Ep.42: Bank of England Surprise, Fed Taper & Biden's Political Nightmare

Hello and welcome to episode 42. I'm joined by co-founder of Amplify and head of trading, Piers Curran, and we're going to go over in this episode the surprise from the Bank of England that we had just yesterday. We're going to talk about the commencement of tapering. It finally arrived after what seems like a lifetime of conversation of tapering, and we'll talk about next steps and how the market reacted to that. Then we're going to flip over to politics, talk about Joe Biden, who's having a really rough time of it at the moment in the polls, struggling with the passage of various different types of legislation, as well as OPEC Plus just saying no thank you, we're not listening. And we'll explain why that's occurring. And then going to look at some single stock news. Can't go an episode at the moment without talking about Elon Musk, obviously, and Tesla. They're up again, irrespective of some negative midweek news.

How's that Tesla short going, man?

Well, we'll talk about that. That Tesla short is increasingly painful. I just cannot work out Tesla stock. All I know is that you need to clear the deck and not touch it with a barge pole. But the other company as well not to touch specifically today is Peloton. Aftermarket, they released their earnings and they were down nearly 30— 3-0— 30%. So have a chat about those, and we're going to have a talk about tech stocks in general. The Nasdaq, as I'm speaking, record highs again. 9 straight days higher, the longest winning streak since December And they said growth stocks were dead. So we'll talk about that, but let's kick it off with the shock from the Bank of England. Well, not a shock for me, I must say, but a shock for the marketplace.

Yeah, I'd say, and to give you credit for all of the bad calls on Tesla, they've been easily made up by the very, very good calls on the Bank of England. I mean, you called it. Yesterday morning, if you're not watching the daily market briefing, guys, then you're out of the loop here. Anthony Cheung's got his finger on the pulse. Called it on Thursday morning, said they wouldn't hike even though the majority of— well, certainly the market and economists were calling for a hike. And Anthony Cheung showed them different.

Yeah, and the vote split actually was even more resounding than I thought. The actual vote split. So just to explain, With central banks, when they have their meetings, this is a very unique feature of the Bank of England that they release then of the 9 members that form their Monetary Policy Committee or the MPC. There's 9 of them and you get a count. So you get a granular level feel for the shape of the discussion and where people reside in terms of do or don't take action on policy. And the vote split was 7-2. Markets were more on the fence of it's either going to go 5-4 one way or the other. A lot of the rationale with the Bank of England was because rates markets had really aggressively priced in hikes. A lot of that came on the back of commentary from the governor, Andrew Bailey, last week, who was talking about, well, essentially this rate pricing had occurred. He had the opportunity and platform to push back against it to say, "Well, you've got a little ahead of yourself there. It's not a done deal yet." He chose not to do that. And then there was an FT piece from the newly appointed chief economist who came out and said, you know what, inflation is actually going to go to 5%. And that just accelerated that belief that they were going to hike. But yeah, I mean, the main things were, I guess, the uncertainty on the— for me, it was a twofold thing. It was the uncertainty around furlough. And they commented on that. They said, oh, just over a million jobs are likely to have been furloughed immediately before the coronavirus job retention scheme ended. And that's significantly more than what they were forecasting when they previously issued their growth inflation forecast back in August. That and COVID. COVID didn't really get mentioned much at the meeting, but not even a whisper, really. But I actually think we're far from done with COVID Particularly the dynamic of the situation that we're in at the moment, which is the seasonal time of year, the weather change, the efficacy decline, the rollout in the youth. So I still think there's challenges. And why not wait? I mean, why would you not wait? To me. And then it came a day after the Fed, who basically have said inflation is transitory. And that's exactly what the Bank of England did in their forecasts. They said inflation would peak at 5% or that level in April of next year. And then it's going to come back down again. So that was my kind of take on it. But did you have any— well, I guess for one, there's a lot of tweets about, is Bailey the new unreliable boyfriend? But what I like about this is no one actually has said that in the press. It's funny how, because Mark Carney was you know, I'm, you know, I'm gonna say he's a good-looking guy. And because Bailey is perhaps not quite so stunning— I love the way the media don't use that phrase, but they did for Carney. I mean, it's a bit of sexism right there.

Yeah, accusing someone of being good-looking. Yeah, that's fine. Accusing someone of being But ugly, probably not fine. Um, yeah, Bailey, I mean, I have to say this has just been a bit of a joke, I think. Um, I think he's handled it really badly, and my confidence in him— well, I'm not sure I had much anyway, to be honest, but I— it was— he was a bit of— well, he's not an unknown quantity, he's obviously been at the Bank of England a long time and on the MPC. But yeah, I mean, just a bit embarrassed for him. I'd go as far as to kind of say that. I mean, he's got it so badly wrong on the communication front. I mean, it was only literally last month, basically saying, guys, we're hiking, we're hiking, we're hiking, inflation, inflation, we're hiking, we're hiking, everyone alarm bells, alarm bells, like a month ago. And now, well, they're not hiking. And I mean, I think I was reading a piece in the FT after the meeting. And the guy summed it up quite well. And he basically said that Bailey tried to say 3 contradictory— he tried to deliver 3 contradictory messages in that meeting to try and really not cover up, but really make up for the fact that he'd cocked up. And that he got way too ahead of himself a few weeks back with his rhetoric, and he needs to rein it in, but without making himself look stupid and therefore undermining his own credibility. But on the one hand, he was saying that they need to continue to give that message that they're concerned about inflation. So he actually said, we're much more concerned about inflation than previously, and interest rates really are going to rise. So they still want to talk about the fact that they're conscious of inflation being higher for longer, that transitory thing. It's not as transitory as we thought. So like other banks, other banks are making moves, and there's been some hikes going on. So it's not like the Bank of England would have been the first. They would have been the biggest to have hiked so far in terms of economic size, but they're certainly not the first. So they're saying that inflation's there, we're probably going to hike. But then at the same time, now they're saying actually it's good to wait, which is your point. And really, and I guess if you can compare them to the Fed, the Fed have stayed absolutely true to their word throughout this whole piece. Absolutely consistent. It's transitory. Fine, it's not quite as transitory as we thought, but it's still transitory. And so whilst we're tapering— and we'll get onto the Fed in a bit more detail in a minute— whilst we're tapering, we're not going to hike. And that's been throughout this last few 6 months. That's their line. That's their line. And they're right. And the Bank of England have been flip-flopping. Oh my God, panic inflation. And then, oh, actually, no, we should wait. And I think they're back to we should wait and taking the Fed's lead, I think. But then, of course, Bailey was also trying to I guess, trying to give us confidence in himself. I mean, he said that people should continue to heed my words and basically acknowledge that his comments last month about taming inflation had been truisms, I think was the word he used.

I've got two things to say about Bailey, one negative, one positive.

Oh, yeah.

I'm an analyst. I told the middle ground.

I'm interested to find your positive.

Yeah, yeah. So for the negative, he actually appeared on a Bloomberg interview as an exclusive yesterday afternoon, so after the event. And you know what he said? I don't know if you read.

I didn't see that.

No, he said, I quote, it's not my job to steer markets on interest rates. How can you say that? I mean What planet are you from? You already nearly blew up the FCA in your previous job, and now you're doing your damn hardest to do the same at the Bank of England. But I mean, that's probably— if there was a job advert for a central banker, that's probably the one line to summarize what is your job, surely.

They need to get this guy out of there before he does some serious damage.

But I think the other thing as well, there's one thing, a loss of credibility There's another thing here. Come on, it's just a loss of respect. I mean, if he balls it up, you fess up. That's it. And the market will forgive you for that, I think, you know. But the way he's acted in the aftermath of this— and perhaps he will seek counsel and he'll come out next week and say something like rolling it back a bit, saying perhaps, you know, he shouldn't have said that comment at Bloomberg yesterday. He should not have said that.

You make a very good point, right? We all make mistakes. Definitely. And, you know, just man up, just, just take, take it. Look, hands up, I definitely made a mistake, an error, and, you know, we're correcting it now, and, you know, we're moving forward. That's definitely the way to deal with the mistake that you've made, rather than just trying to wiggle out of it and pretend it didn't happen, or try and make excuses as to why actually you were right and it wasn't a mistake, and Yeah, so the positive— yeah, go on, he's resigning.

Rumors are— yeah, um, the positive that, that I think is that because of the how acute the energy crisis was in the UK specifically just a few weeks ago, I reckon behind closed doors he would have been on under incredible pressure from multiple different forces, particularly the government, to do something. I reckon even though he should stand as an independent organization by his own economic analysis and decision, I think at the time he was just reacting and buckled to those pressures, and hence the conversations about inflation. I suppose you don't, because because you've got your electric vehicle. But for us, for us, um, you know, regular folk still on the gasoline.

Yeah, we're planet polluters.

Yeah, but you fill up your car, it makes me think because I mean the last couple of weeks it's like, was there a problem in the first place rather than people just going stir crazy? I'm not so sure, um, now, uh, but yeah, that's That's a positive. And I'm giving the benefit of the doubt to Bailey here that perhaps then that was something that was happening at the time.

He doesn't deserve that benefit of the doubt. I mean, look, we talked about it on the podcast at the time when gas prices were spiking and all right, there was the fuel crisis that— but the central bank can't— that's out of their control. That was a supply side price spike, them raising rates, actually is going to do more harm than good in that particular isolated inflationary situation. But I think the only thing here that's changed is that job retention scheme. And I think they got, as you said, massively surprised by the 1 million people that suddenly got added to that just before it closed. And I think, I mean, yeah, I think that's a signal that they hadn't factored in between meetings. I'm talking about now because the end of furlough happened just after the last meeting. I think I'm right in saying, aren't I? The last meeting was end of September, and it was the 30th of September, which is when that scheme ended. So anyway, Yeah, I think it's just been a bit embarrassing, the whole episode. And markets have been— they got sold the dummy. If you've seen how bond markets have been behaving. And actually, if we kind of move this on and also bring in the Fed and what happened there on Wednesday, where— do you want to just kind of COVID off the details?

Yeah, just to kind of conclude with the Bank of England for context going forward. And then moving to the Fed. The market's now pricing a 66% chance of rate hike in the Dec meeting. A full 100% priced-in hike now for the BoE is not until February of next year, and obviously that would coincide with the updated next monetary policy report forecast. So yeah, but talking about the— I think the, the good connection between talking Bank of England and Fed was the comments that both the chairman and the governor said. Powell said inflation is elevated, largely reflecting factors that are expected to be transitory. The Bank of England said upward pressure on CPI to dissipate over time. And so I think that, yeah, that whole transitory argument, we've kind of— we've gone, it's definitely transitory. So it's not so transitory to— it's not transitory at all to now, perhaps it's just a little bit more sticky, but still transitory. So where we go next, I'm not so sure. But yeah, that was the commonality, I think. And I think obviously this has been a key variable that's helped this equity move continue, particularly US equities striking record highs pretty much every day of the week. Underpinned by what I've been referring to as a measured approach by the Fed. You said it right. The one thing that as much as people criticize central bankers, I think Powell is up there. He's definitely A-team quality because he just does what he says. Yeah. Right.

Yeah. He definitely does. Because in September, in their statement in their meeting in September, they said inflation is elevated, largely reflecting transitory factors. Now this time on Wednesday, inflation is elevated, largely reflecting factors that are expected to be transitory. So, are expected to be were the kind of words that they kind of added in there. But ultimately, the really key thing I think from the Fed's meeting was that Powell made it clear in the conference that transitory was consistent with inflation that doesn't start to normalize until the second half of next year. So his— and that's kind of what he's been saying. Look, inflation is really high, but it is going to drop. Not now, and actually it's still going up, right? But once we get past that spring hurdle, spring of '22, that's when the year-on-year factors will kick in, because that's when prices spiked. And so, well, hang on, it goes back 2 years, because it was spring of 2020, which is when COVID hit. You had that big collapse in economic activity and prices dropped off. Spring 2021, as prices normalized and you got supply constraints, then prices had gone up, but that year-on-year comparison was super high. So you got massive inflation kick to the upside. Now, when you get to the spring of 2022, that massively low spring of 2020 figure drops out of the equation. And so inflation is expected to drop back to like 2.5%. If it's 5% now, by the time we're in Q2 of 2022, it should drop back to 2.5% just because of these year-on-year factors. But look, I think there are underlying inflationary factors that do remain, and that we've seen wages going up, and we've seen some housing costs also increasing. So I think it's not as transitory as perhaps we thought it might have been 6 months ago, but still, it warrants the Fed tapering, and it's been spot on. I mean, he's been flagging this taper for months and months and months. He's been saying exactly what he was going to do, and he's done exactly what he said he was going to do. And I think the equity markets, if you were to kind of measure the trading success here, I think equity traders have got it spot on. I think bond traders have had a bit of a nightmare. What's happened in the bond markets is that really in the kind of run-up, in the last couple of weeks, we've had what you call a bear flattening of the yield curve. And this is where, because we were expecting, oh my God, the Bank of England are going to hike, the Fed are tapering, maybe the Fed are going to have to start talking about hiking rates sooner. And so the short end of the curve, that's the kind of shorter duration bond yields, were going up, pricing in this more hawkish expectation on the rate hiking front, okay, because they're panicking a bit about inflation. At the same time, on the long end of the curve, yields were dropping because bond traders thought, well, hang on, they're going to make a mistake here. They're pricing in a policy mistake. They're saying, "The central banks are going to have to start hiking. They're going to have to be more hawkish. That's going to be an error. It's going to actually have an overriding negative impact on the economy. So let's start buying longer duration bonds as a bit of a safe haven play." And that drives those bond yields down. Okay. So you get this flattening of the curve because the bond markets were pricing in a hike and that's going to be an error. The equity markets were like, "Pfft." whatever. They're not hiking, and it's not going to be an error because they're not going to do it. Let's buy, buy, buy, all-time highs. And even growth stocks are through the roof, as we'll talk about. So the equity markets have definitely— they've been listening to Powell. They've been ignoring Bailey. Let's just ignore him. He doesn't know what he's talking about. Whereas the bond markets have definitely been caught out by this and are now— now they're correcting back, and we've got the yield curve steepening again. But yeah, bond traders, not a good few weeks for them.

And then just to wrap up the Fed, the one thing that the Wall Street Journal was talking about last night was the fact that Powell had a secret visit to the White House yesterday. And then earlier reports were suggesting that the White House had asked certain Democrat senators to come and meet Jerome Powell for a private conversation. And obviously, this is fueling belief then that at some point Biden's got to pull the trigger. He seems to have been dragging this out forever. I mean, I'm pretty much locked in Powell will get reappointed. I don't know about you.

Yeah. I mean, definitely. And another reason why the bond markets messed this up, because Powell's so— he's a very dovish chair. Okay. He's definitely in the very dovish camp. Secondly, his vice chair, Richard Clarida, is really dovish. The third most important person at the Fed, the New York Fed chief, John Williams, he's dovish as well. You got the three amigos, the three most powerful people at the Fed, super dovish. Then you've got your hawks, the embarrassing hawks that got kicked out. So Kaplan and Rosengren for kind of insider trading, essentially. They were the hawks. They've been kicked off. So you're left with this super dovish. And with— I'm sorry, with Biden's approval rating just being shockingly bad, he definitely needs a dovish Fed chair, definitely. And so for sure, he's going to be desperate, I think, to keep Powell in place.

OK, well, there's our hook. Let's move to Biden. Now. And that's another good reason, um, that you've just pointed out. Um, nothing like, uh, juicing the equity market with, with a stimulative environment. But yeah, a couple of different things here. Gonna start it off with oil, uh, because that, that ties in the US. And the reason why is that oil fell to its lowest in a month, uh, this week. Yesterday and Thursday we had the OPEC+ meeting where absolutely as expected. And again, as I said in the briefing, I thought it's pretty clear that the OPEC+ group, so namely Saudi, Russia, and others, were going to stick to their plan— supply increases of 400,000 barrels per day— and they're absolutely not going to listen to the Americans. Uh, and the thing I've been saying, Piers, is that in the briefings is that for America, I don't think they they think that OPEC will respond to their requests. That's not the objective in my point of view. If I was a strategist in the administration, I'd be like, we have to deflect attention and pass accountability to the Gulf and African producers to then just take some of the heat off us from the consumers at home at the prices at the pump. So the US even went further and said yesterday it's encouraging oil producers to stabilize oil prices. Didn't go into specifics, but kind of know what that's trying to— again, it's fitting the same agenda, I guess, I described. And then the second one, the White House is said to be considering a range of tools to deal with oil prices. Now, that range meant that yesterday was dominated by rumors of SPR, the Strategic Petroleum Reserve, being tapped to flood the market to counteract some of the prices. But Before I hand it to you, there's a few other points here. One is American crude inventories have now risen to their highest level since August. Iran said nuclear talks this week are going to resume after what has been a quite lengthy hiatus of those negotiations. I must stress, I absolutely, as I said before, do not believe they will do a deal anytime soon. And equally, I do not believe that Iran is going to flood the market, this crazy move that a lot of people have speculated. I think that's, that's not a reality that's worth a high probability factor. But UBS said a good comment. UBS said the OPEC+ decision may prompt the US to release the strategic oil reserves, although that would only fill the gap during a temporary production disruption and not fix structural issues. So such as underinvestment and rising demand, which I know is something that you've talked about before as well.

Yeah. Yeah, I mean, he's in a really difficult spot here, Biden, for a number of reasons. One of them on this kind of the cost of petrol at the pump. And he can't do anything about it because especially in the week of COP26, you know, this is what— This makes it just hilarious. He just can't come out and say, right, let's get our kind of oil producers firing. Because obviously, one way to get the price back down is to just give some kind of, I don't know, tax incentives to the oil industry to pump more. But obviously, COP26, I mean, it couldn't be worse timing. So he can't do that. So they're like, right, let's tap these emergency reserves. But that's a ridiculous concept. And if he did that, it would set a very dangerous precedent for the future.

I've got up the US Department of Energy webpage where they talk specifically about the SPR. And I quote their website, the SPR exists first and foremost as an emergency response tool that the president can use should the United States be confronted with an economically threatening disruption in oil prices. This is not that, what we have at the moment.

$80 is not an economically threatening oil price. I mean, people listening to this maybe aren't old enough or maybe weren't watching markets back in 2008, but oil hit $150 in 2008. Here we are at 80, whatever. That's not economically threatening. If Biden taps that emergency reserve, I mean, that would be a spectacular error, and I think would come back to haunt him. So he can't. But he's talking about it, and he's talking about OPEC. And as you say, it's all about trying to get his approval rating up, because we've got midterms next year, and he needs to set about really recovering that approval rating big time. And there's these little political maneuvers that's purely geared towards— he's just talking to the US electorate. He's not talking to OPEC. He's not talking to oil traders. It's purely an internal game that he's playing, nothing more.

Yeah. And then with this, there's also been a little bit of movement, but again, it's taking what seems a lifetime, which is the reconciliation bill, this $1.75 trillion. And They're trying, the Democrats, to wrap that up with the $1 trillion infrastructure measure. There was some talk last night that US House of Representatives are expected to vote today on some of these issues to put them forward. And so then they can get this kind of wrapped up by Thanksgiving is what they're kind of aiming for. Politicians love to pick out these calendar dates, particularly things like Thanksgiving, as little gifts. I'm going to go on a limb and say they're not going to deliver that on Thanksgiving. I don't think that's too much of a risk for me to say that. But this is obviously another factor that's hurting Biden at the moment, is kind of a— I guess to be perceived by a regular person on the street, it's a lack of authority of a president to be able to deliver something. Forget all the specifics, because a lot of people, A, aren't interested, and B, couldn't really be able to, I think, understand the nuances of it to really care. And so it's just about he delivers a deal, the headline figure is key. We know that headline figure has got incrementally smaller again and again and again, which waters it down. His potency, and then he can't even deliver it. So all of this is obviously politically harming. And now, moving on, Republican newcomer Glenn Youngkin— I don't know why I struggle to say that— but Youngkin, the former co-chief executive of private equity group Carlyle, has won Virginia, uh, this week, which was an area of which Biden won by 10 points. Not that long ago. And I know you mentioned to me offline that there's been another— other areas as well being hotly contested. And what does this mean just going forward? Because at the moment it's looking quite troubling going into midterms, but even beyond the midterms for his, his, his term at the moment.

Well, maybe we should slap on the table a question that we'll deal with not right now, but you who's going to run for presidency in 2024? Let's not talk Republicans yet, but is Biden even going to run? I'll just put that out there. But hang on. At the moment, Biden— I mean, it's been a disaster, I would say. Summing up his performance so far, I think he's just had a shocker. And that's because he— it's the first 2 years of his presidency, right, that's key. Because he's a Democrat in the White House. He's got a Democratic majority in the House. He's got a Democratic majority, just with his vice president's extra vote, in the Senate, right? The Democrats control all 3. This is where they deliver on their Democratic agenda and get all of their bills through Congress. And this is their legislative window to get stuff done. And Biden has spectacularly failed to do that. He's a Democratic president with a Democratic Congress who's got nothing done. And the problem is that he basically got chosen for the Democratic representative because he's more centrist compared to, let's say, Bernie. Who's too left-wing, right? So Bernie Sanders. So Biden came in as a bit more of a centrist Democrat. OK? But now he's taken office, his policies have now swung way further to the left. So these massive spending bills— so all right, the infrastructure one was a smaller one. Great. That's ready to get through. But no, no, no. We don't want to put that through. Let's attach this second massive spending bill to it. And try and kind of force the Republicans to allow us to get it through. And then that was— and then how are we going to pay for that? And then these kind of tax sort of ideas they were coming up with to pay for that was just kind of so left. And I think actually too left even for the Democrats. And so they didn't have the support amongst the Democrats. He's been too left-leaning. He needs to come back to the center. He's running out of time. Because they will lose their majorities next year in the midterms. And then he's stuck. So it's literally— so you don't think they'll get it done by Thanksgiving. I think they have to get it done by Thanksgiving, otherwise they'll lose their chance. I mean, I literally think Biden has to get something through here, otherwise it's just going to be an absolute disaster of a presidency, which is why I bring up who's going to run in 2024. And he might be so spectacularly bad and way too old anyway, by the way, that maybe you might have a scenario, which I can't remember when last happened. You might have to look this up. When did a sitting president not run for a second term? I'm not quite sure.

Yeah, I don't even know off the top of my head.

But it could happen. Anyway, I just think he's— that's why his approval rating is so low. And look, he was at the COP26. I don't know if you've been seeing any of it. And all the leaders are up there speaking. God, he's dull, Biden. He's so bad at talking. It's just the most uninspiring leader, or orator I should say. And obviously oratory is a key part of being a leader. And it's just, Jesus, who is this guy?

Well, there's, there's one man who's the complete opposite of that very specific point you just made. And he's got an app that you'll soon be able to download called Truth Social. Um, and of course I'm talking about, um, the Donald, who's been making some, some noises in the background. Eddie and I talked about in previous episodes about his SPAC deal, um, and it was really interesting actually when I was reading about that at the time. He actually incorporated this company, this— I think it's like Trump Technology, and I think it was his part of it, entertainment. And it was apparently in the days after he lost the election.

Yep.

So, you know, with these matters, Trump's a smart guy when it comes to this. Maybe not real estate and things of other business areas, but he certainly knows how to navigate these instances. And yeah, he's definitely going to run, and it's going to be—

yeah, we'll see. I think just with the Democrats, because I'm just looking— if you think about— I think they've still got it completely wrong. So the demographics of America, it's actually quite a young and very diverse country, which you think, OK, that's perfect for the Democrats, right? That kind of younger, more diverse category surely wouldn't like Trump, OK? So the median age in America is 40. And only 60% of the country identifies as white. OK, so you've got 40% non-white, which is hugely diverse. So you think, great for the Democrats. But actually, the electorate— because obviously, not all of these people vote. So when you take the demographics of the people that actually vote, then this is quite a lot different. And you would typically get 75% of voters will be white. Even though only 60% of the country is white. And then the average age of people voting is 53. So the electorate's older and whiter than the actual demographics of the nation, which is why Donald, you know, come on in. And is Donald going to run in 2024? And I think you're probably right, and he will. And he just won't be able to help himself. But the only way he wouldn't is if this new platform he's basically just engineered via this SPAC is a hugely powerful platform, by the way. In terms of a kind of media entity, it's actually valued at 10 times the New York Times in terms of its value. Trump has just, from nowhere, created a media platform that's valued at 10 times what the New York Times is valued at. Now, in terms of a media platform, it's monstrous. It's massive. And depending on how successful that is in the next couple of years, I think will determine whether he bothers to run for president or not. But I think it's a really— Trump is back in a form. And it'll be really interesting. He's raised so much capital that it's actually really interesting now to see what he does with it. And does he mess it up or not? But he can— if he invests this capital raise— and he can raise a lot more as well, by the way— if he invests it properly, then actually he has a chance of building an interesting kind of media platform where he can shout from. And maybe it doesn't have to shout from the White House. But yeah, it'll be interesting to see. But he's really old as well, by the way. I mean, imagine if it's Trump and Biden 2.0. I mean, Christ, it's the oldest people in America, and it's just— let's get some, let's get some energy in there.

Trump is, uh, 75. Yeah, Biden's not that much older.

What is that? Was he 78?

Is he 78? Yeah, so they're about the same, they're the same age basically.

Yeah, but in 3 years' time Biden will be 81. You know, you can— you have an 81-year-old running for president when he already looks too old to be president.

How old was David Cameron when he became PM? He was pretty young, right?

He was young, yeah, 50 max, I think, maybe even in his 40s.

Yeah, definitely '40s. He's 55 now.

Yeah, the, the youngest leader in the world, do you know?

Uh, not Australian.

Democratic leader? No. Greenland. I was listening to him at the COP26. He's in— he's like 32 or something, or 30, 35, was it? Anyway, yeah, okay, we need some, we need some youth. In, you know, I know, I know you need life experience as well, and I get obviously being older gives you, you know, means you have that, but I need to move.

You just had your, your birthday, you're still pretty young.

Birthday week. Yeah.

Is this still fancy it, taking on the challenge, PM?

Well, thanks for saying I'm still pretty young first.

I'd have you more down as, uh, my Gordon Brown though, in my, my political party. Okay.

OK, that's probably the biggest insult I've ever received, being compared to Gordon Brown. Right. That's a new low.

We'll move on. Well, let's talk some single stock news. And just going to throw some numbers out there. Tesla up just shy of 40% in now 2 weeks. Musk did say earlier this week, I've not signed— by the way, I've not signed the deal yet with Hertz. Haven't seen the paperwork. Yeah. So I'm not sure if that $4.2 billion and pump that our stock has seen— well, he said basically he hasn't signed it.

Yeah.

I'm going to ask you a question. What was Tesla's market cap at the start of 2020?

Oh, start 2020. Well, I know, um, well, it's now— well, what is it now? 1.2 trillion?

1.24 trillion is what it currently is. What was it just— I mean, 2 years ago?

It can't really— it can't be more than 10x, can it? So I'll go— I'm gonna go— I'll go 120 billion.

Not a bad guess. When I say not a bad guess, you're still 50 billion off, but 75 billion. Yeah, I love it. It was only 75 billion at the start of 2020. It's now 1.24 trillion. That's just absolutely phenomenal.

It is. And I actually wanted to talk, bring something up about the last, the last leg to the upside in the last 2 weeks, ever since you called the top 2 weeks ago. This big boost to the upside, I want to talk about it and what's driving it. Because clearly, it's not fundamentals. Clearly. Because the one reason for it to burst higher was the Hertz deal. But then Musk said, well, actually, it hasn't been done. So if it's off fundamentals— yeah, go on.

By the way, they also had to recall about 12,000 vehicles across all models of the last 5 years because of a computer glitch that meant that the brakes, I think, just automatically came on. So I just wanted to make that point as well.

So fundamentally, some— fundamentally, 2 really piece— bad pieces of news. Okay. But stock's gone up. So you've got to— obviously, we know it's not being driven by fundamentals because we were talking about bubbles and stuff, right? So it's clearly not being driven by fundamentals. Even more evidence of that over the last couple of weeks, which what makes it hard to trade this thing because— well, for us at least, where we're usually using our kind of fundamental assessment to kind of make judgments. But I want to talk about options. I want to talk about Tesla options and actually talk about meme stocks. And we talked about this when GameStop were up through the roof earlier this year, and one of the drivers was actually what's going on in the options market. So just a few stats for you here. The, um, notional value of outstanding put and call options, um, in Tesla is $600 million worth of notional outstanding put and call options. Okay, that is almost double the amount of outstanding put and call options in the entire NASDAQ. Wow. It's— there's more outstanding, um, the notional value now, there's more outstanding in Tesla than there is in Amazon, Apple, and Facebook combined. And basically what I'm saying— and if you think about Apple, um, Apple has 2.4 times the market cap of Tesla but a fifth of Tesla's option volume. So my point is, very clearly, the evidence is that the options volume trading in Tesla is just off the scale. Now what happens there is you get market makers who are making markets in these options and as price rises, these market makers have to hedge off their risk by having to actually buy the underlying stock. So a big part of the move in the last couple of weeks, at least, is actually being driven by market makers being forced to buy the stock to hedge off their options exposure, which is what's been driving this price higher. If you're a Tesla fan, you've already bought Tesla. You bought it a while ago, right? So if you're a Tesla fan, then you've already bought it. So you're not buying. If you're not a Tesla fan, well, you're just sat there scratching your head going, what the— is going on, right? So who is buying? You've got to have buyers to drive something up. So it is the market makers.

Yeah. And then who— how do— fund managers deal with that type of move? Because I read an article in the FT as a headline that was talking about this Tesla stock market rally has inflicted the worst month of performance on growth-focused US mutual funds in 20 years. How does this price movement of their stock specifically impact that side of the business?

Well, these fund managers will be— they'll have benchmarks. —so their performance is measured against a certain benchmark. And it might be the NASDAQ, let's just say as an example, or it might be the S&P 500. OK? Let's just take the NASDAQ. So it might be if you're investing in— if your fund's a US tech equity fund, then what are you returning compared to what the NASDAQ index is returning? And as you're saying, active fund managers have had their worst— what did you say, the worst month?

Worst month of performance for growth-focused US mutual funds in 2 decades.

Yeah, since 2002. So yeah, here's the stat. Only 9% of growth-orientated US mutual funds have outperformed the benchmark. Only 9%. That's the lowest since 2002. One of the biggest, or the biggest reason is that they don't own Tesla. And they don't own Tesla because the fundamentals do not justify buying and owning Tesla shares at this price. So they don't own them. But unfortunately, Tesla then burst higher 20%. And Tesla's so massive now, and it's such a huge part of the index, that that Tesla move drives the index up sharply, which is why the index is performing really well. And if they don't own Tesla, they don't have that exposure and they're underperforming the index. So you get this quite— I mean, almost unique problem where these meme stocks, if you want to call them that, are so gigantically massive now from a market cap point of view that not owning them is a massive risk from a relative performance point of view. And you've seen that this month.

Yeah, the index weighting in the NASDAQ 100 of Tesla is 6.3%, and that ranks them 4 behind Microsoft, Apple, Amazon. Yeah. Do you know who's number 5? Uh, it's not Alphabet.

Alphabet. Oh well, I guess they're split in two. It's not Meta. Meta? No. Go on, tell me.

Nvidia. Oh yeah, because remember Nvidia's got caught up as well in a lot of kind of what you've been talking about. That's been another in-fashion name. Another one this week was— did you hear about Avis Budget Group?

Yeah, I did. Yeah, car rentals. Yeah, it's just insane.

Yeah, so another one, the latest meme stock. But it's so interesting, it's because, you know, it started off with a a deep-rooted kind of mission against the suits. But the biggest kind of payoff here was the activist hedge fund, SRS Investment Management. They've got the biggest stake in Avis. And apparently they made $5 billion. This week on the back of that meme stock pump in Avis alone. Yeah.

In some ways, it's kind of made investing a bit of a lottery. I mean, that fund were probably sat on an absolute dog there in Avis. I don't know how long they've owned that. 10 years. Oh, right. Fine. So they're nursing massive losses there. And all of a sudden, flip, for no reason from a fundamental point of view, it suddenly becomes the lottery ticket. And the numbers come in. And wow, our performance is amazing. I think— what do you do as a fund manager now? If you're an active fund manager and you don't own— Tesla's not in your portfolio, I mean, what do you do now? It might be that you're now actually forced to buy it, which of course then just inflates the bubble even more. Because your clients are calling you going, why the hell are you underperforming? Index. I mean, what am I paying you for? So you're almost kind of forced maybe into buying it. But then, of course, if it is a bubble— and obviously we can debate. I mean, I think we're on one side of that argument. There are plenty of people on the other side of it. If it is a bubble, then you obviously don't want to be exposed to it if it ever does come back down, right? Because if it does come back down, at any point it's going to come back down fast. But yeah, you're kind of just caught between a rock and a hard place here. Do you buy it or do you just stick to your guns, say, look, it's a bubble? Bubbles last for longer than you can possibly imagine. That's the problem.

OK, so for another stock that's kind of had a soft bubble moment, Peloton shares were down nearly 30% last night, posted wider than expected loss. They slashed their full year outlook. They said that came amid softened demand for its exercise equipment and ongoing supply chain challenges. And as someone said to us on Twitter overnight, perhaps they mispriced how lazy people are. But here's some interesting stats for you. So sales and marketing expenses in the last quarter were up 148%. And sales and marketing expenses represent roughly 35% of revenue in terms of proportionally. So they— I mean, I see the adverts. I mean, they're super slick adverts and they've got big, big names involved. I think it's Usain Bolt that I saw on the last one. Although I think he— I see his face on every product these days. He's definitely coining in on his Olympic triumph. But the other thing was Peloton's gross margins last quarter fell 12%. They were around 40% just a year ago. They're now down to 12%. They obviously cut the price of the bike. That had a boost, I think their CEO said, but didn't hit quite the heights that they were expecting. Then the other element of this, because I know you have some of these products in your house, Tonal, Hydro, The Mirror, uh, all winning customers in that home market exercise space. So between when you're rowing, looking at yourself in the mirror while it's playing to you my morning briefing, um, and you can buy, you can buy a Peloton Mirror.

Is that what you're saying?

No, these are, these are competitors.

Oh, I see. So what does the Mirror do?

I think the Mirror, if I'm thinking of the right one, it's like a, it's like a Yeah, it's like a digital screen that's a mirror, but you can turn it on like a TV. It's interactive, internet connection, and oh yeah, it can do workouts and things, but it doubles up as like a studio mirror.

Right, got it. Interesting. Um, yeah, I mean, I just think it's, uh, it's so difficult that they're obviously the one of the absolute classic kind of coronavirus case studies, of course. And so we know that as corona becomes less of a thing, it's obviously bad news for this company, like it was good news when corona hit. But I think you've got to, in some ways, to get your head around Peloton from a share price point of view and evaluation point of view, I think you've got to ignore coronavirus because that was a a unique, or hopefully unique situation. So you've got to almost discount that. So I tried to do this because actually, did you know that Peloton, they IPO'd in 2019? So pre, obviously, pandemic. And even with this massive sell-off we've seen in Peloton shares, so they're trading at, well, they're probably going to open around about what, 60, Yeah, 60. 62-ish, maybe somewhere around there. We'll see when they open. But that was based off the aftermarket sell-off last night. But their peak was up just around 150, right? The height of the pandemic. They're down to, let's just call it 60. Let's round the numbers, OK? So even at that price, they're still kind of— market cap is still about $20 billion, right? Even after this massive sell-off and this post-COVID hangover, $20 billion. IPO, their market cap was $8.1 billion. So they still more than doubled their market cap from IPO. I know that when you get that massive spike in the middle and then back down, it kind of distracts you from the underlying fundamentals. But actually, what was really interesting from their call was that from their subscription users, so there's now 2.49 million connected fitness subscribers who typically pay about $39 a month. Okay. So that actually, that's $97 million a month of recurring revenue. Then you've got paid digital subscribers who basically subscribe, but they don't have the equipment. And they typically pay about $13 a month. And there's about just shy of 900,000 of those. So that's another $11.5 million. So net-net, from a subscription-based point of view, they've probably got about $110 million per month of recurring revenue, which is a pretty solid base. Now, obviously, the growth rates look shocking when you've come off the back of COVID and that's what investors are mostly looking at. They can't get past that. They can't get past that, my God, it's collapsing. But at some point, you're going to get a stabilization. And you've just got to kind of put that COVID thing out of the window. You've got to discount that entirely. Go back to 2019 and try and just draw a growth trajectory without the big COVID spike in it and figure out where's value. This isn't a bad company. They're not going to go bankrupt unless they spend too much on marketing. Trying to trace the dream that they can get back to the COVID spike demand. That could be an error that they make. And maybe they've tried a bit of that in recent months, which is why their margins are down and they've lost money. But I think they need to quickly realize that's probably— or get back reality check, maybe.

Yeah, that's a tough battle to fight off the shareholders when your lifespan of your company more— well, two-thirds of the lifespan of your company has been in this unprecedented era. It's a tough sell from the board to, to, to keep the faith like you're suggesting. They'll be hungry, won't they? They'll be hungry for those returns. But most, like, it's all about—

it's all about a platform, it's all about community these days. I mean, generally, if you've got a platform and you can get subscription revenue I mean, that's the golden ticket, right? And they've got it. Now, what the growth rate of that platform is, obviously that's what's being questioned. But $110 million a month recurring revenue, that's a good base.

I'm sure I saw a churn number, the subscription churn.

Right. OK. Yeah, I don't know that.

Which was quite high, though, I think, if I was reading it right. It might be, I assume, churn being subscriptions coming on and off monthly basis rotating, but it was like 70% or something very high. Because I reckon a Peloton customer, probably it's one of those things that you try, you do it, and then you drop it. I don't think it has the stickiness of like, because you're at the values, although they're low that you're talking about subscription, particularly the digital product without the equipment. But there's still a lot comparatively.

The subscription revenue in Q3 2021 was 94% higher than Q3 2020. So I remember Q3 2020, I mean, I guess that we were pandemic there. Surely that's where unit sales were through the roof for them. But I don't know, maybe did you get a— did you get a certain amount of subscription-free period if you buy a bike?

Possibly, possibly. Yeah, cool. All right, well, look, we'll wrap it up there. Um, thanks everyone for, as usual, listening, and please do leave us a rating and review. I really need to give that shout out earlier in the podcast because I fear we've Keep saying, what number? 85. So you've got 15 more to go to target, and we've got a couple more weeks to run. So, um, if you've made it this far into the episode, well done, and, uh, go and leave that rating. It'd be much appreciated. But Piers, thanks as ever, and I'll catch everyone next week. See ya.