Ep.77: US Stocks Bull vs Bear Debate!

Okay, welcome back to episode 77 of the Market Maker podcast, and welcome back to Piers Curran. How's it going?

It's going well. Yeah, I've missed— I've missed this.

Well, you left me. I had to go solo, literally solo, last week.

Desperate times. Probably had the best ratings of, uh, of all our episodes, actually.

Do you know what? Best rating actually was Milan, who joined me. We had a chat 2 episodes ago and, uh, yeah, had some great feedback and actually was out of 77 episodes, our 4th most popular, and it's only been out for 2 weeks.

Is that right?

So there you go. Actually, actually, perhaps, uh, you're gonna get bumped more permanently, Piers.

What, what more evidence do I need? All right, so Yeah, I'll see you then. You're on your own, I'm not needed.

Right, quick question then. When you're away, given, um, your career trading and obviously now being a business owner, when you're away, do you actually switch off, or is that hard?

Well, the answer is really no. And like, especially at this time of year, I would say Well, like, from our— well, as you know, from our kind of business point of view, what kind of— it's the busiest time of year, the summer. I guess I'm in that situation where I've got kids who have school holidays, so there's only set periods of the year where you can kind of do a family break. And so yeah, the summer just falls— the school summer holiday kind of falls right on our most busiest time of the year from a kind of business point of view. And it's obviously markets-wise, things are pretty spicy, so they're trying to keep an eye. But yeah, normally end of the year, sort of Christmas, New Year, is the kind of best time for me to just switch it off. Yeah.

Okay, well look, I hope you're feeling— I hope you're feeling fresh because there's plenty for us to get our teeth into today. Um, starting off with— what I'll do is I'll go through a series of the major news from this week and we'll have a little discussion on each point. And then something which, uh, kind of goaded me into is a little bit of, uh, you just come back and you're like, look, let's just have it out, let's have a fist fight. Which way are stocks going, up or down, you and me? And I was like, whoa, whoa, whoa, what happened on your holiday?

Well, we were talking the other day And you— yeah, I was trying to think. We have now opposite opinions on the direction of the stock market, let's just say. And I don't think that happens very often. So I thought, all right, let's have it out. Gloves are off.

What we'll do then is we'll spar over the direction of US equities.

I'm not sparring.

Look, you're an old man. It's better we spar.

This is fight night.

So we'll get to that. We'll put forward a bit of a pitch as to stocks up or down from here on out for, for the US. But before that, let's talk over some of the week's major headlines, starting with the headline US CPI print and the reaction in markets. And it was pretty much the opposite of where we finished the prior week, where non-farm payrolls came out and it was a super strong report, hawkish report. Everyone got really spooked again by the fact that we're going to have to go for the third time, 75 basis points, and everything sold off. Stocks sold off, yields obviously soared, dollar soared, so major FX pairs, everything got hit. CPI comes out, it's all okay again. The world's a great place. Yes, inflation is still on a year-on-year basis at 8.5%, so we're still talking about multi-decade high inflation, but the fact is, is it's decelerated from 9.1%, and it was a lower figure than people expected. Now, part of that was not unexpected, of course, because gasoline prices have been dropping quite dramatically. So the core figure— so this is the one you'll hear quite a lot— it kind of extrapolates out then more volatile components like food and energy. Specifically is the one a lot of people are focused on. And the key thing there was that that was expected to tick up to 6.1%, but but instead it remained constant at 5.9%. And as you would imagine, the markets flipped immediately. Stocks rallied, led by none other than the NASDAQ and tech. I think we finished up maybe 3% almost on that day, followed up by the Producer Price Index the day after unexpectedly fell in July for the first time in more than 2 years. As well. Thoughts, Piers? Lots of seesaw price action, big shifts over at the moment. We, we're going 75-50 in the short end of the rates market. What's your view?

Well, yeah, firstly, the reaction— let's say the positive stock reaction to the CPI data— that was a larger reaction than the negative reaction the week before to the jobs market data. And that's Correct. Inflation's the big ticket in town, right, in terms of the influencing forces. So it's the inflation data is more important, even though obviously they're all kind of linked. But, um, yeah, I mean, it's a relief, um, in many ways. I think what we're seeing is a short-term relief, uh, continuation of what's been a really strong rally in stocks over the last few weeks. So we've just gone again another step higher, and it's, and it's, and it's relief. I think that when it comes to inflation, so you mentioned core inflation, but also it's important to understand that inflation is, is kind of measured on an annualized basis. So those figures you were throwing out there, that's on an annualized basis. So for example, the core inflation reading for July was 5.9%. So that means that in July 2022, core prices were 5.9% higher than in July 2021. Okay. And that was a positive because, as you said, we'd expected it to go up. Um, but it's in line with June, right? So it's not like inflation is going down on a core level on an annualized basis. However, inflation is also measured on a shorter term, and this is important. So a month-on-month reading— this is comparing prices in July to prices in June. So one of the figures out of that Wednesday inflation report was that the CPI month-on-month reading was zero. So it didn't go up. And that's the first zero print on a month-on-month basis that we've had since COVID since the COVID outbreak back in spring 2020. So you could say that's more of a shorter-term look at inflation, which maybe gives you a better signal as to where the trend might go in the months to come. So look, people were so used to getting higher than expected inflation, and it feeds into this narrative of more rapid rate hikes, and it's all negative. And this is just a short-term, I think short-term kind of relief. It's not worse than expected for once. Great. Maybe the Fed aren't going to have to hike XYZ. And so the markets pop to the upside. And we're going to round out the week, you know, the highest levels we've seen on, on US stocks for— well, you've actually got to go back now. Let me just get this right. You've got to go back to, uh, May the 4th, Star Wars Day. Yeah, was the last time US stocks were higher on the S&P 500, that is, were higher than where they are now.

And technically, I heard you talking about a key, like, key levels we're at at the moment. In terms of where we close around these points for bullish bearish signals from a technical perspective. Is that right?

Yeah, so looking at the S&P 500, the— obviously the market's been trending lower all year if you're looking at the longer term, but if you zoom into the last 6 weeks and it's been going up, right? But where we've reached now is the kind of end of May highs So around 4,200 on the S&P 500 was kind of a quite key level at the end of May. We're just up above that now. I'm quite interested to see where the market closes today because it's the end of the week, right? So if you're looking at charts on a weekly time frame, you get your weekly candlesticks. And if, if it looks like at the moment we're trading 4,220, right? So it looks like we'll close above 4,200, and that would be significant. From a kind of technical point of view. If by the end of today's session things drift lower and we close below 4,200, I think that's actually a really negative reversal technical signal. Um, so yeah, be quite interesting to see where we close today. But for now, that inflation figure popped us up through that 4,200 resistance. We're kind of just sat on top of that at the moment.

And then part of what we were discussing there was, was obviously energy and U.S. gas prices this week fell back below very key psychological marker of $4 a gallon. That is down more than 20% from the record high, so substantial. But I did read that Goldman's came out and they were saying that they don't think that's going to last, i.e., below $4. It's going to go back up above that in the kind of near-medium term. Rationale: global supplies of oil are still running relatively low. And argue that demand from US drivers is likely to rise after showing signs of weakening. Hmm, yeah, feelings on that?

So you're talking about gasoline here, right? So gasoline, yeah, um, yeah, I mean, oil's— the reason why it's below $4 a gallon at the petrol pump is because, well, the price of oil has been going down for the last couple of months. So It was very much a function of oil prices. So I guess you're just saying what you've got a basic to make the judgment of where petrol pump prices are going to be in a month and 2 months and 3 months. Really, you're asking for your opinion on the direction of the price of crude oil. And yeah, I'd say for me, again, I think that the reason it's come off in the last couple of months is because of us kind of switching attention to the negative economic impact that high commodity prices is going to have and we're going to slide into recession and therefore demand is going to weaken. And it's that weakening demand outlook that's led to oil prices coming back down. But I think that's probably run its course now. And I personally, again, in my personal opinion, and I might be wrong, I think 2 months of downside on oil now has put us at a price level that looks pretty cheap. My personal opinion is oil will probably rise again in the months to come, which means then petrol prices go back up.

Um, do you think, like, do you think psychologically for a US consumer, when we talk about, say, your routine food shop and there are very large increases in certain items, there could be like butter or cheese and things like that, which could be in excess of 15, 20%, but because it's like a small item and it's bunched in with a basket of goods, literally when you're shopping, do you think at the pump it's a lot more easier for the consumer to judge inflation because it's just literally you're looking at numbers on a screen. Yeah, when you're doing it, definitely.

And like every time you drive past the petrol station, the numbers are there, right? And you're seeing, oh my God, it's gone that high. Um, yeah, for sure. I think inflation is hard, isn't it, with inflation, as you're saying. How much has it entered the psyche of the consumer? Because ultimately, that's what's the most important as to how much of a negative impact inflation has on demand. I mean, I would say it's been above 4% and now it's below 4%. Then it depends, right? I think consumers are quite short-term in their thinking, and they're probably thinking, right, below 4%, right? Thank God. I mean, right, let's go and go on that driving holiday that we'd canceled. 'And so maybe we're going to go and, you know, now spend more money on fuel.' But below $4, it's still double the price of where it was pre-COVID. Double. It didn't used to really ever get above $2. So I think there is this danger in the short term. There's relief it's below $4, right? 'Let's go and fill up the car.' But in the end, that'll come through in their finances that actually, yeah, we are spending way more on this than we were a couple of years ago. And inevitably that will feed through to negatively impacting disposable income. And there's only so much you can put on your credit card, right? Um, and when we hit that kind of credit card limit wall, well then yeah, there's nowhere to go from there other than stop spending as much. And that's when it starts to bite.

So someone who is obviously talking about us a lot was our dear friend Joe. And, uh, Mr. Biden was quite vocal letting everyone know about the decline of, uh, of gasoline. But the other thing, of course, that kind of the main thing that you would have heard this week was the Senate passed something called the Inflation Reduction Act. The IRA is what— not sure about the shorthand that they're referring by that, but, um, the Inflation Reduction Act, as we'll call it. And basically just wanted to have a quick chat about this. First off, um, it's been kind of showcased, if you like, by Biden as he's got this through. It's another big package, uh, hit a massive roadblock several months ago, um, trying to push through his legislative agenda, and now he's got this done. It's labeled literally the Inflation Reduction Act. We're in a cost of living crisis. The midterms are just months away now. Um, what did you think when you saw that?

After I'd finished kind of hysterically laughing at what a ridiculous title, um, I think it's a classic, classic I'm going to be very cynical here. I think it's a clap— everything I hate about politicians. It's like self-interested, um, it's a policy to win votes. And I know you might say, well, actually, isn't that right then? If it's a policy that wins votes, then isn't it a policy that the public want? Um, and maybe there's an argument there, but I just think that The problem is, and I was going to talk about this in our boxing match, bull versus bear, in a minute, but I'm going to bring it up. I'll touch on it now. From the fiscal side of things, we're about to hit fiscal headwinds. Okay, the governments have been stimulating and pumping up these economies since COVID hit, and now the reverse is going to happen with this Biden thing. Two things. Number one, Um, the fact is inflation reducing— the whole part there is he's going to tax people to raise this money to then spend. Okay, um, but he's taxing corporations. So just as corporations are seeing earnings growth decline, just as corporations are seeing their costs massively increase because of commodity price inflation and all the rest of it, Now their taxes are going up as well. It's like a triple whammy, right? So companies are going to have to lay people, even more people off. So you'll get more unemployment as a result of this in the medium to long term. I'm talking about, let's say, in the next 12 months. And yeah, I think it will ultimately come down, come back to kind of hurt the economy rather than boost it. I'm all for the green energy side for sure. So I think that's important, though. I think that is a good thing. But it's like penalizing all of society just at the time where they're most vulnerable. And that's not direct, right? It's not penalizing society as, right, I'm going to raise income tax, I'm going to raise sales tax. It's a second— raising corporate taxes is the primary focus, but that leads to the secondary impact. Of then more redundancies, which then impacts the consumer, right? So that's my opinion. The other thing to say is that this isn't going to have a positive— even if you put all that to one side and you say, look, this is a big spending bill, you know, great, more consumption drives growth— it's not going to happen anytime soon. It's not like immediately this money is going to get spent.

Um, yeah, so I think that's where the the real detail is, is that obviously the optics, as you said, and what you think about politicians is that this is all aimed— regardless of this is a long-term plan to address the short-term optics of navigating the political storm that's going to happen in about 2-3 months' time. Um, one interesting comment I saw out of, out of the Morgan Stanley chief U.S. economist, she said that Basically the common thinking is that by reducing deficits, it calms inflation. And so you can spin this narrative of the title of this package, but when you look at the numbers, $300 billion deficit reduction is spread over 10 years.

Yeah.

So it's $30 billion in, uh, a year in an economy that's greater than $20 trillion. So from a short-term impact, it has zero difference. So is it going to influence what the Fed are going to do in September? Absolutely no. Um, but is it going to perhaps influence the long-term impacts in the economy? Then yes. So I think there's, there's important to understand how this has been engineered by the administration and what actually the input, uh, the economic implications are from a time perspective. Because the two are disconnected. But the first one is done very purposefully, I guess, is the point.

Yeah.

Um, but look, enough about Sleepy Joe. Let's move on and let's talk, um, let's talk a little bit about the UK briefly. We just had some data out this morning. UK economy is contracted by 0.1% in Q2 of this year. Households cutting back on spending. But on a sectoral basis, if you're looking at the Office of National Statistics, which is when you get bit more detail under the bonnet of where the weakness was. And a lot of it was in services, particularly the healthcare sector. As you all know, if you live in the UK, test and trace vaccine programs were, were all wound down, and that's had a subsequent impact. As to, of course, great time while it was happening, a few extra days off work, but the Queen's Jubilee, uh, did happen, and that meant some extra bank holidays. But actually the impact was not as bad as feared. Um, for that month alone, the economy contracted 0.6%. I think economists were actually thinking it was going to be double that in terms of the impact. But the same point remains, right? Inflation is nowhere near where it's going to head, which is substantially higher than its current level. So certainly breaching double digits and beyond in terms of getting up to 13.3%. As far as the BoE thing, in October this year. Rates have raised or risen already multiple times. The key benchmark rate's currently 1.75%. And when we're looking about what markets are pricing, the market currently is looking for a further 150 basis points of hikes by May of 2023. Not only this, the UK could face managed electricity blackouts we heard this week under a worst-case energy crisis scenario this winter. We've obviously heard and seen similar things happening in mainland Europe, i.e., Germany, uh, for example. Credit Suisse came out, they've lowered their growth forecast unsurprisingly, but from a timeline, they expect the UK economy to enter recession from Q4, and that will last through to Q3 of 2023. But that's pretty much what the Bank of England were kind of insinuating. So Any new information here, or is this just playing into the same view, essentially, that the worst is yet to come?

Winter is coming. That's all I'm going to say. I mean, I guess that GDP data announced this morning, so -0.1% for Q2. Okay, so contraction was actually a smaller contraction than what was forecasted, as you were kind of implying. So the forecast was for -0.2%. But it's -0.1. All right, slightly better than expected, but look, still negative. But this data is really old, you know, we're mid-August here, we're halfway through Q3, and this data is for Q2. And we know full well that really in July and then in August and the latter part of this year is where all of these kind of factors are really going to come home to roost. And so Yeah, it's kind of not particularly, um, it's not going to influence anybody's— I would change anybody's outlook for the second half of this year, particularly the Q4 and then Q1 2023. This is where we're really going to find out how bad all this kind of doom and gloom kind of predictions are going to be, because I was reading this morning like UK energy bills are gonna get above £5,000, um, per year, right? That's compared to less than £2,000 last year. So I, I don't know who— I don't know how your kind of energy bill's looking like, but that's an extra £3,000. Who can— there's not many people that can afford, oh, an extra £3,000, that's fine, yeah, I've got some spare change down the back of the sofa. £3,000, that is a huge sum of money for— and obviously especially for the lower income and the mid-income, and they're really the engine room of the economy in terms of consumption, right? So yeah, this is going to really hurt, and just not quite sure how much yet. And just at that moment, we're going to have inflation forecasted, yeah, 13%, 14%, more rate hikes. I mean, for the UK especially, the outlook going into this winter is— I mean, well, I've never known a worse outlook in my life.

Well, look, I mean, something to alleviate some of that fear, Boris Johnson doubled down on his insistence that it's not his job, it's for his successor to deal with this. So it's nice that, you know, the Prime Minister sat there while, as you said, conditions are worsening by the day. And, uh, well, it's obviously not his job.

Yeah, well, I mean, what I would say about Boris, to be fair, if he did start wading in going, right, I'm going to implement new policy to fix this, there would be a massive uproar from the left going, what, you're not in charge anymore? Get, you know, get into the background where you belong. So it's kind of a lose-lose there in that specific point, I would say, for Boris.

I don't know, I think if I was a spin doctor, I could make him look more favorable by not tabling, but just the language he's using. I think that's what I'm saying. He could, he could manage that better if I was part of his team from a communication point of view.

But yeah, I mean, look, we won't go into Sunak and Liz Truss, but that is, that is another final point, like, in terms of the negative, the roster of negatives for the UK. The other one is, of course, yeah, I have no functioning government, but that little old thing. Yeah, so as if we needed that on top of everything else.

Okay, well, look, we'll move on. We've got, um, one final piece on the kind of broader macro front, and then we'll go into some single stock stuff. It's a little bit about Tesla, of course, and Elon Musk. But before that, oil prices have been a little bit jumpy but far smaller than what we've seen on prior occasions. But we did see earlier in the week a bit of nervousness because of Russian crude flows from Ukraine to Hungary, Slovakia, and the Czech Republic were halted apparently last week after sanctions prevented payment of the transit fee, essentially. Now, something which a lot of people, I'm assuming, haven't heard of before is the Druzhba pipeline. And essentially, you want me to say it again, don't you?

What was that?

The Druzhba pipeline. If there's any Russian speakers out there, it's fine. Send me your hate mail. It's okay. And essentially, this is the world's longest oil pipeline and one of the biggest oil pipeline networks in the world. Comes from the eastern— some Russia— and splits off into kind of northern, southern channels. So it's super key and something that you definitely should be aware of if you're, you know, if you're operating or interested in markets. Um, but we heard something similar because we were talking about it ourselves, about, um, some soft commodities, grains, moving out of Ukraine for the first time. And we know that things like wheat prices were highly kind of volatile over that period of the initial invasion, given that's where predominant amount of global supply comes from. But they were making one of their first shipments, and then it was, actually, we don't want to accept it. And there's a lot of grain commodities sat there in cargo, uh, on the sea at the moment. So I guess the point here is, well, the Russian situation is not concluded, far from it. Um, actually, on this point, I think it's amazing how The fighting in Ukraine is no better of a state than what it was several months ago. And also accelerate that to last week. Now no one's talking about China now and Taiwan.

Yeah.

5 days later after everyone was screaming blue murder and we're going to have world war, all people pumping that narrative online. Nothing now. I mean, the drill— things are still happening, but what I'm talking about is the media response to these things, because now it's back to cost of living and inflation, uh, and these narratives are very compelling, obviously, uh, when it comes to the individual.

Attention spans are basically reducing as time goes on, right? The TikTok generation You know, if a story lasts for more than, what, 15 seconds, then it's like, dull, move on.

But I think from a, from understanding markets and how they function, I think it is an important thing though, because, um, what I'm saying is that as, as bad as the situation from a humanitarian point of view is in Ukraine, yeah, the focus has shifted irrespective of what's happening on the ground. So from an investment point of view, the risk factor has shifted because the influencing factors have kind of— the blocks have shifted, if you like, in terms of what is and isn't as the biggest risk right now.

Yeah.

Even though that actually these— the, the— I mean, the, the individual components are all still there.

Yeah.

But it's something that you should definitely be mindful of. And now this was something I was trying to stress on last week's episode about I really disagreed with how some people were reporting the Chinese situation, just very sensationalized, um, over every ship crossing the median line, every missile over land. And it was like, this is the biggest thing that's happened. And yeah, it is an escalation, but I guess the end game is where does it go, and then what's the next step, and what's on the near-term horizon that could then shift the the focus. And yeah, it's just amazing how quickly it shifted again.

It's just that this is the function of the, the state of the media, isn't it, in this day and age? It's sensationalizing everything, and, you know, clickbait, that's what it's all about. But obviously it influences the global narrative, which then influences behavior around everything, including markets.

Um, so right, and then public policy and— right, yeah. Um, but look, let's jump into some stocks news and let's talk Tesla. And although Tesla signed contracts worth about $5 billion to buy materials for their batteries from nickel processing companies in Indonesia, which was an interesting story in itself, it's been superseded. And the reason why is because it's come to light that Elon Musk has offloaded just another $6.9 billion of stock in Tesla. And in fact, that's his biggest sale on record. The rationale, of course, he tweeted in response to a question from just some bloke on Twitter, was to avert a fire sale of stock if he is compelled to complete the $44 billion takeover of Twitter. Effectively, contingency planning if private investors don't come through. This is what he was saying. Um, cast your mind back to just May. Musk at the time said there'd be no more share sales, and here we are this week. Tesla's stock is up— was up as much as 50% from when he said that in May. So obviously, time to offload another $7 billion at this point in time. So he has now sold around $32 billion worth of stock in 10 months. And in terms of his actual holding in Tesla now, it's down to 14.84%.

So hang on, okay, so what was— so what in percentage terms, where was he?

I'm not sure what—

before he started selling in April.

Yeah, I'm not sure what the starting percent was, um, but he's still got 15-odd percent.

Left, right?

Um, yeah, I just thought this was, uh, just, just classic Elon, basically.

Well, it's, it's just good trading, basically. He's waiting for the 50% bounce and then, right, let's, let's get rid of a whole nother bunch. Um, yeah, well, you know, we've been talking about this all year, that this is arguably is going to turn out to be one of the best exit strategies in the history of mankind. Um, no, I think with Twitter, right, and he's using that as the, uh, obviously the rationale for selling. But yeah, the fact he said I'm not going to sell anymore in May, and here he is selling more. But I, you know, I think ultimately he's saying that, look, if I have to buy Twitter, then I'm going to need financing. I had financing in place, but that financing and those promises of loans from the big banks have kind of just been shelved because the banks were worried that the Tesla share price was too volatile and it had moved way too low for it to be kind of a safe enough sort of collateral for that bank loan. And so Musk is saying, well, yeah, I need to sell more Twitter— sorry, Tesla shares to raise the financing to fill that gap because the banks won't be interested anymore. But you know what's going to happen with Twitter, they'll go through the legal case, which I think is in October, I believe. Um, and then look, the court will decide, or whether it gets to court, I don't know. I mean, ultimately, I think worst case scenario for Musk, he engineers a cheaper price to buy Twitter. Best case scenario for Musk, he doesn't have to buy it. Um, I think in the first example where he ends up buying it for cheaper, well, great, it's cheaper, right? So he doesn't need as much financing as he had in place earlier in the year. And secondly, by then, once the price is fixed and it's going ahead, well, then I'm sure he'll be able to find banks that will back him. So yeah, I definitely think this is still a genius exit strategy from his massive Tesla holding.

Settlement. Could shave off a couple bil, just hand it over.

What, you mean Twitter?

From his $32 billion that he's managed to exit, right?

Oh, right, I see. So $32 bil becomes the—

just say, right, I'm going to write off 20% of that just to, just to shut them up. They go away and I'll walk away. And actually, the share appreciation on the exit value, I still end up weighing the money. So that's just the cost of transaction.

Yeah, I think why not?

I love that guy. All right, so Pfizer, um, well, actually, before Pfizer, I want to talk Disney Plus. Actually, I had them on my hit list, and the reason why is because they've edged past Netflix in the streaming wars with 221.1 million subscribers. They added 14.4 million Disney Plus subscribers The Street was looking for $10 million. That is a ginormous beat on expectations. There was a big hit. The Star Wars series Obi-Wan Kenobi, Marvel's Ms. Marvel were the kind of headlines in comparison. Just to refresh your memory, because we talked about Netflix at the time, I think they lost another 1 million subscribers. So just to repeat, Disney added over 14 million. and Netflix have lost a million, and that was their first ever back-to-back quarterly loss of customers. And everyone was kind of, I guess, positioning themselves for cost of living crisis. People are tightening their belts, cutting back on streaming services because they're unnecessary. Not the case for Disney at this point. I must add that Disney had particularly good performance on their theme parks as well though. It's not just a streaming organization. And a lot of that was they were talking about pent-up demand and so forth because of the COVID situation. But they did have a very good performance there as well. So yeah, what do you think about that? Disney now top of the pile.

Yeah, amazing. I mean, well done then. I think they've had an aggressive strategy to— well, hang on, it's not as good as it sounds though. They've had an aggressive strategy to basically convert Netflix subscribers into Disney subscribers at the expense of Netflix. So they're kind of going in opposite directions at the moment. Disney's offering is half the price. There's a price point thing also. You get like— I mean, I, I've got Disney Plus. Do you want to know why? Because I was sorting out a new mobile phone, um, and with O2— and I don't know if they're doing it with other providers, but with O2 you get part of the deal. You just sign up for another 24-month contract or whatever, you get 3 months free Disney Plus, right? I mean, obviously you get it and then you forget about it and fine, you end up being a subscriber. But yeah, the fact you're getting these on-ramps that are hugely good deals means that it's costly for Disney Plus. So they're losing about— I think they're about $1 billion.

Yeah, so their streaming effort lost a reported $1.1 billion in the quarter.

Oh, in the quarter, sorry.

Right, in a quarter. And they've also lost the rights for the cricket in India, right? Yeah, it's going to impact their guidance.

It's really an important point because whilst those numbers look amazing— more than Netflix, you know, 14 million subscriber growth blah, blah, blah. They're losing over a billion a quarter. Um, secondly, they're losing the contract on the IPL, the Indian Premier League, which is that massive cricket, um, kind of franchise and tournament that happens annually in India. And it is massive, this tournament. And they've, they've lost the rights for next year. So that a huge portion of the 220-plus whatever million subscribers, a portion of those are Indian subscribers who are subscribing for the cricket. And when that drops off, yeah, I'm sure that's going to hurt their numbers when you come through to 2023.

Yeah, no, it's, um, I kind of concluded a piece I wrote about Disney saying the bottom line is that, you know, during the pandemic these streaming services went kind of gangbusters, but in the post-COVID world, cost of living crisis, I think a lot of attention is switching for investors to profit as we go through this period, away from growth so much metrics. And although they buck the trend, the competition in the streaming world is fierce.

Yeah.

And the pent-up demand on the Parkside, that's not going to last, in my humble opinion. It just won't. That's the nature of it being pent up. It alleviates over time.

Yeah, but at least there's diversity in their revenue streams, which you can't say for Netflix, right?

One thing that's interesting is that from a consumer point of view, is that, say, like, my daughter's watching Disney, like, she can watch Frozen, like, literally, to my dismay, 50 times and never be bored. Whereas on Netflix, I watch one Netflix original series, I will never watch it ever again. Yeah. And so the pressure is on. One thing I quite like about Disney's model is their content library, where they have like 100 years' worth of content that is picked up and recycled again and again and again. Whereas with Netflix, there's a lot of emphasis on generation of original new content, which is a challenge, obviously.

Yeah, for sure. We've talked about this in the past about how, you know, owning a big franchise is key. And so, you know, Disney with the Marvel franchise um, and obviously the Star Wars franchise. They've got two of the biggest out there, and yeah, so puts them in a, in a, in a really good position. Netflix are really struggling without that monster franchise.

Okay, final one, Pfizer. I mentioned, and just briefly on this one because I wanted to mention an M&A deal update, and that's because they're to buy Global Blood Therapeutics in a $5.4 billion deal. The rationale that really underpins that deal is— you're gonna have another jibe at me now— Pfizer will gain Oxbryta. Oxbryta.

Okay.

Global Blood's therapy for sickle cell disease that sold about just shy of $200 million US last year, and Pfizer sees it, as do Global Blood Therapeutics is a blockbuster in the making. Quick tip, when I used to do my old job, and this could be for any M&A analyst in future, like if there's a drug name, obviously you try to find, uh, YouTube videos or someone saying the drug name so you can understand how to say it. If in doubt, you just need to own the word and say it like you think it's said the right way, because other people don't know how to say it either. And so if you just can pretend that you're saying it correctly, people actually believe you.

Yeah.

Yeah.

It's like I used to— one of my favourite foods back in the day was quinoa.

Okay.

Otherwise pronounced as quinoa. I was calling it quinoa for at least 12 months.

Or pho, Vietnamese pho.

Oh yeah, which is pho. Oh yeah.

Yeah. Okay.

Yeah.

So the list goes on anyway. And enough of food education. Pfizer in their press release said the proposed acquisition drives growth by basically bridging their own with this other company's disease expertise, their portfolio and pipeline importantly. And they're looking at combined— I didn't, um, they didn't obviously put forward the exact timetable, but what they're looking at with the blockbuster type sales figure is more than $3 billion on a worldwide basis, which is quite incredible considering they're talking about $200 million starting point at the moment. So yeah, M&A activity still— I've seen quite a few actually deals at the moment, irrespective of current predicament, aside of economically where we're at at the moment, there still seems to be plenty of, um, appetite for certain deals.

I think on the M&A side, it's a bit different to, let's say, raising capital like IPO, or, you know, follow-on offerings, or, you know, corporate bond issuance and that kind of stuff. That, that stuff's collapsed. But M&A, often you'll see at the bottom of a cycle a lot of consolidation and you know, industries and sectors consolidating where you're getting some of the big and the strong, you know, picking up some of the little guys and some of the weaker guys at low valuations at the bottom of the cycle. And so it makes sense, you know, that you get this kind of consolidation at this point.

Yeah, we just had a great guest speaker on with our, our interns who was a, a very senior PE guy, and he was talking about— I think it was Blackstone have basically got accumulated like a $50 billion war chest for buying up distressed assets in real estate for this specific situation that we're in, essentially. So yeah, there's always— well, I was going to call them vultures, but I'm just mindful of any, uh, opportunists— opportunists, um, I should say, on that front. But anyway, look, let's, let's conclude, and let's try and keep this as to the point as possible. Otherwise, I feel like we've got— we're going to go the full 12 championship rounds. And, um, so I'll let you— I'll let you shoot first. Let's have your, your kind of highlight reel behind why you're bearish on stocks right now.

Okay, and let's define this because you put a poll out on LinkedIn. Yeah, under the Amplify Me LinkedIn handle. If you haven't voted yet please go to the Amplify Me LinkedIn and vote. And the poll is asking, what level do you think will be hit first in the S&P 500? Will it be 4,600? So we rally from where we are— let's just say we're at 4,200 at the moment. So do you expect the S&P to hit 4,600 first or sell off back to 3,700 first? Which one of those is going to happen first. That's the poll. Um, right now, I mean, I don't— do I need to say anything other than, look, the people have spoken. And right now the poll is showing that 60% of people have voted for 3,700. So we've got a bearish, um, community. And I mean, I'm not sure I need to really go any further, but I will. So here's— I'm in the 3,700 camp, and here's why. Sure, inflation— the data on Wednesday was lower than expected. Great, happy days, hunky-dory. Look, it's one month's data, okay? And look, gasoline prices came down, whatever. Look, the core reading, although lower than expected, was still at 5.9%, okay? Here's my main theme on inflation. It went up rapidly, okay? 2021 and first half of 2022. Don't think it's going to come down rapidly at the core level. I think, sure, inflation might have peaked, and sure, it might be coming down, but I don't think it's going to come down anywhere near as quickly as it went up. And that's because, look, inflation's sticky. And I think you're getting to the point now where inflation is fed through to being kind of self-sustaining, at least for the medium term. And that's because people and companies are just putting up prices, not because they specifically have seen input costs go up necessarily. They might have gone up a little bit, but they're putting up prices because they're saying to their customers, have you seen inflation? Sorry, we're having to raise prices by 15%. Inflation's off Basically, they're increasing profit margins because they got the chance to do so, right? So prices are rising, okay? More medium to long term— and this is, uh, perhaps not a great argument for this short-term question of 4,600 or 3,700— it could be that we've really reached the end of what's been a two-decade anomaly of really, really low inflation. Maybe the last two decades is the abnormal, and we're moving back now into more normal higher inflation levels. The last two decades have been really low inflation because we've had very unusually low and stable energy prices and commodity prices. We've also had China and globalization, so China demographics has meant that the cost of production dropped sharply which fed into then the prices of goods dropping sharply. But now the Chinese demographic situation's turned and it's now marching back the other way. So I actually think we're going to see a more prolonged period of higher inflation. So if we turn to monetary policy now, people are thinking— if you think we're going to hit 4,600 first, basically what needs to be priced in is the Fed will stop hiking at the end of this year. And they'll start cutting in 2023. Personally, I don't think that's going to happen. I think if the Fed start cutting next year, inflation is going to still be too high. And what you're going to end up with is stagflation of recession with inflation staying high. And ultimately, that's a bigger problem. And the Fed, I think, are going to— they won't be able to cut next year. They might even have to continue to hike. Okay, add in the fiscal headwinds, like all the fiscal stimulus is gone and we're not going to get tax rises and that's going to be a drag. Add in the labor force situation where, fine, it all looks great, non-farm payrolls 500 and whatever thousand, yeah, well done, but the quit rate is dropping sharply, um, the job open rate is dropping sharply, And there are, I think, better kind of lead indicators. So I think this labor market is going to turn over. And two more points. US yield curve is at its most inverted point for decades. And this is the key indicator for recession, right? So this is where the 2-year yield is higher than the 10-year yield. That's kind of— that alarm bell's been sounding all year and is continuing to sound. And then finally, you've got emerging market risk. I'm not even bothering to mention geopolitics here, by the way, but emerging market risk, I think, is massively on the up. We've seen what's happened in Sri Lanka, um, we've seen Pakistani bond yields spiking, um, this week and last week. Did you know, like, through the pandemic, you've already had the likes of Argentina, Belize, Ecuador, Lebanon, Suriname, Zambia— they've all defaulted already. Did you see what Argentina did this morning? Yeah, they raised interest rates by 9.5%. They raised interest rates by 8% 2 weeks ago. 8% 2 weeks ago, 9.5% again today. Interest rates in Argentina, 69.5% to try and tackle inflation that's clocking at 70. So look, you've got big risk in the emerging market space because And the more hawkish the Fed are, the stronger the dollar gets, the worse it gets for that emerging market space. So I think there's a bit of a domino effect risk as these emerging markets start to hit the wall. So wrap it all up, uh, recession is coming, winter is coming, short-term relief because this one inflation print's dropped, but the worst is yet to come.

Okay, 9 points that would say a couple of things to think about.

9 points.

First one is a behavioral one. Hearing you and everyone else sound like you're sounding just makes me want to buy stuff. As in, like, when everyone says we're getting— and there's been some significant shifts, I feel, recently where because of the nature of the rally that we've seen over recent weeks, everyone's been trying to call like dead cat bounce is selling off. And if you were a short-term trader, already you've got some severe egg on your face because every week it's punched higher and you've lost a lot of money at the moment. So we do keep punching higher. So one of the main things here is a behavioral thing. I never feel comfortable when there's too much consensus around a singular view, bullish or bearish. And in this case, it's a bearish one. And I love the fact that Michael Burry always— he's got a hotline, that guy, to the Wall Street Journal. And he literally, every time the S&P goes up like another 10 points, he's like, right, we need to run another Michael Burry splash. Here's why I think the world's ending. And they print it for him. Like, what— he, he's just as predictable, I think, as Elon Musk with the way he uses the media. But that aside, the other things are— couple things. One, the Fed. The Fed have continued to talk about this idea of like, we've got flexibility, we'll act accordingly, data dependent. I think you're right, one piece of data is one piece of data. I don't think we can call September at all as where we stand at the moment. But the one thing I think that the Fed are very keen to keep up is to keep their ammunition box available by keeping the dream alive that we can go 75, or we can go harder if we want, depending on the situation. But the more that they can spin that narrative, the more flexibility there is to not have to dramatically start slowing, but insinuate and go through the kind of incremental communication approach of utilizing the buffer of going from 75 to maybe 75 to now with props of possibly reconsidering, okay, now we're at 50. And then, and once you go through all of that, it kind of acts as a safeguard mechanism to offset. And when I'm talking about, obviously we're trading 4,200, so going back to 3,700 is a serious downward correction in market, or bearish. We'd be going like 20-odd percent. So We're talking about big moves if that was happening. I think the Fed would already kick into full gear at that point. The other things are, I think a lot of people were massively hyped about how bad earnings season was going to be, and that might yet come to fruition, but they got it wrong this time. They might well get it wrong next time as well. And I think that was— I think people are just so keen to see a bearish outcome in Wall Street to match Main Street that it's almost becoming somewhat, uh, a bias that's happening to a certain extent. And that's been inflated by the fact that everyone's talking the same view. And so it's like, what do you think? And it just reaffirms my thinking. And I go, yeah, that's what I thought. Let's get some more in the bear camp. Let's have a big party. Like, so then the other things are Energy prices. Energy prices, I don't think, are likely to move substantially back higher. There's obviously— there exists, as we've just talked about, supply disruption risk is still there as a present danger. Um, but I think now, I don't think we're going to get a dramatic collapse in oil. I think we already kind of really had that a little bit with pricing in the recession move that we've seen. So that's kind of factored in. So Let's say we got to stick about where we are. There's some other things that came out of the inflation report. Shelter prices was one. It's been a big contributing factor to the stickiness because of the fact that those prices aren't subject to such rapid types of change over a short period of time. And that's starting to roll over and come back down, which is, I think, a positive signal. The PPI unexpectedly fell, as we said earlier, for the first time in in more than 2 years. So some of that pipeline inflationary pressure beginning to ease could well then filter through into the consumer price side. So that's enough on inflation in the Fed. Flip it over to COVID in China. Now, I just read some headlines this morning. They're still doing mass testing. Doesn't look good when you start looking at some of the headlines. They're still having quite onerous, uh, response to these outbreaks, and they seemingly are still happening at this point. My point on that, the Chinese Communist Party National Congress is happening later this year, and I think you will get lock and key. They won't let out what the real situation is about COVID And in fact, there will be a tactical approach from Beijing to try and mask that as best as possible to the broader global community. To paint as best picture as possible. So it's our lack of on-ground intel means with no visibility, I think that discounts a large portion of that, that risk on the China COVID side. Then I was looking at some S&P historical data on the S&P's, um, historically underperformed in the year leading into the midterms. So the average annual return of the S&P 500 in the 12 months before a midterm election is 0.3%, and that's significantly lower than the historical average of 8.1%. So what I'm saying here with this is that this is always the case— a change in leadership regardless of country. But America, let's take it, you come in at the top because it's like that's cultivated to change, and basically your popularity just degrades over time. And it's not, that's not unusual then to, um, give up some power when it comes to midterms. It's quite a typical pattern. The post-midterm election period, um, is a very different story. The S&P 500 historically outperformed the market in a 12-month period after the midterm election with an average return of 16.3%. This is especially true and most poignant in the 1 to 3 month window of the post-midterm period, which historically significantly outperforms when there's no other midterm election year. Now, I guess the way to summarize that is the idea that Biden's taken a battering and inflation reaction, bill aside, and gas prices coming down, whatever is happening, I don't not looking at that to really influence too much the short-term narrative. The point is, have we had— forget peak inflation— have we had peak Biden, peak Biden negativity? And it's like, it's already like, okay, he's going to lose the Senate or, you know, perhaps Congress. And you do have these significant headwinds, but we know that, right? We've known that already and things haven't yet shifted. And although policy then comes to reality of when it cannot be enacted, he does have superseding powers as president to push through certain agendas even with a locked Congress. But I don't think that's even worth talking about. I don't think that would even come to that point. The point is, I think I don't look at history as a definitive guide to pin my mask to, but history, what's the saying? Doesn't repeat, but it often rhymes, and the statistics are quite compelling. Then don't forget Santa Claus. Santa Claus always comes to town and he'll bump things up. Good old Saint Nick will come in, you know, week of the 20th, whatever the run-in is to the, the Christmas period, he'll give it a little bump. And the other thing was Final point: since World War II— I'm stuck for you— every time the S&P 500 recovered 50% of a bear market price decline, while the 500 may have retested the prior low, it's never then set a new low. So for the conversation of us saying, could it go 3,700, this stat would say it can. But it can't— it won't go below because it never has done. If you went back for every recovery of a 50% move in the last 75, 80 years—

is that right? So when the markets hit bear market territory, so it's dropped 20% or more from its high, if it's then recovered 50% of that, it's never gone on to break that low.

On the—

yeah, interesting.

So yeah, just a couple of things to think about. But for me, actually, besides all the other specifics, I just don't like the feeling of everyone being bearish. It doesn't make me comfortable. That's the main thing. And that is really, uh, a gray answer. But yeah, there you have a couple of points as well to throw into boot. So yeah.

Still bearish.

All right, well, look, let's, let's wrap it up. Um, feel free to check out the show notes for access to attend one of our Finance Accelerators. We've had some really awesome turnouts, um, so much so we've had to put a cap on each week's, um, session now because we want everyone to get the maximum kind of experience out of it. So do book yourself in. Basically, this is a a fully experiential, practical session where you get to take the seat of a sales trader, market maker, or an asset manager. And essentially, it's about as close as you're going to get to the legit training we provide at all the big financial institutions we work with, aimed at giving you, yep, an application of theoretical knowledge. You might have some, some quality info for your CV. But understanding what you're good at and what you're bad at and actually being able to apply to roles more specifically. So yeah, it's a free simulation, absolutely nothing to lose, and the kicker is it's sponsored by Morgan Stanley, and we have the ability to fast-track good individuals, uh, to that partner. So yeah, check that out. Um, and then we've got the newsletter link as well. But otherwise, Piers, I wish you a great weekend, and yeah, I'll I'll see you same time next week.

Yeah, cheers. See you guys. Bye.