hang on this is where I forget how to spell Berkshire Berkshire hathaway Let's see a class shares Are knocking out at the pro Oh, okay, they're 424,290 dollars per share So, uh, yeah, good 280 bucks Okay, so yeah, all right a bit cheaper But if you want the uh voting rights, then it's going to cost you but um, but anyway Yeah, renaissance technologies piling in another firm called Hudson Bay capital de shore big buyers In quarter two And so yeah, what why is this happening? Well really it's nothing to do with necessarily Buff it. Well, I guess it is basically Berkshire hathaway happened to be the largest component in the s and p 500s value index So obviously Berkshire hathaway Warren Buffett. This is a His company invest in other companies And so well, who are the other who are the companies they're investing in because if you're buying a slice of Berkshire hathaway, you're actually buying a slice of their investment portfolio So who's in the portfolio and it's packed full of value stocks and obviously in quarter two big risk off And so we had this big rotation out of growth stocks tech stocks getting hammered And into value stocks these value stocks are companies that have relatively stable revenues relative to cyclicals and are typically like Dividend payers very consistent dividend payers. So they're the safe havens of the kind of Stock market world. Okay. And so it's a very attractive Thing if you want a defensive strategy, you know during times of bearishness and uncertainty Also, there's a lot of momentum Strategies out there in the quant worlds. This is like trying to identify You know, which share prices have momentum in terms of their movement and you're trying to jump on board and ride that momentum because you're thinking it's gonna Gonna continue so so Their stock has way outperformed in 2022. Although it has dropped six percent Year to date The s and p's dropped 17% So it's a big big outperformer on that front But yeah, who's in and we talked about Buffet Brie or Berkshire Hathaway the other couple of weeks ago because there was that thing about apple I mean If you're buying Berkshire Hathaway, isn't that just an expensive way of buying apple shares? Because the portfolio is now 42 apple But you could say these days Now is apple the new safe haven? But anyway, because they're a dividend payer And they ain't stopping paying dividends. I can assure you of that and they're not stopping buying back shares And so for those reasons weirdly even though they're a tech stock They've kind of almost perversely become a bit of a value play in some ways, but it's there are the holdings So they're big ones. They such Berkshire Hathaway They own a bit of energy. So chevron So they own 8.4 percent of chevron Which for their in terms of Berkshire's portfolio that makes up a 7.4 percent waiting in their portfolio They own a big move into occidental this year occidental petroleum So they own 20 percent of that business now and that makes up 3.7 percent of Berkshire's portfolio other stuff like coca-cola very famously He's owned coke for decades and decades. He owns 9.2 percent of coca-cola and they're obviously Great. Yeah, it's amazing craft Heinz that was a big M&A deal That kind of he was kind of involved in a few years back so that he owns 26 Of craft Heinz That makes up just 3.6 percent of his portfolio He owns like Moody's he owns some banks like US Bank Corp. He owns Bank in New York Mellon He owns Citigroup. He owns 2.9 percent of Citigroup. So anyway, you got these companies in there that a good value plays Banks are good when interest rates are going up You know, so this this because of the makeup of the portfolio. That's why right now It's been a really attractive destination for a lot of money, including Quant funds I was just thinking like when you were talking about Apple there given the Lot of our listeners. It's a it's a favorite name, but given the high proportion of His holding and his general firm's characteristics of Hold forever type of strategy In combination with the dividend and the buyback with the With the competitive market share Their branding the whole nine yards What's the reason not to hold Apple then over the long term? I mean everything seems so like if you are thinking about You know buy and hold Yeah, is there any other better options out there? I mean there probably are but I mean Apple seems so Compelling on many different levels. Yeah, I think certainly these tech giants more broadly have been Maybe obviously maybe not Facebook, but you know, Google Microsoft Amazon Apple those four specifically Have been phenomenal in the last 20 years and The thought is there'll be phenomenal in the next 20 years so their giants and You know, they've got a direction of travel. It's hard to see how that's not going to continue. So, yeah They've become the big kind of buy and holds Of the of the new era perhaps But then from a puppet perspective because of Apple's dividend and and that side of it That's why yeah, there's just a select choice out of the big four, right Absolutely. That's a really good point and they're the only dividend payer Is that right to Google pay any dividends? You might have to fact check that but um I think they're the only dividend payer Um, certainly have been the most aggressive share buy backer So, yeah Cool. All right. Well, uh, we'll wrap it up there so just to To recap, please do check out the the links in the show notes whether via the podcast directly on Spotify apple Or on on youtube you're watching the video for stevens details. Please do Help us out again. We've typically been targeting university level Students, but we really want to take this to the high school level Really make an impact early. So yeah, feel free to get in contact with Steven Let us know if he could reach out or you can introduce us to to a school That would be amazing if you can help and yeah, we will see you next week same time as usual Thanks, piz. Have a good weekend. All right. Take care