Ep.69: Apple CarPlay. The Next Big Revolution Or Just Tech Hype?!

Hello and welcome to episode 69 of the Market Maker podcast. And in this episode, we've had Apple's developer event earlier this week, and while a lot of people are pretty obsessed about augmented reality technology, we're not actually going to talk about the hardware side because not a great deal came to light. We're going to talk about Apple software. Sounds pretty boring, but actually could be quite a big deal in the revenue streams for the tech giant. Apple CarPlay and also Apple Finance, talking about the whole new buy now, pay later product that they're coming to market with. And then secondly, we're going to focus on Ray Dalio. Probably seen him peddling his latest book more recently. But again, he's out in force. Why? Because Bridgewater The firm he's obviously closely linked with is back in the spotlight, betting on a sell-off in corporate bonds this year, underscoring their gloomy view on the trajectory of the global economy for what they see going forward. But before we begin, if you're listening to this in audio form, the podcast, and not via video, you won't be able to see, but Piers, I'm gonna Is that a virtual background? That looks like one of those Zoom preset virtual backgrounds going on there. Where are you?

There's no virtual backgrounds here. They are real palm trees in my background. Thanks very much. Yeah, I just so happen to be Palm Beach, Florida.

Okay. What is this, a PIMCO, or is this— what's going on here? You're meeting— who's there now, Bill Gross, or— Who you hanging with?

I'm actually hanging with the Citadel crew. Okay, we're, we're out here helping them run their summer intern program, actually. Um, so this is— yeah, it's pretty— I mean, it's pretty cool. It's pretty phenomenal what Citadel put on for their interns. I mean, they, they're— so their main offices are New York and Chicago, but they fly at the start of their 10-week intern program, they Week 1 is in Florida on the beach, so they fly about 250 students down to Florida, you know, book out the entire Four Seasons. And, um, there is— so there's training every day, right? Um, and then they, you know, it's like to kick off the, um, intern program, and it's a lot of networking events, getting to know all the other students, and then they have a lot of inspirational speakers. So check this out, you know, so Tuesday headline speaker, Michael Phelps.

As you do. Yeah, greatest Olympiad of them all.

Yes, indeed. So he rocked up just to have a chat, you know, and actually while I was talking to the— I wasn't here for that, unfortunately, I only arrived yesterday, but It's actually really interesting, I was talking to the Citadel team running the program and just about that Michael Phelps thing. And because, you know, he's the biggest, well, he's just a legend, right? Olympian record, what are the number of golds? What are the stats?

23 golds.

Yeah.

3 silvers, 2 bronze.

I mean, that is obviously just extraordinary.

Um, and he's still not the greatest Olympiad though. Oh, do you know who is the greatest Summer Olympiad though?

No.

Okay, well, I'm sticking with summer then.

He's, he's, he's not— you're saying he's not?

No, he's not. No, definitely not.

Are you— what, you mean— well, he is based on medal stats, but he's not, he's not.

He's obviously no Steve Redgrave, surely. Wow.

Yeah, I mean, I would, I would agree with that actually. 5, 5 golds, 5 games, just 1 gold per game. Yeah.

Come on.

Yeah, but 5 versus 23.

28 total medals.

Yeah, all right. But anyway, the point I was going to make was, he— so what was he talking about to these Citadel interns? He wasn't talking— it wasn't about how amazing he is and winning mindsets and stuff. It wasn't about that. It was actually about post-Olympic retiring And actually, it was about mental health, and it was about depression and how he had experienced quite a sharp, you know, fall into depression following his retirement. I mean, I guess these, these kind of uber-successful people that— especially athletes, right, where your career ends and you're still young relatively. I mean, you go from everything to then, right, what am I going to do now? And, and the kind of fall off the pedestal is almost impossible to deal with, I guess. And so he was talking about, you know, mental strength and, you know, overcoming adversity. And obviously a lot of these— the roles that these interns at Citadel are trying to get, obviously they're only on their 10-week summer program, right? These aren't full-time hires. But, you know, Citadel is a— they're a market maker and they're a hedge fund. It's very markets, you know, your frontline markets roles. Um, and so you know, it's about dealing with mindset around dealing with, um, loss, dealing with adversity, dealing with, you know, really challenging situations. And, and he said he was talking about how he'd overcome those kind of post-success sort of, um, depression periods and come through it. So yeah, he's now on a big mission to really help, you know, with mind— with, with mental health generally, but particularly amongst, you know, the younger age group. So very interesting.

Yeah, shame you missed that. Would have been great to get— yeah, but, um, but yeah, look, I'm sure you'll get some intel over the coming days, uh, in and around your activity in the fall seasons in Palm Trees. But let's, uh, first things first, a quick shout out to, um, our summer analysts. They've started, uh, the first cohort is in for Amplify Me. Which is great. And, um, yeah, great to have them with us. They're on the Buy Side week, so they're doing an asset management sim right now. I've been with them working in the, the kind of futures market, talking about more intraday cross-asset class, event-driven news stuff today. So yeah, it's been great to get them stuck in. Um, some good and bad results so far in terms of people's, uh, risk adherence to risk protocols, let's call it. Yeah, all part of the learning journey.

Well, the quant sim that we're running for Citadel tomorrow for their interns here in Miami, that, um, yeah, these summer analysts on our program, they'll be doing that exact simulation next week.

Cool. Well, yeah, I mean, can't wait to see the, the matchup, the results, um, yeah, how they cut it. And so yeah, check out the show notes, more information about, um, some of that, that training that we do. But, um, before I begin, do if you enjoy this episode or any previous ones, rate and review the show. Be much appreciated, whether that's Spotify, Apple, wherever you consume this. And yeah, share it with a friend, get the word out. Really appreciate it. But look, let's get straight to it. Let's talk about Apple. So Apple announced a complete refresh of CarPlay to better connect with the car's instrument panel and a deep integration with the vehicle itself. I promise I am not an Apple representative. I feel like I'm an Apple salesman here. But CarPlay users will be able to swap what they see on their instrument panel with a very Apple-looking widget design. So it can be bespoke. The way that a lot of these interfaces are heading is to have it so you want it in terms of the modular setup, the color palette, and all these different types of things. So there was the video. You should check it out. It's quite— doesn't quite float my boat because it looks a bit gimmicky in my opinion. But you should have a look. It was the, the WWDC is the developer conference. You can just check out the video on YouTube. It's worth a look. But Apple's been working obviously internally on an electric autonomous vehicle. But the company is, as we've discussed on the pod many times, setback after setback, executive departure after executive departure, and They find it incredibly tough to retain talent when someone like Alphabet is quite compelling as a place to go as an engineer because their breadth of project work, how advanced they are. Then there's Tesla, who are the market leader in a lot of these fields and technology as it stands. But manufacturers are said to be already looking to integrate the new generation that they're talking about of CarPlay. Just a couple names. Ford, Audi, Jaguar Land Rover, Nissan, Volvo, Polestar. These are just a couple that are already on board.

You might have heard of them.

Yeah, stat for you: Apple says 98% of all new cars already have CarPlay, and 79% of users consider the feature before they purchase a car. Stats origination from Apple.

Hang on, hang on, what? 98%?

98% of all new cars already have CarPlay.

So why would 79% of people have that as a real priority when they're choosing a car if all cars have got it?

I guess the interaction of the friction between you and the life that you have built into you via your phone, and it's seamless, um, transfer to your automobile, I guess.

Yeah.

Um, but yeah, just thoughts on that first to start off with. Um, you know, what do you think?

I mean, yeah, I mean, it's so— Apple have kind of— they've got a two-pronged attack when it comes to this whole electric vehicle strategy. The one prong has been so far, well, let's be straightforward, pretty much a failure. So this is their Titan project, which is to build their own car. And I mean, here's some stats, 'cause you mentioned Google there. And so Google's Waymo sort of driverless vehicle, sorry, not electric vehicle, I meant driverless vehicle, right? So this is the race to, produce driverless vehicles. And, um, you know, Apple— well, in 2019 they acquired, um, Drive.ai, which was a self-driving car startup, um, and that kind of bolted on to what they were already doing, and they were hoping that was going to accelerate their, their kind of— or help them leapfrog ahead on this self-driving car race. But, you know, it's been a bit of a disaster. And, and just in 2021, I think the only— their kind of prototypes only managed to do, I think Well, 19,000 autonomous miles. So compare that to like Waymo's, that they did 630,000 autonomous miles. And so obviously with these kind of new projects, the miles under the belt is what you want, right? 'Cause then you're getting data and it's all about that kind of machine learning with more data. You feed that back in and then the algorithm's cleverer the whole automated driving bot then becomes a better driver and so on, right? But look, for whatever reason, they just haven't really been able to kind of get that going. So their second prong is forget about building an actual car, it's the software that goes into it. And this is almost the exact opposite. This is seemingly incredibly successful. And I think this step they've announced with this update is certainly looking pretty interesting for Apple. I mean, what I'd say is, I know people are getting quite excited about this. We'll talk about Tesla in a minute, but you've got people saying like, this is the end of Tesla, which I think is a little bit sensationalist. But basically, this car, if you've— I don't know, people listening to this, I don't know if you're drivers, I don't know if you own vehicles, but CarPlay as it stands was actually launched in 2014. So Apple's CarPlay was launched in 2014. I've got it in my car. Do I use it? No. I mean, I don't know whether that says more about me than—

yeah, we're not— we're probably— but we've rolled over, Piers. We're on there.

But what I would say is the Apple— the CarPlay at the moment, I don't think it's particularly good, and it really doesn't do much other than connect your iPhone and you can whatever, make calls and access your music and, right, bog-standard stuff. Um, so, you know, what's exciting, I guess, about this, this kind of new upgrade is that, you know, it's going to give Apple more access to much, much more interesting and potentially way more valuable data about how someone's operating a car, you know, about how the car's performing. Um, and, and I guess one of the key things here is that people are kind of starting to, to look into the future about is, right, is this actual is this driving data that Apple can harvest to feed into their Titan project and help them accelerate this self-drive car initiative. That's the one key thing Tesla have above all others in this race. It's the amount of data that Tesla are able to kind of pull down from all of their vehicles. And as I was saying before, there's no substitute for miles under the belt to learn from and feed into your machine learning project. Process. So I guess people are getting quite excited about that. I mean, what I'd say is, don't— this new CarPlay, it's not available till— well, they're saying at the moment late 2023, um, so let's just say 2024, and fine, if— and great, and, and maybe it will get rolled out. I think right now CarPlay as it stands, you mentioned the big names, I mean, they're across most car companies, and I think there's 600 different car models that have CarPlay. Um, interestingly, the absolute noticeable absentee from the list is definitely Tesla. So Tesla have always been very anti-Apple. I mean, this kind of goes back— I mean, Musk has got a bit of beef, um, with Tim Cook. Um, they've got a bit of a history, and this kind of goes back to stuff like Apple poaching Tesla kind of staff, basically. And Musk famously once said that— he called Apple the Tesla graveyard.

Yeah.

Basically said, look, if you don't make it here at Tesla, then, you know, you go and work at Apple. And obviously Tim Cook didn't like those types of comments particularly well. So, look, so there's zero Apple in a Tesla. And they're pretty much the only ones. You go to all the other big car giants, and Apple's part of it. And I guess one of the quite unique things about Tesla is that they're basically, I don't know how many, like 5 or 6 different companies in one. Because Tesla built their own operating system from scratch, from the ground up. Now, that is a fantastically difficult thing to do. All these other cars, they've tried it and spectacularly failed. I don't know if you've ever been frustrated by the operating systems in, in some of these vehicles, and it's so bad, it's so clunky, it's incredibly difficult to navigate around, especially when you're driving at the same time, right? It's actually just kind of downright dangerous. So I think there's a huge play here for Apple, who have obviously got the operating system down to an absolute T, along with Android, the two big giant operating systems on the planet. If Apple can continue to offer these big car companies the operating system off the shelf, and of course, with the whatever, 1.4 billion, is it, Apple active users or iPhone users? Clearly, that's a positive feature when people are buying cars, especially if there's a more advanced Apple operating system available to make your driving experience, you know, to enhance your driving experience. So I think this is incredibly interesting for Apple. This CarPlay thing's been around for ages. I don't think it's really, really done much for Apple at this point, but I think this looks exciting. But we've got to wait until 2024, um, and then it's only in new vehicles, right? So It's going to take a decade maybe for this new CarPlay operating system to be in a large portion of vehicles on the road, and then all that data that could be valuable to start coming through. So I don't think Tesla got too much to worry about in the near term, but yeah, definitely a positive.

Pragmatic as ever. Oh, so boring, Piers. Sorry. It's okay. VW will see to Tesla before the CarPlay kills them. Oh, yes.

Absolutely.

That's interesting. Just, just to bolt on to what you said, I think, um, there's a lot of unknown, um, data here in terms of from a legal perspective. I get it, auto manufacturers will— I think it makes sense to outsource almost that tricky proposition of nailing down your own iOS, and you want to think with user in mind. That's that simplicity of being able to then such a large proportion of people with Apple product to have that individual bespoke experience almost enhances your product offering as a car. I get that. But if I was the auto manufacturer and you start talking, you mentioned the word data harvesting of my user, I'm going to be like, well, no, that's a line by line data, digit by digit like agreement that we don't know at all. Yeah, how that stands. So it's all well and good saying, okay, yeah, it's about the mileage and accumulation of data, but what data will they be allowed to have? And then you bring in the regulatory concern of what you're telling me, that there's like 1.4 billion people, and I know it's a fraction amount that will be driving cars to take data from, but what you're allowing— that you think the regulators will allow Apple to just like gobble all that up with no, you know, at least confrontation with the politicians. I don't know. I just think there's a lot there to leap over before you hit that holy grail outcome, which is, yeah, a new revenue stream of addressable market of 450 million people in Western developed nations. I think, yeah, I get it. It's exciting. I like it. And I like the idea of the services side. Perhaps, maybe, okay, this is out of the box. Maybe this is deflection tactic away from their non-deliverable target of AR/VR updates from a hardware perspective. Let's just throw it out a little CarPlay 2014 little V2 spin, get people excited about that, buys us another few months to just work away at this project actually we're finding is much more tricky proposition, which is this whole meta and augmented reality space.

And yeah, you're calling me the, the kind of dull pragmatist, but you're, you're right. Um, I mean, well, it depends, it depends. Apple's so in some ways quite diversive in that you've got your Apple uber fans, and it's that Apple can do no wrong. And if you're on that side of the fence, then the way to explain why they haven't rolled out any of this, um, AR stuff, or is that they've got so much great innovative new products that actually there wasn't really room in this conference to actually now bring in all that stuff. There's so much other stuff that's amazing that's going on that they— you would argue that they kind of push that to the next one because they can. Um, obviously your, your spin on it's on the opposite side of the fence, which I probably— I'm, I'm with you, to be honest. But, um, but yeah, you're right, going back to that data harvesting, of course it is a conflict of interest for the big automotive vehicles to hand Apple all this data. So yeah, I mean, you're right. It's not quite as— this isn't the sort of highway into the sunset for Apple to kind of just clean up. But one thing, well, again, it comes back to whether they can get the actual data or not. But stuff like— it's not just about driverless vehicles and harvesting data to kind of put into that. The other interesting one was stuff like car insurance. If you can track how people are driving, almost like in real time, then that can feed into a much more clever car insurance system where you're paying— maybe your monthly premium actually is entirely based on how you're driving the car. The better driver you are, the lower the premium gets. That's what the future of insurance looks like. Right, and so that's quite, that's quite an interesting play, especially given Apple's— and here's a kind of segue for you into our next topic, um, you know, especially given Apple's, you know, obvious growing, um, obvious move more into that kind of finance, um, kind of world with, with their Apple Pay. So yeah, it's quite an interesting one, that insurance product. Suite that could be there for the future, new future revenue streams.

Maybe that could bail me out when my wife tells me I drive like a granddad. I can say, look, I'm just taking care of our personal finances for the better of our family's future. But yeah, you mentioned Apple. They're making that kind of move into a little bit more in the finance space by offering loans directly to consumers. For its new buy now, pay later product, taking on a role played in other lending services by partners that they work closely with, like Goldman Sachs, for example. So what's going on here? What's the involvement between— well, first of all, they're doing buy now, pay later. Yeah. Which we talked about before.

Yeah. So it's spreading What's the amount? Is it up to $600? It's up to $1,000, am I right in saying? I can't remember what the ceiling is, but anyway, you spread— you can— nice, you'll be able to spread your payments over 4 installments over 6 weeks. Okay, so yeah, very much striding right into the middle of the buy now pay later market, which is a monster huge market. At the moment. And, you know, it's like, you know, the Klarners of this world— well, this is— yeah, this is really bad news, to be quite frank. Um, but look, I don't think this is— this isn't a surprise, this kind of move, because we were talking about this earlier in the year, but Apple acquired— they made an acquisition back in March, and they acquired a company called Credit Kudos. Um, which essentially is a kind of clever new bit of software, but which is around credit scoring. Okay, so one of the things about this buy now pay later space, you want a seamless as possible user experience, right? So if you're on your iPhone, you want to buy something and you want to go for this spread the payments option, then obviously you, you don't want to be messing about with Oh, you try and hit buy and then it goes, okay, um, payment pending, you know, a credit rating, right, a credit check. And then what, that credit check takes what, 24 hours? And then you've got to come back to the product and hang on, did I get— did I pass? Did I not? Have I bought this thing? Have I not bought it? You know, so you want a seamless— so you want a pretty much as rapid a kind of credit check scenario as possible. And that happens with the Klarna of this world, it's super fast. But I guess the problem that people, consumers are facing is that the way that credit checks happen, they're still quite backwards looking. So the data that they're using for your credit score is your kind of, I guess, looking at your bank statements and looking at your payment history for loans in the past. And, you know, it could be that it's, you know, the way they credit check you isn't particularly kind of relevant to perhaps your financial situation in the moment you're clicking that button to try and buy it. It might be based more on your financial situation 6 months ago. And what the frustration people are finding is they get refused credit even though right now today, actually they're a healthy consumer. And if it was based on today's evidence, they'd get it, but it's based on historic stuff. So Apple bought this company, Credit Kudos, whose software is a much more clever, much more real-time, much more up-to-date way of checking people's credit history. One of which is actually checking their mobile phone monthly contract, for example? Are you— and obviously Apple have got all the data. So this is about, right, do you have a monthly contract with Apple? Have you always been on top of payments? Add on to the fact that for Apple, I mean, Apple products are quite premium. So actually, if you're an Apple user, then almost by definition, you're probably a more affluent person. And so obviously from a buy now, pay later, if you're going to get into that credit game where you're basically lending money, so Apple are now— they're a lender. And obviously you're going to get people defaulting. And once you're into that game, you know, that's a big issue. What's the kind of percentage default rate? But for Apple, I guess their customers, you know, are probably in the more affluent category given they can afford iPhones. And so this is kind of all tying into a move that had been telegraphed for months and months and months and months, and now it's here, and it's been such a slow-motion rollout, I have to say, um, in terms of them finally entering this space. Um, so now, yeah, it'll be interesting to see how they execute it.

Yeah, so with the, the hookup then, and with Goldman's— so Goldman's is facilitating Apple Pay Later by allowing basically the tech company to access Mastercard's network since the iPhone maker lacks a license to issue payment credentials directly. But Apple is handling the underwriting and lending using its new subsidiary. So that new subsidiary wholly owned by Apple is called Apple Financing. Yeah, essentially. So that's how the two kind of hook up and, and work with one another in that way.

So yeah, and I guess from the bank, I guess just one point on the banks, you know, I get Because obviously to operate as a bank and to be a lender, um, you have to have a kind of balance sheet of assets that you— of deposits, if you like. You know, historically, the way a bank works in terms of lending money, you have deposits, um, from your kind of current account users, and that's the kind of capital that kind of goes against that kind of lending process, right? Obviously Apple aren't a bank. Rather than deposits, just so happens Apple have got $73 billion in cash just sat on their balance sheet, just because they're such a crazy cash-generative business. They almost are a bank, but just a very different one. I think this is huge for Apple. As I said, this isn't new. It's not like the Apple share price is suddenly spiking. Because, oh my God, this is amazing. This has been so telegraphed. You could argue it's been negative for their share price because it's taken them so long to actually get here. But yeah, I mean, for Apple, in the years to come, this is going to become definitely a very— the growth rate of this part of their business, which is now financing, The growth rate of this part of their business will be very interesting to watch, and definitely will add a big new powerful revenue stream.

Okay. So let's just move off Apple and let's talk a little bit more markets-oriented with using the new Bridgewater call on markets, which is they've warned that inflation could be far stickier than economists and the market are currently predicting, you might sort of question that and go, well, how do you think you're so right? Well, I was reading, I think it's their— I mean, the full name of it, their Alpha Fund, Pure Alpha. Love that. It's not just Alpha, Pure Alpha Fund at Bridgewater. It manages $151 billion in assets as of the start of the year, probably higher. Why? Because year to date, their fund is up 26.2%. You might have seen a meme, very popular one, go around the market this week. It's a picture of this guy who looks like Ronald McDonald at McDonald's investing in the stock market in '21, and he's just having a party. And then there's a second image of a guy in a suit looking at loads of technical screens and his account's crashing, 2022. The point being is that without carrying the joke through, Ronald McDonald could make money in '21 when the market was going up. Now it's a little bit more of a tricky proposition. They've done 26.2% in those conditions, which is pretty phenomenal. What they're saying is they're quite bearish. That then is a reflection of the fact that they think that the Federal Reserve are going to have to hike rates harder, faster, higher. I guess, in summary, and that's going to cause complications. Um, so yeah, just wanted to kind of deconstruct how they kind of pull together a view. Um, what are the sort of signals do you think that they'd look at? And that kind of constitutes around timing, I guess, to exercise this view. And then about how do they structure this? How do you— um, because this is something we've been working with the analysts with this week. It's kind of like these aren't just outright positions, they're more complex in their nature of how they try to then minimize risk but optimize the profit potential of that investment strategy. So yeah, just going to get a bit of a walkthrough if that's okay.

Yeah, I mean, so this— so Ray Dalio, who's Bridgewater chief, um, Anthony Cheung is one of the— probably, I mean, obviously hugely successful, hugely over the decades, one of the most successful investors of all time. But certainly in recent years, he's been very much about the big debt cycles, right? The boom and bust kind of massive debt cycles and the rise and fall of superpowers. This is his his book on debt cycles that he's been masterminding and peddling. I mean, most of his time spent selling books these days, it appears. But the point is that he's been, I guess, predicting what's happening. He's been predicting it for years. And to be fair to him, he wasn't saying— it's not that in 2019 he was saying, right, in 2020 and in 2021, All this stuff I'm predicting is going to happen. He didn't say that. He said, look, these are ultra-long cycles. It's incredibly hard to pinpoint the precise timing. But of course, then COVID happened, which was obviously completely out of left field. And this was the catalyst for him saying, well, actually, what tends to happen at the end of these massive cycles is there's a major shock event. And then that triggers everything into motion when we transition and have this big downturn. And he was definitely saying COVID appears to be probably the big event that might well accelerate this. So bearing in mind he's been of that persuasion for quite a while in terms of looking for when is the correction going to start, and he thinks it's going to be more than a correction. So the fact they've outperformed this year is definitely of no surprise. They probably underperformed last year, By the way, um, because they were probably more bearish and markets obviously did incredibly well last year. So now their bearish view is coming through and it's looking incredibly positive when you're comparing their performance against everyone else's. What's interesting though is now we're here, we are in the summer of 2022, and you're actually starting to get some notable investors, some banks actually starting to come out and say, well, maybe we're past the worst. And you can point towards stuff like the Fed rate hike expectations that were uber hawkish a few months back have calmed down a little bit. And there's not going to be 75 basis point rate hikes or anything ridiculous like that. And with that, you're getting some analysts go, well, actually, maybe this is the bottom. Maybe the second half of the year could be a recovery for stock markets. And remember, stock markets are always— they're lead indicators, they're forward-looking. So it might be that we still get a recession. It could be— what, I don't know, do we get a recession in the US at the end of the year?

Possibly.

But the stock market could bottom out, or normally bottoms out before the recession because we're kind of forward-looking. Okay. So what's interesting to me is here we are middle of the year and they're now almost like doubling down on this bearish view. So that's the key takeaway here. Whilst others are starting to say, right, the worst is behind us, they're coming out and going, nope, absolutely not. And actually we think this is going to get worse. So they're probably moving more, maybe, well, I don't want to say the contrarian camp. I think it's quite divided at the moment out there in the marketplace as to whether we've seen the worst or not. But yeah, well done to them for this year and positioning correctly. I mean, for sure, obviously the inflation conundrum is the hardest one to predict. We've got some incredibly important US data on this tomorrow. So we're recording this on Thursday. So Friday, 1:30 PM UK time, we've got US CPI report. So this is another inflation update for the month of May. And what we've seen is that I guess the question is, has inflation peaked? And it looks like it has because the April figure was lower than the month before. And so this will be the next— this is a key moment, I think. Do we now see 2 months of declining headline CPI in a row? That's what people are thinking and expecting. And if that's the case, then maybe Bridgewater are wrong. And actually, maybe this camp who think the worst is behind us are right. But For Bridgewater, they want to see a super high inflation print tomorrow because their view is inflation— this inflation crisis is going to last longer than markets are currently pricing. Therefore, they think the Fed and other central banks will have to hike more to control that inflation. Then you feed into how they're positioning themselves for this view, and that is based around the corporate bond market. Because in the end, if they're right and interest rates have to go up really quickly, much higher than markets are currently pricing, then if you're a borrower and if your balance sheet— or if you're— and well, and if you're a borrower and you hit a recession and rates are suddenly jumping higher, well, that's a recipe for disaster, right? That's a recipe for companies literally going to the wall and going bankrupt? And how many— and we call these zombie companies, right? How many zombie companies are out there that have been able to survive in the last decade? They're not really growing. They got a huge amount of debt, which is just keeping them alive. And it's fine whilst interest rates are zero. But when they're not zero, it's not fine and they'll go under. So how quickly do these zombie companies get stripped out of the system? And Bridgewater think it's going to be a rapid and very painful scenario of sharply higher rates. And so they're in the corporate bond market space. And look, they haven't expressed exactly how they've set up this trade, but there's certainly a lot of derivatives involved. So there's stuff like, you know, the good old credit default swaps, which, uh, if you were around in the great financial crisis back in 2008 was the kind of the kind of market to be monitoring. But this is where you, you can buy derivatives that go up in value, you know, if the creditworthiness of a company deteriorates. And so that's kind of their angle, right? Higher rates, these companies that aren't in good shape, that have got a lot of debt, their credit ratings are going to get chopped, their creditworthiness is going to decline as they move towards bankruptcy, and the credit default swap pricing— that's insurance against default— the pricing of that goes through the roof. And so you can use these kind of derivative instruments to profit from that kind of downtrend in creditworthiness. So it may be that they've kind of got positioned in amongst that. There's also— yeah, so there's also clever things you can do around spreads. So that's looking at the spread between yields, um, on So again, thinking about credit ratings, right? The whole debt market is based on this credit rating system. Um, so you've got the Standard Poor's and the Moody's and the Fitch's of this world. They're the big three kind of global credit rating agencies, and their job is to do a deep dive analysis into a company that issues corporate bonds to borrow money, and they give them a rating based on their financial health and therefore their creditworthiness, right? And so, you know, the, the worse your credit rating, well, that the more expensive it is to borrow, of course, because there's a higher risk for the lender. So the yield on these corporate bonds that have a lower rating, the yields are higher. And we often look at the spread between, well, what's the difference between the yield of a corporate company that's got a credit rating of CCC, compared to a company like Apple, let's say, who's like AAA, and what's the difference in the yield? And that's the spread. And if Bridgewater are right, what will happen is these spreads will widen as the yields on the high-risk stuff gets a lot higher. The Apples of this world will be the safe haven, right? So the yields on those will stay where they are, anchored and low. And so you can kind of place these spread trades to profit from the spread widening. So there's lots of clever ways you can engineer a position around this, but ultimately they just think that, you know, borrowers are going to get squeezed as rates go higher. There's going to be a lot of bankruptcies, and they think the crisis is, is still ahead of us.

Cool. Well, I won't end it there because that's a sour note. So a quick A great summary as ever. And we'll, we'll have a quick word on the ECB, um, mindful of, as you said, we're recording this on Thursday, the event is still kind of happening while we're talking. But the initial take was that the ECB kept rates on hold, very much as expected. So deposit rate -0.5, but they said they intend to raise the interest rate by 25 basis points at its July meeting, and they'll expect to raise again in September. The kicker at the beginning in a statement was, quote, if in the medium term inflation outlook persists or deteriorates a large increment, it will be appropriate at the September meeting to potentially— they're talking about essentially going bigger. Yeah, um, the euro actually rallied, um, in the initial statement. However, Well, to finish that part off, it was accompanied by their latest projections. So every alternate meeting they release them kind of in a similar fashion to the Fed. So every calendar quarter, and the end-of-year inflation target they bumped up, it's now tracking at 6.8%. Last time in March when they issued these, it was at 5.1%. They've lifted 2023-2024 growth. They've downgraded to 2.8% from 3.7%. Um, so they were your forecast, but actually now when you look at it, the euro's reversed that move and some. Um, so the one thing I always find with Christine Lagarde is traders just seem to have it so locked in their head that whatever she says, yeah, it's like she tries to claw away at reinstilling some degree of credibility. But I don't know if it's because people didn't see her as a credible actor in the first instance, given she's had a little bit of a bumpy political history before taking this seat at the helm of the ECB. It's almost like people have started with a— in the investment community, I mean— with a negative psyche in how they view her communication. Yeah, and therefore that always— it seems like a bit of a recurring theme whenever there's an ECB press conference.

I definitely think you're right there, and it's like unfair on her, I, I would probably say. And but yeah, you're right, there's this kind of unspoken just uncertainty and unease about her and her ability to— I guess what the other thing is, not just about her as an individual and her history. She was previously head of the IMF and politically very well connected. And so it's not necessarily just about her, but do remember she's following in some pretty big footsteps with your man Mario Draghi, who, I mean, I think is a bit of a legend. So I think to try and follow in his footsteps is an incredibly difficult job. But yeah, I do think there's still a little bit of a trust issue between markets and Lagarde. But yeah, I mean, look, the euro is selling off now. I mean, it's that— it's new lows for the day, but it's not a massive move. I mean, we're just testing the low from yesterday right now. I'm just looking at the chart. But, um, so, so really, um, you know, the euro-dollar, you're thinking, looking over the last— well, obviously this year has dropped off massively, um, but we have bounced over the last month So we— I think the low of the year so far was about 103.50, if I'm just going to round it, 103.50. Um, and we traded up, we've been trading around the 107 handle for the last couple of weeks. We're still in the tight little range even though there's been a lot of volatility today. The size of the range today is not particularly large at this point. Um, so we're still in that consolidation range after that little bounce that we've seen in the last couple of weeks. So look, I think this is just quite a noisy intraday market reaction to a kind of an event that's pretty much as expected. Um, I don't think there's too much of a surprise. I know they, I know they said we may go larger if inflation warrants. Well, of course they will. And, um, you know, we talked about that last week. I think they should go larger. Inflation warrants because the Fed's going larger. So that's your door to trying to raise rates at a higher clip. And I said that in some ways, being the pessimist again, the higher you can raise rates now, the more you can cut when the recession comes. Right? So I don't think this is kind of a lot of intraday volatility around this event, but in the end, I don't think too much has changed. In terms of the medium-term outlook for the European economy or the euro's value along with that.

Cool. All right, well, look, we'll wrap it up there. And, um, don't forget to check out the show notes. I'll also put the link to our daily newsletter because there's been lots of other things that have gone on this week which obviously we don't have time to cover everything, like Boris Johnson surviving his no-confidence vote, um, that he's going to potentially rewrite legislation overriding the Brexit bill. There's Russian still forceful activity happening in Donbas in Ukraine. There's Elon Musk flip-flopping. Now he's employing more people after he said cutting 10%. Twitter are now giving him access to the data he's requested. Now he's gone a bit quiet. So yeah, there's a whole ton of stuff that's super interesting. So we cover that all in the daily newsletter, myself and the team. You know, obviously free to subscribe to. Check it out, um, I'll put it in the show notes. And yeah, thank you, Piers, and, uh, enjoy Palm Beach.

Yeah, I'm just gonna— just gonna trot down for a swim in the ocean. See you later.

Thanks, Piers. See you later.