Ep.83: Chaos At The Bank Of England & Our Top 3 Trading Films Revealed!

Okay, hello and welcome back to episode 83 of the Market Maker podcast, where I'm joined by Piers Curran, co-founder and head of trading, and we're going to talk about some of the major things that have happened in markets this week. And it's been pretty incredible week. And so to give you a quick flavor of what we're going to discuss for the next— well, I'm not going to commit to a time frame But for the period ahead, the Bank of England, they hike rates by 0.5%, taking the benchmark rate now to 2.25%. That's the highest since 2008. But the pound fell, which is slightly a contradiction to normal economic theory. So we'll discuss why that happened. The Fed, the US central bank, they hike rates. They went for another 75 basis point move higher, and actually That might have been a relief to some, which normally would have meant that stocks went up because there was a partial market pricing of a, of a 100 basis point rate hike which did not materialize. But stocks actually sold off, and quite aggressively so, and are still selling off, in fact, going into the final trading day of the week. And Piers, before you call me out, we'll get to that in a moment in regards to my year-end call, because Goldman Sachs have come out with an update, and perhaps we can briefly touch on that when we talk about the Fed as well. And then two other big stories from the week: Japan has finally intervened in the currency. I know Piers and I have talked about this for a while, but we'll just quickly cover that as well. It's the first official intervention from Japan since 1998. And then a big story in the banking space— you might have seen the FT reporting that Credit Suisse is considering splitting its investment bank into essentially three parts, looking to pivot away from traditional investment banking and focus more on wealth management. But can their new management team pull that off? What is their strategy? So they're the things we'll discuss. Before I begin though, we did do a bit of a call to arms for our ratings of the pod. And so, uh, just a quick one, be amazing if you could rate the show if you enjoyed the episode, or if you're a regular listener, would super appreciate that. Um, we saw the Spotify ratings go from 256 up to 276, uh, in the last week, so good effort. But we need to hit that 300 marker, and you could be that person to get us there. So, uh, help us out. Uh, and just to make it a bit interesting, um, the Apple voters are a lot more complacent, complacent voters, right? Yeah, whereas the Spotify voters seem very motivated to get out there. So, um, come on, Apple guys, let's, let's, uh, keep, keep the pace. But, um, yeah, please do drop us a rating. It would be— goes a long way to help get this out to a lot of people. So let's kick things off then and talk about, about the Fed. So they've hiked interest rates by 75 basis points for the third consecutive meeting. Some might have thought, at least they didn't go for 100, um, and that would have normally meant that stocks would go up in a kind of relief-type reaction, but the opposite happened. And there was additional information, of course, which accompanied this particular meeting because it was one of those quarterly ones, so March, June, September, when they release their economic forecasts. And perhaps, Piers, you could take us through those and why and what was the, the trigger then that's weighed on US equities.

Yeah, definitely an important sort of, uh, week for sure. An important moment in the week was obviously that Fed meeting Wednesday night. I guess There's a simple way to kind of explain what happened, which we'll start with, and then we can kind of drill into the kind of finer detail. But the simple fact of the matter is basically Powell in the press conference again has kind of shifted his sort of outlook, let's say. If you go back earlier in the year, I mean, obviously they've been raising rates all year, inflation's staying high and they're continuing to raise rates. Okay, fine. But the messaging about, I guess, the potential impact these higher rates might have has changed. So I think back earlier in the year, Powell was of the opinion that, look, we're going to have to raise rates here, but it doesn't mean we're going to have a recession. Was basically saying we could probably avoid a recession.

Okay.

Then in the summer, he kind of shifted to going, well, we're probably going to have a recession, but he was kind of talking about a soft landing. So look, we got to raise rates faster. This inflation thing's a bit more of a problem than we thought. So we're probably going to have a recession, but don't worry, it's going to be a mild one. And I think now he's really shifted again to we're going to have to raise rates for faster for longer, they'll be higher. And you know what? And actually, here's the quote. He said, "We have got to get—" This is a direct quote from Wednesday night. "We have got to get inflation behind us. I wish there was a painless way to do it. There isn't." Basically translates to, look, we're probably on for a hard landing now. So I think that's the kind of takeaway. From Wednesday night that the recessionary impact of this rate hiking cycle is now going to be worse.

So with these projections then, so that's like the— that's a great summary of the situation. So let's delve into some of the numbers then and just to have a look at a couple. So for context then, in these quarterly projections they will tell us market participants about things like their forecasting over things like inflation, jobs, growth, and the big one, which is where they see interest rates. So officials coalesced around expectations of unemployment rate to rise to 4.4%. They previously— well, the current rate is 3.7%. They expect GDP to slow to 0.2% for 2022, rising slightly in the following years to a longer-term rate of 1.8%. But the big one that traders will look at is immediately to the, the dot plot matrix. Yeah, interest rates. So again, just to recap, this is where we will get a visual chart with literally dots on it which if you weren't educated about what that was, you'd be a bit like, what on earth, what the heck is that? But essentially, without knowing who specifically, but we can have pretty educated guesses by the general stances of each Fed official's kind of communication on policy, it plots them and where they see interest rates at the end of this year and each subsequent year thereafter. And every quarter we're able to map over what the shape of interest rates looks like connecting the median dot plots. So what was the shift in the dot plots then this time? Yeah, right.

And so this is that finer detail as to really what drove the big market reactions that we saw. And yeah, I mean, as you said, to put even more simply, the dot plot is really the Fed's method of forward guidance. It's just them telling us what they themselves think interest rate changes will look like in the future. And this is where we've seen the big shift, and we've seen massive shifts in this dot plot. And as you said, right, plot your dot for the end of each year. And I think it's the 2022— end of 2022 dot plot, and really now into 2023, So it's the front end of this dot plot curve that's key, and it's the front end of the curve that's massively gone up throughout the whole year, and it's stepped higher again. So just for context, in— well, if you went back, let's make this really dramatic. If you go back 12 months, okay, so go back to the September 2021 dot plot matrix. So on, on that matrix, they had the forecast for interest rates at the end of 2022, right? So back then, a year ago, the Fed themselves were predicting that interest rates at the end of 2022 would be zero. It's trans— no change, no rate hikes at all. Um, obviously that was spectacularly wrong. So I guess that does, uh, maybe in one sense dilute the sort of relevance, importance, accuracy of this. I mean, you would have thought, but it still plays a massive role in influencing market pricing. But so if we skip on, right, so in December 2021, they were telling us rates at the end of this year would be 1%. Okay, so in 3 months, they took their end of 2022 rate forecast from 0 to 1%, which which was a big jump, right? March 2022, their forecast moved up to 2%. So now again, another 1% jump in year-end forecasting. In June—

Right. So presumably this is where the leap comes because of the February invasion of Ukraine.

Exactly. So in June, they told us that year-end rates would be at 3.5%. Right. That was a 1.5% jump on the previous. And then last— this week, um, their year-end prediction went from 3.5% to 4.5%, essentially. Well, it's basically between 4% and 4.5%, okay? So yet again, year-end rate forecasts have jumped like a lot, and, and we're now up to this kind of 4% to 4.5% range. Also, the 2023 dot also jumped from 3.5 up to what's now basically between 4.5 and 5. So that's—

yeah. And the, the, the big thing there, that was the one that immediately stood out to me, was that people are thinking the recession's coming, they're going to quickly start cutting rates. But that— we're talking about these projections are where are interest rates at the end of the year. Yeah. So in 2023, they actually see rates higher than when they see them ending in 2022. And that was critical. Correct.

And really, the summer rally in stocks was based on the idea that the Fed would start to slow down their rate hiking. And we were thinking, you know, maybe September they might hike 50, maybe November maybe they'll do 25 or 50, they won't be hiking at all in December, and then when we get into next year they'll start cutting. That was the thought in the summer that drove the stock market rally. Obviously, that's now wrong. Um, the Fed aren't slowing down their rate hikes, uh, so the forecasting then— because we've still got 2 meetings to go this year, right? And currently, based off the dot plot, that's another 75 hike in November and another 75 hike in December, maybe 50 to 75 in December. Right. And then we're actually forecasting another hike in February now. So we're hiking into next year and then not expecting rate cuts at all. So it's an incredibly— again, it's been the direction of travel here where we keep sort of adjusting. We keep hawkishly adjusting. Our Fed expectations. It's been the absolute pattern for the last 12 months. We thought we were going to stop having to hawkishly adjust, um, but sadly that's not the case.

So Goldman's came out with a note last night, and as you described, that's the pattern of interest rate hikes that they see. They actually see the peak of funds rate between 4.5% to 4.75%. So that's broadly in line with that terminal rate of 4.6% in the Fed's forecast. The interesting part here is that Goldman's now have cut their year-end target. I'm setting myself up here for a bit of a brutal bashing from peers, but Goldman's have slashed their year-end target for the S&P to 3,600— oh, from 4,300. But wait, they base that on higher rates weighing on valuations. But the kicker which you'll particularly enjoy, is that Goldman said the risk to the latest forecast are skewed to the downside because of the rising odds of recession, a scenario that would reduce corporate earnings, widen the gap, and push the US equity benchmark to a trough of 3,150.

So, okay, that's their, like, outside bear— most bearish case scenario. Yeah, but their base case is 3,600.

Base case 3,600, uh, bearish scenario 3,150.

No one's interested in Goldman's, all right? They were at 4— I mean, what, their end of year forecast was 4,300. Now they're going, oops, sorry guys, got that wrong. Oops. Yeah, that's it. No one— I stick to my guns. No one cares about Goldman's. What people really want to know about is the Anthony Cheung year-end forecast, because you— I think you're at 4,600. Is that right?

Well, yeah, you look— I, I, I don't want to fall into this camp that you just said where, um, you know, there's a— it's being stubborn or, or keeping my credibility. Um, well, I mean, on the chart there's obviously is, is Uh, many of our listeners will know there's a big level which is the summer low in June, which was that initial trough before the summer rally that we had where we went from basically $3,650 all the way up to north of $4,300. Yeah. Um, you know, so Piers wasn't so confident when we were smashing through $4K and heading to $4,300 at the time. So yeah, let's see. Because I remember the stat that we said before about we've never broken down further from a bearish move. I think it was a stat we covered in a couple of other podcasts a while ago. This would be unprecedented if that happened. The odds are rising against me at this point. That's, that's not right.

What are you suggesting, that it would be unprecedented for the market to break the summer low and go lower?

In terms of, not in history, but going back to the date that I believe was what, the Second World War, right?

So, well, it's happening, it's gonna happen.

Summer lows, that 3,600 though, if you go back on the chart, it's a key inflection point of the shorts, from a support in February '21, yeah, to a high during the kind of the rally back from the COVID dip in late 2020. Big level. And if we break that, then massive. Yeah, that would be huge. You get a quick rundown, pretty quick snap to 3,400, which was the pre-COVID high. And then there's a double bottom, and another key level comes in at 3,200, uh, below. Yeah, yeah, that— so we're trading 3,700, the low there. We're about 100 points now in the S&P away from testing that key level. So Yeah, next week, it's make or break for me. Well, you know what's—

well, just so, just to bring the listeners up to speed, because, um, you know, the best, the best kind of lead indicator, or the best indicator for market sentiment, like globally, let me reveal it to— this is a, this is a high-value big reveal here. The best indicator is Anthony Cheung's holiday schedule. So whenever he goes on holiday, markets just collapse and tank, uh, sentiment just gets destroyed. Do you know when he's going on holiday, listeners? Next week.

So I just hope that the fallout is so severe that the Fed go full board pivot to 'we'll do whatever it takes,' and then we'll We just—

well, here's the problem with that, right? Because whilst maybe in the past that was the case, right? The Fed were perhaps kind of held hostage by the stock market. And whenever they're going, look, we need to raise rates, and the stock market would sell off, they go, oh God, all right, fine, we won't. Not anymore, right? Powell's in this mode where he's really— he now believes, rightly or wrongly, and time will tell, but he and his team believe that the only way to get inflation down is to actually, um, uh, reduce demand, right? So one way, the conventional way, is to raise interest rates. Cost of borrowing's higher, people borrow less, they spend less. So that, that kind of dampens demand and price pressures kind of drop. All right, but he thinks he needs to go further, and he needs to drive the unemployment rate up That they, they believe they've got to create a recession. They have to, they have to drive the unemployment rate up, people losing their jobs, then they're going to stop spending. So that, that's, that's how aggressively they're thinking here about how to, to, to overcome this inflation problem. Raising rates isn't enough. They have to drive that recession, destroy demand.

That's the downside scenario that Goldman's talked about, about the further impact that it would have on corporate valuations through the fallout of their earnings, essentially. Yeah. Cool. Well, look, let's pivot away from the Fed and let's talk about the Bank of England, because I know you're a big fan. And the Bank of England have hiked interest rates for the 7th increase in a row. They've actually been hiking at every meeting since December. It's hard to kind of remember.

Yeah, they were the, they, they were the first of the kind of developed economies to start hiking.

So, so rates now the highest since the, uh, the infamous 2008. And a couple things before we delve into the, the key part, which was the, the Bank of England came out and they also, um, lowered their forecast for peak inflation from what was, I think it was 13.3% originally, they're now looking at less than 11, and suggested a deep recession might be averted because of some of the actions taken since Liz Truss, the new PM, has come in, particularly around this energy relief plan. But the biggest talking point undoubtedly is, I don't want to again dramatize it, but the utter chaos going on in inside the building, like on Threadneedle Street, which is where the Bank of England is located, because the vote split was quite radical. I'd love to be a fly on the wall when they were debating this one out, but—

Well, you were outside the building. I mean, it's just around the corner from our office. So you were outside, you walked up and were outside. Could you actually hear them screaming and shouting and arguing?

Yeah, yeah. I could hear glasses smashing. Could hear everything. But 5, 5 of them voted for a 50 basis point, uh, increase, so they got their way. 3 though voted for 75. Yeah, um, arguing that incoming fiscal support will also add to demand. So it kind of feeds through on what you've just explained with the US and what the Fed trying to kind of counteract in that sense with higher unemployment. But then one I'm probably going to say her name incorrectly, so I apologize up front, but Swati Dhingra voting in her first meeting. She, I believe, was a professor at LSE in London. This is her first meeting. She was the lone voice. So you gotta, you know, got admiration for her confidence in that sense. First meeting. Stepping up to the plate. She went, nope, you're all wrong. Basically, um, she wanted a 0.25% increase. She cited concerns that activity was weakening and the risk of second-round inflation effects are falling was her general thesis for her rationale. But yeah, your take?

Um, my take is I'm in her camp. I just wish she'd gone a little bit more. Light and voted for no change. I think if I was on the committee and look, I will never in my life ever be invited to join the committee.

Too many skeletons in your closet.

But if I was, I would have voted unchanged. I think the Fed, the US is a whole different ball game to the UK. So the Fed hiking, fine. I get it. Maybe that's right and justified. I think the UK, I think we've got trouble coming, and I think we need to stop hiking, like, now. But so I wish she'd have gone just a little bit more braver, but she was super brave. And as you say, stepping out and being that lone wolf takes a lot. So I put out a comment on LinkedIn after this, saying that in my 20 years in markets, I'd never seen the monetary policy committee of 9 people have 3 different interest rate actions. So they vote, 9 of them, as you're saying. I thought I'd never seen it where there's 3 different outcomes from the 9. But I got corrected. Someone messaged back going, no, you're wrong. It has happened in the last 20 years. And it was in 2011. And there they voted unchanged. But you had a couple of people voting for a 25 hike, and then Andrew Sentence voting for a 50.

I remember he was the uber, uber hawk, wasn't he?

That's right. So it has happened in my lifetime. Obviously, I forgot about that. But anyway, it's super, super, super unusual. And look, you could argue that the whole point of a committee— I mean, really, you should be forming the committee with the objective of having different opinions. Right? There's no point having a committee where everyone just thinks the same. The whole point is, right, what are the opposing opinions? And let's kind of argue it out. And let's decide. So I think you should always have a spread of— this idea that unanimous, which the ECB love to roll out, it's like Lagarde's favorite word. We're unanimous. Well, I don't want you to be unanimous.

There's probably some political overlay though on the unity of the eurozone and all the rest of it. For sure.

But look, I think it's a reflection of just that. So this time they had one saying 25 basis points, most going 50, a few going 75. The point is it's so difficult. The outlook is so uncertain. It's an incredibly difficult moment in time. And right, you're getting more of a spread of opinion and that kind of makes sense. But it's a reflection of really no one really knows. I think they're just, they're in the dark here. They're literally in the dark and they're just doing it because everyone else is. I mean, they were brave and they hiked first. I think they should be brave and stop hiking first. And I just wish, well, maybe they'll do it next meeting, but Mm, that's my view.

And so the UK mini-budget, as it's being labeled, has just come out. Is there anything in there that people should be aware of that might impact the bigger picture?

Well, you could— there's a whole load of stuff, but you can bet your bottom dollar what the big headlines will be, um, and that's that they've chopped the higher rate of income tax, they've removed it. So the 45% band, which is on— when does that kick in? Is it above £100,000?

I thought 45 was £150,000. It was £150,000.

Right, fine. So the bands are— it's no income tax up to £12,500, then between £12,500 and £40-odd, is 20%, and they're actually lowering that band from 20% to 19%. That kicks in April next year. Then above £40-odd grand, it's 40%, and then above £150 grand, it's 45%. They've scrapped that top one, which is obviously going to get the headlines because everyone's going to be up in arms about, oh, it's just a budget for the rich, the rich are just going to get richer. 'You know, it's just not fair,' blah, blah, blah. That'll be—

that'll be in addition to scrapping bankers' bonus caps, right?

So yeah, here you go, bankers, you can have your massive bonuses back. And oh, we won't tax it as much either. Um, the press are gonna have a field day, uh, with this. Um, but look, this is a massive, massive budget. They're calling it a mini-budget. It's the biggest budget I've seen. Like for years and years. This is properly pivoting, a massive pivot in policy towards big tax cuts across the piece and reducing regulation and unashamedly going out there with a big, aggressive, bold, very risky move of how do we sort out our big issues? Well, let's try and do it through big tax cuts, which we think will drive growth. They want to grow us out of this problem. And look, there are big issues with the UK. I was reading a piece in the FT earlier this week, which was a really good one, and raising the issue around our current account deficit. Which is right now a record ever. We've got the biggest current account deficit ever in our history going back to when data on this kind of stuff started to be measured. So really it's back to 1955. We right now have the biggest current account deficit we've had ever on record going back to 1955. So this is a big issue and it kind of ties into, I think, the problems we have here in the UK. And so just super quickly, what's a current account deficit? Well, it's just looking at the— basically think about your current account, right? Money coming in and money going out, right? So your money coming in, if you're working, right, that's your salary coming in, and then obviously what you're spending, okay? And if you've got a deficit, that means you're just— there's more money going out each month than is coming in, and obviously that's not sustainable. You have to close that gap. And how do you close the gap? Well, it could be through borrowing money, or it could be through international investment coming in to the country. So what's happened? The big widening of the deficit has primarily been driven by the sharp increase in gas prices because of the Russia invasion of Ukraine, and because the UK import a load of gas, and we're very— we're more dependent on gas than other European nations for our energy. And so this is, this is the main reason. But underlying all of that is really a slow kind of trend over the last couple of decades where the UK has just become less and less and less and less competitive, less attractive as a, as an investment destination. And so, you know, we're sat here with this monster deficit, and the government Right now, I think part of their plan here is looking at this deficit and going, jeez, we need to do something about it. I actually— this budget, yes, it's controversial. Yes, they are going to get slammed in the press. Personally, I think this is brave, and I support it just because We need to shake things up. We can't just keep on chugging along because we're going in the wrong direction. So I think it's bold and it's a big change. And I like it. Whether it'll work, sure, it's risky for sure. But they're trying to attract in more foreign investment. I mean, the pound is super cheap. So that should definitely help, right? So yeah, we'll see, but they're going to get slammed in the press for this.

Yeah, just having a look on the chart, actually Sterling has just weakened again just in the last few moments, actually while you were talking. You've just knocked the pound lower again by, uh, a full point, actually. Yeah, it just broke down in price, uh, more recently. So we're actually trading, just hit lows down in the 110. Yeah, it's crazy now for the pound. So the direction of sterling then, in contrast to what's happening as described at the Fed, where rates are going to go higher multiple times compared to stopping at the Bank of England, as you're suggesting. So what does that mean for the parity outlook here?

Well, what's interesting, just thinking about the currency space a bit more broadly, and we'll talk about the yen in a minute, But the dollar has obviously been super, super powerfully strong all year. And that's because the Federal Reserve have been aggressively hiking, you know, faster than most other banks and are expected to continue to hike for longer than most other banks. And therefore this monetary policy divergence is driving dollar appreciation against everything. What's interesting though is then when you think about the other side of that, all right, the dollar's strengthening, we get it. But think about the other side of it and think about the euro and the pound and the yen, right? And they've all been super weak versus the dollar. Now when you think about the euro and the yen, well, the ECB have only just started hiking rates. So fine, the monetary policy divergence is huge, okay? Japan aren't even hiking. So that's the absolute maximum divergence, right? But when you think about the pound, you can't say the same thing. You can't tell me, well, there's a massive monetary policy divergence between the Fed and the Bank of England, because there isn't. The, the Bank of England hiked first and are continuing to hike. So there underlies the actual issue for the pound is not necessarily the monetary policy divergence, although it's a factor. It's actually just underlying economic outlook being really bad for the UK. And so whilst the Bank of England are hiking, the pound's dropping anyway because of that kind of economic situation. So will it hit parity? I said to you, I think you asked me that, I think a few weeks ago, and I laughed it off. Anthony Cheung saying, don't be silly. But here we are trading the 110 handle. And I don't know now. I want to still stick to my guns and say I don't think we will get to parity. But for that view to be right, this big move from the UK government has to work quickly. And I don't know if it will work quickly. These things don't happen quickly.

And given the rate hike cycle in the US is likely not to finish until February and conditions generally are anticipating to deteriorate in Europe here for the end of this year in Q4.

Yeah. If the Bank of England start do a dovish pivot, and start talking about, look, we're at the peak, i.e., we're not going to hike rates anymore. And if they even go further and start to think about into '23 in a recession and starting to think about having to cut, they start talking like that in the next 1 month, then you may well get parity. But I don't think they will. I don't think they'll be brave enough. So I, I'm still sitting on my camp, on in the camp where we won't get down to parity dollar against the pound.

Okay, I thought you were going to do a Goldman's then and flip-flop every 5 minutes. All right, so 2 more things, uh, to, to wrap up on. Japan, as you mentioned, has taken action on their currency directly. Um, it comes as Japanese currency hit a 24-year low And we've talked about this for a while. It wasn't really a case of if but when. I guess the worrying thing for Japan is the price of dollar-yen, it's the most common pairing of currencies that the market looks at. It was trading at 146 when they intervened. It dropped to close to 140, but this morning we're already back up trading a 143 handle. So we've reversed 50% of the entire intervention in less than 24 hours.

Big problem, surely. Yeah. I mean, it's like— it's like— it's like you're— there's like this massive juggernaut coming towards you, right? And that's the dollar-yen moving and trending and the yen weakening and the dollar appreciating. And this juggernaut is coming towards comes to you, and the central bank have just stepped out in front of it to try and stop it. Except what are they using to try and stop it? Like some— like a toothpick or something, right? But the— and to put that in numbers, because, well, firstly, how do they intervene? Well, they've literally directly intervened. Last time was 1998, so they've literally stepped into the currency market Because the Japan have foreign currency reserves, they hold a lot of dollars. Okay, um, in fact, we think roughly it's about $1 trillion they have, right? And what they've done here is they've taken some of these dollars and they've sold the dollars and they bought yen. So directly acting in the currency market with a monster trade to force the yen to appreciate because of their market impact with this massive trade. Okay, but they've got what— they've got about $1 trillion war chest, so they could just carry on trying to intervene and intervene and intervene. But to put it into context, do you know the value of the, um, what's the daily average volume that trades dollar-yen spot market, average daily volume is $1.1 trillion. Right. So their entire reserve is less than one single day of volume. It's good stuff. So that's your toothpick, right? And the issue, I guess, they're not stupid though. I mean, they, they I don't think they genuinely think they, with that single method, can just stop this trend. What they're trying to do is create uncertainty. So their tactic is, right, don't be transparent. Don't say, right, we are going to intervene again on the 10th of October and we will sell $10 billion and we'll buy yen and it's going to be on the 10th of October and it's going to be that amount. That's not the play. The play is just don't tell anyone. So it's like we could do it at any moment, at any time, in whatever volume we like, up to a trillion, which is a lot. So that creates uncertainty. And I think what they're trying to do is force out some of the short positions. There's obviously a huge amount of open positions in this currency, trend-following positions. And I think they're just trying to spook some out, and they're just trying to— maybe, maybe they won't halt the trend, but they're, they're going to slow it down, possibly, you could argue, because of that uncertainty they've introduced. Um, and maybe that's enough because they're probably thinking, look, the Fed can't They can't carry on hiking 75 basis points every time indefinitely. We will reach an end to this Fed hawkish pivot. Right? They've just got to get to that moment in time. That moment in time is now a bit further down the track than we had thought, but it's going to come. And that's where the respite will— that's the only way this currency market will reverse trend is when the Fed change direction.

Yeah. That's a great, great, uh, stat because I think people who are not people of markets, they often just think the stock market, the stock market, buying Apple shares and Tesla, that's, that's the big market. Yeah, it's a minnow. Oh yeah, compared to the forex market.

Well, there's more money trades through forex than all other assets combined, by easily more. And look, that's— that is actually because it doesn't— if you trade anything, there's often a currency transaction ahead of it. If I want to buy Apple shares, well, I'm in the UK with my pounds. Well, Apple shares are denominated in dollars. I have to change my pounds to dollars first, then buy Apple shares. Yeah. So, yeah.

Cool. Well, final thing to wrap up is Credit Suisse, and they've had quite obviously an awful time of it in many different ways of late, from scandal to scandal. But one of the big things here that I wanted to ask you was this idea of splitting up is a strategy to lessen dependence on investment banking and pivot towards wealth management à la UBS in the last decade or so who've done that with success. Yeah. So just a little bit more about the, the idea behind that strategy from your perspective.

Yeah, I mean, I think the new CEO— I forget his name now, I don't know if you know— but he came in in the summer, um, and on his brief from the board of directors was, be aggressive, make radical change, because we're not doing very well. And we're kind of on the wrong path. And so yeah, this is about as radical as you can kind of get it, I would say. I think it makes a lot of sense. It's kind of back to their roots, the much lower risk, lower volatility kind of revenue streams of wealth management, you know, going, going back to their core. And the, uh, they're going to sell off their securitized products business, which is actually based in New York, uh, and actually is their most profitable part of the business. Um, that kind of brings in about $3 to $4 billion revenue a year, I think.

So just, uh, for clarity, what is a securitized product?

Well, okay, yeah, it's basically taking loans, packaging them up and selling them. So yeah, yeah, that sounds like, uh, awfully reminiscent of, uh, a bygone era. It's massive, it's massive business, right? But it's risky, you know, as we saw in 2008. Um, if you get, yeah, if you get on the wrong side of that, that could be super bad. So that They're kind of getting rid of that. That does bring issues for their tier 1 capital ratio, but we won't delve into that today. So they're getting rid of that securitized products business. They're going to then set up like a bad bank and put all the toxic stuff and just, look, let's just get it off our balance sheet. Let's just stick it over here. Love that.

Love that financial engineering.

And then pretend it doesn't exist. And then you're left with their core, which is, look, let's just get back to the basics. You know, let's go back to our roots. And it's wealth management. And I think it makes, it makes a lot of sense.

But, but yeah. And then, and Ulrich Körner, who's the guy who's come in, importantly, guess where he came from?

Uh, the regulator's side. I don't know.

He came from UBS, having done the transition already. He served as a member of the group of executive board for 11 years at UBS.

I did not know that. Okay, that makes even more sense.

Part of the asset management division, right, his background. Um, so yeah, he's, uh, he's, he's the man for the job if this is the, the direction they want to head in. Couldn't, couldn't really pick a better person, I guess, in that sense. Yeah. Cool. Well, look, let's wrap it up there. Thanks as always, everyone, for listening, and for Piers obviously joining me on the, on the call. Please do check out some of the links in the show notes to our daily newsletter. Feel free to connect with, with me and Piers on LinkedIn. Obviously, we're here to serve you, the community. So, you know, if being connected to us can help you broaden your network, then absolutely go for it. We'd love to, we'd love to help.

Yeah, and if you've got any topics or questions that you'd like us to kind of address or cover, what's the best way to get to kind of put questions to us?

Yeah, look, I'm absolutely happy to have people email me directly. So you regret that? Yeah, I might regret that, but my email address is a.chung, so a.cheung@gmail.com. @amplifiedtrading.com. So hit me with any suggestions, any ideas. Actually reminds me, someone did ask us— they left a comment on our YouTube video saying what is our favorite trading film.

Yeah, what are you gonna— question.

It's very hard. I can't mention like lots, you just got to pick one. I can't mention lots. I was going to mention lots, but oh Well, maybe give the run-through of what the library is, and then—

well, I was going to mention my top 3. Okay, go on. Um, I'm probably in order of— so in 3rd place on my list, Margin Call.

Okay.

2nd place, you've got to be of an age for this one, uh, Wall Street.

If your number 1 is what I think it is, your top 3 is exactly not just the same, but the same order as mine. Oh, really?

Well, it's probably— yeah, I mean, the best is the best. It's The Big Short. Oh, oh, you've gone somewhere else. Big Short's on my 4.

Oh yeah, Big Short is my favorite. Trading Places is my favorite. Oh, okay. Trading Places sits right at the top. I forgot about that one. Absolutely hilarious film. I actually think they do a pretty good job explaining what it is that they do, these guys. That's great, chat.

I completely forgot about that.

But again, we're winding back the years then. This was Eddie Murphy peak in the '80s. So good. Yeah, basically, yeah, go out there. There's your top 4. Go and, go and watch them. Highly recommended. Cool. All right, cheers, Piers. Have a good weekend. See you later.