 Hey, hello, and welcome back to the trading floor episode of the market maker podcast where I'm joined as ever by our co-founder Pierce Curran How's it going Pierce? Go good. Very good It's stuff. It's Friday after all. Well, it's not is it? It's Friday for you Because I noticed you've got the day off tomorrow. So since it's your Friday all of us thought we've still got Still got another day's work tomorrow Yeah, I would say yeah, you know, I'm gonna go out to a nice restaurant have some cocktails steal that stuff in the summer Sun But no, I've got a date. Oh, yeah with Peppa Pig I'm on a going on a bus with Peppa Pig. So I'm really like VIPing this up. So Love it. I'll tell you what UK inflation, which we're gonna talk about in the podcast. Yep Mr. Peppa Pig certainly knows how to drive up prices When there's a captured market of children demanding what they want So, yeah, that's not helping the UK inflation picture right now the cost of those tickets But let me let me just quickly give a overview of what we're gonna cover. We're gonna talk about three things Goldman slumps new name. I'm calling them the US investment bank reported its lowest quarterly profit in almost six years Not the biggest surprise But we'll talk about that in terms of how they've kind of front-run this a little bit But we'll also talk about the actual breakdown of their numbers in their financial statement. Then we're gonna talk about Tesla Profit margin slipped in the latest quarter series of price cuts this year weighed on its earnings and then Netflix Some really amazing numbers. Yeah, and they're really negative share price reaction So how on earth is that happened I'm gonna talk a little bit about all those sneaky people out there who I know you're out there Password sharing that is we're gonna we're gonna find you or Netflix is they've done a crackdown But we'll explain why that's had a big impact on their figures But why the market actually has looked beyond that and then finally third thing Gonna talk UK inflation has the UK Finally caught a bit of a break because UK inflation CPI Fell to a 15 month low earlier this week and that has meant the cable to move back below 130 and also traders have reigned in a little bit the aggressiveness of what they see for the next rate hike for the Bank of England. So that's what we're gonna talk about for this episode. So look, let's kick it off Goldman slumps so their Profits, I mean, it depends which actual line item you take but the profits were down about 60 percent, let's say There was a couple things here The performance which we can talk about where we talk about the three different divisions that are quite unique to goldman's because of this restructuring So global banking and markets Platform solutions wealth and asset management essentially so we'll look at some of these things But then there were write-downs then their impairments is all manner of sins packed into that report So, yeah, what was your your initial take here? Well, actually, I was I was reading one analysts Sort of tape on all of this and he actually used a really good line. He said this was a bit of a kitchen sink kind of quarter Translating meaning that Solomon and Goldman's and the board. I think what they've done it. They've obviously been on a bad run I mean, let's not beat around the bush here. It's been shocking. We'll delve into some of that in a minute But it this could be a little bit of a turning point these these quarterly numbers are so bad But I think what they've done is right. Let's just throw all of the bad stuff We've got hidden in the cupboard. Let's just throw it all into this report To make it super bad So it just gets all of this bad stuff out of the way and then right. Let's move forwards and then Quarter three and quarter four into year end, you know, they've turned the corner. This is this is their strategy So, yeah, some of the write-downs and the impairments and you know, well, I guess look the numbers are I'm really bad. I mean, as you said, some of these stats are quite Shocking lowest profit quarter for six years. Yeah, you got to go back to 2017 I'm not sure. Well, there was a I think quarter two of 2020's kind of in and around that the chart. I'm looking at Which is the net income Has so that net income was 1.1 billion overall Which on the chart I've got is the worst for six years apart from quarter to 2020 which was the COVID Quarter, but so apart from that which obviously is an exceptional You know unique circumstance, so you can't is the worst for six years Yeah, but look lowest quarterly profit for many years, you know, costly retreat from consumer banking, you know Industry-wide slowdown So there's kind of factors out of their control and factors in their control that have all contrived to be super negative all at the same time Meaning this is ugly. This is a really ugly set of numbers Yeah, it's almost like I feel like we should almost gloss over The numbers and I really want to jump on that that theme that you're saying because I think this is going to be a recurring one Which I'll also come back to with Elon Musk and Tesla's earnings More about this strategy of how do we use these public Declaration of our performance, but then how do we utilize the analyst conversations? The investor shareholder meetings the presentations around that to Curate then this image of the future and yeah, you're absolutely right I think you know looking at all these things. I think Packaging them up and coming clean. Yeah, that is a good strategy and before this What they had been doing, I think I read a piece in the FT again Last week and they were talking about Goldman's and their basic management team have been on this Pursuit of dialogue with analysts on the street For the last four weeks. Yeah, so how this would work if you're not familiar with it. So When you see Goldman Sachs misses estimates, for example The question is who actually makes these estimates where they actually come from So all these estimates come from a collection of all of the analysts at other investment banks Independent research firms and so on so they'll survey lots of them. They'll generate this this average Expectation essentially now How do the analysts come up with these expectations? Well, I guess there's two sides of this you can Monitor the company's performance and look at financial statements try to do definitive calculations But this is all about stuff that hasn't been declared yet. So what do you do? Well, you have a lot of dialogue and Semi transparency with the firm you're reviewing in order for them to tell you about how things are going And that shapes then your expectations around your modeling So if you're goldman's this this campaign started several weeks ago when if I was Goldman's and I was in that position I'd be calling all the bank analysts in and I'd be sounding very pessimistic and actually what you've seen is one of the biggest revisions down of analysts expectations, I think in any bank Corporate releasing in quite a while. Yeah, so the bar has been significantly Managed by goldman's very astutely in order for them to then throw the kitchen sink and Not cause then an absolute breakdown in their share price. I think it's been I have to say It's been pretty well executed if that were the plan Yeah, and then as you said coming out of the other side of this Yeah, if you if you just declare everything well, then well, I know about you know, when we talk about these write downs What was it half half a billion on green sky and online lender they acquired in 2021? They recorded half a billion in impairment on real estate investments They also reported us having a look at their report just before we came on a jump in operating expenses So due to how it accounts for impairments tied to some of its consolidated real estate investments as well as The goodwill the total impairment number was about a billion. So it's kind of like look, let's just pick it all up Put it in and let's just come clean and I think now as a investor There's like well, it can't get any worse. So surely it can only get better is the kind of philosophy I guess they're they're shooting for and this is where Solomon. I mean, this is the line in the sand for him hmm, it has to Has to has to get better from this moment in time onwards or He's gone. I think I mean really this is it now for him the Stakes could not be higher but if we delve into it a bit because we talked a bit about earnings on for banks last week because we had some of the Banking giants reporting their earnings last week, but so for goldman's right these big investment banks They kind of got to two key kind of let's call them traditional revenue streams, which is their investment banking Revenues that's all the M&A deals that they're advising on and so on and then they got the markets side That's the trading floor. Okay, they're they're two big You know parts of their business. Okay, and you could say the same for like Morgan Stanley. Okay, they've got those two big legs Like JP Morgan have got those two big legs Yeah, go on a question just for the benefit of everyone whenever I see trading I mean, I'm gonna play naive here. I know the answer But if you could explain Why do they always report FICC and equities in trading as two separate parts that's just putting out the asset classes so I Mean goldman's will so so the trading floor their job is to first basically facilitate Trades for their hedge funds and asset manager clients and so on that floor, you'll have different divisions different desks who specialize in different asset classes and You know historically you've had the equities division and then the fit that's the fixed income and commodities division Okay, and like for people like goldman's mean equities is the big That's the big one right that's their kind of big trading floor Money driver to give you an idea actually Probably the single only bright spot in this whole report was very specifically The revenue from the equities trading division which actually went up year on year So that was up 1% to got almost a 3 billion Way ahead of the analyst expectations, which was 2.4 billion. So that was like the single Single bright spot right, but if you took the FIC so the fixed income and commodities section Then that fell 26% So equities up one thick down 26, which actually meant that the equity division on their own Took more revenue than the entire FIC division. So FICC took 2.7 billion Which was not only down 26% but also missed analyst expectations at 2.8 billion So it does look like the one positive spot and the whole thing here is their equity trading division actually really did Deliver, but if you take it as a whole then you know their investment bank Division like all of these banks Suffered the revenues from the investment banking side was down 1.4 billion Excuse me and look most of that is because the macro conditions have meant that deal flow has been down Across the board all banks have suffered. We did mention that JP Morgan's results last week was surprisingly Resilient on that front much more so than the the other banks So Goldman's would fit in the other banks category here where they've seen their revenues drop 20% to 1.4 billion So Goldman's have underperformed on the IB side relative to Certainly JP Morgan they've even underperformed compared to Morgan Stanley, right? But look all of these banks the investment bank division has dropped the trading flow has dropped But when you look at like JP Morgan or Morgan Stanley, they've got a third leg to the stall They've built a third leg to diversify their revenue streams And it's the third leg That has helped the likes of JP Morgan and Morgan Stanley come through this first half of the year In much better shape than Goldman's so JP Morgan's third leg, for example, is their lending business And so they've benefited, you know, they're a huge Consumer bank and they've benefited hugely from the Federal Reserve hiking rates We talked about the net income margin last week So they benefited a lot from their loan book generating more revenues as interest rates have gone up So that's JP Morgan's third leg Morgan Stanley's third leg is wealth management And so as Mark and we talked about black rock last week as markets have risen You know, as stocks have gone up more than these assets under management have gone up Which means fees from increased asset manage assets under management has gone up So that's Morgan Stanley's third stall Third leg to the stall Goldman's third leg They chose a few years back to go aggressively after the consumer banking Part now that was their piece. Let's let's make that our third leg and they have Spectacularly messed it up to the point where they've entirely reversed out of that play At huge cost which has been marked in this quarter with the right down of green sky Which you mentioned this was their purchase of an online lender. They bought it in 2021 It's been a disaster and they've chosen this quarter To account for the loss, which is a 504 million. They only bought it 18 months ago I mean absolutely shocking, right? So that's the problem for Goldman's their third leg has snapped and broken Not only is it supported under performance elsewhere. It's been the worst performant performing part of the whole lot So this is why it's the kitchen sink and this is why for Solomon. He's out of lives here and this has to be This has to be a line drawn and they have to now get better There is one bank that has seen a jump in investment banking equities and fixed income revenues who has reported who do you reckon that would be Um this season Wells Fargo, maybe Wells Fargo, okay. I mean it is a bit Bit cheeky bit manipulated because they're coming from a much lower base right in these areas. They've played it. Well, I mean, they've chosen the When when they've chosen that moment where they're not particularly big in those two fields So they've they've been waiting for a real downturn in the market where then all of the big boys are consolidating our cutting costs are Laying people off our slim lining and they've chosen that moment to just stride out and like Commit with some big investment on building out those teams Yeah, so yeah, I was looking at their strategy. It was based around investment in technology and Talent, that's the way they've gone after this So it's allowed them to broaden their client franchise and generate more trading flows Technology and then they've just gone over and gone right. Okay. Yeah, Jeff Hogan MS super senior banker your co-head now global mergers acquisitions credit suice, right? Yeah, we'll take your team as well here package them up. So yeah, it's definitely been Some fail some rise during different economic Circumstances, but yeah, super interesting But let's move move the show on and let's get on to area number two Not unless you had anything else final to say other than Solomon is on the line the only final thing that Solomon himself said Where he's very much trying to say we've turned the corner. Yeah, we've dumped all the bad stuff Returned the corner and his comment was talking about investment bank Deal flow and he just said that it definitely feel better over the course of the last six to eight weeks Than it felt earlier in the year So well you live and die by the sword now you've put it out there. That's right All right, well, let's talk about Tesla So there shares we're a bit bumpy actually last night. It was hard to kind of Watch them because they dance around a little bit after the closing bell But they were generally lower a couple things Profit margins slipped in the latest quarter. We've obviously seen quite a few price cuts That's having a degree of impact But profitability Still held up better than many analysts have actually forecast and they reiterated the target of selling 1.8 million vehicles This year, but I guess one thing I just wanted to point out is the way this information comes out So it's kind of like two parts. There's this Statement and often then a presentation, but then there's a this analyst call that happens when they're explaining like let me talk you through what we've just released and uh elon has had a bit of a He's backtracked a little bit. He was kind of like let me step away and let them run the show The share price was tanking right? Let me just come back in shore up the ship again um But one of the things that happened on the call with the analyst is the company said that factory downtime Could lead to a lower production this quarter And it looked like that was a comment that was quite key that weighed on there on the share price But I know you've talked about margins a few times before so what are the margins looking like at tesla at the minute? Yeah, so gross profit margin is a key metric for You know automotive businesses um, you know, it's a quite sort of uh Any more I guess any manufacturing business, you know, relatively low margin business compared to say your SAS business, which is a software as a service or you know, so because that manufacturing bit is super expensive and high cost but tesla Historically have always had or no not always have been able to Manufacture themselves into the position where their their gross profit margins always been amazing It's been there's jewel in their crown relative to the big automotive players. Okay However, there's definitely been a conscious strategy Um from tesla to to basically as we've gone into this cost of living crisis All right, you know teslas Have been a relative premium right the price of their cars are relatively high when you're looking at the you know their competition and Musk has gone well, look People are struggling here in this cost living crisis. So let's reduce the price of our cars In order to win market share Yes, it's going to erode our gross profit margin But long term, you know, we think this is the right place. So to give you an idea their gross profit margin dropped to 18.2 Okay, that's a drop from the quarter one of this year. It was 18.8 But the better metric is year on year the same quarter in 2022 their gross profit margin was 26.2 So it's dropped from 26.2 percent down to 18.2 in 12 months, which is a massive drop But it's all it's all because of the quite deep price cuts Right in terms of so you're making less revenue off the car sale, which of course then, you know, erodes the the kind of bottom line So look, we've known all about this though. This isn't a surprise um You know, obviously we've seen and musk has been very vocal back cutting prices. So, you know, I think that's fine I think I think you're right in saying That the reason for well, hang on you said that the share price dropped, right? I think it was down like 5 in after hours trading But one thing you've got to note is that The share price prior to this earnings report was up 137 percent We don't talk about that on this show kids. You know the rules. We don't talk about that 137 percent rally you had to go there, didn't you and actually I was Here's a question for you Gina and you I don't know if you've read this in your kind of reading up about this before the pod But what what do you think their revenue growth? was for the last 12 months I don't actually know but I'm going to have a guess that it's a very punchy figure So the revenue is 24.9 billion. Okay for the quarter. That sounds like a lot What do you think that growth? What's the growth rate year on year? 40 percent Not bad get 47 percent Now that's crazy that is a very rapid Yeah growth rate At 47 percent, especially when you're you know, you're now up to 25 billion and you're still growing at 47 percent growth rate and that was 500 million above forecasts. Okay, so From the top line point of view I have to say musk is delivering And the one thing we were worried about if you go back 12 months Or maybe even 24 months. Certainly the big unknown about Tesla was can they really grow their production? So that they become a big player Because you got the likes of Volkswagen and Toyota They're producing 10 million cars a year, right? And if you go back a couple of years Tesla were messing about with 500,000 cars And one of the one of the key barriers to Tesla justifying their valuation was can they scale it up? Can they go from 500,000 produced per year? To 5 million to 10 million over a kind of decade and musk set in place some targets And he's not far off and this year despite yes They did point to the fact that production might be down a little bit in this quarter But he must did say they are still on to hit their target to produce 1.8 million cars this year So you have to say he is on track to this multi-year um strategy of ramping up production to properly Compete with the big boys. So yeah and to musk's credit There's three things here that kind of stood out. One was what you just said So actually when you put everything together Tesla said that factory downtime would lead to lower production this quarter. So what has Elon done? He's reiterated and re-emphasized the year target of 1.8. So to to go over the speed bump He's saying right don't focus on now focus on the performance over the long term. So he's kind of that's clever He's just buying himself a bit more time. The other thing I think is his management of selling this product to the consumer and how do you manage consumer psyche in a time of stress? I do think he uses twitter to try and bang that drum Point fingers at politicians and policy to try and side with the common man He then comes out and tells analysts that if interest rates rise further this year Tesla will cut prices again so that financing costs will not be passed on more expensive for our customers I think that's super clever and the reason why he knows He's a clever guy that interest rates aren't going to go up any further So he's not going to have to cut them any further So it's just like well, what what can I say to just because Look not to criticize the general public, but they're not just as informed as the guy as he is and he knows that Well the price cuts would probably come into the end of them actually if we're gonna if I can tie them to rates And inflation is going down as we know in the u.s. Well, then let's just put it out there And let's make the commitment that I don't actually need to fulfill at this point. So that's that's a nice touch and the third one He said the company is less focused on margins So this is obviously the big thing that people are looking at in the in context of price cuts He said less focused on margins in the short term Than on selling more vehicles, but then he added The value of our vehicles will soar once tesla perfects its self-driving software And the thing I love about something like self-driving software. It's kind of like AI It's like no one really understands it. No one can really quantify it But if you throw it out there People just see it as this moonshot thing that's ultra positive and so again, he's kind of engineering a way of Something quite negative But being quite masterful and tactically kind of turning the dial and pivoting deflecting the attention to a more positive space and Look, I think he is excellent at that For sure Well, they're going to spend on that point. He was saying they're going to spend north of a billion over the next year on its new AI training hardware Which is called dojo That's the name of it and and this is like in an effort to reach the goal of full autonomy, right and and I guess you could say two things tesla are Probably leading the race here In terms of getting to that proper full, you know Self-driving vehicle scenario, they're probably winning the race because they've got the most data And AI as we know is training Training the AI on the data and the more data you've got Well, then the better your AI system is going to be and they've got the data from all of their teslas The millions and millions of teslas that are out on the roads driving about and they've they've got You know, they can access all of the data from those cars secondly if they do pull this off then The the great thing about teslas model is they can then charge existing Car owners to upgrade their software on their vehicle that they've already bought And then charge a subscription for this, right? So his point here is forget about short-term margins The real action comes when we smash this AI self-driving thing in the future And then we can monetize Again, all of these cars that we've already sold. So don't worry about this short-term price drop We want to sell as many cars as we possibly can Then when this software is ready, you know, we can really deliver. So yeah, again, it's quite interesting but he's been talking the self-drive thing for I don't know how many years and It's still not here. So um, obviously we've had the year of AI with chat gpt leading the way and everyone's got excited about it, but we have persistently being disappointed on the self-drive vehicle front. So will we continue to get disappointed or actually Is this product going to arrive anytime soon? Cool. All right. Well, let's talk Netflix. I said at the beginning of the show that a little bit confusing Because you might have seen a headline run In the newspapers a website saying that a crackdown on password sharing which they had said they were going to do Helped the company add nearly six million subscribers. I think it was 5.9 million analysts were expecting just two Yeah, this is like blockbuster size beat However, um, their shares dumped So why was that? Well Two things I mean they so the share price rallied 8% Just in the the days leading up like this week was up 8% and then it sold off 8% So it did dump, but it only gave back the little bit of a rally Early in the week and it's up very strongly on the year Overall, but basically it dumped because The good news Was all in the past And the bad news which they did deliver was kind of in the future. So the good news in the past or yet the You know the strategy of cracking down on free loaders, you know 15 students Sharing one account kind of scenario It's you have to say they've pulled it off perfectly the there was a risk that the the cancel reaction Didn't happen So that was the big fear and what analysts thought was look loads of people are just going to go well We'll just cancel them. We're not gonna We're not going to buy another subscription. Um, you know another subscription We'll just forget about it and that hasn't happened. So yeah, the subscriber numbers are amazing um, but ultimately Um, well actually something in the past was bad their revenue. This is the slightly weird thing so new users up six million, but then their revenue actually Was below expectation Yeah, I understand I did Try and have a look because I thought exactly the same as you I was like How does that even make sense and the thing that I saw someone put forward was that the average revenue per new sub Came in far below expectations and will eventually send margins sharply lower Is what they were suggesting. Well, I wonder because they did like they're you basically have two choices You either signed up 799 a month right to add another subscription to your account or they did then feed in this lower price point Option you could pay $6.99 a month But that would be an account that would have adverts Um, I don't know. So maybe a lot of these six million signups are on the 6.99 a month And I guess there I guess the advertising revenue is to come in the future right rather than At the point of sign up, uh But yeah, I don't know There's got to be something else going on that I'm not aware of because it doesn't quite add up that their revenue I mean it did increase right to 8.2 billion. Um, that's up 3 percent from a year ago But analysts had forecasted 8.8.3 billion. So is that 8.2? Analysts had thought 8.3 even though analysts To get to that 8.3 forecast were assuming only 2 million new subscribers so Yeah Um, the other point though about the future and I think the main reason why You know the price tanked a bit afterwards was because their guidance towards revenue growth going further Going into the future was was a bit disappointing. So they forecast revenue to climb to 8.5 billion in quarter three Which was lower than the 8.7 billion than analysts had expected Yeah All right. Well, let's let's wrap it up with the with the final segment about the uk So uk inflation CPI consumer price index Fell to 7.9 percent. That was a bigger than expected drop It marks the lowest level actually since march 2022 Uh, kind of looking at the the breakdown of the report Motor fuel made the largest downward contribution to the monthly change Food prices rose in june But by a less than in the same period of last year I was kind of looking at that food price number and I was like, oh, it's fallen and I was like Okay, it's fallen from like 18.5 percent to 17.3 or something like that. I was like ouch We're getting super pumped about inflation It's so weird the disconnect between being a market participant and it's like oh inflation is falling. It's great And then you actually think about it from consumer's point of view food prices are falling and yet they are up 17.3 percent. It's just crazy when you actually think about it Yeah, but the core reading Maybe this was The important part because that was the first decline we've seen in the entire year The core reading being the rate of price rises that excludes Food and fuel that dropped to 6.9 percent and then the services prices What perhaps appears you could explain to me like the service price component which is kind of this third leg of your stall that you've been referring to That people have started to look at when it comes to the uk when they talk about cpi So rather than just core looking at services prices And that that is actually one of the most key metrics that the bank of England looks at when looking at all of the data Components that rose by 7.2 percent in annual terms But that actually is a is a slow down from 7.4 percent in the prior months. So why services is so important for their decision-making process? Well, let's cut well first these services makes up the largest part of our economy So actually in the uk I think it's shifted slightly easily, but you still got more than 80 percent of gdp Is from the services sector And so that's where most of our money is spent um although Hang on. Yeah. Well, yeah, that's true. That's where most of I was going to say that a lot of the some of that Manufacturing side, you know, perhaps some of the price points of some of those things are very chunky like a car Would be a good example, right? That's a super expensive purchase relative to a service. We were just talking about netflix $7.99 a month But when you add it all up the services sector makes up easily the largest portion of gdp, and that's why it's more important In terms of impacting on the cost of living and the ability for consumers to to consume so inflation Going down Is it just a case of like the markets positioning and it was kind of markets were overtly leaning On the hawkish elements we've had of late resilient economy not so deeper down turning growth Wages are still going up. Was it just that the market was a bit ripe for something like this? um Because surely inflation was going to come down at some point Yeah, but I think we got stuck in this continued trend of bad news On inflation in the uk because when you go and look at the the us I mean we were talking about The us inflation data Last week right and if I was to just hang on very quickly if I go and look at the Core inflation reading in the us, which is the most important one that peaked That peaked at 6.6 percent In september 2022. Wow Right now in the uk It's been rising all year and the peak Was in well, is it the peak? I don't I don't want to get to you ahead of myself yet, but The peak is probably going to be may 2023 So september 2022 for the us may 2020 was so So I think it's incredible and So every month this year core inflation has gone up and up and up and up and so you're just thinking well It's just going to continue to diverge and go up. The forecast was actually for it to be 7.1 So one changed that the peak um and I guess we've been so caught up in this narrative of bad news about the uk that you just expect more And so I think that's why this was so surprising because it was the opposite was good news And we just haven't had any For a long time and that's what made it all the more surprising So if core inflation dropped from 7.1 in may to 6.9 in june We don't I mean you can't get too carried away. That is still the second highest reading Since this whole inflation problem came around And it's only one month, right? We're going to need to see several months of declines To really become sure That the corner has been turned and inflation is now trending lower like it is in the us and fine The bank of england won't have to hike as much blah blah blah, but It's the first early sign That maybe the corner has been turned and you saw that in sterling I mean like looking at the market moves for all of this i mean sterling had A huge sell-off off the back of this data yesterday morning. It was announced at 7 am Go and have a look at your charts But sterling crashing back down below the 130 handle against the us dollar It's trading below the 129 handle now as well. So Yeah, sterling's devalued quite sharply and traders are it looks like Prepared to although it's early I'm prepared to go. You know what that could be the corner turned on this inflation nightmare That's been so persistent in the uk compared to The us for example Yeah, I know there's one person who's probably breathing a big sigh of relief and that's the prime minister rishi sunak He's probably thinking Goodness, this has happened now, but I think I'm right in saying I read he I don't know if this is true because I think surely he wouldn't commit to saying this But he said I think this must have been up when inflation peaked that We're gonna it's gonna halve by the end of the year What do you reckon about that as a as a as a goal by a year end? Well, I guess I'll go and I guess the best way to do this is a reference man. Go and look at the us, right? So on the court, he's talking about headline inflation I assume which is more which is more volatile So actually if I was to go and quickly look at the headline inflation chart in the us So I said it peaked last year, right? So if you take So it's now at 3% in the us on the headline. It was at 6% in february So actually the us's inflation reading has halved in five months So I guess he's looking at that chart When he's making that statement and just hoping that on that evidence We should probably expect to see the same ourselves. Yeah, I guess the difference between Rishi and Bailey Is that Rishi can say whatever he likes. It doesn't matter if he's right or wrong And I guess that's the politician's job to instill confidence Right there and then in the moment. No one will remember what he said about it really Five months later. Whereas with the Bank of England The markets will punish you Yeah So talking to the Bank of England maybe the final point is that'll be the next really Interesting moment Because they've got a monetary policy meeting Next week, right? And so Well, you might correct me if I'm wrong. I think it's next week. So Really, this is great relief. Okay lower than expected, but Prior to this CPI Reading markets have been pricing for the Bank of England to hike rates by 0.5% at their next meeting So actually accelerate the rate hiking Now markets are still expecting a hike, but half of that 0.25 percent But it'll be interesting to see what happens and what Bailey and the NPC members Think about this inflation reading and are they prepared To really say, you know what this is a turning point You know, we are going to now be less hawkish. So that'll be a really interesting moment Um in in this in this saga and that's I believe coming next week. Am I right? Third of August. So, uh, okay today we're recording this a Thursday, but two weeks away. Yeah, yeah It'll be interesting. I actually think that the answer to what you've just proposed is They work. They'll be uncommittal as ever will continue to monitor and develop. However Talking of the elong talking of all the corporate strategies we've discussed The way I would do it is then utilize one of the fringe NPC members To drip feed in that we feel quite good about this Yeah Maybe do it that way and then just if they're wrong just say well, that was not my life I think they I don't I don't think they'll do that though I think it's too early that they'd have to be pretty brave To hang their hat on one month's data Normally they want to see at least two months of declines If not three months of declines The ball really starting to be confident, but actually the corner has been turned. You know, it's actually interesting is that another Way or avenue of a central bank being able to communicate and test the market out Is is via sources I don't think I've ever seen a bank of england source ever The Fed do it like clock or the ECB. I should say do it like clockwork It's like christine legard's got a button under her desk when she's delivering the press conference And she's got an earpiece like tom cruise in mission impossible and it's just like the euro's tanking push the button Bang and she hits it and explain like for those who don't know. What do you mean by that a source? A source comment. What do you mean? How does that work? Yeah, so I guess the best way to think about this is Every single word that a central banker says is heavily scrutinized and has the ability to influence market expectations So when they're crafting these statements or answering questions in a in a with the press pack In one of the central bank meetings that they're super cautious So if we're in a position, let's say the bank of england like this where you're kind of wanting to Our goal provide forward guidance Which is give some degree of direction so that markets have confidence Um, and therefore if a policy statement is made or a maneuver is is taken That it's not completely unexpected. So you're kind of changing policy with least disruption to markets as possible Now in this bank of england when we've described, it's quite precarious. It's too early However, it wouldn't it be nice if I could just drip feed in maybe a little comment Just to see how the market would take it in terms of We don't see this as a sign of inflation slowing If they said something as definitive as that well, then the power was just going to go back again Or they say actually we think we turn the corner, which is the opposite end of spectrum And we get a continuation of the second half of this week's moves So rather than go on the tape Let's say on the record And say something either formal formal stage or to A central banker to a member of the press or an interview They typically have The kind of bat phone plugged into bloomberg and reuters for example or the wall street journal if it's the fed And it's a very known relationship in markets that they will utilize and in the case of the fed It's the most clean cut. It's a specific economist at the paper that they will call directly And it will basically be like a little whisper You know, if you're if you're old enough blue horseshoe blue horseshoe likes anacond steel Which is basically like using a type of language Which is quite a giveaway in for what it is that you're thinking And so then that journalist or reuters or bloomberg will run this comment saying sources have said that everyone knows in markets It's the central bank. It's as good as gold But what it allows the central bank to do is have ultimate flexibility and deniability. They can just say We didn't say that. Yeah So we all know they did So it's kind of like this weird situation, but it's very common and as I said during Christine Lagarde's tenure at the ECB it's been the most frequent and I think that that's a byproduct of the fact that There was some major question marks over lagarde when she started about her I guess just ability to sit there and govern govern the european central bank given her political history some of the things she's been involved in accused of in the past Does she have the knowledge to be able to deliver this she's got the public speaking ability Yeah, some might disagree, but Can she actually do it? And so I think for her the best insurance policy was taking out that source Kind of hedge And nearly every time there's a meeting because the problem is when your the language is so nuanced and open to interpretation from the investment community You see the immediate reaction of your words in the market Yeah, and so the source comment typically comes out within the hour of lagarde finishing And it often it's more likely to come out when there's been a meaningful move in markets Because it's probably been unintentional There's been a misalignment of what she's been trying to allude to as to how the markets have interpreted it So what do you do? Can you please run source comment B? Yeah, and if I was the guard, I would have had given my Bloomberg contacts Um a b c d and depending on how markets react, please go it could go out with this this one Um, so yeah, it it happens a lot and it's uh, yes an interesting kind of process And I do know don't tell me how I know this but these people are paid on the books In terms of for this relationship as well That seems interesting info in the vaccines of how the cloak and dagger world goes on it's quite it's quite interesting Right, okay paid how much? I actually know that as well and it's It's uh, yeah, I'm not gonna say because I'll get I'll get in trouble Right. Yeah Right, but yeah, this so this is one of those things I think is a student Learning about markets obviously you would never encounter this as a as a kind of textbook chapter But this stuff is what moves markets Yeah, this is the bread and butter of understanding price action In in a day-to-day marketplace. So yeah Um, hopefully very interesting. It's useful. All right. Well, look, we'll wrap it up there peers Thanks as ever for for joining me and yeah, hope everyone has a fantastic weekend. Yeah, enjoy pepper pig I'll try thanks peers. Yeah