 Okay, hello and welcome to episode 89 of the market maker podcast and Piers is back Hello Look at that. If you're watching this on video. So before we started this I was trying to tweak my lighting And I was because we record this on on zoom. That's tweaking my lighting trying to play with the webcam settings because Even though I'm half Chinese which I guess I should have some sort of shade difference in skin color to you In Caucasian Piers, you are significantly darker than I am right now because of this Autumn on autumn winter tan that you're rockin these days. Where's your where's your bronze filter? You need to be finding you need to check that box if you want to compete Hello, you know while you've been away. There's been you know, just a couple things happening. Yeah changing government I Tech earnings blood bath in some respects for some companies. I think what was it Amazon was down The day after the earnings in excess of 20 percent. Yeah, it's funny plus wasn't it? Yeah, which is huge Obviously Zuckerberg Still treading water at this point, but yeah, I just wondered when you're away Did you get a chance to catch any of those any sorts? Well, I did You know keeping my ear to the ground obviously. I also got an email dropped into my inbox from a certain mr. Anthony Chung Listing out in fine detail All of the numbers in the breakdown from the yeah, the big the big tech guns. So yeah, thanks to you But yeah, I'm not gonna lie. I was kind of sat on the Sun manager. Just having a sneaky look I phone it's hard to It's hard to resist So if you if you were gonna pick one though when you read that list that kind of jumped out to you Was there any specific one? I guess Probably Google I Mean look Amazon. I know got shopped terms of share price reaction Much more aggressively, but you know the nature of that business even though their AWS side of things of course is Is the jewel in their crown and it's the fastest growing part of their business and has been for years You know, of course, it's still not there yet in terms of size compared to the big retail global retail kind of Network so obviously Amazon still is perhaps more vulnerable to a kind of macro headwind Perspective and because also Amazon run with much thinner margins As a function of that kind of retail distribution kind of business model. So I think with Amazon Still don't get me wrong. I wasn't expecting Such a bad report on the share price to drop 20% I mean certainly wasn't expecting that at all, but yeah, I think Google Has been incredibly resilient. I mean Google of course a large part of their revenues is Advertising and so you might think traditionally then that you know, that is vulnerable as a revenue stream heading into a recession Historically, you know businesses tend to when they're looking to look into trim costs to tighten the belt Then often the advertising budget is the easiest and the quickest thing to kind of turn off and on But Google's a bit different to normal advertising Or companies that generate revenue through advertising You know, it's less about here stick an ad on my platform So the people on my website can see it obviously for Google people are going It's a destination for people to go to to very specifically search for something and then so it's a slightly different much more resilient Sort of advertising revenue and that's and they've been you know, very Resilient throughout this year so far and through the energy crisis in the inflation situation. So yeah, they do segment out YouTube right outside of the Google core search business. Yeah to effectively manage what you're describing Right. And you know YouTube was hit more than then that core kind of search side, of course, but Given their resilience this year. I wasn't wasn't expecting quite the Kind of negative report that we saw so yeah I think out of all of them probably the Google one was the one that was like wow interesting and actually a real kind of Well, you know real kind of heads up to say, you know, whilst a lot of this data We're seeing is showing that the economy is resilient actually You're really genuinely now starting to see things turn And then just looking looking at the actual Share prices. I mean, I was keeping an arm them obviously in the aftermarket but also Conscious of zooming out and stepping back As any investor would to think that these tech giants. Okay, Zuckerberg aside these tech giants are here for the long haul and so At what point is the pullback severe enough to I guess the first Destination would be technically Well technicals aside is where were we prior to the pandemic and How much have we pulled back now and I know there's a bit of a difference with these names And just before we talk about the individual big name share price moves, I just want to make another point I take an index like the S&P 500 and you take the big five tech firms You know Apple Amazon Microsoft Google do I want to put Facebook in there anymore? I don't know. Let's let's just keep them there, but I perhaps wouldn't include them for now But I'm point being about 20 Literally about 20 to 20 about 25 percent of the S&P index was those five companies Right, it's crazy How big the giants have become and and how they dominate now in terms of market cap in you know These massive indices, but what is the story of this year? I would say has been Up until Now it's been the smaller guys generally speaking. I've been hit quite badly Talking about through quarter to quarter three Through the summer So you've had some stocks particularly on the tech side small tech and they're down like 70 80 percent From their highs from the end of last year, right? So big big big cutbacks. All right But during that quarter to quarter three period the big tech giants were resilient They weren't coming off anywhere near as much so they were staying strong So net net the index talking about the S&P. Yes did come down, but really only 20% Right, even though a lot of those names below the big guns are off 70 80 What's happened in the last few weeks or certainly last week? I think it's almost like the exact opposite Where now you've got the big guns have been chopped back But actually all the other little guys underneath they haven't come off. All right. There's been a lot of volatility But but actually they're quite Relatively stable So you've kind of had this opposite effect and net net the S&P. Well, yeah, it has come down But not by much right and we're certainly not you know, the lower the year for the S&P is still mid-October The S&P lower the years at around three thousand six hundred and we're right now trading three thousand seven hundred and thirty six So whilst the this kind of tech earnings pullback has been You know interesting the whole index hasn't really suffered and we're still trading above the June lows Mr. Bang So I think it's quite interesting. We've now seen the big guns get pulled back Whilst the the majority of the smaller guys have stayed steady. I think this is quite an interesting sign And and that's almost a segue into talking about the Fed. It was Mike Wilson who's the chief u.s Strategy for equities and Morgan Stanley. He was talking about he's now Saying that stocks could go up. I think he said to 4150 so this was a would would be a six percent gain from last Friday's close basically or Friday's close And he was talking about a short-term bullish call to put context on this He's the biggest to bear by country mile on Wall Street And the rationale he was putting there was about the end of Fed tightening is near and a lot of that came from a journal article from one of these Informed sources that was talking about the Fed are just about ready to pivot now and start stepping down the increments of 75 basis points, but now we're gonna like reduce that and Continue to do so going forward. We've hit peak and that was why markets before the Fed came out We were trading what back at nearly four thousand in the S&P. Yeah, only a couple days ago Yeah, but before we go into the Fed. Yeah, that's about the the share prices though tech giants so So, well, where do we start? Well, let's just mention Facebook as a just Well, I was gonna say an amusing side point. It's not amusing if you own share shares in Facebook It's the exact opposite, but I mean obviously this year has been just an absolute car crash Monster collapse in February March Downward trending of a since then and then our big nosedive last week, but net net than about 75 percent year on year and Just looking back longer term Facebook shares are back to where they were trading summer of 2015 now Not not far off, you know quarter of the a quarter of the value of where they were sat You know this time last year so obviously Facebook's a particularly extreme situation Take Facebook out of it and take the other big four Apple Microsoft Amazon Google. Well Amazon first, I mean trading below 90 now so sub 90 bucks for an Amazon share and You know, they're down about 48 percent year on year So they're the next worst with regards to year-on-year figures Amazon are now trading back is quite interesting They were trading at 90 bucks back in 20 July 2018 Though we've got Amazon now at a level we haven't seen for four and a half years Giving back all of the pandemic all of the pandemic bump So certainly if you're looking at which of the big four tech firms share prices are currently trading at the largest discount Relative to all-time highs then Amazon is that what but you got to think about they're not just for tech businesses They're not Just the same business often people just push them into this bucket They're just massive tech, but clearly they are very different businesses And so as we've already said Amazon's perhaps a little bit more vulnerable to like a macro Down-term just from a retail point of view and they got much thinner margins as I've already said so, you know Amazon's looking very Attractive but could go could go further. I mean it's hard to judge isn't it and what I think well Perhaps talk about the kind of macro bit when we talk about the Fed, but yeah, so Amazon's 48% down year on year If you take the next worst, which I believe is actually Google They're trading at 85 bucks. Well, I say Google alphabet class A shares trading at 85 dollars And that's offer 150 dollar high that we saw back 12 months ago So, yeah, they're back to levels Seen at the end of 2020 so they haven't given back like pre-covid. They were trading at 60 So Google's still above that kind of pre-covid levels Microsoft here on year down 35% I mean, these are big numbers now, right? 35% and trading back to levels. Yeah, since seeing the summer of 2020 and Then what's quite interesting? So those are big numbers. So so I'll Amazon 48% down Google I didn't do the math on that. Let's just say 40% Microsoft 35% year-on-year apple Seven It's only down 7% year-on-year. So out of all of this Apple are still I guess the biggest one from a market cap point of view and actually they're the last man standing if you want to call it that in terms of avoiding, you know, monster Kind of pullbacks and they're trading when they're trading at levels. We were seeing Star 2021, but I guess what happened to Apple was which you got to understand is they didn't quite have the COVID explosion That these other businesses had, you know, Google and Amazon of course particularly had massive upsides during COVID apple Not so much so whilst they didn't bump so much in COVID It makes sense. They're not pulling back so much, you know, so opposed to COVID. So there is that to factor in But yeah, so out of all of them from just a year-on-year share price point of view then You know, these big guns have finally, well, apart from Apple, perhaps have finally turned and slumped The whole index hasn't gone with it Which for me is a pretty interesting kind of behavioral sign because if you wanted a reason for another big leg lower in these indexes Then we had it last week, especially if you heap on top the hawkish fed from yesterday It's like if this thing wanted another big leg lower the whole index, I mean, then it Probably would this was the time and it hasn't happened. So I for me. I think that's quite a powerful signal that maybe the bottoms in Yeah, because the if you actually would to look at a chart of the s&p 500 the october Kind of low is pretty much I mean, we hit 3,500 through about volatility And with even with the sell-off that we've had in the last 24 hours or so still training at 37 and a half So yeah, the Fed have come out They've been quite clear and we can just discuss this now, I guess about their intention that look There's more pain to come. We've got to continue tightening and stocks have reacted negatively But you're right. The big forces here from a top level perspective down have come out and are clear from the bottom Going from a micro level they've come out and as you said the biggest influential factors on these indices have come clean And yet here we are we're not smashing down through 35 we're far from it. Yeah 250 points off it Yeah, what else needs to happen? Well, exactly I mean midterms come out But that's not going to shift the needle in that way and if anything history would tell us The actually indices tend to perform better because they come out of it at least with again Clarification of what the latest status is once you remove the uncertainties Away from the table. So Yeah, it's definitely interesting right now. I think with the Fed so Look, yeah, I mean your your man at your suit uber bear at Morgan Stanley who's turned bullish You know, he was hoping like I think probably the majority Fat the Fed would come out hike 75 basis points again for the fourth meeting in a row but then signal Look, we're going to take the foot off the accelerator. Not we're not going to stop hiking But we're going to start to hike at smaller increments with potentially the last hike being Maybe in December, right? but the the kind of flip card that Howl slipped in there last night to turn the whole thing on its head was Yes, he kind of fulfilled that expectation, but then he added But we expect the terminal rate to be higher Than it's currently being priced and what was being priced was 4.6 percent, right? So if rates were at 4 percent now, you could have said 150 basis point hike in December Maybe slide in a 25 hike In sort of end of January and then done right finishing around about four and a half to four point seven five percent But now markets are pricing. They're going to have to break five percent So that terminal rate is the peak of the hiking cycle And basically Powell said last night look guys, it might be in size five If not more, I mean he didn't say the number precisely like that, but that's what markets are interpreting. So Yeah, just that higher peak In the hiking cycle was that curveball Last night that just took the because the s&p rallied one percent Initially off the back of howl saying look we've gone 75 today Most likely it's going to be 50 in December. We're going to start to slow down bang big upside one percent Then he said but look guys The terminal rate is going to be higher and it all flipped and the s&p finished down 2.6 percent on the day Hmm And then the one of the other points that he made Which kind of then starts to link in the bank of england He said policy needs to be more restrictive and that narrows the path to a soft landing Yeah, because one of the things the bank of england was saying who came out earlier today recording this on thursday Um, they talked about they now believe the economy is a british economy He's already entered a challenging downturn this summer that will continue next year And into the first half of 2024 That will not be the uk's deepest downturn ever but it does Date back to i think it's the 1920s So it goes back to the longest since records begun in the 1920s a little biggest downturn in history but certainly since records began so There's a challenging hugely challenging period ahead and one of the things i thought was interesting there was that that It leads us into the next election and so rishi's come in We're about to be sat in a recession for his entire Period it's not like when abama came in you remember when Smashed between him winning the election. I remember in three months I think the s&p fell like 30 or something ridiculous because he he was Coming in on the back of the previous administration central bank decisions that had taken place He came in obviously rates got slashed and everything happened and stock market bounced back He'll take credit for that of course Rishi We're in a completely different cycle where You can't The whole reason for the power for abama bumped when he came in was because None of the creative stuff and in the policy easing sense was really deployed until that point We've already gone through all of that post-covid. You can't really go into that because we've got an inflation problem I mean Well, he's got his work cut out Yeah talking about you know setting you know conservative Prime ministers Setting, you know all-time worst-ever records Like truss shortest person in office ever. Well, yeah, it could well be rishi sets a record Where it is the economy worst performing economic conditions You know under any tenure of a prime minister ever kind of thing, but I like going back to the bank of england On the one hand they did exactly the same thing as the fed On the other hand their message was the exact opposite So they both hiked 75 basis points Okay, but the bank and the fed said hiking 75 That the terminal rate the peak in the hiking cycle though is going to be higher It's going to have to be higher the markets are currently expecting that was the fed the bank of england hiked 75 basis points and said You know what? We're probably going to stop here secondly The peak In the interest rate hiking cycles actually going to be lower than what markets are currently expecting Super dovish So the fed did a hawkish 75 hike and the bank of england did a dovish 75 hike by The language they use about what's coming next and further down the track And some of the stuff the bank of england I mean they basically came out with two scenarios from an economic sort of Let's just say forecasting point of view one was like Doomsday worst case which so this the hits was here They said interest rates would would have to rise to 5.25 percent. So bearing in mind. They've just hiked to 3 percent Okay So doomsday is like it's going to have to inflation carries on being a much bigger problem than we currently think It's rates got to 5.25 percent and we enter into a recession That lasts for eight quarters So as you were alluding to earlier like the worst recession for like a century eight quarters I mean that's just unimaginably bad That positive scenario was and this is their main theme If this is the peak for inflation, it's going to peak in quarter four We don't need to raise rates anymore 3 percent. This is the top And if they're right then fine Inflation drops back down. I think they said 5.6 percent inflation by the end of 2023 2.2 percent by the end of 2024 and it all just slowly kind of comes back down and rates don't have to go above 3 percent In that scenario though, they're still predicting five quarters of contraction I mean that's crazy length of time. Even that is just crazy for how long a recession might last normally recessions last like nine months max So even their positive scenario is pretty ugly, but I think one thing also because of all the mortgage debacle From the mini budget obviously from our sort of people out there on the street point of view freaking out panicking You know, there's two million mortgages that are up for You know expiring or the deals are expiring in the next 12 months two million mortgages and so people are freaking out quite rightly about wow, I'm going to have to Rearrange my mortgage at an interest rate. That's way north of what I've been used to and it's going to cost me I think on the on an average mortgage 130,000 a year If you rearrange your mortgage now You'd be paying 3,000 pounds a year more in interest payments That's a lot of money And so people are quite rightly freaking out. So one clear message from the bank of england. Yes or today was Rates aren't going to go above 3 percent. We're here. We're done inflation's going to peak It's going to come back down basically sending a message to the banks The mortgage rate setters and the people out on the street that look this big spike you've just seen in these mortgage rates You're not going to have to rearrange your mortgage at this spike It's all going to come back down Don't panic Was that kind of underlying message? I mean, there's one there's one key assumption that you're making there Which is the Rishi Sunak is fiscally prudent And that he would have learned from the lesson of what just happened All of these forecasts from the bank of england are from mid-october This is pre Rishi pivot As in Rishi's kind of plan is obviously much less inflationary and some might argue deflationary Right compared to trust's super uber inflationary thing, right? So When the bank of england say they think inflation is going to peak in quarter four and then it's going to start to come down That's even before the rishi effect, which should make that even more likely to happen Yeah Yeah, it's just about the idea of if you're looking to guide certainty Yeah to the market and you're releasing economic forecasts Without the government actually having decided anything really at this point, right? Well then what good are these forecasts? Yeah, that's fair moment in time. So that's fair. I just think that they That's actually going to be that they're going to be subject to change is all Yeah, but my point still stands the direction of travel From a fiscal point of view now Under sunak is not in is not should not contribute to the inflation problem Right Yeah, so Okay, well looking at the pound. I just had out the chart up talking of reversals from where we started Yeah I think the the rishi honeymoon's over Um, we're trading just under a 112th handle at the moment to sterling, but well Yeah, trust low is obviously way lower at 104 It is but look there's a lot of uk political volatility in that sterling dollar chart In the last month step back then It's been trending lower When you care if you want to well, you want to go all the way back. It's been trending lower for like 15 years, but um I think now the political noise has gone Then you're still left with this scenario that a the fed or more hawkish than the mank of england that has just been Absolutely clearly reconfirmed in the last 24 hours. Okay, so the fed away more hawkish that should lead to Sterling devaluing against the dollar. Secondly the uk recession It's going to be a lot worse and probably a lot longer than the us recession. So probably The economic divergence should also lead to the currency exchange rate continue to go down So I think whilst the noise on the political side in the uk has perhaps been put to bed Don't now think oh rishi's here great sterling is now going to rally back to 120 No, the big giant macro forces. I believe Or actually still probably suggesting the exchange rate goes lower back below 110 Yeah Don't disagree yeah, and then Finally to round things off just quickly. We'll see if we can keep it to five or so minutes But it's happened and Elon Musk has taken control of of twitter there's been lots of tweets as you can imagine I even passed comment about some of the activities that have been going on as far as since he's come in which from a top level Announcing plans for a premium eight dollar a month subscription service Now I was going to ask you about this before you before you go on Because I was going to ask you You know, are you had you feel about paying eight bucks a month? Just assuming that you were a blue tick Guy But then I went on twitter and you're not Where's your blue tick? Obviously not quite important and how'd you get how'd you get a blue tick? So before there used to be a process where you'd have to submit It would be the same on facebook for instagram as it would really for twitter Yeah, you need to be in a category of some influence So politician a sports person a music person and you need supplementary material to suggest of your influence So an article in a major publication So on a fourth or a volume of following on a certain platform With to authenticate and this is the key for me of why this model doesn't work Yeah, it's because I know that Certain political circles will say well freedom of speech everyone can pay And the problem they have is about Who is actually setting out the parameters for who gets selected is their key problem with the way it used to be done Right, my problem is If you give everyone access To having a blue tick Which obviously still equates to a previous anchoring psychologically of someone of relevance That what they're saying has been fact checks and verified and is authentic Now any man and his dog Can have that ability And I know this is the opposite view because his thing is about freedom of speech But I feel like the problem is going to be exacerbated because misinformation will spread far easier Through issuing an ability to have a low barrier to getting Verified yeah And actually there was a there was some research I saw about I think if you were to convert all of the current verified users of twitter into an eight dollar sub Yeah, I think it equates to something like 50 million dollars Well, I think it's well, I I heard I heard that there's Hundreds of thousands Of twitter users that have been verified. So we're only Hundreds of thousands. So I just plucked a number. Let's assume that's 500 thousand That's four million dollars a month So 48 million dollars a year which For a company the size of twitter Strikes me is not moving the needle particularly. I've got I've got the numbers here So if every single currently verified user signed up to pay But no others Yeah, that would be worth 40 million dollars a year Right. Yeah, right. So it's less than 500,000 if the company successfully convinced 10 percent of its 229 million active users to pay the proposed eight bucks A month charge they would generate Circa two billion dollars in revenue Um, that's a substantial sum obviously, but it's still less than half Of what they make in just standard ad revenue. It's housing, but that's contingent. I've got a flip 10 percent Yeah, of their active users. There was a big poll done by jason Alcanis, um He did a poll on his twitter handle and that he had 1.2 million respondents. So A very insightful the sample size is huge and the results and he he asked what you know, would you pay He actually said would you pay five dollars a month? And 80 percent Said they would not 80 So then 11 percent. Sorry. Hang on 80 percent said they wouldn't pay anything. They're not about to pay anything 11 percent said they'd pay five bucks 5.5 percent said they pay 15 bucks so, yeah, look, obviously Obviously elon's going to try a whole bunch of stuff here to kind of try and turn this thing around and Uh, obviously on the cost cutting side of things as well, but from a kind of You know more further revenue streams. Yeah, this this first one. He's going at pretty hard by the sounds of it He's getting the developers working through the night. It's pulled engineers from tesla from tesla I don't know how that makes me feel if I were a tesla shareholder Well, this is it, isn't it? You got such a weird scenario, isn't it that you've got two companies that Are not related in any way whatsoever in terms of the businesses that they are and yet You've got this weird scenario where you got a dictator sat at the top of the tree We can pluck people from one to the other and yeah Now from a shareholder point of view holding tesla shares. You're like, hang on a minute How that I done, you know, I didn't sign up for this um, and so It will be very interesting to see what happens to that tesla stock in the weeks to come as Elon messes about With his new toy Yeah, it's interesting because I mean tesla Has it really moved a great deal? Yeah, it does make me um One thing is I passed judgment of what I thought about elon's latest moves And uh my linkedin got attacked by the elon esters Who've come out in force to put me in my place Yeah, it's such an interesting um situation because the the common theme in their posts Is similar to the atmosphere that surrounded the game stop situation whereby a lot of people are saying What's so different between what a private equity firm does As to what elon is doing other than he's a public figure and talks about it It's all it seems to cut at the core at this philosophy Of there's us the people of which elon represents And then there's the suits Who've been robbing people Since the beginning of time and it makes people very angry and that when I look at tesla share price and it hasn't moved Yeah, when to me from a governance from a general That's the word governance from a that's why it's different from that perspective I I do find it incredibly hard to see how You can manage multiple one being a trillion dollar business in a leadership style which is Very much dependent on a singular individual because I mean he has sacked the entire management team pretty much Of twitter straight off the bat and the whole board So yeah, I wonder how on the long term I I think short term I think it's remiss to think that tesla would have a negative impact but I think as he goes on and one of my concerns about him as a as a business owner or operator is that I feel he's very ambitious So he's not going to stop and go reverse and think actually I better just see to it and improve and make sure What I have is firing. He's going to accumulate more and more Twitter's the current fascination. He'll move on to the next thing. Well, and then at some point literally metaphorically the wills will come off Here's a counter argument could be good for tesla because Look there's four companies now right that he's got tesla spacex the boring Which is his tunnel boring company Which isn't obviously anywhere near as big as the others and then and then twitter, right? But it could be that these are massive companies We've argued on this podcast in the past that elon should step away from tesla It's too big now. It's too mature Let's get a proper team into you know got experience in running a multinational You know publicly listed business and do it properly and so Maybe this is elon now stepping away from tesla and now concentrating on this new toy. Which is twitter So who knows maybe Maybe governance can now improve well say if you're The problem you have there I think as another counter argument is that he walks away, but that current stop price The reason what i'm saying is not moving at the moment because of what's happening Is because of the type of shareholder who buys A tesla stock. Yeah. Yeah now the rest of the ev pack Will surpass tesla. It's not i don't think question of if but when Yeah, then it comes down to the pure fundamentals of that company which are Not sufficient And so at that point then the kind of pump Around that as a brand that helps keep it elevated when you then start comparing it to a company that is no longer market leading I think then And that's a medium term play It comes home as to roost your um Your linkedin's going to blow up again Yeah, I mean it's brilliant as well because you know, I put forward my My point of view and then people say i'm i'm anti free speech, but I thought giving my point of view I thought was free speech. That's funny But obviously i can't i obviously can't criticize the guy because that wouldn't be fair in free speech But um there we have it Anyhow, we'll wrap it up there. Um, thanks peers and good to have you back and yeah as always if you enjoyed the episode Feel free to give it a rating and pass judgment in the review We really appreciate it helps get this out to as many people as possible But enjoy your weekend and see you for next week's episode. Yep catch you later