 Okay hello and welcome to episode 53 of the market maker podcast I am joined by co-founder and head of trading peers current as ever as we delve into some of the major news stories of the week but before we begin, we have a big announcement to make. And peers I'll let you take the stage. Yeah, the older statesman. Yeah. Well, I've been running this company for 13 years. And I would say the most important thing that's ever happened to this company has just happened this week. And that is, we just agreed a partnership with Morgan Stanley. And this is this isn't any old partnership. This is, this is massive. And this is all about, you know, it's a huge endorsement for our big mission with amplify me. Is about, you know, disrupting recruitment in finance disrupting, you know, democratizing opportunities, you know, and what does that mean because that sounds a bit like some of the marketers will come up with but basically level the playing field, let's make it more fair for people to get jobs at top banks. And not only that, let's help banks find super hot talent from a much wider pool, much more diverse pool of candidates. You know, for years, the recruitment system at banks has been failing the masses, because they've only been recruiting the elite, the elite academics. Let's say from the top universities who are generally more privileged in terms of their background and it's an unfair playing field and we built amplify me which is a and our finance accelerator simulation in order to try and address this global we set out our mission to make this simulation available for free to everyone on the planet who wants to take it. Anybody anywhere who would like to start a career in finance. Come and do our simulation, because it's our belief that banks should be hiring people that have the potential to do the role really well. For too long, banks have been hiring people because of their CV, because I don't know they got three a level and they've gone to Cambridge, or, you know that their dad knows someone high up at Goldman's you know that's that's how it's been right and it's time to stop and amplify me is our mission and Morgan Stanley have just come in and said right, we want a piece of that. We absolutely love this mission. And more than that, we are going to back it to the full. And we are now going to be spearheading Morgan Stanley's recruitment for their sales and trading division for the whole of EMEA, the whole of the Americas and the whole of a pack. And it's a massive deal for properly allowing us to achieve our end goal of getting really talented people into these seats on the trading floor Morgan Stanley people have got what it takes to do those jobs, and there's only one way to measure whether they've got what it takes, and it's not by looking at their CV, and it is not by interviewing them even is actually by putting them in the seat and watching them perform. Only then can you see, and this is what our simulation is financial, sorry, finance accelerator sim. We put you in the seat, and you do the role, and we're measuring how well you do it we're measuring it in a whole bunch of different ways loads of metrics that comes out of this performance metrics. And it's these metrics that tell you, are you any good at this. And actually which parts of the role are you good at and what are your skill sets and what types of roles are best suited to those so that you can help you the individual student figure your, your optimal career path, but then even better, if you perform well we're saying to Morgan Stanley, check this person out, they are super talented, and this is a pathway to now get hired by Morgan Stanley by doing our simulation. Yeah, I want to say thank you to Morgan Stanley for we've been working with them for years, but in terms of helping them train up their staff for life on the trading floor and helping them with campus recruitment events and stuff but this this this takes it to a 100 times different level where they're entirely backing us to find them talent all over the world. And when we launched this amplify me mission, kind of officially in September of last year we did do an episode called in search of Serena, kind of a play on Serena Williams just, you know, coming from an untraditional background and literally becoming the greatest tennis player of all time. And that is kind of a good analogy that we like to use in terms of that talent and potential and unearthing those incredible hidden gems out there and so really would love for everyone to just go on to your podcast platform spotify Apple. If you go back down we're on episode 53 now if you go back down to episode 33 segmented between 33 and 34 is amplify me in search of Serena episode. Go back, check that one out, and you know I'd love for you to listen and be part of this. This ambition, this mission, this community, because I think you know it's going to require everyone's help and input to really spread this and get it out as many people as possible so. And I'd say any students listening to this, and I know there's lots. Morgan Stanley have just helped us smash down the barriers. So it doesn't matter where you are what you're studying. You fancy a shot at working for one of the big guns and Morgan Stanley are literally well as as obviously you'll know one of the absolute big guns if you want to get involved at working for Morgan Stanley. Come and do our simulation is free. It's online. Go to amplify me.com and just get involved. You never know. Cool. All right, well look on a slightly more serious note. I need to clear up a bit of a miscommunication on my side from the last episode, because anyone who did listen to the last episode will know I made a commitment to shave my head live during one of our podcasts, and obviously it's recorded by zoom, and then we put that out as per normal. I think I got a little bit excited. Because Mrs Chung had a word. No, not at all. Actually, I've had a whole bunch of people email me, tweet me, even say to me where I've been in the office this week. They are actively not going to rate our show, because they want to see me shave my head. So I just like to reverse my communication. I'll commit to shaving my head. I'll commit to that. But yeah, the target needs to be hit guys. Come on. It's not the other way around. So hang on. Let's probably clear this up. What's the target. And if that's for each, you'll shave your head. What was the number? Guys, it's got to be big because that's, that's a, it's not going to go down well with the misses as you say. I'm going to put, well, you've got the target of what we've got here 250 was it or 350 you up the ante, didn't you by end of Q1. Yeah. Okay. And you've got 100 pounds on the line. Yeah. If we get to 500, I shaved my head. That is, are you able to, are you able to do it more than once? If we hit a thousand, I do the eyebrows, I do the full, I just go full on. I suggest you stop talking. All right, well, let's get to it then. There's been plenty going on this week, namely US inflation and Fed thinking about interest rates. We're going to delve into that much deeper, but let's just have a quick surmise of some of the major headlines. Peloton still in the news. They announced in the early part of the week on Tuesday, they plan to replace their CEO, John Foley. I don't know if you saw that slide pack that came out. Was it, was it black? Well, I think it was one of the investors. I think they own a small share like less than 5%, but they put out, they'd be trying to oust Foley for ages. And it was the most damning, like 10 or 12 slides in this deck that you've ever seen. I didn't see that. I think Eddie, our colleague, Eddie, if you don't follow Eddie Donmez on LinkedIn, you should. He puts out awesome material on a daily basis and he shared that deck. If you want to laugh this weekend, you should check that out. But essentially Peloton are going to replace him. They're going to cut 2800 jobs, about 20% of the workforce. Barry McCarthy, the former CFO of Spotify and Netflix, will become the CEO and president actually on Peloton's board. The other big stocks news to others I want to touch on soft banks. 66 billion dollar sale of UK based chip business arms and a video collapsed. I was right on the beginning of the week late on Monday after regulators in the US UK EU raised serious concerns about its effects on competition, the global semiconductor industry that was going to be lined up as the largest ever field in the chip sector. But I know there's a couple of interesting points on the back of this about what happens next right. Yeah, and on that just to cut just on the kind of regulators kind of putting their foot down on that one in terms of market share then. So ARM shipped about 500 million of these chips. Well they've shipped 500 million sorry that's since 2013 right and that puts them at 18% market share. So Nvidia, this is the who the deal was going to be where they have a 20% market share. So this would have put them at 38% market share the problem being that Intel have a 62% market share. So basically if they'd have led this deal through you basically then you're down to two companies pretty much owning the planet's market share. So this is, this is why inevitably, I find it a bit weird that they kind of tried to soft bank try to go down that path because they're in the hole for a big bill. I think to pay Nvidia for this deal not going through so I can't see why they attempted it given that it seems so straight up, obviously not going to be allowable. And it becomes very political obviously, you know when you've got a UK company ARM, and obviously then the US company Nvidia but anyway, the next plan then was okay, we can't sell to Nvidia fine, let's try and do an IPO. They've been soft bank have been exploring IPO in arm this week as an alternative direction, but this is now brought to light something that's been bubbling away for 18 months plus, which is that just so happens to be a massive standoff internally within arm between arm and the guy who runs the China branch. So there's this guy called Alan Wu, who has been heading up the China branch of arm, and is a, you know, decent size shareholder, it's got a bit complicated in some of the share structures that this guy has set up within China, which has made it incredibly complicated but just trying to try and roughly simplify it. This guy owns about 15% of the Chinese arm of arm, and the Chinese arm makes up about one seventh of arms overall revenue. The problem is this guy's a bit of a liability, it turns out, and he's been doing stuff that the management HQ have not been liking and in June 2020, they tried to get rid of him. They have voted to angst him, and he refused to go anywhere and has been counter suing and ever since then and I, I've never even heard of this story and it's, it's only now when I'm kind of hits the news that all kind of comes to the surface but basically, there's been a standoff since June 2020, and they've been trying to get rid of him and some serious dust been going on so this guy over in China Alan Wu. At one point he hired a security team to deny arm representatives entry into the Shanghai offices. He also installed an email filtering system to block headquarters messages reaching his staff in China. I mean it's like a dictator takeover here. But the problem is they can't IPO, whilst this kind of baggage is left unresolved. So now I guess Alan Wu's got even more leverage now, right? So SoftBank have got, you know, this arm deal for them has been amazing on paper in terms of the value of that business and they're sitting on, you know, many billions worth of profit at SoftBank but that's paper profit. But trying to exit this trade is proving to be a nightmare and they've tried one route got blocked by the regulators, they're trying another route and Alan Wu's coming in and scuppering it. So yeah, it's going to be an interesting story to follow and see, I don't know, is there a plan C? I don't know or they're just going to have to pay up big time to Alan Wu to get him out of the way. Yeah, I think I think Wu's in for a big payday. Yeah. Woohoo. Always comes down to money at the end. Indeed. So moving to the final stocks conversation, Facebook, sorry Meta platforms, I should say. They now trade at a PE ratio of 16. It came to light now this week. I think their shares earlier in the week were down about 30% from where they were prior to the catastrophic drop on the back of their earnings and outlook and everything else in between. But it's the lowest P ratio for the company in its history. And as a comparison, the PE ratios for the other big tech companies is as follows, Google or Alphabet 25, Apple 28, Microsoft 32, Amazon 49. Yeah. So any feelings about that? What when you hear that, what do you think? I think it's a great headline. There's what I think. I think it's like when you can write, if you're writing an article and you can put at the top, Facebook's lowest ever PE ratio in its entire history. That's like, wow, sensationalist, right. I want to read this because what the hell's going on. Well, firstly, a PE ratio, that's that's price to earnings ratio is arguably the most common multiple that gets thrown around when you're valuing a business is, you know, how valuable is the business relative to the profit that it makes. So when we say 16 times, that means currently the value of Facebook, according to the share price, by the way, so the market cap is the share price multiplied by the shares and issuance. So the share price of public companies listed on stock exchanges always enables us to pinpoint a value of that entire business at any moment. You just look at the share price and that's right. We can get the market cap. We know the profits of these businesses because by law they have to be reporting their earnings once a quarter. So we can always keep an eye on the price to earnings ratio. So 16 times they're trading at 16 times earnings and that's the lowest they've ever had. And I know that sounds pretty wildly sensational, but really, it's the lowest they've ever had because well their share prices just dropped by 30%. Okay, fine. So you, if all you did in life as an investor was make decisions based on PE ratios, then fine, I would say that you might argue more often than not. It's not a bad, rough rule of thumb and you'll probably do okay. If you buy low, when PE ratios are low, when valuations are cheap, if you buy and then if you sell them when valuations are expensive or fine, you know, you're probably going to do okay. But that's kind of just generalizing. You have to look at each individual company. You can't just blindly go in and go, oh wow, 16 times, wow, that's so cheap. That's the cheapest ever. It's literally the best time to buy Facebook shares, except that well, hang on a minute. For all the arguments we put forward of a podcast last week, it's this low in value for a reason. And just because it's got a low valuation doesn't mean it's cheap based on its potential going forward. So not only is the share price dropped, which has meant that the PE ratio drops, but also, you know, that profitability arguably is going to maybe drop in the years ahead as their cost base increases on the metaside, and maybe as the advertising revenue starts to get eroded with users moving away. So I wouldn't be buying Facebook because the PE ratio is the lowest it's ever been. Now, when you compare it to the others, you've got to be a little bit careful here as well. So Google on 25 times. And by the way, the S&P 500, the average is 25 times at the moment, which is by the way, relatively very high in terms of historical standards. But Google's at 25 times, Apple 28, Microsoft 32, Amazon 49. It always sounds like Amazon's just way off into the stratosphere. And therefore, it implies that Amazon's more expensive. If they're, if they're P multiples higher, right, they're trading at a higher multiple more expensive, except you've got to understand these businesses and what they do. And Amazon, well, A is a very low margin business, but that's a side point. Amazon have a strategy of plowing back all their profits into building out the goliath of the infrastructure of their kind of warehouse it across the planet. So they've always been plowed back in, which means their profits are relatively low. And if you've got low profit, well then this is good for your PE ratio, right. And so, well, not good. Sorry, that means your PE ratio is higher. But Amazon trade an artificially higher multiple compared to the others, because of the real the kind of strategy of how they run their business. Well, that was excellent explanation. So I hope that kind of deconstructs it into a much more manageable way and tying in with our first company Peloton, Amazon of course, said to be sniffing around. Which makes, I guess, quite a bit of sense. I think there's been Nike and Apple the other two. Be interested to see how that plays out given Amazon to broaden in that kind of fitness and wellness kind of segment of the market. And obviously one of the issues Peloton have had is their distribution logistics. Obviously they've got a physical product that they've got to get to the customers front door and that's been a real pain during COVID obviously in all the supply chain issues obviously Amazon could immediately address and remove that problem entirely from from the company and obviously Amazon also maybe you probably say probably behind the race on the whole health space compared to the other big big tech firm. So yeah, it could be a way for them to jump in but again on that headline we were talking about it the share price Peloton share price rallied off the back of that Amazon rumor. I think it went up. It went up 45% when it first broke. Right, which again, sounds unbelievable. It sounds like a massive rally. And it is in percentages but you've got to understand that if something rallies off an incredibly low base, then it doesn't take much for the percentage change to start looking massive and to put it into context it rallied from $24. Let's call it $37 right it rallied from 24 to 37. Okay. In September last year, it was failing at $115. So this is what I mean when a share price collapses, the percentage changes can become massive when actually in dollar terms the dollar value change is actually relatively small compared to the historic price so. Okay, it's one to monitor. Yeah. All right, well let's let's have a quick look in commodities and geopolitics and then we'll get straight onto the Fed. And so, in terms of other asset classes and products oil is headed for its first weekly loss since mid December, flurry of diplomacy increased the chance of a Iranian nuclear deal being revived, but you got to look at the price as well, we've rallied to a seven year high. And actually if you look at the WTI, which is West Texas intermediate US oil chart. We're at a point of technical resistance on a much higher timeframe. So I think it makes sense just anyway for the price gains to have a bit of a breather. And the other thing to touch on is this whole ongoing Russian Ukraine situation, the latest being this week, French President Macron went to visit Putin. He tends to be the front man for your European business on these matters. Yeah, Macron's trying to unify, I'd say converge forces of Europe to have a collective front, which is the right strategy I guess in these in this type of situation. Interestingly, then where I want to take this is immediately upon leaving speaking to Putin he went to go and meet the German Chancellor. And it's always the same whether it's Brexit, whether it's the threat of gas and energy supply to Europe. The heart of Europe really is determined by Germany and France, in that respect. And while those two countries are trying to, as I said, unify Europe, Biden, I hope that the Atlantic is chiming in saying he's just going to cancel he's going to tear up the Nord Stream to. I'm going to be deployed more troops in certain regions which again is a more provocative move that starts to increase tensions at this point. So for Biden then surely this is only going to be harmful for his relationship with with Europe by taking such action, given the fact that Europe is so dependent as we know on the energy supply coming from that region. Yeah, but he's got bigger problems. So you can throw his European mates under the bus, because in the end, he's, well he's got big problems at home in terms of his ratings and you've got midterms. Well, now, well, what are they nine months away now, you know, that kind of clock is ticking down and as of yet, he's not been able to reverse the trend in terms of his ratings. And so he's getting he's going to get more desperate as the months go on and you know this is another signal of that so it's very much about trying to play the strong man. It's like trying to be the Trump, ironically, it's trying to play the trump card. Particularly with the messy withdrawal from Afghanistan, he has to reassert himself on that foreign front. Yeah. And whilst what he says, what he's saying about, well, not only saying more troops as well but it's not going to help matters it's going to make them worse. And obviously Europe or in a much more tricky situation with Russia than the US is fine. The US kind of shouting in their megaphone from the other side of the Atlantic. But when you know Europe is so dependent on Russia for oil and gas. And in much more. It's just a bit of a political minefield and so you can't be aggressive with Russia. Certainly with Putin right because, you know, in the end, he's going to come back and hit you in the face I think so. Yeah, I think Biden is playing his own agenda. It's all about domestic politics in the US, and it's a risk because, as I said, I think he's going to get he's going to have to get more and more desperate. Right. And on that front this week, the Biden administration said they're considering new Chinese tariff probe because of data that's shown a shortfall in China's commitment to increase US purchases. And so he's now putting the gas on China as well, at the same time all of this is obviously happening. And, of course, to lead us into this other small problem that inflation in America just hit 7.5% the highest since 1982. Now before we get on to the monetary policy side of things, politically, I mean this is the worst case scenario for him right. It is. And, unfortunately, it's out of his control. And that's the hardest thing, you'll still get blamed for it. And I guess that's, he's kind of between the rock and the hard place on that but in terms of how people in America, you know why might they be annoyed about this and there was some interesting stats that came forth because obviously everyone talks about this inflation thing oh my God is 7.5%. It's fine. They're just numbers. It's hard to kind of, you know, properly understand what does that mean actually for someone living. What does it mean for a household in the US and, and actually what it means is the numbers that come forward just this week is that on average, the US household is having to spend $276 more per month on their business because of inflation. So they're $276 per month worse off. So that's what high inflation actually means. It means $276. Now, when you think about it on the one hand I think well, that's, it's a lot of money right and especially when you go down to the lower income categories, which by the way are, it's like the engine room consumption economy. And that's a massive amount of money, by the way, 276 bucks. And when you think about well okay that's per household there's 130 million households in America. So actually, that's $36 billion per month worse off because of inflation. So when you put the numbers like that you start to understand okay right well this is a problem for Biden, because people are having, you know they're way worse off. And so they're angry about it. And obviously who do you blame or you blame the people in charge. And, and whilst it might not be fair to go to Biden, or you completely mismanaging the entire economy get out. That's unfair, but from that point of view. That's that's what they think. Well I know what advice Donald Trump would give. It's the Chinese. It's just the imported costs coming from the Chinese who are charging too much for their goods. We need to unite as a country become one and defend against these. We are becoming making us victims of their inflation problem. And that's the pivot the optics but the problem is that Biden can't do that not to that length, because it's too out to kill to people will not buy that from him. Yeah. And so, yeah that's why it is more complicated. That's why I think characters, you know who buy themselves room for maneuver in whatever shape or form that might be like Boris Johnson for example, you can get away with things that perhaps other politicians couldn't or say things that others might not even dream of, but it's very interesting point. But look, I mean that that takes us then into the discussion of the monetary policy side and that's the side I guess that yes, Biden, definitely that that whole conversation is important but for now what the markets are trying to suggest is the Fed have got to act, and it is how do they act. And we talked about this a lot. We've been slightly surprised here about how they have pivoted very quickly to more hawkish path forward in terms of the sequence of events to tighten policy. And now the market is pricing 90% probability of a 50 basis point rise in interest rates at the next meeting, I think it's 33 days so right beginning of March 50 basis points is now almost 100% priced in that that will happen. Now, one thing I would like to say on that point is I guess better context for one, the last 50 basis point move may have 2000 is when they increase 50 basis points. In fact, there was a 50 and a 75 basis point move 1994 to 1995 during that hike cycle. The one common thing between those two rate hike cycles was actually the rate hike of 50 came either at the end of the cycle, or in the beginning of the cycle. Now, I don't think you can take. I don't think I think now the pandemic, the cause of the inflation, and the way it's emerged I think it's all well and good, making those statistics and putting them out there, I don't actually think they're appropriate for the conversation of now. And for one, Fed share, how himself explicitly said, just the other week that the current environment is different from the past. So he knew everyone was going to jump to these conclusions and so he's trying to already front run that. Now, from a from the feds perspective, the markets always going to be more agile to move. I mean, yesterday's number comes out market pricing changes like immediate and the dust settles and we see whether it resides at that initial assumption price. And so we'll be interested to see in the coming days whether or not we still remain that heavily priced in. But as far as fed speakers are concerned, they're much less committed so far at least in their communication about this notion of 50 basis points. So, to give you a couple, Mary daily, she said a half point rate hike is not my preference. Barkin said, I'm open to it conceptually. Do I think there's a screaming need to do it right now. I'm not convinced of that. However, on counter to that, and unsurprisingly because he's the Uber Hawk, but he is a voting member of the FMC this year, James Bullard. He said that he favours three hikes by July, with one of them being a half point move. And one of the banks that has agreed with them and a quite infamous strategist on the street, Jim Reid at Deutsche Bank has also said he thinks 50 basis point move in March that's their base case that they're going for as well. So, where do you sit on this, this 50 discussion. Well, now you've said Jim Reid thinks 50 I'm going to slightly less confident about my stance my stance is not that my stance is 25 my stance is that I think the markets just overreacting now on the on the on the hawkish side right we were. Well about, we were overplaying on the dovish side. And I think now we're over playing on the hawkish side and I just think that it's not as bad as the sensational headlines read that that that's not how markets behaved like, you know it's massive moves I do want to talk about bond yields and bond yield moves in response to the inflation data yesterday, which definitely tells you the picture that people are alarmed, and they're thinking 50 basis points, and I think it's an overreaction. Just on this point, CNBC, as we're recording have just put out a piece in titles, several fed officials, both privately and publicly are pushing back against feds bullards 50 basis point rate hike. Instead, CNBC says so when they when CNBC or any financial news media company uses this language is a source to someone familiar with the thinking of the Fed. Maybe someone at the Fed is is obviously quite shocked by the assumptions the market has made, and rather than officially communicated using the avenue of using a media agency. And so CNBC also adds it suggests the central bank is likely to embark initially on a more measured path. So a little bit, a little bit more controlled in that sense. I think the way the market, I think where they've got confused. I think it is true to say that if the Fed didn't have a QE program that they had to wind down, or they think they've got to wind down first, before being able to hike. I think if they didn't have that program, they'd have hiked already. They'd have hiked at the end of last year like the Bank of England did. And maybe we'd have already had a second hike or so, you know, but I think the point and historically, and again because of how, and it's the Fed's fault. Because of how over the years, markets have become so sensitive, so the minute detail of what the Fed communicate, we hang off their every word, what they say does matter, because prices move off them. And therefore that's why it matters, because as a big impact on people's wealth as a big impact on people's portfolios and investments right. So the problem is that they've become too hawkish or whether the problem is that the Fed had to be tippy toe to start with at least slow down the stimulus program first before then we start hiking. That's what we've done in the past. We've had to do that in the past because we don't want to freak people out and markets go crazy. So we got to go slowly. And because of that, they're getting further and further and further behind the inflation curve. They should have hiked in the last year, right, but we would have all freaked out and panic so that they kind of, they're a victim of their own, the situation they've this negative feedback loop that they've created between themselves and markets but anyway. So that's why people are thinking we've got to catch up now with a 15 hike. I just think people are over exaggerating we'll talk about the inflation basket in a minute but just in terms of market reactions. I guess again you, there's so many different markets you can look at so many different price reactions but obviously if you want to choose the most sensational. There's a guy from Reuters that was that tweeted a chart that was looking at the two year so the US two year government bond yield. So when we talk about interest rates, and we talk about bonds. So obviously with bonds you've got lots of different durations right put it more simply different lengths of loans the time period of the loan is longer or shorter. We'll talk about short end talking about one or two year loans essentially so one or two year duration bonds and the yield on those bonds right now when we talk about central right interest rates, basically, the central interest rate is simply simply a reference rate for banks to use when they're lending money over about a two year period. The two year bond yield is the most sensitive to interest rate changes of all of the bond durations it's the shorter end that's most sensitive because that's the interest rates for short term loans right. It's always going to move the most the two year but actually the two year bond on Thursday, moved from pricing in one hike in March to basically almost fully pricing in two hikes which just means the yield went up by almost 25 basis points. Now for the two year bonds. That is that's a phenomenal move this these short end bonds that the prices that's super stable. All right, the volatility is the lowest you could possibly imagine so for it to move sharply is very unusual. The guy from Reuters showed a chart looking at a single day move based on the average price movement over the previous 12 months and using standard deviation and basically from a it moved to above to standard deviations away and from a standard deviation measure. It's the biggest move in the two year bond since October 1979. It was a guy called Volcker, I'm sure some will know about. He shocked the market by putting through a mid meeting rate hike. So he hiked rates without waiting for a one of the scheduled meetings it was such an emergency. And he just did it. And that that's the last time you saw the two year bond move so sharply relative to the movement over the previous 12 months right. So look, this is a big deal for markets and you had movement on yields, yields moves higher across the curve so the 10 year yield moved up and very significantly moved above 2%. This is certainly a notable situation and here this is where it starts to feed negatively into equities. One of the reasons stocks have been so high for so long. So bullish is that yields on other assets like bonds have been so low. So it's been forcing people to not invest in bonds and then take more risk and buy stocks that's been one of the catalysts for the giant stock market rally in the US over the last 10 years when the 10 years sneaked back above 2%. It's notable and then people start to look at that again. And it's potentially a moment, well 2% still historically incredibly low, but you know in the short term you get that's that's negative for stocks which is why stocks came off sharply on Thursday after the inflation news as well. So you're like what the analysts at RBC put out as a note this morning they said quote the current pricing is close enough to the hawkish extreme of likely outcomes that the risk reward of fading is just too attractive to pass up. Right. Yeah, it'd be interesting to see the thing was is that I've been obviously I'm here at my screens all day and you know the murmuring on Twitter has been and the different sources and stuff that I look at and I aggregate the amount of traders trying to coin an interbank hike, an interbank intermeeting meeting if you like to then drop in an extra hike. Yeah they're just getting too carried away I think they do have seven more meetings this March, May, June, July, September, November, December. I mean, you look you tell me you're the trader right and you've been around these people long enough. When you see the type of standard deviation you've just mentioned, you know what it was like on the trading floor right. All the guys and girls get super excited they're all wet at the whistle, thinking, Oh, wouldn't it be amazing if they just come in and drop in like a surprise hike right now that would be brilliant as a short day short term trader. I mean, is that where you get these kind of like rumour mongering come from it's almost like the anticipation that was they what they want and they lose the rational thought of actually what could happen, lose the rational thoughts. And then they're whipped up into this frenzy of oh my God, if that happened, and I got the trade right watch how much money could I met oh my God that'd be an amazing trade and then all of a sudden, you've convinced yourself it's actually going to happen. And it's very irrational, of course and I think we are, I to a degree I think we're in, in that situation. The only thing is, because the Fed, you know I think now, as of February. The Fed wished they could have hiked already. Okay. They wish they could have hiked already, they haven't, they haven't been able to, if they wanted to stick to their format of not hiking until they've ended QE. They wished they could have hiked already. That's the only snag doubt in my mind is, do they want to make up for the hike that they should have done already, but also then do the hike that they want to do now as well. That's where you get your double hike from, but look, you got seven meetings this year. Fine, hike in all seven, if you want, but just don't do a double hike in one. Well, I mean, if Jim's made you feel a bit nervous at Deutsche, Jan Goldman's the chief economist is going to bail you out because Goldman's have gone from basically three to five to last night, seven hikes now. It's going to be a longer series of 25 basis point rate hikes at every meeting commencing in March. So that that that's who you're joined by on that. Yeah, I think that's too hawkish as well. I can't see the Fed hiking seven times. Can we just very briefly, I know it's a bit dull, but can we just lift the lid on this inflation basket. So it's a really interesting article you sent it me actually. There's a good guy in the FT and his articles, his kind of column. It's called unhedged. It's called Robert Armstrong, because some of his stuff's really good. I like his style is a bit more casual is a bit more anti establishment is a bit more I'm an outsider looking in and pointing at how ridiculous some of this stuff is in the financial world is kind of that sometimes I like that I mean not I don't agree with everything he says but he wrote a good piece and he was kind of just drilling into the inflation thing. It was fine on the headline. The year on your inflation was 7.5%, which was higher than the expected 7.2% and fine is the highest for whatever for decades and, you know, crisis and alarm bells but when you start to delve into the different components of inflation and if you look at what he did, I don't think it was his study actually I think it was the Bureau of Labor statistics that did a study looking at core inflation. First, so that's tripping out energy and food. Okay, so one of the reasons that headline 7.5% is so high because energy of course as well and food prices have been high so take that out but then you split what's left into three categories, durable goods, non durable goods, ex food, and then services. Okay. So, and what he's looking at is actually a lot of these categories are declining. So if you look at durable goods, they dropped in the month of January. Well, they didn't drop prices did not drop. Sorry, the inflation rate dropped, which means prices of durable goods went up by a smaller amount in January than they did in December. Okay, so dampening inflation, which is good non durable goods, they're actually on a four month downtrend now in terms of the rate at which prices are rising. So this is actually when you look at those components. This is actually really good. If you're wanting inflation. If this if you want the inflation pressure to cool off this is, these are good signals but there's a reason to explain this because obviously during the pandemic, we were buying goods online right. And so you might think well the durable goods and the non durable goods. The reasons why prices price rises are kind of calming down is because we've unlocked. Right, we're not. We're not going out and spending money on services. I don't know haircuts and going to get your nails done and whatever right. So, one negative thing and perhaps why the market kind of panicked a little bit was because the non or the stickier sort of services prices, so that the Atlanta Fed index. The Atlanta Fed, which is one of the federal reserve districts they have this index which is called their sticky price index. This is looking at things like rents. You know, it's been thinking about your rent right that's a super sticky price is only going to change when your contracts up and I've got to renegotiate but actually. So what one thing we look out on inflation, and one thing people are worried about from the report from yesterday is that some of these sticky prices. have started to tick higher. And that's your concern, if you're in the camp that they're going to be super hawkish. And they're going to have to hike seven times or they're going to have to hike 50 in March. It's because your opinion is that the volatility of all the pandemic and how it's disrupted supply chains and fed into lots of price Your opinion is that that has moved on to feeding into sticky prices now rising. Okay, so rents and stuff like that. But if you take everything else it looks like it's going to start to calm down. So the question mark comes around the sticky price feed through. And is that, and it went up in January, and will it continue to go up February, March, April, and okay if it does well fine we've got a more sustained high inflation period that yes the Fed are two behind and they've got to accelerate. Otherwise, some of these other part apartment compartments of the inflation calculation are actually starting to show signs of cooling down, which is why I think the federal go 25 in March which is why I think markets are now over panicking about inflation. Yeah, I'm just looking at the US equity charts at the moment. The actual reaction between now Friday recording is the CPI which came out the day before. Really, we're not far back to where we were prior to this number coming out because don't forget, we'd already declined the sizable amount in January overall. From a US equity perspective I would be kind of listening to this thinking oh my goodness how much the stock's down then. The point is, is that they're already down, the market had already dramatically shifted to this view. And this kind of like just cemented it in a way short term and then it's got that kind of, as you said that whipping up of a storm, because then everywhere you look yesterday today it's like inflation the Fed are going to have to act and they're doing both TVs talking about it and you just get caught in the drama a little bit. What's interesting is that yesterday, last, last night I looked at the CME Fed watch tool is at 95%. It's already called off to 88% at the moment so it's in flux at the moment and given that CNBC kind of source comment, I would have thought by the end today, it will drop further. I mean, well look, I just refreshed it now. Do you know what it's at now from 95% yesterday? 85. 64. Wow, that's the probability of a 50 hike. Right, has gone from 95% last night. It was favoring, it was pretty much split before, it's gone up to 95, it's come back to 63. I think it goes lower still. That sums it up and I guess last week I was talking about how I'm still a little bit cautious and maybe this whole stock market sell off. Maybe it's not over yet and you know I was kind of saying I'm reluctant to be in the buy the dip camp and the reason for that opinion last week was because of exactly what's happened in the inflation numbers higher than expected and understanding how markets would behave towards that. Right. So there was a tipping point on that sentiment that when the market realizes they've overreacted, we'll find that's then the bottom, if you like, when the market realizes they've overreacted. Last week I, I thought they hadn't realized that yet and another high inflation print would again send a bit of panic. I guess maybe this is more of a turning point. I guess until we get, obviously, I think what's key is the, well, the Fed's meeting in March, let me just get the date, it's actually this 15th of March, right. So that means we will get the, I'll just double check this. There's one more, I think. February inflation data will get the February inflation data announced in mid March before the feds meeting. So that's your kind of one final kind of piece of information. And that will be critical, but we've got to wait another month for that. So just look for completeness sake with the other central banks because they have been active in their communication as well this week, the chief economist at the Bank of England Hugh Pill. He pushed back against aggressive pricing, the UK rates market has been moving sit in a similar fashion just getting very bullish on rates. He said 1% is not a trigger. It's a point of consideration. And what he's referring to here is a reference point for the markets assumption of active guilt sales when rates eventually hit 1%. So he's talking about that sequencing on the next then trigger a policy tightening away from just rates moving. So he pushed back against that. And that came obviously as everyone was getting excited just the other week or so about the five four split because they wanted to go 50 the fall. So that's kind of cooled off a bit. And then Christine Lagarde we know Europe's kind of lagging in this tightening race. But last week we had these three meetings she didn't really push back against ever increasing European rate moves as well. But this week she has done. And she's basically explicitly said, she's warned, I should say the governing council would, it would harm the economy's rebound from the pandemic if they were to rush to tighten monetary policy she said. Now, I can tell you one thing for sure that that sentence you've just said, the ECB rushing to tighten policy that that's a complete oxymoron. The ECB will never, never rush to tighten policy. And I just find, do you think the ECB will ever raise interest rates ever again. That's a very interesting topic for debate. Do you think they will ever raise interest rates ever. Yeah. Okay. Yeah, they will. If they can't raise rates this year, which at the moment that's basically what the communication is they're not raising rates maybe maybe the end of the year I were kind of pricing maybe December. We're in one of the most alarming inflation spikes that we've seen for 40 years. And if still, if still financial economic conditions can't lead to some inflation in that continent, if it can't happen now. It's never going to happen. And on that note. Let's end it. We've got a good amount covered now in the episode will save some for next week. But look, again, thank you to our partners at Morgan Stanley for really getting involved with the Amplify Me mission. And yeah, as Piers said at the beginning, if you if you're a student you're listening, whether you're a college high school that stage or post grad. Just just get involved amplify me.com check it out just put yourself in on the next finance accelerator and yeah perhaps that you could be the next Serena. Piers. Thank you. And see everyone next week.