Ep.57: Mr 'Big Shot' Gets Squeezed

Hello and welcome to episode 57 of the Market Maker podcast. And to quickly give you an overview of what we're going to cover in today's episode, really 3 major things. First one is the incredible move that we've had in nickel, probably something that not many of you, I'd imagine, listening are, are actively investing in that as a metal or trading it, but there's been some insane price movements in that product. The mother of all squeezes, some would call it. And we'll explain what is a short squeeze. I'm sure many of you are familiar with— probably GameStop is the, the dictionary definition of that in recent history, but we'll go back into that. So why did that price surge happen? What does it mean? And also the fact that that particular product is traded in the London Metal Exchange, which is one of the only remaining physical pits that exists from way back in the day when there's just a bunch of people in literally a ring shouting at each other. And we'll explain a little bit more about how that actually works in practice. So we'll talk about that. Amazon, you probably caught the news, they have announced a 20-for-1 stock split and a $10 billion buyback. It's the first split since 1999 and the fourth since Amazon IPO'd in 1997. So we'll talk a little bit about stock splits. Why would they do that? How does it work? Is it actually important? And their shares actually did go up 6%, which I'm quite keen to put Piers' theory to work to see if it doesn't change the stock price in itself or the company's valuation. Nonetheless, shares were rallying on the back of that. So we'll look to pick that apart. And then the final one we want to delve into is the fund manager PIMCO apparently has billions of dollars riding on the economic fallout from Putin's invasion of Ukraine after amassing a wager of at least $1 billion in derivative markets that the country will not default, whilst also holding around $1.5 billion US dollars of sovereign debt tied to Russia. So Brave or tactical? Well, I'm sure we'll find out. But Piers, how's, uh, how's your week been? How you doing?

Hi, Ant. Yeah, it's been a— well, it's been a roller coaster, um, of a week from a market's point of view. I don't know what the guys listening, if you've got any positions on, if you've got any trades on, but certainly the, uh, sort of, well, the energy space has been, um up and down, uh, so certainly some, um, some P&L swings, let's say. But, you know, outside of that, yeah, it's been a really busy week. We've been, um, getting stuck in on a load of stuff. We actually, um, we're running, uh, well, uh, an FX trading competition for UBS, um, yesterday where we got some students that UBS, uh, well, they want to find some talented students to hire, and so we did decided that we'd put them through a test of trying to trade live the ECB press conference and the US CPI data simultaneously. So yeah, to say it was a bit of a baptism of fire for them was quite interesting. But yeah, good to work with UBS out in their Switzerland office, actually. So that was interesting.

Yeah, I mean, that certainly we should not not mention the fact that US CPI and ECB meeting also happened this week, because you'll probably notice I've excluded them. They didn't make the top 3 finish this, this week, and that's because US CPI, um, for the month of February came in at a 40-year high. I never thought I'd be sat here talking to you going, oh yeah, CPI just nearly 8% came in at a 40-year high, 7.9%. No, no, let's not talk about that, it's pretty boring, right?

Well, and, and on the ECB, although mainly dull as normal. It was, if anything, a slight hawkish surprise. Now, I don't know when was the last time you spoke a sentence that included ECB and hawkish surprise in the same sentence. I mean, that's got to be the first time.

Well, that was when my man Trichet hiked rates.

Well, yeah, 2011, right? So probably the most hawkish meeting since 2011. And actually, you know what? It's not— it doesn't even make the top, top 5 talking points for the week. Yeah, it's quite remarkable what's happening out there.

Yeah, and just to put this into perspective for anyone kind of now having that question in their head, well, what was hawkish about it? In summary, they unexpectedly accelerated its winding down of its monetary policy support that it's had in place. So to put it in its simple terms, essentially they had this emergency bond buying program called the PEP the Pandemic Emergency Purchase Programme, and that sat on top of their existing QE programme called the Asset Purchase Programme. So not too many acronyms going on here, but you've got a PEPP sat on top of your APP. You're still with me?

Guardiola's sat on top of Associated Press. Yeah, so carry on.

So, so the PEP basically has been signalled for a while. That's going to end this month. Which is the emergency one, because as we know, we're coming out of COVID and ex-Russia, things were improving. So that's already in the timetable. But the asset purchase program is actually going to bump up temporarily. They're going to increase the base QE program to facilitate the smoothing out of ending the emergency one. And then what they're going to do then is then they've outlined a specific timetable yesterday. And they basically said we're going to decrease now, um, to the tune of X, and each month will go down incrementally by €10 billion, essentially.

Yeah, you, you lost me at pep.

I mean, these sorts of things are, um, yeah, I mean, the market hasn't really reacted in a sustained fashion at the time yesterday. There was a brief move, uh, when all this came out, because as you, as you said, it was a bit of a bit of a surprise. It's the surprise being the fact that they're so definitive in their communication. Normally they're a lot more flexible with the wording, says unlimited. They increase their inflation forecast up, and dramatically so. But remember, markets are already expecting that. And that was really the take-home point of why we're kind of dismissing CPI. If anyone's going, yeah, 8%, what are you guys talking about? It's the fact that markets are expecting the direction of travel is well known and this figure is going to go even higher because inflation was already moving well north even before this commodity squeeze we're getting now across the board, which is going to just pump it up even further. So hence we brushed that aside. But yeah, the only other thing I wanted to mention was kind of two things. One, I actually met up with a friend of mine from university last night and he was one of the chaps that we've had on during our summer analyst training program where we get people in from different companies, different industries. And he's been at Goldman Sachs for the past 15 years. And he was over from the States. He lives out there now, Colorado. He came back. Something out with him yesterday and met some of his colleagues, actually. And it was really interesting because I was telling them about what Amplify does, the Amplify mission, stuff like that. And one guy was saying he reckons that about 20% of the new people who work at Goldman's are in the wrong role. Or not probably the role of which he sees that they probably would flourish in and be the best performing in.

Right.

20%.

That is interesting.

Yeah.

And that's because I guess they don't— well, up until this point, banks haven't been able to necessarily measure someone's potential skill set, right? Right. Your, your potential to possibly be able to do a role well in the future. I mean, how do you— right, so that, I guess, that's what our simulations do. It's basically measuring someone's potential to do a role that they've never done before.

Um, yeah, so yeah, I mean, it was, it was just quite, quite eye-opening. It was just like, it's just reinforcement, I guess, of what we do. And it's kind of like, yeah, this has got to, it's got to change. So yeah, anyone listening, if you've not taken part in one of the Finance Accelerator simulations. We run them weekly and it's open to anyone and everyone. I'll drop the, the link if you want to take part in the show notes, so check that out. And the second thing is I'll drop a second link, which is yesterday I put out a super comprehensive guide to LinkedIn. And the reason why I did that is because I did a session with Birmingham City University, which is not a target— traditional target university But they're the students I love talking to the most because in my mind, they're the ones who need the mentoring, the assistance, the support almost the most. And some of them, a lot of them didn't even have a LinkedIn account. So if you're a student listening to this, I know a lot of you are very astute. You've got it all rocking and rolling on that front. For many of you who don't, it's super important. But I guess the best thing is, or the next question is, where do you start? And so go on my LinkedIn, I'll drop the link again in the show notes of this episode. There's a 17-page guide and it's all visually driven. It's not text, so don't worry, it's not 17 pages of boredom. Um, but it will, it'll basically guide you through every single step. And you know, people think about what, just stick a photo up and put your job title? No, I'm talking like the secret sauce that will get you noticed, that will make your profile stand out. So check that out. I didn't put it together, I just sourced it from, uh, actually it was a recruitment company. Um, but yeah, even I learned— old dog like me learned a few new tricks this week from that guide. So definitely check that out. Um, all right, well look, let's talk about then the first thing, which is this, this nickel move. So nickel, which is— I, I guess when we talk about these metals, because, because I was doing a little research of, okay, what metals get traded in the ring, which we'll get to in a moment, and it was like cobalt, lithium, molybdenum. I can't even say that. Don't make me repeat that one. But there's lots of metals, I guess, that people wouldn't encounter in a normal sense, like gold, like precious, basically. So I suppose top level, the division of metals being base or precious, precious being the ones we are more familiar with, heavily used in jewelry. So gold, silver, platinum, palladium, these types of things. But we're talking more on the base industrial metal side. And I guess where this fits into the equation is stainless steel. When we're talking about nickel, that's the predominant factor, but then also electric vehicle batteries. And the price of nickel this week surged as much as 250% in 2 days to trade briefly above $100,000 a ton. So yeah, just wanted to get a bit more, um, delve into this about this insane move that happened. Um, yeah, what are your thoughts and what was really driving that?

Well, it's a fascinating— well, look, I, I guess nickel prices are on the up anyway, right? So let's start, let's say, from the fundamentals. I mean, the biggest part of this move has got nothing to do with fundamentals at all. So we'll get to that in a second. But nickel's on the up anyway for broadly two reasons. And that's number one, the whole shift to electric vehicles and nickel being, um, one of the key components in electric vehicle batteries. Although not all batteries, right? We'll maybe talk about Tesla in a minute. But, um, so batteries for electric vehicles, right? And obviously that, that, that So that demand side function has been increasing, pushing up price. But then obviously more recently, Russia produced 17% of global nickel. And so clearly, like all other commodities that Russia produces, prices have been surging anyway. So that's the backdrop to this price rising. But then the price just— well, actually on I think it was on Monday, um, just absolutely started to rock it, and then Tuesday just went stratospheric. And the two steps to that move— Monday's massive move up and then the stratospheric move on Tuesday— has actually got nothing to do with fundamentals at all. And it's kind of— this comes down to market functionality more than anything. And so what's unusual about these metals and the prices of these metals and what determines the prices is that it's kind of taken from the spot prices in the LME, the London Metals Exchange pit, or ring as they call it. And this is an open outcry trading floor. It's the only one left in Europe. Obviously what's happened over the last few decades is is that trading has evolved and it's gone onto screens, right? And it's mostly screen-based trading. And I was actually part of that evolution when I started trading back in 2001— oh, sorry, 2002, actually, I started trading. I was trading futures, okay? And I was trading in the aftermath of what was called the LIFE floor closing. So LIFE, L-I-F-E, was the big open outcry futures trading exchange just by Cannon Street, which is actually just down the road from our office in the City of London. That closed down at the end of the '90s and everyone shifted onto screens. And I joined the industry in 2002 straight as a screen-based trader. And the thing about trading in a pit, I don't know if anybody's— if you go to Chicago, you can see the Chicago Board of Trade, they still do it there. If you ever seen movies like Trading Places, I mean, I guess most people listening to this are way too young to maybe even know what that movie is, but it's an absolute classic. Eddie Murphy, Dan Aykroyd classic. But anyway, there's a lot of open outcry trading in that movie. And it's basically— yeah, it's basically a room full of mostly large men, and basically shouting, and screaming, and gesticulating. And if you didn't know what was— happening, you'd think, what the— it's just insane.

You think it's like a bunch of boys in the playground at primary school.

Yeah, it's just chaos. But actually, out of this chaos comes the pricing of assets globally and has a massive impact on everyone around the world who's producing or buying any of these kind of assets, right? But I mean, from my point of view, I I'm a trader by profession, but if I had been born probably 5 years earlier, if I was 5 years younger, I wouldn't be sat here talking to you about markets. I don't think I would have been a trader if I was born 5 years earlier, because anybody who's ever met me, you'll know that my stature isn't quite massive.

I would say Piers is like Tom Cruise. Uh, it's like, uh, when you see him on, on TV, you're like, wow, this guy's like a superhero. And then you're like, oh, Tom Cruise wears, uh, Skechers with an extra 2-inch in the sock.

Yeah, put it this way, I think in a, on a, in a trading pit, physical presence is one of the really key attributes of success. And, and let's just say my physical presence isn't perhaps, um large enough to have— I'd have just been swamped. So literally, I don't think I'd have been a trader if I was 5 years younger. But anyway, so that was back— but that was in 2002 when I started trading. And that's when the futures markets were all screen-based. Here we are 20 years later, and the London Metals Exchange is still living and operating in what most would describe as the dark ages of this weird, archaic method of trading. So the ring is literally, they sit in a round circle, the traders this is, and they gesticulate at each other. And the weird thing, I mean, what's interesting about the way the LME operate is that each metal has 5 minutes of trading per day. So if you wanted to trade nickel on the LME, you've literally got a 5-minute window to do it each day. That's it. You can't trade it outside of those minutes. And the reason for that is liquidity. So when markets operate efficiently and they function well and price is the price that it should be based on supply and demand fundamentals, then you need liquidity for that. That means you need lots of buyers and sellers all the time. Okay, so if you want to buy, you can buy. If you want to sell, you can sell. And there's always counterparties available. And the spread between the buying price and the selling price, the bid and offer, the spread's quite tight. So what they do is they cram all the trading into a 5-minute period so that there's lots of it relative to time. And so the liquidity is better, right? So that's why they do it like that. Interestingly, so this is a lot of futures. So this is a futures exchange, right? Now, this exchange actually opened back, I think it was 1871, the LME opened. And here's an interesting stat I was reading up about that I learned today that I never knew. So when we talk about futures contracts, we talk about expiry dates. So basically, I mean, most people may be listening to this will know what a futures contract is, but just for the benefit of those that don't, it's a derivative contract where essentially you're with a counterparty, you're agreeing the details of a future trade. You're agreeing a transaction in the future, you're agreeing the details today, and you're agreeing price, and you're agreeing the date when you're going to do the trade, and you're agreeing volume. Okay, now back in 1871, the two metals traded on the LME was basically copper and tin. And that was it. And all the copper would come from Chile, which to this day, Chile is the biggest copper producer in the world. But in 1871, it took 3 months for a shipment of copper to get from Chile to London. Now, what all the manufacturers who were wanting to buy this copper, what they were doing was they were— as soon as the ship left the port in Chile, They wanted to fix the price that they were going to buy at when that copper arrived in 3 months' time. So the expiry date of those copper futures was 3 months. And that till this very day is the most common futures expiry date on all assets. And that 3-month period was set because that's the amount of time it took a ship to get from Chile to London. So there you go. Anyway, back to the story, back to the point here. The thing about this open outcry pit is it still allows for a bit of market manipulation, let's just say. There's plenty of stories you see. So let's say you're sat in a room, and let's say you wanted to buy a load of copper, or nickel, or whatever it is, right? Let's just say your client has placed an order for you, the broker in the pit, to buy a load of this stuff, right? Now, if everybody else knew that you wanted to buy a lot, well then what would happen to price? Well, if they're the sellers, well, they're going to say, well, look, I know you want to buy a load. So you know what, if you want to buy, you're going to have to buy right up here and I'm going to raise my offer price. So if people know what you're going to do or what you need to do, then obviously that's an advantage for them. And price shifts as a result of that information. And there's plenty of stories in the pit where people have got a massive buy order to fill. But what they'll do, they'll go into the pit and they'll start selling. And they'll start selling and selling. They want everyone to think you're a big seller so that then the price goes down. And then you start buying subtly. You start buying small lots and small lots. And you can— in the end, get your large buy order done at a much lower price because you've manipulated price down by essentially— well, yeah, you've manipulated the market. Now, this is illegal on an exchange, electronic exchange. You can't manipulate the market. It's actual market— yeah, market manipulation is illegal on exchange. But this isn't on exchange. And so that's why it kind of happened. So what happened? This week with nickel, which was going up anyway. There's this guy, um, Big Shot is his nickname.

That's a pretty good one. I mean, of all the nicknames back in the day, the Big Shot. I mean, the big shot, live up to the hype though, unfortunately.

Well, this is it. That's, uh, he hasn't quite lived up to his hype this week, unfortunately. This Big Shot, well, his name's actually Zhang Guangda, okay? Happens to be a billionaire. He's the founder of China's leading stainless steel producer, okay, Tsingshan Holdings Group. Now, most of the people who are trading in the LME are the big producers, okay? And they're trading on LME because they're wanting to hedge off their risk. So this is the metals futures product where they can hedge risk, okay? So anyway, this guy, is one of the biggest players. And actually China accounts for the biggest volume of trading activity through the London Metals Exchange. One of the reasons why the Hong Kong Exchanges and Clearing Company bought the LME. So the London Metals Exchange is now owned by the Hong Kong Exchange. And they bought it because they resented the fact that most of the world's kind of metals futures trading actually went through London when actually most of the volume was coming from China. And anyway, they said they wanted to get a little a little bit of a piece of the action. But anyway, turns out, big shot, turns out he's got a massive short position in nickel futures. And what happened was the nickel price was going up. So if you're short, obviously now you're losing money. And you're losing money. And what happens at a point is you get what's called a margin call. So that's where you are requested by the exchange to post more cash into your trading account to cover these losses that you're taking on with your short position. Okay, anyway, word got out. So basically, I don't know how, but word got out that, hang on, Big Shot's got a massive short position. So what do you, what do you do if you're a trader on the LME knowing that someone else has got a massive short position? Will you squeeze them? Which basically means you start buying, you start forcing the price up. You manipulate price higher to make it even worse for Big Shot with his massive short position. And actually, what you're aiming to do is force price so high by buying that you force Big Shot to cover his short position, i.e., close out that position by buying himself. But because he had apparently had a position up to 100,000 contracts, which is monstrous, position, what happened was when he started to buy, well, then the price just shot through the roof. So if you've been buying before that, then you're long, forcing Big Shot to place a massive buy order, spiking the price high. You're already long, you make a profit. So it's all market manipulation with insider knowledge of how someone else is positioned. And really, this can only happen on— there aren't many markets you can do this on still. The LME is one of them. And they don't have any checks in place that an electronic exchange would have, like circuit breakers, we call them. So this is where if a market price moves by a certain percentage, then actually the market closes. And then it has to stop—

They have closed trading in nickel for the rest of this week.

At this point? Well, this is the dodgy thing. If you want to get the conspiracy theory out, basically they halted trading. Nickel went through $100,000 a ton. They halted trading. And you know what they did? They've canceled all trades that took place on Tuesday. And what's going to happen is they're going to reopen the market. They haven't said when, and they haven't said how they're going to do that. Therefore, we got no idea what's the price going to be.

Yeah. I think there's backdoor conversations happening amongst all parties to find a common ground of pricing.

Well, who? But the Hong Kong—

The Chinese will prevail.

Well, the Hong Kong exchange owns the LME. Right. Their biggest customers are Chinese customers. So who do you think is going to win? Because basically, Big Shot, I said, look, I'm not closing out my position. He closed out only a small part of it, which created this spike. His position is, I'm staying put. Price can do whatever it wants. I'm not posting more.

And just to give this some, like, a reference point in a monetary value, so he suffered apparently over $2 billion worth of loss at the moment. Yeah.

And he's basically sat there going, it doesn't matter what happens to price. I'm not posting more margin, and I'm not closing out my position. What are you going to do about it?

So, so it's just for the benefit of people listening then, an exchange makes money through transactions, right? So just to make that clear about the, the rock and a hard place the exchange is in to facilitate Mr. Big Shot.

Yeah, I mean, they shouldn't have allowed— their mistake was allowing him to have such a large position. 'Cause now basically his position— So the other thing about the LME is it's all physical delivery. I don't want to get into too much technical detail about derivatives here, but it's physical delivery of the metal. So in 3 months' time, that future trade I was talking about where you're agreeing the details today, well then that trade actually physically takes place. And the physical delivery is based on the— supply of metal that's in the LME's metal warehouses across the world. But Big Shot's short position is so large that actually, if it had to be physically delivered, there isn't enough nickel. There isn't enough physical nickel in the LME's warehouses to actually deliver on that trade. So they enabled him to take up a position that's way in excess of the actual physical amount available, which they should never have done. Here they are now where they're backed into a nightmare. It'll be just really interesting to see how they get out of it. As you say, they're obviously going to favor themselves and their biggest clients.

The second-order impact of this is EVs. Manufacturers of autos like Volkswagen made a comment this week there were others who are kind of stopping orders at this point of where we're trying to move, which is more adoption of electric vehicles with emissions changes and government ruling and so forth. But this is got to be hugely problematic, right? We already have going through that supply chain shock of COVID Throw in the mix now what's happening here, which is a there's so many different layers to the soft agricultural impact that that will have on food prices to many different countries, particularly those heavily dependent in Africa. But now you've got this as well for the auto industry. So what, your used car and truck component of your CPI report might well get another little bump going forward?

Well, that's right. Who would have thought, right? That— remember last year, basically, when we were talking about inflation being transitory We were talking, and one of the reasons was, well, one of the biggest components that's going up is used cars, used trucks. And yeah, it's only going to be temporary because it's not— it's not, you know, this whole— and also the semiconductor issue, and, you know, that can't last, you know, and the supply shortage will recover and it's all going to be fine. And yet here we are with a completely different set of circumstances that that's going to probably yet again spike prices higher and keep this inflation situation very high and concerning. And yeah, central banks have got a real problem on their hands.

And just to wrap up this segment on the nickel side. So I mean, you being an EV owner, I guess one of your purchase decisions when you're picking which car to buy is the the range of one charge. And so one of the main points here is the way that it works is that EV batteries are charged and discharged by the flow of lithium ions between graphite-containing anode and cathodes. And what happens here is the— they— that in itself, the cathodes contain nickel and it delivers high energy density, allowing the car to travel further. The more you put in, the further it goes in a very simplistic way. It gets very complicated with any commodity about how refined and the purity of it as to its impact and its performance and so forth. But what I thought was quite interesting was ESG's had a big move since all this Russia stuff's been going on. And that was the in vogue topic. To talk about over the last couple of years, I guess. And nickel has ESG concerns, ESG being environmental, social, and governance, because most new nickel units suitable for EV batteries will in future come from high-pressure acid leach plants from top producer in Indonesia. The problem that has, of course, is your super high carbon footprint. In order to churn these things out, which is slightly contradictory, right?

Yeah. The irony of buying an EV in order to lower your carbon footprint, but being completely ignorant to the point that the production of the battery that's in your EV has a monster carbon footprint.

I mean, I don't want to be too controversial, But how this will— how this probably plays out is, look, us in the West, that's Indonesia's problem. Yeah, see no evil, hear no evil. Um, yeah, where's my— where's my EV?

But what about Tesla? You were telling me, yeah, they've got a bit of an edge here.

Yeah, I mean, I didn't want to delve too deep in the batteries because I— it looked like I was opening up a massive can of worms, essentially, uh, and way beyond my pay grade of technical detail about how these things work. But apparently for Tesla, they have something called a lithium iron phosphate, or an LFP battery, which uses iron phosphate in their cathodes. No nickel or cobalt is required. And the rationale there was that they were going to start using LFP batteries as entry-level standard range models last year, um, and that was seen as a move for the company to lower the cost of producing those models or to increase the profitability of those entry-level vehicles without necessarily increasing prices. So it was done as a tactical move for pricing and margin, but in actuality, given just the underlying demand and lack of supply for nickel, now with this squeeze that's happening, it seems that others might actually have to adopt the Tesla technology, which is a coup for Tesla. So yeah, who would've thought we'd be talking up—

Buy Tesla, right?

Yeah, for anyone who hasn't listened to previous episodes, yeah, we're big Elon fans. But anyhow, let's move on and talk about the second area, which was Amazon. So Amazon early this week announced the 20-for-1 stock split. They also said they're going to do a $10 billion buyback. It's the first split they've done since 1999 and would be the fourth since the IPO of the company in 1997. In terms of figures then, they were trading at the time just short of $2,800. So that would put your Amazon share at about $139. And when that happens then on a split-adjusted basis, it's going to be on the 6th of June. There has been other recent big mega-cap tech stocks that have done similar— Alphabet, They had a 20-for-1 split when they released their earnings back on either the 1st or the 4th of February of this year, not that long ago. And of course, Apple did one just a few years ago as well. So I guess the main thing here is just so everyone's on the same page, Piers, what is a stock split? How does that work? Why is it, or is it important? The stock price would suggest it is, but is that correct?

Yeah. So a stock split is a kind of, um, a technicality, if you like, where a kind of company will alter the amount of shares in issuance, and they'll issue more shares. But the way they do it is that— so here, this was a 20-for-1, right? So what, what Amazon do is— and let me make the math simple here— let's say there's a million Amazon shares. —right?— in issuance. There's obviously way more than that, but let's just keep this simple. So there's a million shares, right? Um, and let's say I own all 1 million. Again, just to ridiculously simplify it. So let's say there's a million shares in issuance and I own all of them. Then if Amazon do a 20-for-1 stock split, what it means is they issue 20 million new shares and I get all of those. Okay, so I've now got 21 million shares and the price, um, of the share basically gets multiplied by 1/20th. So all that happens is, in terms of the value of my shares in Amazon, whilst the number of shares I own changes, the total value of all of those shares remains the same. So the valuation of the company doesn't change. It's just— so the valuation of a company is the number of shares in issuance multiplied by the share price equals market cap. Okay, so the market cap isn't changing. What is changing is the number of shares is changing, but then the share price alters in the same proportions. Okay, now the reason why they do it is because, look, over time, if you take Amazon's share price, right? I mean, it is quite remarkable with these kind of giant tech firms. But let's just say 10 years ago, Amazon's shares were trading at $245, give or take, right? $245. They peaked in the last year at $3,500, right? Now, 10 years ago, $245, right? If I want to trade Amazon, if I want to own some Amazon shares, great. I can buy one for $245. Right? But if the share price is $3,500, then obviously the barrier to entry to own those shares is much higher. Doesn't matter for institutional traders who are wheeling millions, if not billions of pounds. Right? And these numbers are nothing. But if you're a retail trader and a retail investor, if you're the little guy, —then buying one share for $3,500, it's a lot. So it actually means that a lot of people can't afford to buy even one share of Amazon. OK? So this stock split basically just corrects the share price dramatically back lower without altering the market cap or anything like that. And therefore, in theory, opens up the kind of demand for these shares to that little guy. It makes it easier for the retail trader to get involved. If you like, if you think about the investor pyramid, right? And if you've got the giant institutions at the top of the pyramid, this has no real impact for them. But at the base of the pyramid with your retail traders, it has a huge impact. So it basically increases the base of your pyramid of demand. If you like, enabling more people to buy Amazon shares. So it also improves things like liquidity and so on, right? But in theory, a stock split shouldn't alter the value of your company. In practice, it does. Because the demand function ticks up because of the reason I just explained, that increase in demand does typically lead to an increase in the share price when a stock split gets announced. And that's kind of what happened. Um, as you said, the Amazon share price went up 6%, was it? By the way, other tech stocks were on the up that day also, but perhaps Amazon more so than the others. Um, yeah, so, you know, historically a stock split typically does lead to the market cap of the company rising because of that whole demand argument.

Amazon as a company, someone who sits in your portfolio?

I've always missed the Amazon gravy train. You know what? I've never owned Amazon shares, which I regret clearly because it went up 10x in 10 years. So I've always been one— well, yeah, I've missed it. But then it goes higher and then I'm like, ah, damn it, I've missed it. And then, ah, then it goes high. I mean, so I've never owned it. I prefer a couple of the other big tech giants to Amazon personally. But yeah, it has come off quite a bit because I'd say for Amazon, like the summer of 2020, we hit $3,500. And it just hasn't been able to get above that price since the summer of 2020. And we're now trading down below 3,000. So it is like 15% off its high. It's 15% off its 2020 high. So if you think about relatively looking at other tech stocks, it's relatively underperformed over the last 12 months, but it did have a much bigger, let's call it COVID boost in the first half of 2020. 'Cause obviously lockdowns and buying stuff online, and obviously that's perfect for Amazon's model. But yeah, possibly, maybe a little bit more interested than I've been for a while.

And just to caveat that, this is not investment advice. This is just our shooting the hoops to discuss these things. So take it at your own risk. But yeah, definitely would be interesting when that actually comes through and happens. Um, I think the split adjusted basis, as I said, is going to happen on June 6th. I think the Alphabet one happens shortly after that as well, so during the summer. Um, but look, let's move on to the third and final section then, which was, which was PIMCO. Um, I guess perhaps a little bit of introduction about who is someone like a PIMCO, because people— I think a lot of students are kind of always very focused on the sell side, and they kind of think of investment banks But then PIMCO, which is a huge company in terms of the assets under management, perhaps unless you're looking at the buy side, you might not really be that familiar with them as a firm. So maybe we could start with talking a little bit about who PIMCO are and what role they facilitate in an industry-wide sense, because to give it a career element, I think would be beneficial. And then also just talk about PIMCO because they're in the news and they're taking a bit of a bold bet on Russia through CDSs and derivatives. And perhaps we can unpick that as well. So PIMCO first. Well, excuse me. They've got—

well, they're an asset management firm. So sit on the buy side. What's kind of not unique, but unusual is that they're a fixed income specialist. So actually right there, It's just not as sexy as stocks. So you often don't hear about PIMCO because they're more— it's fixed income. So that's one thing.

They've got a pretty sexy office location though, their HQ. Isn't it Santa Barbara or something like that?

That's right. Yeah. Yeah. They're doing all right for themselves because they do have north of $2.25 trillion under management. Trillion, trillion, that was. Trillion with a T. So look, they're doing fine. Right now, there's a guy you might have heard of, a guy called Bill Gross, who's a kind of very famous investor. He was the founder, founded this thing in 1971 back in Newport Beach. Anyway, he's obviously— not obviously, he's nicknamed the Bond King. Or at least used to be. He's kind of lost his crown a bit in recent years, I would say. But anyway, so this is PIMCO and they're an asset management firm and they specialize in fixed income. Now, it's not quite as simple as you think this story in that, oh, they're massively exposed to Russian debt. Well, why is that? Well, maybe they've bought Russian debt because they like the yield that Russian debt gives you. Whilst they appreciate there's risk, because obviously when you're buying bonds, the risk to a bondholder is that the borrower defaults. This is what we call default risk. They're obviously— you might think straightforwardly, well, they're buying Russian debt because yes, they understand the default risk, but they don't think Russia will default. Therefore, they're happy to take this quite high yield despite the risk. And that may be true on the $1.5 billion— so they hold $1.5 billion worth of Russian government bonds. And so fine, that is an investment, and there is a high yield. They've owned that debt for a long time, by the way. It's not like, oh, the Russian-Ukraine crisis has kicked off, oh, let's buy Russian bonds. They've been holding this for a long time, but it's the other side of this risk that's a bit more complicated. So not only do they own $1.5 billion of Russian bonds, they also have exposure of over $1 billion worth of credit default swaps on Russian debt. So this is slightly different. So this is where, let's say I'm an investor, not PIMCO now, Let's say I'm an investor and I own Russian bonds. Okay? And now this crisis kicked off and I'm like, oh, wow, my risk has gone through the roof here because the default risk, Russia default risk has dramatically increased with all these sanctions being placed on Russia. Their ability to pay interest payments on time is now really at threat. Right? Now, if I'm a Russian bondholder, what I could do It's, well, I'm just going to sell my bonds then. I'm out. Problem is the bond prices have dropped sharply. So if I was to sell out of my position now, I'd be taking a huge loss. So often some people don't want to do that. Instead, you can buy insurance against default. So this is what a credit default swap is. Okay? I, the Russian bondholder, I can buy insurance to hedge my risk. But buying insurance, you obviously need an insurance company to be on the opposite side of that trade, right? They're the ones that are writing these credit default swaps. They're the ones that are selling these credit default swaps. Well, in this case, the insurer— well, actually, that's PIMCO.

Yeah, I read this in the FT, the extract being, should Russia default on its bonds, it would not automatically trigger a payout Therefore, it goes to a determination committee. I couldn't believe it. I mean, I didn't know about the composition of this committee, but it's basically made up of representatives of different financial institutions, the big banks, asset managers. Of course, it includes— you have to include the biggest asset managers, of course, of which PIMCO is. They can just make a decision on themselves. It's like, How does that work in practice?

Well, yeah, again, this is where the system's been exposed as being flawed. I guess it's a quite— so basically, for a credit default swap, just think about it as insurance. For the insurer to pay out, then you need a default. Now, a default technically is if the borrower either fails to make a coupon payment or fails to make the redemption payment, which is when the bond reaches maturity and they've got to pay back the loan, right? Now, Russia paid an interest payment last week on its ruble-denominated local bonds, but they— Russia did say the money would not reach any foreign investors. So they did pay their coupon, but only to domestic holders, right? Now they've got another coupon payment due next week. I think it's the 16th of March, is it? And we're all like, are they going to pay this? Are they not? Now the problem is, is it a default? Russia do have the money. It's just that they can't access it because the West have sanctioned them and basically blocked their kind of foreign reserves, right? What do you do in this case? Because they could pay if you let them pay, but you're not letting them pay. So is that a default or not? Now, the problem—

In the end, surely the sanctions are broken then, because all the people tied up in this are in the West. Yeah.

Well, and this is such as the complexity of financial markets and their global nature that, yes, sanctioning Russia penalizes Russia, but the secondary impacts are then global. Now, with PIMCO, yeah, if it's decided by the committee that there has been a default event, well, then PIMCO are on the line for, yeah, a billion-plus payout. But PIMCO are on the committee that decides whether there's a default event. So maybe—

maybe PIMCO should hook up with the Hong Kong Exchange and, uh, they can have a little have a little night out on Big Shot.

But it's quite reminiscent, all this CDS talk, it's very reminiscent of 2008, 2009. And then, well, also 2010, 2011, Eurozone debt crisis. You remember 2010, it was the Greek credit default swap was the number one financial asset on the planet. In terms of what people were watching to gauge how this crisis was going. It was the Greek credit default swap. So this kind of Greek default swaps, credit default swaps, have kind of gone under the radar. I mean, they went completely off the radar after the eurozone debt crisis and trading in that kind of stuff just—

Anthony Cheung was a more recent one, wasn't it? Yeah. Political instability predominantly driving that. But, um, yeah, cool. Well, look, we'll wrap it there. I think we've been going on for a while, so hopefully there's some good insights there. Just more broadly, I think Piers does always an awesome job of just deconstructing these into a nice digestible format. Of course, any questions at all, just feel free to— feel free to just jump on any of our social channels. If you just search for like Amplify Me on LinkedIn You know, you can follow us on there, shoot us a message, absolutely happy to, to engage and help as best we can. I'm going to drop a couple of links, as I said, into the show notes of the episode. So that will include the Finance Accelerator if you want to get involved in one of those simulations. There's one happening next week, we'd love to have you on board. There's also the daily newsletter that, that I put out every end of European trading day. And yeah, and the LinkedIn posts. Definitely check that out. Even if you, you think you've got a pretty tight game on the LinkedIn front, you can always, always be better. Worth, worth a look at. I've had some good feedback from that and it's helped quite a few people, so hopefully it can do the same for you. But yeah, Piers, always a pleasure. Enjoy your weekend. And, uh, yeah, thanks everyone. Yep, cheers, Ant.

See you later.