 Okay, very good morning. It's Friday the 14th of May and welcome to episode 16 of the Market Watch podcast. And as ever, I'm joined by Head of Trading. Pierce, how's it going, Pierce? Good morning, good morning. Very good. Looking forward to the chat. Yeah, and it's been a pretty busy week in fact, it's been quite a lot going on. And I thought, actually, what I'm going to start with, a little bit different from our usual routine, I'm going to go through a quick fire round where I want your shortest possible answers. And I'm going to go through a couple of the kind of highlight rules of the week from the news perspective. You know how long my short answers are, right? I do. So hence the Friday challenge. So going to kick it off with Elon Musk. What do you reckon? We've had the SNL appearance, which saw the big decline in the crypto space. Tesla stopped Bitcoin payments. The company shares, not Bitcoin, down about nearly 15% on the week. He's pumping Dogecoin overnight again. What do you think? I think that, well, the flip-flopper in chief. I don't know. I just think about Tesla's PR department. And I just think he's both the worst possible nightmare, but also the most amazing thing that you can have for PR in his headline news globally. Great, that's fantastic for PR. But what he's saying, I don't know, I just think it's quite farcical. I think it's dangerous actually. And he seems to have, he's like the Warren Buffett of crypto in so much as whatever he says, the markets then do. And when you're talking about volatility like we see in crypto, this could be phenomenally dangerous for people who are invested in that stuff. And you're literally on the whim of whatever he wants to say or tweet next. And I just don't know how you deal with that as a trader. I just don't know how you trade an asset like that where anything can happen and it's just down to one man. So dangerous. This whole argument that he has then about that decision on the Bitcoin stuff about the environmental consideration. I mean, it's pretty well known fact that mining Bitcoin is just a small, just a very little bit quite saturating of energy. I think the stat is something like uses the same amount of energy annually as the country of Netherlands in the year of 2019 at the moment. And he says also on that. Well, we were talking about this, weren't we? I don't know what podcast it was, but I should use the stat that it was saying was Bangladesh, but I assume Bangladesh uses the same amount of energy as the Netherlands. But we were saying at the time when Tesla announced they're buying Bitcoin, we were saying this is ridiculous. And yes, and that it was again a distraction stunt to anything to draw attention away from the fact that Tesla can't produce electric vehicles profitably. Well, it's going to be interesting to see where he goes because the one thing that's always true with markets is that markets become to expect. It's like that age old adage from the Fed and central bank communication. If you keep saying something and we keep expecting it, you've got to keep it show rolling sort of thing. And I'm interested to see what he's going to come out with next, but I can tell you now he will flip this Bitcoin view in 48 hours. I reckon by Monday he's changed his mind again. So and perhaps we're all the suckers here and it's they do still own a billion dollars worth of Bitcoin. I think they bought 1.5 billion, didn't their quarter one earnings show that they then sold I think 500 billion worth. So they're still very long Bitcoin. So yeah, he's got to be a little bit careful. Okay, we'll move on. Colonial pipeline. That was a big thing happened on Friday. We had a bit of a gap in prices quickly reversed though midweek, but the hackers got away with five million dollars. What do you think about this whole cyber security issue? Well, my first thought is only five million dollars. They've missed a zero or maybe two of that. But that's, I don't know, for the importance, the strategic importance of that pipeline, five million is literally nothing. So I'm not surprised they paid up and look, let's just get on with it. That's just one point. Another point is cyber security. Look, any firm with technology, literally any firm anywhere, and that includes our company, it is, yeah, it's like your worst nightmare. And it's a very significant problem and something that the companies of the world are going to have to address. And they have, there's a hugely behind here. I mean, the vast majority of companies with tech haven't even bothered to start looking that they don't even know what cyber security is. Never mind actually getting on with dealing with it. So yeah, at the moment, it's like the Wild West out there. These hackers can just roam around, pick and choose their victims, and they put you in a spot that is incredible. You basically have to pay up otherwise. There was a friend of yours who ran quite a big firm. We won't mention names, but he had that exact real life example, right? Yeah, a friend of Will's actually. Yeah, absolutely. And this is just, I think it was just a law firm. And this is a law firm, right? And they got hacked. And yeah, their business stopped. And they got, I think the ransom was a small firm, but the ransom was like 750,000. And the thing is, they're quite clever. When I go back to my first point, five million, that's not enough. I guess they're quite clever. Well, they're very clever on the one hand in that they're hacking and doing their job. But they're asking for amounts of money that are just about affordable. If you kind of go out your way to chlorine cash and capital from left right and centre, you can just about afford it. And you're kind of in that position where this is painful, but I've just got to pay up here. A stat I saw earlier this week is by 2025, cybercrime is expected to cost a global economy, $10.5 trillion a year, working out at 20 million bucks every minute. And now on this $5 trillion. Yeah, a year. Now, one of the things here is we had someone come on. So through Amplify Live, we have this masterclass series, get people from industry come in and as asset manager, we spoke to and he was talking about a cybersecurity ETF called RISE, R-I-Z-E, which is about cybersecurity data privacy. Just just wonder what your thoughts are on that type of investment and what type of time horizon you'd be kind of looking at on that regard. I think it's a really good, really good space. As I've just said, you know, I know firsthand that cybersecurity is a really key factor that we're looking at and that I know other people are starting to look at. But as I said, the vast majority haven't even begun. So I think actually as an investment idea, investing in cybersecurity, either via just broadly, let's just buy up an ETF rather than having to scour around and pick individual companies. It's still an industry that's not massive. So there's not many publicly listed companies. But so one of these ETFs, I think is a good idea. And I would say time horizon, you know, if you're thinking, well, that stat you've just said right there, I mean, by 2025, 10 trillion, I'm not sure I believe that that that's maybe based on the idea that no one gets any cybersecurity at all, which isn't the case, of course. But I'd say right there, you know, in the next few years, so that's a trade for the next few years. If you stick it on now and just let it just brew and then I think, you know, over that horizon to 2025, 2025, if I think, you know, it's definitely it's one of those no brainers that it's an industry that's going to grow fact. And so I think it's a good one for a long term trade. Yeah. Okay, next subject, the Indian variant headline in the in the news, of course, in the UK here this week, the stats are there's been just under 1800 sequenced cases of the most concerning strain. This is coming from India, which we know, facing incredibly challenging time at the moment themselves, but going to the actual formula name for the for the variant in itself, but one of the key things here that they've said and I've read is that perhaps it's even more transmissible than the Kent variation, which if you remember was the one that exploded and really led to that big breakout across the nation back at Christmas New Year's and we hit that kind of peak at the time. So at the moment, the numbers are very small. The thing here is that sample sequence over the past two weeks have basically doubled. And now this Indian variant accounts around 15% of all of the cases in the UK. Any thoughts on that? Well, it's obviously very worrying and for the global population. I think sadly, you know, if the UK are well, we're well placed, right? I think it could just come south of the vaccine rollout and the vaccines are proving to be incredibly effective against reducing transmission. And even even if the variant is more transmissible, that's kind of countered by the fact these vaccines are reducing transmissions. And then the key is about keeping people out of hospital and obviously making sure deaths don't start rising again. I think in the end, that's the most important thing. And I think if you've had a really successful vaccine rollout, then fine, you're going to get episodes where cases rise, but hopefully hospitalizations and deaths don't. Now that's all very well and good if you're in a country where the vaccine rollout has been fantastic. But unfortunately, what's happening is these variants like the Kent variant, like now the Indian variant, it leaves countries incredibly vulnerable if they haven't had a successful vaccine rollout. And so from a global perspective, yeah, this thing's not over by any means. It's easy to forget that when you're in countries like the UK where lockdowns have been released, like again now Monday, May the 17th coming, you know, further relaxation of measures were allowed back into hospitality venues and back into sports stadiums and all the rest of it. But you know, in other parts of the world, this thing's raging and it's at its the worst it's been. So yeah, this is, but again, what I would say is this is not a surprise. You know, these variants, that's that's how viruses grow and adapt. And so, you know, the experts were talking about this 12 months ago. And so it's happening. And so we shouldn't be surprised about it. But yeah, it's it's just an unfortunate on that demographic. So at the moment where this Indian variant is located is in the northwest of England. And actually, when you start looking at it by age category, it's the five to 24 year olds, which has seen the most aggressive outbreak followed by 25 to 39 40 to 59. The 60 plus is pretty much flat. Well, in some ways, that's really reassuring in that those young guys as a super, super low chance of any kind of hospitalization or death because of their age. And it just proves the vaccines work. Yeah. Well, more, I guess, we'll get further updates next week. And we'll have greater data that's going to allow these guys to draw greater analysis, I guess, about the trajectory of it. We at the moment, as far as markets concern, there isn't an impact on this. But final thing then, for the quick fire around gone, the war, the not so quick, quick slow fire. Anyone who was listening to episode, I think it was episode one that we did might be an episode one episode two. But in the news, obviously in the UK, can't get away from the fact that Boris Johnson and spending was it 200 K he spent refurbishing his flat. So expenses, let's say this is Boris Johnson, you know, draggy yesterday. Oh, yeah, his weight is waved. Here's $140,000 salary completely. He said, do not pay me. I will serve as the Italian premier fully unpaid. I didn't I didn't read that. Okay. He's just gone up for even further up your pedestal now, isn't it? I'm not sure he can rise further in my estimations, but I think he just has. That's that remind didn't Trump. Did Trump did he wave his salary? I can't remember. I might have made that up. No, probably not. He's not dragging. So no, he didn't. Draggy is an absolute legend. And another kind of measure of that facts right there. Got a lot. All right. Super Mario. So going back to the main focal point of the week, no doubt has been this kind of this battle going on. It seems amongst market participants and playing out definitely much more in the equity market. And I think that's an important component here to discuss as well amongst other things is that it's the equity market that seemingly is sensitive to this is inflation transitory, temporary of nature, or is it something more long lasting? And it's the equity market that struggled to to weigh that up in bearing in mind. We have been at record high territory and we saw that extension last Friday on that poor jobs data as well. So it's kind of like we're up there and it was quite ripe for a bit of a pullback, some would say, but we've seen continuation, big tech suffering generally as well. So there has been some sector differentials as well between financials and energy and so on. I just want to get your take really on this whole update on the transitory argument. Yeah, I mean, we'll talk about it, but I definitely still think it's transitory. With regards to all come back and dig into that, but in terms of stocks, you know, historically, certain sectors are more vulnerable to inflation than others. Some sectors are actually inflation is perfect and really plays into their sort of business model. So for tech, inflation is bad. And inflation is bad on the one hand for the giant tech. So when you're looking at the S&Ps and the Nasdaqs of this world, right, where you're, yeah, absolutely, you've seen some pretty sharp downside this week, although albeit rebounding yesterday. Inflation is bad because they carry such massive cash piles. So Apple at the top of that list, Apple sat on about 100, well, let's just round it, $200 billion in cash. So the value of that money is obviously part of the valuation of that business. But what is the value of that money? And so we talk about future value. And the future value of money is eroded if inflation's rising. So the faster inflation rises, the less value $1 has. Okay. And so basically we're revising down the value of these future cash flows, or indeed the value of these future or the value of these cash mountains. And this is one key reason why the tech sector has been hit. Now there are other companies that it's the opposite, actually, in inflationary environments, you tend to see energy companies do well, you tend to see financials doing well. You know, inflation for financials, inflation helps to get into the detail too much, but it helps to steepen the yield curve, which means that the differential between the short-end yields and long-end yields increases. And then this helps to basically increase the bank's profit margin on their loan book. So yeah, you know, for some companies, inflation's good. For most, it's not. But I would say, I mean, for most, if you think more or more tangibles, if you're a manufacturer, well, then, you know, inflation means that the stuff, your components that you're buying from your suppliers, the prices of those components are going up. So it's making it more expensive for you to build your product. So of course, that's hitting bottom line profitability. So what do you do? Well, okay, let's cancel that. We're going to have to increase the price at which we're selling these products. And really, that's what obviously then leads through to inflation. But there's many different measures of inflation. And it depends on which ones you're looking at as to whether you're freaking out about an inflation spike or whether actually you're a little bit more calm. Yeah, you talked about it for like, what we often hear referred to as factory gate prices. And earlier this week, you had Chinese factory gate prices rose to a three-year high of 6.8% last month, the year over year. Again, it's those types of numbers. Again, it kind of makes people a bit sensitive. But going back to the CPR report out of the US, used car prices actually contributed to a large portion of this. I just wanted to get into the rationale why the central bank and yourself see this as transitory on some of the underlying effects that saw this number come in. I mean, it came in at a pretty spectacular figure, way above the top end of even the most highest estimate on the street. As you said, economies reopening, soaring commodity prices, these supply constraints. But under the bonnet, so to speak, used cars, prices, things like used car prices, airfares. This was an April reading, which Easter sat at the beginning of the month as well. Base effects, generally, energy was the biggest contributed to it. Yeah. I think the cars and trucks, I think this is a really good example as to why it's transitory. They're right in this kind of moment where supply and demand functions are both very sharp positives for that end unit price. So on the supply side, there's kind of two factors that are having an impact. Number one, it's computer chips. And so everyone knows this. Currently, there's a max shortage of computer chips. And a lot of these computer chips, as a key component in a lot of these vehicles these days, and not just electric vehicles, either, by the way, normal vehicles that have a lot of electrics controlling various things. So computer chips, mass shortage. So that means that car manufacturers aren't able to produce as many vehicles, which means there's a shortage of supply, which means then prices get driven higher. Also, to kind of compound that, it's not just computer chips, it's actually just generally shipping components. And it depends where you source your components from, obviously. But for example, to ship something from China to America right now, it's three times as expensive as it was before the pandemic. Now, a lot of that is the legacy of the pandemic, where global shipping kind of ground to a halt. And what happened was we talked about this in previous podcasts, we had empty ship containers being left in random places around the world and, i.e., they're not in China, where they need to be filled up with stuff and then shipped to America, for example. And so what's happened is in the shipping industry, prices have gone through the roof. So of course, who pays for this? Well, obviously, it's the businesses that are, so that's, it's not just a computer chip problem. It's actually just generally a shipping problem is more expensive. That's just on the supply side. Now, what we saw in the summer of last year, we actually saw all of these kind of supply side issues reduce as we came out of lockdowns in the summer of last year. So there is previous here. And so we would expect these price spikes to alleviate as we go through this summer as well. Now, that will help with the inflation side. Just on the demand side, well, this is where people, we're just coming out of lockdown, right? So people want to get out and see their relatives, but there's still a lot of people that are nervous about flying or using public transport, for example. So they need a car, right? And so they're buying cars. Also, they've just had a fat check from Mr. JB in the White House. So another 1400 bucks. So what are you going to do? Well, buy a one-off expensive purchase like a car, right? So I think on the demand side as well, these are temporary factors. And I would see both the demand and the supply side factors beginning to taper as we go through the summer and into the latter part of 2021. So talk to me about McDonald's. I know you love a McDonald's, but there's a special reason why we're talking McDonald's. Well, this ties into that jobs data from last week, because that happened after we recorded the podcast, of course, the job set. And we were talking about, oh, we're going to need, yeah, we're going to need a number of $2 million for the Fed to really sit up and pay the attention. And oh my God, how wrong were we? Not that we were predicting $2 million, but it was like $1 million was the sort of vestiment. It came in at whatever, $260,000. So that was a real shocking surprise. I was like, wow, okay. That I was not expecting that. And the question is why, and this ties into inflation, because what's happening is companies are finding it really hard to hire people. And actually right now, at the moment, the job openings, so that's the number of positions that are being advertised is at a record ever high. Yet you've got millions of people unemployed because of the pandemic. So this doesn't quite marry together here. Hang on. You've got loads of people unemployed and there are job openings at a record high. Why aren't they getting jobs? And why was that payroll's figure so low? And I guess, you know, there's a couple of points around this, of course, but one is, and actually to point this out, so you mentioned about McDonald's. So McDonald's are just finding it hard to hire. So why people aren't bothering to turn up for interviews? So there's a few branches of McDonald's in America that are now paying $50 for you to just come for an interview. It's not like you've got the job rate. They just people aren't just they're just not turning up. Okay, so why, why aren't people turning up? Well, firstly, Joe Biden is handing out cash left, right and center. So he gave people 600 bucks in January, he gave people another $1,400 in April. So you've just had 2000 bucks. And what we saw from that is people have gone, hey, great, you know, that job at McDonald's that I hate, that I get paid minimum wage for, you know what, stop that. I don't want it anymore. I'm not going to apply for it. Right. So it's definitely a one part of it is about, you know, people are currently short term cash rich. And it is short term because obviously, if you don't have a job in the end, that cash is going to run out. And then you're like, oh, okay, perhaps I'll go and see if that opening at McDonald's is still available. So that's one thing. There's other stuff like people are still fearful about the vaccine, well, about the virus. So maybe people aren't ready to go back to work. What we've seen is actually interestingly, there's the stats are showing that the amount of jobs open are at their highest in jobs that involve, you know, less social distancing or jobs that are inside like hospitality jobs, like McDonald's, for example. And actually, there was a weird stat that weirdly in America, the most like, what job do you reckon, what's the stats show that there's one job that has been the most lethal from a COVID point of view? More people have died in terms of the percentage of that sort of population than any other job? So I think of what on public transport you do, are you just seeing an interchange of people constantly? Yeah. Well, I'm going to tell you, a chef, apparently, which is maybe one reason why McDonald's are finding it hard to hire, right? But actually what we're seeing in like other industries that's like outdoors, let's say construction, well, actually job openings are lower now than they were before the pandemic. All right, there's a housing boom. We talked about that last week as well in terms of house builders, but you know, so that anyway, the point is that this does feed into inflation because Delta Airlines canceled 100 flights in April. Why? Because they were short staffed. So actually, that means there's just less flight availability, which means demand and supply equation changes and the prices of flights go up. So actually, this lack of, well, this lack of workforce is also contributing to, but it's temporary because, as I said, you know, this $2,000 that Joe Biden's given you, you know, in the end, you're going to spend it. There is one caveat and that's on the unemployment insurance, you know, the benefits side, they're still getting $300 extra per week, which is further kind of incentivizing people to just stay at home on the sofa and enjoy a bit of time off with this cash ejection they've had from the government, but it can't last and it won't last. So that's why inflation is temporary. And just a few points on timing. You mentioned there about what happened with the kind of reopening that we did see last summer, and as we head into the months ahead. So a couple of things, my Fed perspective, they've been particularly vocal this week, there's been speeches every five minutes, as they've tried to kind of reassure the market. And I thought Brainard, who's a board member at the FMC, pretty much summed it up, she said, quote, a persistent material increase in inflation would require not just that wages and prices increase for a period after reopening, but also a broad expectation of continuing to increase their persistently higher pace going forward. So that's that timeline of getting over the hump, so to speak. But then, interestingly, Bostick said, and now we start getting into, because we know that there's no definitive kind of timeline of what exactly does the Fed see, they're not going to come out and pin their flag in the sand and say, okay, yeah, three months time, six months time. But Bostick, who's the Federal Reserve Atlanta president said he expects bowser volatility around inflation through September. The White House economic aids have classified transitory inflation as potentially lasting until the end of the year. And then an interesting comment out Deutsche Bank, their research team, they said in general, the Fed won't be able to get a sense of the new normal, which is what they need to see to make these decisions, obviously, into at least the fall of this year, because of the need to assess school reopenings. And then to add it all up in summary, they said it will be at least six months for the Fed to get a sense of whether inflation pressures the transitory and more likely 12 months to draw a firm conclusion. I mean, that pretty much, I agree with that. And doesn't just put this to bed. And the interesting thing is we said going back to the asset class mix, it seems like yes, rates markets, money markets are brought forward in the first rate hike into now, I think it's deck 2022 is priced in 100%. But the rates markets relatively calm. Yeah, it's the equity markets having a wobble. But isn't that because of other reasons? That's right. Yeah, exactly. And yeah, you're right in the rates market, you know, all like 10 years, five years, two years, you name it, whatever duration, they're all trading below the levels that we were seeing back in March, for example, that's yield. So yields are all lower. All right, if ticks higher a little bit over the last couple of weeks, but they're still below those those highs when we were kind of panicking about inflation earlier in the year. But yeah, look, it's going to be difficult to predict how long is transitory. One thing, like oil's a good one, just oil's a bad one when talking about inflation, because the Fed aren't interested in oil and energy costs. So they look at more core inflation. And indeed, they tend to look at something called PCE, rather than even CPI. But just just the point about inflation for it to continue to rise rapidly, you need prices to continue to rise rapidly. So when you think about oil, right, at the moment, oil is trading at 63 bucks. Okay, this time last year, oil was trading like down 20 odd. Okay, well, let's just make, let's just super round these up. Let's say it was $30 a year ago, and it's now 60. So it's doubled. All right, for inflation rates, just to stay at the same rate as they are now. So that's not inflation continuing to go up, that's inflation to stay at the same rate. Oil would need to be at $120 in 12 months time. That's just a, that's just for inflation to tread water at this high level. Okay, inflation to carry on going up. Like oil would need to be 150, 200, right? You see, so in the end, the very, the very longest transitry is going to be is till April 2022. Because then we're going to hit this, this cliff where prices have just jumped in 2021. And prices are going to have to jump equally again in 2022 to maintain that inflation rise. And that, that's not going to happen. Yeah. And I was just looking, I was just bringing up of the CPI number we had on Wednesday, the biggest increase we record in gasoline. And that gasoline alone was 49.6% of the CPI figure, 50%. Yeah. There you go. That's why the Fed don't look at it. That's why just everyone calm down. It's all going to be fine. The Fed aren't going to hike in 2021. They're not going to hike till the very earliest the end of 2022. I, I, I definitely believe that. Okay. On that call, we'll leave it out that and wish you peers a good weekend and, and everyone listening, take care. And yeah, we'll see you next week for next episode. Thanks Pierce. Thanks a lot. See you guys.