Ep.64: Why Have Stocks Tanked This Week?!

Hey, hello and welcome to episode 64 of the Market Maker podcast. And as per usual, I am joined by Piers Curran, co-founder of Amplify, to tackle some of the major themes of the week. And there's only really one major one, and that is this big sell-off that we've been seeing coming into the tail end of the week, in which we'll dive into and basically deconstruct and explain why is this happening. I think that's fundamentally the, the biggest benefit we can give to to you as the audience. But before I do that, as promised from last week, I'm going to continue to give a couple of shoutouts to get the episodes up and running. And first shoutout goes to Daria, who went through the Finance Accelerator. Piers, I'm not sure if you've seen this. She went through the Finance Accelerator and has just been offered the role in the sales and training division at Morgan Stanley for next summer. She said, I quote, while the simulation helped me get noticed by Morgan Stanley, the podcast actually helped me secure the internship position.

Oh yes.

And she gave quite a lengthy kind of explanation that they grilled her for 3 and a half hours, essentially, through lots of different questions about even Elon Musk and how he's financing Twitter, down to what's going on with energy prices and the economic cycle and She said that was a great help. So I'm so pleased to know that, A, someone's listening, and B, that it's carrying that kind of value.

So the podcast changing people's lives one at a time. I love it.

And then also Carla and Jolene, they also got accepted onto the MS program for next summer as well. So well done to them. And they came through the Finance Accelerator as well. And then separately, just a quick one for Nayan Patel, who's been offered a 6-month internship in Cross Asset UK Solutions at Credit Suisse starting next month. And he was on our summer program last year as well. So yeah, good stuff coming through the community. And if you're a student at Oxford University, uh, Eddie and I are going to be on campus actually next Wednesday.

So it's to make sure you're, you're elsewhere.

So, um, look, I mean, I definitely— part of our mission is to kind of broaden the field, and I know, um, perhaps that doesn't fit within that mission, but my, my overall, uh, take on this is, look, opportunities are for everyone, you know, regardless of where you, where you sit on the spectrum. And certainly It's going to be a nice change up to, yeah, to go on campus at Oxford. I've never been there. I think I've been to others like Cambridge, but never to Oxford. So yeah, Eddie and I are going to be doing an in-person FA and the Q&A in one of the colleges. So yeah, if you're there, then feel free to get stuck in and come and meet us. But otherwise, look, let's get into the main kind of talking point of the week, which was really, I think, yesterday. Was a good summary of where we're at, because in particular the NASDAQ was down 5%, uh, the biggest single-day move down since June 2020. The S&P down, uh, lower than more than 3% at the margin yesterday. Um, big swings obviously in the last 48 hours of trading. Um, we've seen an 8% kind of price swing in much of the major stock indices in the US. We haven't really seen that since the real depths of uncertainty when the pandemic first hit, when that kind of ferocious move that we saw in March of 2020. Now, the main kind of trigger points here, of course, is the Federal Reserve. They raised interest rates by 0.5%, which was kind of as expected. But the problem is, I think, is the markets were kind of leaning on, well, what if we go 75, and what if he starts to hint towards that in subsequent meetings, which is how the market has been pricing itself to get ever increasingly more aggressive. And Powell basically came out and, and took that off the table, that 75 conversation. Now I must stress, that's not to say he won't bring it back at some point. It's still an option, um, but he's taking it off for now. And, um, at the time, stocks rallied. I don't know if you saw that on the night in itself, Piers. It was kind of like the buy everything trade. Everything rallied when he came out and he said that, that comment. What was your initial thought then?

My initial thought then was this is the most ridiculous market reaction I have ever seen, was my initial thought. Yeah, because really, to, to talk about this week, I know obviously yesterday and this morning it's like, you know, disaster crisis, its markets have plummeted, it's XYZ. But I think you've actually got to step back to Wednesday evening to properly cover this week. So that's when, yeah, big upside in markets following the announcement from the Fed that they're hiking 50 basis points. I think it's insane what's happened. I think that what's happened is the market has— well, to an extent it's Powell's and the Fed's fault, because they have— the rate at which they've been getting more hawkish has been quite extraordinary over the last 6 months, let's say. And I guess markets, they always overextend, right? And I don't just mean price, I mean people involved in markets always overextend their expectations as well. So there's a direction of travel which is the Fed are getting progressively more hawkish and more hawkish and more hawkish. But that direction of travel can't be permanent. At some point, they can't get more hawkish. And I think we got to an inflection point on Wednesday, and then subsequently Thursday, where market expectations had just got to ridiculous levels on how hawkish the Fed might become. So when they hiked 50 basis points, the markets rallied because it wasn't a 75 basis point hike. And it's like, well, hang on, the Fed have never said 70. I think it's one, the super hawk on the FOMC is the only one who's mentioned 75, right? And so markets kind of— it's such a perverse and almost like self-harming market reaction when it's like, oh, relief, it's not 75, let's buy everything. And I think it's the buy— it's the short-term buy-the-dip brigade who, look, don't get me wrong, have been a very successful brigade in recent years, right? And it's the idea that, like, well, maybe we should talk about this idea of the Fed put. Which is— you might have seen this in a lot of headlines over the last couple of days. And this is the idea where the central bank is propping up stock markets and has done for the last— well, I guess ever since the financial crisis. Actually, you go back more because we actually used to call it the Greenspan put. Most people listening to this won't even know who Greenspan is, I expect. But when he was the Fed chair back at the turn of the century. And actually it was the Greenspan put. And all that meant was that whenever stock markets go down, don't worry guys, the central bank have got your back. We will be more accommodative with monetary policy in order to restore confidence and pump markets back up. A put is just a reference to a derivative options contract which pays out if asset prices drop. So it's a hedge, it's a protection against the downside. So the buy the dip brigade are always, right, if markets have dropped, let's buy because the Fed will ride into town and come to our aid and come to our support. And their mindset had got so extreme that it's now like, The idea that the Fed are going to ride in and cover our backs by only hiking 50 basis points, it's like that's how insane it's got. And I think that— so markets bounced, right? Big time, 3% up the NASDAQ. When you said the NASDAQ's down 5% on Thursday, it was up 3% Wednesday night. So let's just kind of get that into context. So net-net, we've got a 2% decline, really. So when you read the press this morning, they forget about the 3% increase, and all it is is 5%, biggest sell-off in however long. Oh my God, it's crisis, it's disaster. And look, I think it is a crisis, by the way. We'll perhaps get onto that in a minute. But yeah, I think it's just— insane, that rally on Wednesday, and then it all got given back and more yesterday.

Yeah, I was just looking at the, the NASDAQ 100 future, and I know not everyone will have access to charts, but where we peaked on that spike, such a technical level there on the high that we've had just a few days prior on the 28th, and also up around the highs that we're seeing on the 26th. It's just like if you had the the strong conviction behind your thoughts of this is just a function of ill pricing on behalf of markets, and the direction of travel is, as you say, rates are tightening, market conditions are going to tighten, then actually that was an opportune moment if you're of a bearish disposition short term to— yeah, definitely. I'm interested to see how we finish this week actually, um, because I guess behaviorally what you can see. We've got non-farm payrolls, I should say, coming out this, this afternoon. And I should also say, I think that's just absolutely redundant. I don't think it detracts at all, one bit, from what's happening right now. But perhaps, perhaps a quote here that, that I can, I can say from the UK equity strategist at Investec. And this chap said that this is really the sum of all our fears. Growth forecasts are being downgraded, inflation expectations are being upgraded, and interest rates are still going up.

Yeah.

Is that the summary of— in the short— of what's happening? And I know there's other elements within explaining this with China and with Russia and Ukraine and, and other things as well.

So here's the thing. That is what's happening. And that view and concern and expectation, that's not just suddenly materialized yesterday. That's been incredibly obvious for weeks, right? That growth is decelerating. We know that. We've had GDP figures that were much worse than expected. We know inflation's going up and we know interest rates are going up. That's a hell of a recipe. That's such a bad cocktail of factors for an economy. That is the underlying situation, medium term. Now, you layer on top of that this short-term noise, which is what happened on Wednesday night, where it's the overriding irrational sense of relief that it's not a 75% sorry, 75 basis point hike kind of gives you that kind of endorphin adrenaline rush. And people, they forget about the medium-term outlook. And it's just all about that moment, right? But yeah, it is the worst. It is the sum of all our fears. This is why we've been talking about the fact that we are, I mean, almost certainly going to have a recession. And I think when you look at what Powell said on Wednesday night, then if you're rationally assessing that meeting, then what he said was really bad news. If you could just get over your obsession that, oh my God, it's not a 75 hike. If you just put that to one side and calmly review what he said, and really this is why my markets in the end behaved properly and sold off yesterday. And what he essentially said is, we're going to hike rates because actually inflation is the big problem. And we're going to hike rates and it's going to cause a recession, but we're going to hike rates anyway. He basically said, we are going to— guys, we're going to cause a recession. Heads up. And he's trying to use this terminology soft landing. So he's talking about how we're going to engineer a soft landing. We need to get inflation under control. That's the priority. We need to hike rates fast to do that. It's going to cause a recession, but that's fine because actually a mild recession is basically our best case scenario. And he talked— and in the meeting, he changed the soft landing. He said it will be incredibly challenging to engineer a soft landing. He said it actually— and I'm quoting word for word here— depends on events that are not under our control. And he said that actually, it may be so difficult that it might be, rather than soft, it might be a soft-ish landing. Now I know that doesn't sound particularly dramatic, soft or softish, but there was— I was reading one guy's kind of interpretation on that which I thought was quite a good analogy, which was imagine if you're in an aeroplane and you're coming in to land and the pilot gets on the mic and says, guys, look, this is going to be a really difficult landing. I'm not sure it's going to be soft. It might be soft-ish. And you're going, what? My God, panic ensues, right? Because then you assume the worst because soft-ish is so unquantifiable. Basically, it means he doesn't really know. And he doesn't. And I tell you what, that's concerning.

So aside from any— as you're explaining that, aside from any investors, you might be feeling some pain this week. The person that I can't help but think when you're explaining this is Joe Biden, because it's just gone from pretty bad to an epic fail, surely, in the— because the timing with this. Yeah, the midterms in November, and then the way Elon's heading with his freedom of speech brigade. Yeah. And I don't care what Trump says about he's not going to come back on Twitter even if invited. He'll be back. Mark my words in this episode.

Um, sure, this is the worst presidency in history, right?

But it will go down as that from a technical perspective. If you're looking at actual rating numbers, yeah, probably will end up being that he'll be the worst president in history.

Yeah, which is a sobering, uh, realization.

Given the— not to open Pandora's box here and deviate too much off, off piste, but just given what I know we're going to discuss in a moment about house prices and general wealth division and the fact that people's savings and, you know, the cost of living is going up, that's going to create even more social division, which makes it even more prime time for a Trump-type candidate, surely.

Yeah. Yeah. I got— yeah, I couldn't, I couldn't agree more. Um, yeah, it's the end of this year is gonna, it's gonna be a really challenging one. And the other thing, the other thing I just want to mention about specifically about what Powell said on Wednesday that should cause us a lot of concern, um, he said that I've got tremendous admiration for a guy called Paul from Volcker, who was a predecessor of his. He was the Fed chair back in the '70s— sorry, in the '80s. And that should worry people a lot, because what Volcker did was aggressively hiked rates to finally overcome an inflation crisis, and in doing so, crashed the economy, forced a recession, and knew he would force a recession. But actually, that was the best-case scenario in his mind. So look, this is what's coming. The Fed are going to carry on hiking even if growth continues to weaken, because the bigger fish to control in the medium to long term is inflation. So that's the reality. Now, obviously, markets have in the end woken up— well, then, woken up to that. Look, markets have been trending lower for the whole year, right? We talk about these swings up and down, but look, the, the bare facts are the NASDAQ's 23% off its high now, off the high back at the start of the year. Okay, so the NASDAQ's 23% down. It made a new low yesterday and actually quite, quite significantly from a kind of technical point of view, took out the March low, which was the low that we had off the kind of onset of the Ukraine-Russia crisis. So the NASDAQ is right now trading— it's more than— we haven't seen these levels for more than a year now. And I tell you what, there's not many times you can tell me that the NASDAQ is down at lows that we haven't seen in more than a year. You can't even— I mean, it was just off the pandemic, you couldn't even say that. Off the COVID pandemic in March 2020. Couldn't even make that claim. So this is a significant correction, and that's the right term here.

So—

well, sorry, no, a correction, technically a correction is 10% down. A bear market is more than 20% down off the recent peak. So we're bear market territory here. And is this the bottom? I definitely would I would say not, in my opinion. I definitely don't think we're at the bottom here. So markets are trending lower, and that's across the piece. I mean, but within that, there are, of course, from an investor's point of view, I mean, if you're trying to look ahead, well, and look behind you in the last, let's just take 2022, what's already happened and what's going to happen. For investors, this is going to be a phenomenally challenging year. I think it's been too easy for too long. There was— we often talk about— investors often talk about this thing about a rising tide lifts all boats. So like in 2021, everything went up. So actually from an investor's point of view, it didn't matter what you bought. Made money. And that's because there's $11 trillion worth of stimulus that got pumped into the system during COVID And so everything goes up. You literally can't get it wrong. It's just in 2022, well, everything's going down actually, including bonds, right? It's stocks and bonds have had a shocking year. And I think this is where you This is where the reality hits home and the— I guess you sift the wheat from the chaff in terms of proper investors who really know what they're doing. To make money this year is going to be super challenging. You're going to have to be much more selective. You're going to have to do much more work in terms of your due diligence on these companies, for example. And it's going to be a bit of a minefield to navigate through it. One example before I hand it back to you is thinking about inflation and how do you deal with that as a company because your input costs go up, right? Your raw material costs are increasing. So how do you deal with that? We pass it on to the consumer. So your prices rise. But some companies can do that much, much more easily than others. So, you know, examples like if you take companies that have got a kind of rock-solid brand and sort of unassailable market shares, so I'm thinking about people like Coca-Cola, they can raise prices, all right, and they have done, and actually that doesn't have too much of a dent on their revenues, you know, because they've got such a solid brand. But then Netflix would be a good example of a company that actually is trying to raise prices, and it's just spectacularly kind of negatively impacted their market cap and their share price. So look, yeah, it's going to be super challenging. It's already been a challenging year, and it's definitely going to continue to be so.

So just from— obviously there's no definitive answer here, but just given the Given the things that we've discussed, the way of which we foresee then the economy developing over the next 9 months or so, 8 months for the rest of the year, and given the fact then that markets are forward-looking. So now we're going through this readjustment episode. Yes, the market overstepped the mark, as you said. Now Powell's kind of switched. He's like Volcker fanboy. This is what we're doing. So we're kind of aware of the fact that tightening is going to happen at pace. This is the ramification playing out right now. So in terms of the most— I guess I'm just trying to say peak fear, right? When can we anticipate that? Because then when is it that we've repriced for the peak fear? And I know that the peak— the, the parameters could change. And I guess the one threat I see is still China, and a very disruptive scenario there takes us into well double-digit inflation in Western Europe and in the US, if that materializes. The disruption impact obviously still exists on the energy front. However, I'd say that's much lower than where we were. But kind of like that peak pricing, if you like, which is the key culprit to weigh down these equity markets. Time-wise, do you have any kind of feelings about that?

So it's like the billion-dollar question. Basically what you're asking is when's the bottom? Um, yeah, I'm— you know, there's a good saying. I don't know if I should talk about that saying, but, um, there's a saying on the trading floor back in the day, but if you try and pick bottoms, you get smelly fingers. Um, anyway, What I would say is uncertainty is the killer for market confidence, for market sentiment, for risk, the prices of risk assets. Uncertainty is the biggest fear. And when you've got clarity on how bad the bad is going to be, then actually that's better. That's a better position to be in than the uncertainty. Because the human nature is always kind of— there's uncertainty, you kind of always think about what the worst-case scenario, right? And that's fueled by the media. Just have a look at what's going on in the media this morning. I mean, my Lord. So I'd say there's unknowns that's fueling the uncertainty. Powell pointed to those in his press conference. Um, you know, it depends on events that are not under our control. So there he's talking about China for sure. He's talking about, fine, the Russia-Ukraine crisis, and for how long will that, you know, sustain this massive spike in commodity pricing. So there's that— of course they're out of his control, right? And so there There's some massive unknowns. But then I'd say that the other big thing we haven't mentioned yet, which we need to, is quantitative tightening. Because it's not just about interest rates here. It's also— it's a double whammy. So this is aggressive tightening. It's not just hiking rates at a pace we've never seen for like 20 years. It's also starting to reduce the Fed's balance sheet. It's unwinding all of that stimulus money they pumped into the system during COVID And it's the speed at which it's going to be unwound. And I think that was one of the key negative takeaways on Wednesday. It was the speed and the rate at which they're going to do that. Have you got the stats on that?

Yeah, if you give me one second, I do.

So because on their balance sheet they hold both treasuries and mortgage-backed securities, um, and so they're going to start to taper, right? And they did this back in 2018, um, and into 2019, but this time around the speed is going to be much faster.

So the Fed are going to begin allowing its holdings of treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over 3 months to $95 billion.

Right. Yeah. I mean, that's a run rate. So when we get to $95 billion a month, Yeah, that's a run rate of more than a trillion dollars per year, right? So here, for me, this is one of the big unknowns. How does that impact the Treasury market? And really, the Treasury market, the US bond market is one of the kind of underpinning markets of the entire global system. I mean, let's— and I'm not exaggerating. So if we find that the Fed's quite rapid unwinding of its balance sheet, if we find that that creates a lot of turmoil in the Treasury market, then this— that's for me the biggest unknown here. I think it's quite easy to see that inflation is going to stay high, that the Fed are going to be hawkish, that certain stocks are going to get really hurt by that. But what happens in the bond market is my concern, because bond markets have rallied for 30 years. And there's a lot of people, there's a lot of really prominent bond investors that are calling this as this is the end of the 30-year bond rally. And so that means that now yields are rising. And to put it into context, It's quite extraordinary because it's not just the COVID quantitative easing, it's also the financial crisis QE programs. Right? And so actually right now, the Fed, they have $5.8 trillion worth of treasuries on their balance sheet, which is actually one quarter of the entire market, of all of the treasuries out there that the the US government have issued, the Fed own 25%. And they're about to start selling. And if they're shrinking at $95 billion a month, so yeah, as I said, that's a trillion a year. And what's happening is yields are climbing. And so one of the big moves this week— yeah, fine, NASDAQ's down 5%.

Fine.

But the biggest moves have been in the bond market. And you've seen big spikes in yields and everything's through the roof. That's been happening this year though. That's the direction of travel on yields. For example, in January, the 2-year Treasury yield was 0.8%. It's now 2.7%. If we get just a little bit more upside on some of these yields, which I think we're going to have, then we're going to start to see yields we haven't seen for a decade. And this is borrowing costs, right? It's the cost of borrowing. And that's tightening. We talk about the Fed changing interest rates, but really what has a more powerful day-to-day impact is the cost of borrowing, which is dictated by the Treasury market. And if that continues to climb at the rate at which it's climbing, then we're going to really start to see some brakes being put on consumption. And that's where you get your recession. So I've quite skillfully—

I was just about to say, you sound like my local MP running in the local elections when I ask him about what are you going to do about this? And he gives me a long-winded answer but doesn't pick any bottoms.

It's so long-winded that everyone forgot— has forgotten the question by the time you finish.

That's, you know, yeah, yeah, he gets my vote. Sounded good.

Not, not yet is the short answer.

Okay. All right, well, look, I, I saw this guy on, on LinkedIn, uh, yesterday in fact, and he popped up on my feed and he said that the UK is going to take this bit close to the home. This guy said UK recession is coming, the Bank of England are unable to prevent it. He went on to say the Bank of England only hikes by 0.25%, there will be no quantitative tightening, which we just talked about, until August at the earliest. Inflation will spike to over 10% by Q4 with now a forecasted contraction of 1% GDP contraction in that quarter. What are the Bank of England going to do? Nothing.

Well, this guy, he sounds like he knows what he's talking about.

This guy looks remarkably like you on LinkedIn.

Yeah.

So come on, explain yourself. You said the Bank of England are going to do nothing about it.

Yeah, well, I thought I'd start— well, firstly, I thought it's a bit unusual for me to kind of be getting involved on the social media side, but I've tried.

I'm so compelled.

I'm changing my spots. I'm actually going to start to do it more often. Yeah, look, I think the Bank of England, again, it was one of the most remarkable monetary policy events, I think. I'll talk about the Reserve Bank of New Zealand in a minute as well. But look, every central bank's got the same problem, every single one. And it's our worst fears, right? It's growth is slowing, inflation's crazy high. And actually, we've got to a moment in time that we haven't seen since the '80s where it's the slowing growth that's not the biggest problem. And therefore, these banks have got to step up and they've got to contain inflation. Yeah. So that's what I meant when we're going to have a recession at the end of this year and the central bank's going to do nothing about it. What I mean is they're not going to play to the rulebook that we've seen over the last decade, which is the put. It's the central bank put. It's any hint of slowing growth, right? Let's stimulate. Let's cut rates. Let's cut rates. Let's cut rates. Well, sorry, but rates are on the floor. You can't cut rates anymore. All right, let's pump in QE, more QE, more QE, more QE. We've got your back. Unfortunately, they can't do that now either, because the big elephant in the room is inflation, and more QE will just fuel more inflation. I think we have got to the end of the journey, the end of the highway, the end of the stimulus highway, and we've got to turn around. There'll be a recession, and we will not get monetary stimulus. And that's quite— that's why we're so worried, and that's why the uncertainty is there, because, well, how long will inflation remain high? You know, is it by the end of this year actually a slowing economy does the dampening effect on inflation for us, or worst-case scenario, it doesn't? Then we've got serious stagflation. And that's kind of— so yeah, we're in a new era here, and it's actually one I've never traded in, and I've been trading for 20 years. So yeah, it's the rule, the rule, the rule book's out, and that's why markets are panicking.

And talking about the timing, the Bank of England did say that energy prices could rise a further 40% in October. Which we know of, because that's the semi-annual cap increase that will need to factor in the increase in wholesale prices. So timings-wise, we've got another 40% to come on the energy price bill. I'm sure everyone's felt that when those bills have come in recently, and it's going to get even worse by quite substantial degree and quite late in the year as well.

Yeah, and I think I said that all the central banks have got the same problem. There are subtle differences that each one's got to tackle. I think for the Bank of England particularly, it's the kind of utility bill crisis, it's the cost of living crisis. And you could say for the ECB as well, and that's perhaps a function that where Europe is being more immediately impacted by gas prices rocketing because of the Russia situation. I think for the Fed, they're more sheltered from that. They're more immune to the Russia-Ukraine crisis because they're not as dependent on Russian energy. But the Fed have got a much, I'd say, a much tighter labor market. And that's kind of their kind of big concern to try and tackle. And I said I was going to mention the Reserve Bank of New Zealand, which might seem a bit of a random one, but actually history does dictate they've kind of been a bit of a lead indicator on all of this. They've been quite a progressive central bank, and they were the ones that first actually came out— and a few decades ago came out with this idea of inflation targeting as the kind of main policy kind of objective. They've— and they were the first ones to start hiking rates last year, and this week they got massively aggressive. With their language and have gone further than the Fed have gone, where they're now actually directly and openly talking about asset price bubbles. I mean, this is something the Fed don't talk about. It's the elephant in the room. They don't talk about asset price bubbles and these bubbles have got to deflate. They talk about inflation and they talk about having to contain inflation and But what the Bank of New Zealand said is, look, house prices are up 45% in 2 years. It's a bubble. We're going to deflate it. That's straight out. And that's something central banks— yeah, that's an unusual one for central banks. They've always been seen as kind of the silent supporter of asset prices. And obviously, that's fed into this whole thing around inequality, because the rich get richer as these big asset prices kind of appreciate. And, you know, this is feeding into that whole more kind of bipolar, more extreme political environment that we see around the world and so on. So yeah, I thought the New Zealand Central Bank getting way more aggressive and just calling it out, the asset price bubbles are here and it's not sustainable, we're going to do something about it.

Some context then, what's the house price movements that we've seen over these 3 regions that you've mentioned? So New Zealand is what you said, 45%. What's it look like in the US and the UK by comparative terms? Yeah, because 45% does sound like a bubble.

Well, yeah, right. So, um, in the— so, and again, here, here's where you have subtle differences that these central banks got to deal with. So yeah, New Zealand 45%, the US is actually 34%. That's house prices upside in the last 2 years. So since COVID right? Since COVID 34%. The UK is actually 20%. So when we specifically look at housing market, then fine, there's a bigger bubble in New Zealand. But then if you look at the stock market, well then look at the NASDAQ versus, I don't know, the FTSE 100. FTSE 100 basically hasn't moved. Well, in 10 years, never mind 2 years, whereas the NASDAQ's up, I don't know what, whatever gazillion percent. Um, so for the US, yeah, it's, you know, it's the stock market that's, that's looking bubbly. And yeah, it's— we're beginning the slow deflation.

Okay. All right, well, look, to summarize then, how would you suggest— because I know we do have a bit of a blend of listeners here, we've got students who I think we've kind of addressed a lot of the main points of what we set out to do, which was why is what's happened this week happened. But there are some investors as well, and even some of the students who invest. What would be your best advice given your 20 years experience at this juncture in time?

Um, be very careful. I think that there's a mindset that's super dangerous, which is— I think I mentioned it last week, did I? It's that kind of relative value mindset where you look at the NASDAQ and you go, my God, it's down 25% or 23% or whatever. Right, I'm buying because, I mean, it hasn't dropped that much in I don't know how long. It's got to be a great buying opportunity. Look, it's— and then you start— your eyes get drawn to where it was and you buy because, look, it's going to get back to where it was, right? And that, that trade has worked for, uh, well, for how long? 13 years. That trade's worked for 13 years since the aftermath of the financial crisis, okay? I don't think that trade's going to work now. I think the the left-hand side of the chart showing the peak at the end of 2021, I think that was an overinflated peak. And so just don't get caught into that trap of buying just because we're down 25% and this thing's got to bounce because it always does. I think you've got to get way more selective. If you're trading single stocks specifically, then you've got to be way more selective and, and, and do some work, um, on actually analyzing what these companies do. Um, yeah, that idea of just buy whatever you want, you're going to make money, is now— has now gone. I'd also look at things like currencies as well, which we haven't perhaps mentioned. But I mean, the dollar's been so strong, um, it's up 7%, uh, the dollar index, um, this year, and it's a huge move. And we're seeing some amazing kind of levels being taken out. Certainly, I guess the most extreme being like the dollar-yen, for example, which I think is now— was it a 30-year high, the dollar-yen? That's the yen weakening. And the reason for that is it's about central monetary policy divergence. So you've got central banks, who are the most hawkish? Well, the Fed. Who are the least? Well, the Bank of Japan. They're doing nothing. So you suddenly get this quite big pronounced divergence, which means it just attracts money into the US, right? So people are buying dollars, which is fueling that upside. It just so happens the dollar's a bit of a safe haven as well in times of crisis like Russia, Ukraine, and so on. So you're getting these big dollar moves. And the issue with that is the further the dollar rallies, the more it becomes quite a big negative for emerging markets. Hold a lot of dollar-denominated debt. So these are companies in places like Turkey, for example, are quite vulnerable where companies have a lot of dollar-denominated debt. That means they've got to pay their interest payments in dollars, but they're a company who generate revenue in their domestic currency, the lira. But when the lira is devaluing against the dollar, then in lira terms, their debt mountain is just increasing and increasing, their debt costs are increasing and increasing, and it can cause a lot of problems. So yeah, that dollar strengthening thing is also something to keep your eye on. But yeah, just be defensive. I don't think— I mean, this is only my personal opinion, and I just want to stress I might be wrong, but yeah, I don't think we've seen the bottom yet in these broader index sell-offs. But we will, and there will be a moment in time. And I mean, again, you ask that question, when's the bottom? And the answer is, I've got no idea. Um, but I think I will know when we get somewhere around it, just from experience.

So I guess, um, my question then would be, I, I get that conclusion, so I guess the next logical question that might offer more interest to the listeners is what are the flags or what are the signs that you would look for to then give you that feeling of, oh, it's becoming a bit more interesting now where we could be reaching that point?

It's hard to explain it. Um, it's a feeling. I mean, I guess it's, it's one where you start, uh, when you start getting the big big bellwether tech firms actually getting hammered— we talked about Apple a lot last week and how they're a bellwether and a bit of a safe haven even, and their dividend policy and their share buyback policy and their huge market presence and brand strength and XYZ, right? If they start getting hammered big time— and look, they got hammered yesterday. They were down over 5% yesterday. Amazon were down like 7-odd percent, Tesla were down 8%, whatever. But when you get those big bellwether tech firms into bear market territory, and you start getting these big— I think that's kind of when you're coming towards the end. Because there's not much else to sell. If investors have sold all the other riskier stuff, and now they're even selling that stuff as well. Right.

Because by comparative terms, I was looking at Spotify, and it was down Percent from its peak, or 80%. So you hit those real high growth stock names, those high beta, and then you hit— now you're hitting the more matured but still in the same category of stock sector. But yeah, I see what— I see where you're heading with that.

Yeah, it's the high beta, high risk stuff that gets axed first. Yeah, but then when you got rid of all of that And then you're still kind of bailing out water. And you start to actually see those big bellwethers getting hammered. Then it's kind of, right, well, we're probably approaching an end of a kind of normal cycle. We do every now and then, I should caveat, get very abnormal multi-decade cycles. And when one of those hits, well, fine. Then even when those bellwethers start to come off, even that's not the end. But yeah, it's too early to call that kind of doomsday scenario.

Okay, well, look, to wrap up, just to stress the point legally, both Piers and I do not suggest going out picking bottoms. So just putting that caveat out there before anyone goes out there and starts just trying to pick all kinds of bottoms across the marketplace. Yeah, thank you, Piers, as ever for, um, kind of breaking that down. Any questions at all, I send out the Market Maker newsletter daily, Monday through Friday, with a weekend edition on Saturday. I'll drop the link into the kind of description of this video if you're not part of that community. Then it's a great way if you ever have questions on the back of these podcasts or anything for me and Piers, you can just reply straight direct to me. As I've said many times before, your reply does come to me, so it's not like a team, um, that takes care of this. It comes straight to me, and I'm more than happy to help. So check out some of the links. As Piers said, he's also kind of alive on social media these days, so I'll drop his LinkedIn profile, both to stay on top of his thoughts, of what he thinks just during any big episodes of kind of market volatility or breaking news, but more so as well, just for any student, for your network. Um, obviously having been around a while, he's got lots of good strong contacts, and you know, your network is, you know, not just your direct but your secondary, um, contacts and so forth can be super beneficial. So with that, I wish everyone a fantastic weekend. I think it's going to be nice and hot and sunny, so enjoy. Cheers, Piers.

See ya.