Ep.91: Invest Like Warren Buffett & The UK Budget Explained

Okay, hello and welcome to episode 91 of the Market Maker podcast. And before I begin, I was doing some checks on the stats for the pod, and yeah, I saw that on Apple, 90% of the people who listen are followers, which is obviously great. Yeah, but only 10% are not followers. So what I'm going to ask for you know what's coming, is if you're part of the 90%, pass this on to a friend or a colleague or someone you think that, that might appreciate just being a bit more informed about the economy and what's going on. Particularly, I think, given that what's happening right now economically impacts people at all levels, uh, in all job sectors. Um, so not just for students who are applying for, for these roles in finance, However, it's also good for them because I've also got a message pending in my inbox from a student saying he's got an interview tomorrow. Can we fast-track the episode and get it out? So I'm glad it helps. But yeah, please do, please do share it. It'll be much appreciated for the, for the both of us and the team, I'm sure. But on the agenda for this week then, a couple of things. I want to talk about 13F filings in the US. What are they? What do they mean? And in particular, the reason why, because I want to talk about Warren Buffett, because he's come out with a bit of detail for us to see about what he's been buying and selling over the last quarter. And obviously someone like him, who is a legendary figure, was, you know, watching what he does. Can we get any clues over what we should be doing as, as the mere mortal common man? So we'll talk a little bit about that. Um, we're then going to talk— we just had the UK budget. We are recording this on Thursday, so literally Jeremy Hunt's just come out and outlined the Autumn Budget. So a couple of highlights there. We'll talk about UK inflation. That figure obviously came out earlier this week, quite a bit higher than expected, in fact the highest since 1981, printing headline year-on-year reading at 11.1%. So what was underpinning that rise and what does it mean going forward? And then Trump He's announced he is going to run, so we just want to cover really what's the process from here on out. Not going to touch the politics because I don't want to— don't want to cause any issues. I'm touching the politics, but I'll run you through the process so you know, um, what to look out for in the period ahead. But needless to say, you're going to get a lot more Donald Trump, and if he's back on Twitter at some point that's even going to ramp up further. And then finally, um, I've got some inside info for the World Cup that I'm going to share. It's a world exclusive. I've got a tip-off, um, and it's not from Sam North, if you're listening. It's not from— because your tips are not very good. But yeah, we'll go through that. Um, I'm gonna tell you who's going to win the World Cup. So stay tuned. So kicking things off then, um, Warren Buffett and 13F filings. I guess to start with, Piers, perhaps you could give us just a very quick summary of what is a 13F filing.

Well, you'll have heard of the SEC. It's the Securities and Exchange Commission, basically the police force for all things kind of US sort of markets and finance, if you like, um, the regulator. Um, so they have this requirement. So if you're an investor, if you're an institutional investor, I should say, so an institutional investor, investment manager, and if you've got at least $100 million under management, then you have to disclose your equity holdings, um, on a quarterly basis. And you gotta air your washing and tell everyone exactly what you've done. What have you bought? What have you sold? What are your current holdings? So yeah, all the big boys, um, every quarter get forced to basically flash their portfolio or their trading book, and everyone gets to see what they've been up to.

So when you do your own one then, how long does it take you typically?

I go under— well, some people do call me the Sage of Balaam. I've been known— but at least one person has called me that.

Okay, my life.

Okay, taking the piss.

Um, well, let's talk about Warren Buffett because he is one that generates a lot of headlines, um, because the type of companies they invest in, his investing style. So maybe we could touch on a few of these things. Um, the biggest headline came because he's put on a new position in a company called TSMC where he purchased just over $4 billion US in the Taiwanese chipmaker. Other foreign investors, just to give a bit of perspective, do include US asset managers like BlackRock, Vanguard, the Singapore Sovereign Wealth Fund. So who is this company then? Why, why are all these big movers and shakers got a vested interest in that firm?

Uh, well, yeah, there are times when he's -based chip maker. And I mean, more than that, they're the largest chip manufacturer on the planet. So this isn't like a kind of shot-in-the-dark kind of, you know, trying to pick up a sort of small company that no one's heard about yet. This is the biggest player on the whole planet. It's an interesting one Basically, Buffett is notoriously anti-tech, just because I think, well, clearly he's been wrong in that position for the last 2 decades. But it's really a function of probably age, you would say. I mean, this guy, how old is Buffett now? Do you know? Is he—

Well, I know how old he is. So what do you reckon?

I believe he's about 148, isn't he? Uh, he's close. He's like— he's got— is he in his 90s yet? I think he is.

No, he is indeed.

Yeah, go on, how old?

92.

Wow, that's just crazy. But, um, so he started investing, yeah, like, like literally, you know, aftermath of the Second World War, he basically began his career. Um, so of course tech didn't really exist you know, really. And so, you know, he, he's kind of old school, um, traditional. He's a value investor. He's not a trader per se. He believes in the ultra long term. So he will buy, buy and hold. Um, my lord, can he hold. Um, one of his famous, uh, probably, what, maybe his most famous, although it's perhaps Apple's taking this mantle these days, but one of his most famous investments is Coca-Cola.

Um, and that's currently ranks, yeah, fourth.

Yeah, it's still in his portfolio. Uh, he owns just a casual 400 million shares, um, of Coke. But he's been an investor in Coke like literally for decades and decades and decades. Um, and you know, so it's buy and hold. Um, it's picking solid companies. He really wants to find really solid management teams because if he's holding for the long term, it's critical that the management team in place is good enough to execute on that kind of long-term growth strategy, right? So yeah, he's typically quite conservative. And so the tech thing, yeah, I think he'll admit probably himself that he didn't quite get the tech era right, but he did, aggressively move into Apple, but only recently. I think it was 2018, wasn't it, that he started hoovering up as much as he could get.

Bad timing, was it?

Well, no, true. Good point. I mean, but he should have picked that horse in the '00s, right? Not by 2018. I mean, I think he would admit he should have been in that, like, straight after the GFC would have been a sensible time.

But you might, you might be, uh, old enough— I'll be careful with my, how I word this— when IBM was seen as like the tech company to take things to a whole new level. Yeah, that he was invested in IBM for a long time.

So actually, that's a really good point. I think that probably was an experience that burnt him. And yeah, probably then that impacted his decision. I mean, this is like classic psychology, trading psychology, right? You're getting, um, sort of— you probably say overly negatively impacted by a specific experience, then you then carry that with you when you make future decisions. And yeah, I think that IBM trade that went wrong, yeah, probably meant it delayed his move into tech. Um, so his portfolio is very much— it's very, you know, non-tech, right? Until Apple. I mean, is Apple a tech company? I mean, of course it is. But, um, anyway, Apple's now his biggest holding. But I think with this, um, this Taiwanese Semiconductor, um, trade, perhaps it is— well, I think there's— I think two things about it. Number one, maybe he's just now looking to add to his kind of tech, um, the tech portion of his portfolio, just to very gradually pivot, continue that pivot that started with the Apple trade, to evolve, update, modernize the look of his portfolio. That's, that's looking pretty old, right? Um, I think that's one thing. But then what I will say on the other side, I don't know if he's taking too much risk here because Who is TSMC's biggest client? Who's their biggest customer? Apple.

Hmm.

So who's Warren Buffett's biggest holding in? Apple. And Apple, that's Apple's biggest supplier, full stop. Apple's biggest supplier is this Taiwanese chip company. So now Buffett's waded in there as well. So either he's like doubling down on his Apple trade, or maybe this is a strategic play. Yeah, maybe Tim Cook has had a little whisper in his ear. Maybe after a board meet— an Apple board meeting, they trotted off for a few glasses of red wine, and Tim Cook just kind of persuaded him to strategically move into a position of authority on the TSMC board just to cement that supplier and to kind of strengthen ties, if you like, in a world where, of course, semiconductors, they're hard to come by these days, right? Obviously, that was front and center of the supply chain issues. Um, maybe there's something in it around that angle. I don't know.

What do you think? Well, surely though, um, the regulators have got to have a problem with that from a competition perspective in regards to fair play for other chipmakers if he's in bed with both.

Yeah, but so, but which regulator? Because this is obviously a US— well, Buffett's just an investor, right? He would say, um, he doesn't own a controlling stake in any of these companies. Um, so It's not illegal for an investor to buy shares into companies that are connected from a sort of business perspective. That's not illegal. Um, so I don't know how you would— how the regulator would prove Tim Cook's too big for any US regulator. Well, indeed. So big tech runs Washington, no?

Yeah.

So What was that, regulator? What was that? Pipe down, pipe down over there. I'm in charge.

Yeah, uh, on that point, one— talking of regulators, remember when Elon Musk, he's been doing his deposition about his pay or something, isn't it, at the moment, about his salary? And he's been doing like pre-trial work because he's going to the same Delaware court where he lost a ruling with Twitter.

Right.

One of the things that came up was he apologized. He said, oh, when I said, you know, about, oh, SEC is an acronym and the middle word is Elon's. And he said, oh, no, no, no, I didn't mean suck Elon's cock. What I meant was save Elon's company. He stood there in a court of law and said straight-faced, no, you've misconstrued my tweet. It meant save Elon's company. I mean, this guy is just—

that's funny. Brilliant. Um, there is another angle. So I'm just looking here. Obviously we have the situation with the US and China in terms of, well, is it escalating tensions? Um, some journalists might write, and you know where that goes. And obviously China and, and their position around Taiwan, and is Xi Jinping looking to eye up a move there or not? But Apple were talking to other chipmaker suppliers. Like, during COVID it was like, there's no chips anywhere, you know, where else can we get some from? And apparently Apple were talking to, uh, Yangxi Memory Technologies, which is a mainland, uh, China-based chipmaker. Um, But because of the escalating tensions, Apple decided to veer away from them and go a bit more— I mean, TSMC were already their biggest supplier, but I think they've gone even bigger. They put even more eggs in one basket, which isn't a great strategy from a supply chain diversity perspective. But maybe Buffett is just— maybe it is just an investment. Play, a trade where he feels that TSMC might benefit somehow from this, uh, if the China-US sort of tensions do escalate. So that's another angle for you.

I was just trying to have a quick look while you were talking of who else does TSMC supply to. I'd be interested to see what that client base looks like and whether there's any connection in that way. Amongst those firms.

Um, but yeah, yeah, I don't know. I mean, Samsung would be the immediate one I would want to know about. If, if there are some— if they're a major supplier for Samsung, Apple's arch rivals, uh, or not. I don't know the answer to that.

Okay, well, Buffett's—

well, hang on, Buffett's— look at his other— so I'm just looking Well, check out— like, people listening, if you check out Anthony Cheung's LinkedIn, then he did a good post on this a couple of days ago where you can get the full listing. That's the 13F filing, I mean, which is basically just a spreadsheet of Buffett's holdings, how many shares, what's the value of those shares, and then how that's changed over the last quarter. So it's interesting, like the top 5 holdings then. Apple number 1, um, and actually he's the biggest, he's the biggest single shareholder, right, of Apple?

I believe so, yeah. $126.5 billion.

Decent size. Uh, Bank of America's his second biggest holding then, but that's, that's down to $30 billion. So Apple really is like by far and away easily his biggest, biggest trade at the moment. But yeah, Bank of America at $30 billion, you've got Chevron then at $23 billion, Coca-Cola $22.5 billion. Um, so those top 4 there, that's good diversity, right? Apple is tech, Bank of America is obviously finance, you've got Chevron oil company, and then you've got Coca-Cola, which is, you know, a consumer sort of discretionary product, you might say. Um, so his top 4, there's good diversity. Then he's got Amex, or his 5th Um, then Occidental Petroleum, which is another oil company. You've got Kraft Heinz, Moody's. Um, he took a chunk out of his Activision Blizzard trade, so booking a bit of profit on that. Um, and then US Bancorp. And look, there's, there's loads of others. He's got, what, about 50-odd, um, holdings in his portfolio. Um, but yeah, the Taiwanese Semiconductor addition grabbed the headlines. But yeah, Apple's still the uber trade that he's still playing.

So when he's looking at a portfolio composition like this, yeah, is there any like, um, geographic risk with all of those names you were talking through?

I mean, I haven't had enough time to go through this. Definitely the flavor of this is big-time American, which A, makes sense, he's an American investor. B, makes sense because, well, America's the biggest economy. C, makes sense because American companies, you know, just from their globalization, have probably benefited more than most in terms of value creation and value-add. So of course there's a massive US theme running all the way through. I'm just trying to pick out some other international holdings other than that Taiwanese Semiconductor, um, Someone here I haven't heard of, to be fair, like Liberty Media. I'm not familiar with them. Uh, they're all mostly— they're really big companies. I mean, he took, took some of his, uh, General Motors trade off, for example. He, um, you know, he owns things like Visa, which I don't think— the thing is, I think the stuff like Visa and, and Amex is a really big holding. If it's like That's been hurting. And I wonder whether that— he's probably been invested in Visa for like 40 years or something. And I just think that kind of thing is a bit— that's probably a bit of an obsolete dinosaur in this fintech payments, aggressive competition in that kind of payment space that Visa seemed to be way off the pace on. So I think he's stubbornly holding out. I guess for him, you have like the book value of a position and then its current value. So the book value is what you bought it at, and then the current value is obviously the current value. And I guess for him, if he bought it like 40 years ago, the book value is basically zero. So it still looks like an amazing trade even though, yeah, Visa haven't been doing well over the last few years. But, um, yeah, it's overwhelmingly American. So you really, in terms of global or international risk, you've got to start to delve into each individual you know, big American multinational and start to think about, right, where does that individual company have international exposure? Um, and look, Apple top of that list. I mean, Apple are very exposed to China, right, in terms of iPhone sales. Um, China's a very, very key market for them. So, um, yeah, China risk is certainly very present in his portfolio.

Yeah, and just to kind of summarize, Berkshire's long-only equity portfolio, from a total number, declined from $300 to $296 billion.

Yeah, in Q3. Yeah, yeah, that's good going. Yeah, I mean, so that I lost about 10— that's 10%, right? Uh, sorry, that's 1%. What we're talking about, 1%. Yeah, to be 1% down in Q3 You definitely take that. Yeah, because the indexes got crunched. I don't know what the Q3, uh, like S&P performance was, to be honest, but it's definitely a bigger loss than 1%, that's for sure.

Yeah. Do you know the secret to, um, Buffett's long life?

And doesn't he eat at that, uh, like budget American diner just down the road from his house once a week or something. Still does. I think once a week, every day, was every day.

He has a cheeky Macca's to start his day every day. I think he gets like, um, you know, like the, the $4 meal, the breakfast wrap.

And does he— I'm just looking, I can't see McDonald's. He's talking about McDonald's here.

Yeah, he gets a McDonald's. Is he in McDonald's? He owns McDonald's, surely.

I'm just looking. I can't— I'm just glancing down the list. I cannot see any Mackie D's in this portfolio. Maybe he used to have—

spending all that, those $3 for the last 500 years.

He must have had at some point, right? Maybe he, uh, exited that a while back. But yeah, it's not in there now on first glance. Okay.

I'm just having a quick look. Uh, so for another— Buffett's Berkshire Hathaway owned just over 30 million shares of McDonald's. That was a stock split. I'm assuming this was a few years ago though. So yeah, he was in it. Maybe he switched it up now. He's going Burger King these days. Um, all right, well look, let's move the show on and talk about, uh, the UK. Economics, because you just had the, the budget, very different to the last one.

Yeah, just a bit.

So yeah, a couple of things then. Feel free to jump in at any point. So I'll just run through or rattle off, uh, there's a lot to it. Try to just pick out some of the main ones that are more, uh, I guess, relevant on the finance side. So for the economy, uh, the OBR predict the economy will shrink by 1.4% next year. The Chancellor did acknowledge we're in a recession, things are going to get worse before they improve. So I think, um, from the optics, they've definitely taken the angle, him and Rishi, of trying to make this sound like the worst economic times ever to manage to appropriately lower the bar of people's expectations, which I think is probably a sensible approach. Yeah, rather than just going gung-ho, let's just go rapid growth, which was the previous strategy. Yeah, um, other things all workers face paying more in tax is a freeze on the personal allowance basic and higher thresholds. It's been extended to 2028. Um, that's when they were— the papers you'll read about it call that the stealth tax by pushing that out. The point at which the highest earners start paying top rate of tax has been lowered to $125K from $150K. Chancellor Hunt also confirms that energy industry will be hit with an expanded windfall tax. So that's going up to 35% from 25%. Very much broadcasted though, about a week ago, that figure, in fact. So nothing new there. Support for energy bills is expected to remain in place but become less generous from April. We already knew that stat as well. Uh, the £12,300 tax-free allowance for capital gains tax is going to get halved to £6K. Um, and then your EV is not going to be exempt from vehicle excise duty as of April 25th.

Not happy about that.

And then there's not going to be any change to the remit of the Bank of England, of which on any other day I'd say, why do I need to know that? But you need to know that because our friends Truss and Kwarteng were actually talking about a bit of a shake-up of the Bank of England and their oversight capability. But the Chancellor was quite quick today, Jeremy Hunt, to come out and squash that. So from a markets perspective, intraday, there hasn't, hasn't been one in terms of a reaction, but it's very normal for that to, to happen, um, from a trading side of things. But yeah, any, any thoughts on what's been announced today?

Well, the pound is coming off a little bit, but actually it's a bit more dollar strength than anything. The, the dollar strengthening against most currency pairs today, so the pound the sterling versus the dollar is down 1%, but then the Aussie dollar against the US dollar is down 1.3%, Kiwi against the dollar is down 1.1%. So, you know, there is dollar strength theme today. So if all you did was looked at the pound versus the dollar and you go, oh my God, it's coming down, you— and don't look at anything else, you might draw the conclusion that the pound is devaluing because of this budget. If anything, the pound is is losing less value against the dollar than other currencies. So maybe there's a little bit of sterling positivity in there. There's just more dollar positivity overall. But, um, look, this statement, I don't think there's much, you know, it's been well telegraphed. Obviously we've been waiting for this, uh, statement for the last few weeks. And yeah, I mean I think more broadly, obviously they had to come in and rescue the carnage, the disaster of the Truss quasi-show, and so they've pivoted and gone right to the other end of the spectrum. And look, from a fiscal, you know, from a UK government debt perspective, this will put us on a better kind of trajectory to be able to sort out our fiscal situation where we obviously had to borrow a lot of money to fund all of the emergency stuff in COVID, all of the furloughing and all the rest of it. I mean, it's the biggest fiscal sort of bailout in the history of mankind, right? So you've got to start to pay for it at some point. It's just that these guys have said, well, let's just start paying for it now. And let's just— and look, whilst interest rates are high, this makes sense. I think if you had this plan pre-COVID, definitely wouldn't have made sense. You know, it makes sense when interest rates are low to go fiscally expansive. You know, let's invest and borrow it to invest because borrowing is cheap. But when borrowing is expensive, you know, you've got to pivot and change the direction. And so they've definitely done that aggressively here. Yeah, one thing, like, just thinking from our markets, a trading or investment point of view, then he has gone a little bit— like, some of the surprises in here, like capital gains tax, he's gone at that, I think, harder than I was expecting. So this is important for investors because investors here in the UK, you have to pay capital gains tax. On any profits from shares, right? So if you, you know, if you buy shares and then sell them for a profit, you get taxed on that. And there was an annual tax-free allowance. So it was the case that you used to be able— the first £12,300 worth of profits is tax-free, and then it's only after that you start to get capital gains taxed on that. Capital gains tax is like just shy of 30%, so a decent whack to your profit. That's why a lot of these investment companies have a huge amount of sort of tax— there's a huge tax strategy element to the investment process to try and protect their clients from— or not protect them, but try and be tax savvy when it comes to managing and exiting trades and so on. So that capital gains Free Tax Allowance, £12,300, is being halved, or more than halved, to £6,000. That's in April '23. Then in April 2024, it's getting halved again. So it'll just be £3,000 worth of Capital Gains Tax Allowance by April 2024. So that's definitely important for investors. Then also dividend tax. You know, if you run a sort of limited company, then some of the directors' remuneration packages will include dividends. And here what Hunt has done is again made that less tax efficient. So he's halved the free dividend tax allowance. It used to be just £2,000, he's halved it to £1,000. So a couple of things in there from a sort of investor's point of view that kind of, stood out to me. But yeah, other than that, look, we knew what was coming, right? I think that cut to the threshold for the higher rate, I didn't read anything about that prior to today. Maybe I missed it, but that's where he's like, yeah, you got to pay 45% tax now on anything above £125,000. It used to be anything above £150,000. What's quite notable about that is, of course, that quasi had the master plan of removing that tax threshold entirely. Don't worry, guys, you don't have to pay 45%.

How does that happen? Like, I'm not saying one person is right or wrong. We all know who was right or wrong. But, but how can you be that off-key? I just don't get it. Like, how did that happen?

And like, Well, it's because Truss and Kwasi Kwarteng were in their little bubble. They were in a parallel universe together on their own concocting their master plan. Didn't consult anyone, didn't tell anyone because they thought— in my opinion, I mean, I've never met these guys, so I'm spouting opinions here without ever having met them. It looks to me like it's arrogance that they thought, like, I don't know what you want to call it, academic or academic arrogance where they think, look, I know better than everyone else, so I do not need to consult them. We have the master plan. Ta-da! Here you go, guys. And then the whole thing collapses and then they go, oh, we thought that was going to work. Ah, okay. So really, Hunt and Rishi— I mean, don't forget Rishi, who's the Prime Minister, don't forget him in all of this. So he was running against Truss very much on a mandate that was much more fiscally prudent. So Truss's fiscal expansionary mandate got shot down, so we're back to Rishi's fiscal prudent mandate with Hunt coming in, and they've just gone even more prudent because they've decided having seen the evidence from Truss's example that that's definitely the wrong direction, let's pivot and go more aggressively the other way because that's what people and markets are like. I guess that's their play.

And you were talking about, uh, interest rates and how that can play into and influence the fiscal strategy. So one thing was Morgan Stanley, they issued their latest call for UK rates. So they basically say that the Bank of England will cut interest rates by 150 basis points in 2024, um, stopping their tightening cycle, which they see UK rates will hit 4% in March.

So I disagree with that second part. I disagree. I mean, I would like the Bank of England to stop raising rates right now. And I know that's hard to do. We'll talk about inflation in a minute. It's hard to do when inflation yet again makes another 40-year high. But this, this budget is deflationary. So we're in a recession. Demand destruction is happening right now. They do not need to hike rates anymore. They've done enough in my view. So I wouldn't be hiking from 3% where we are now. I wouldn't be hiking another 1% by March, which is what Morgan Stanley think. I, I think that would be an error, but we'll see. I'm happy to go head-to-head with Morgan Stanley. We'll see who's right.

Okay, I'll see if I can get his name, Mike, Mike Wilson. You can battle it out for your, your—

let's do it—

2023 S&P call. But, um, let's talk about inflation then. You mentioned it there, UK inflation did hit a new high. It was higher than expected. Um, I think it was expected at 10.7, came in 11.1, up from 10.9%. So yeah, big figure. Highest since 1981. The core reading though was unchanged, so worth mentioning that, that was at 6.5%. So yeah, how do you, how do you see that?

Well, I was at, uh, yesterday I was at, um, I was out, out on the road. I've been out on the road the last few days, um, just out there on the front line, um, running some of our simulations students, um, and I was actually at Loughborough University, and, um, I was there yesterday morning and I brought the FT up and I was looking at it with them, just trying to show them how I would read the FT, right? And I think that's sometimes— hopefully it's quite insightful for students, just because the FT is such a monster publication, it's hard to really know, okay, to kind of— what's the best angle of attack? But I flashed it up, and obviously the big headline, 11.1% You know, highest for 41 years.

Yeah.

And I said— and then I took the, I took the FT off and I asked them, what do you think's happened to the FTSE 100 today, this morning, with all this data and these headlines? And they said, ah, it's definitely gone down. FTSE's definitely gone down. So I got the chart up. FTSE was up 0.2%.

Yeah.

And I was trying to make two points. Number one, be super careful about sensationalist media clickbait headlines. Um, don't just react to the headline and then make all your assumptions and decisions. Click in and actually read the body of the article where then it goes into more detail about, yes, inflation is at 11.1%, yes, it is a 40-year high, but when you take out food and energy, the core inflation number was unchanged from September at 6.5%. Now, 6.5% is really, really, really high, but the fact that it didn't rise from the month before on the core level, I think, is really important, um, and is the more important point. Okay, and that's why the FTSE 100 wasn't selling off in the face of this sensationalist headline. You know, basically do your own due diligence on it before, you know, just having that trigger-happy reaction to media headlines.

Yeah, so to add to that, what happens on a monthly basis is that Bloomberg will conduct their own polls. And so Bloomberg, being the benchmark terminal system of all the institutional players, they'll survey economists and they'll say, what do you think about where UK inflation will be by— at this time? Or In this case, they put one out midweek saying, where do you think UK house prices, what's going to happen? And the headline that Bloomberg have been pumping this week is UK house prices risk a drop of up to 20%. And so obviously you see UK house prices 20% and you think, Jesus, that's, that's a, that's a big downward move. But then you actually read it that's not what they're predicting. That's worst-case scenario. Right. Exactly as you were saying. Yeah. Yeah. It's definitely, definitely, yeah, need to have breadth, I think, in your aggregation of information and then the ability to be curious-minded to then investigate. I guess that's the way to do it.

Right. Absolutely. But I've got— so really it was all on the food and energy side, right? This continued upside inflation. So number one on the energy side, well, the price cap's in now, right? The UK government has just capped £2,500 cap, right? So that's now in as of this month, meaning the energy portion of the inflation basket will not go up. For 6 months. So if you're thinking about inflation in the future, should the Bank of England raise rates or not? Well, the one of the big contributors, energy, that's just hit a ceiling and can't go any higher anyway. They can't do anything about energy costs. Doesn't matter what you do with interest rates, it's a supply side issue, right? Um, so that's one thing. The other thing on the food side, now some of the food stuff just went Gangbusters. Um, I've got some— I've got, got a little quiz to play with you. I've got some food.

Do you realize I'm a vegan?

That's fine. I've got some— yeah, have I got any vegan products in my list here?

No, no, go for it. What have you got?

So like when you're walking the aisles in your, um, where you're— what are you, Waitrose? M&S Food, probably, right?

Lidl, right? Yeah, so that's a, that's a good point, right? Where are you buying your produce from?

Wow.

So there's a big difference.

Yes, but I've got stats here in terms of on average how much of the price of certain goods gone up. Okay, so, um, and I'll give you a hint, overall the food component of the basket was up 16.7% year on year. Okay, so obviously that's, that's the average.

I feel that every week.

That's the average. Um, you, uh, you're a, you're a semi-skimmed milk man, I'm guessing. No, no, no fat.

No, no, no.

How much has milk gone up in the last 12 months?

12 months?

Yeah. Price of milk? Say again?

45%. It's close.

47.9% milk is up. Uh, what about your butter? What do you think?

Oh, that's probably even more because that every time I buy a tub of that, I just think, what? Well, have I bought like detergent or something like that? Like, why is that so expensive?

But yeah, well, butter's up 42.1%.

Okay.

Um, pasta and couscous. Well, I'm just going to reel these off.

Oh, it's just all your essentials here, isn't it?

Pasta and couscous up 34%. Do you like your, like, sauces and your condiments?

Of course.

They've, they've shot up 33%. Oil, like olive oils and fats and stuff, up 33%. Flour's up 21%. Eggs up 22%.

Does anything top milk, or is milk—

no, milk is— milk's the—

it's the biggest on the list.

Yeah. Um, so these are crazy numbers, right? Um, on an annualized basis, and Yeah. So this is one— this is like the key driver at the moment of that inflation basket, um, along with energy. But as I said, that energy component's not going to be driving higher from this point on. Um, so yeah, and look, we've got demand destruction. We got— we're in a recession. And I know these are all sort of everyday items that I'm listing here. Um, it's difficult with stuff like milk, I guess, and like milk and eggs and flour. I mean, I guess that's— they're definitely consumer staples, right? You're not, you're not going to not buy those, but maybe you'll be a bit more conscious of how much milk you're putting on your cereal. Um, cereals are up 14.4%, by the way. So yeah, that breakfast portion might just get reduced a little bit.

So when you hear like inflation is at 11%, is that not actually a reflection for the majority of people where they've pulled back on a lot of these other more surplus type spending activities. So their core consumption, which is those staples, it isn't 11%. Yeah, if you average out those main typical— like when I go, let's say I do my weekly shop, I buy 10 items, let's say it's all the ones you just said, right? But that's not 11%.

No, it's more like my spending for the month.

Right.

Yeah, it's true. Yeah.

All right. Well, look, let's, um, I was going to say let's take this in a more positive direction, but we're going to talk about Donald Trump.

DJT.

Yeah. He has announced he's going to run for the presidency 2024. He said America's comeback starts right now. That's right, right now. So, yeah, he had hoped— so the context here, he had hoped that the party's expected gains, I say expected gains, were going to act as a bit of a springboard for his party's nomination. He was backing a whole host of candidates going into these midterm elections last week, and obviously that has not panned out at all in the right way for him. It's been criticised quite, quite heavily for that. But let's just get a few things straight, because just because he says he wants to run for presidency, that doesn't mean it's now him-Biden little face-off and off we go again. He has to win the Republican Party's nomination. I was trying to think of the stat. I did see it. If a president was to go and then come back again, I don't think that's happened for—

it's over a century. I was reading.

It's a long time. So, so this process then, what comes next? Because obviously we're talking about 2024 here.

Yeah, November '24.

Yeah, right. So it typically starts at least one year before voters go to the polls. So yeah, you— it's going to start ramping up basically really from now, certainly in terms of the noises that he's likely to be making. Uh, each party candidate is chosen through a series of state contests or primaries. Each candidate is assigned a number of delegates proportional to the number of votes that they won in the state. And then those delegates go on to vote for them at the party's presidential nominating convention. That's, that's normally like a big star-studded event. And you know, it's a big convention. Along the way, candidates get to compete in these kind of grueling debates that get highly publicized against each other, members within their own party, which I always find that a bit weird. It's like, because the American political kind of play is just so much more aggressive. It's not like the Hugh Grant British style when we all there going, "Buh, buh, buh, buh, buh, buh," stumbling through. It's, they go at it like toe to toe. So currently a major rival is a chap called Ron DeSantis, who's Florida's governor, who swept to reelection. And so whilst everyone else was struggling, he just smashed it. And straight away Trump came out, gave him a tongue-lashing.

You know what Trump calls him? Go on. He calls him Ron DeSanctimonious.

He lacks loyalty, Trump said. Yeah, he's, um, and he's an average governor, not, not who you need. Um, so yeah, that, I mean, that's the, the general process. I mean, where are we with Trump and Musk? And I asked that because it's a really important, um, piece of the puzzle for Trump's success. Is can he get himself back on there? Because the two of them kind of were buds and then they fell out. Yeah, because Elon was an advisor to the administration when he was in power, right? Yeah, for slightly dubious reasons. Um, but that aside, they've kind of fallen out more recently. But with his necessity to get on, because his own company, his own social plan Truth Social is, uh, yeah, just not going to cut it.

Yeah, I mean, I haven't heard anything. I don't think Musk has made any comments yet about, right, will Trump be reinstated or not. I think in his general idea— that's Musk's general idea— is that people should not be permanently, um, cancelled from Twitter. You know, there can be temporary bans for transgressions or whatever, but you know, there shouldn't be permanent bans. So obviously that implies Trump is going to come back, but when, who knows, right? But I don't know, I just feel a bit depressed about Trump and the fact he's coming back. Um, this is how I see it. Like, if you think about the US electorate, there's two— they're very divided. I'm not necessarily talking about Republican and Democrats anymore. I think it's basically you've got the Trump, you know, supporter who's diehard, right? And they will do anything, anything, and they'll storm the Capitol for Donald, right? They will, they, they will never vote for anyone else. If Trump's running, they're all in, okay? You then got everyone else who's not a Trump supporter. And I think it's so divisive that they're not quite as passionately negative as Trump's supporters are positive, but they're pretty damn negative about Trump. And so they'll never vote for Trump. Okay? Now the problem Trump has is those hardcore passionate, there's a lot of them, but they make up a minority. So I actually don't think Trump can win. Because he's— those that were middle ground, like in the last election, those that were middle ground— the election before, sorry, when he won— those that were middle ground, you know, did lean and shifted towards Trump. But I think he's now alienated the middle ground. I mean, you saw what happened in the midterms. A couple of the prominent guys that Trump had endorsed, so Mehmet Oz in Pennsylvania and then someone called Kari Lake in Arizona. They were like favorites to win. Trump had backed them, but then they failed and they massively underperformed. So Trump's endorsement actually ended up proving to be a bit of a negative and a tainting their campaign. There's obviously been a big female vote swing against those kind of, you know, far-right Republican anti-abortion type candidates. The female votes really swung aggressively against them. So I think That whole middle ground has gone for Trump. So therefore, I actually don't think he can win. What the Republicans need to do, I think, is they need to put Trump away and they need to look forwards. And actually, a lot of these supporters, I mean, here's a— so Blackstone, the founder of Blackstone is a guy called Stephen Schwarzman. He was a massive Trump fan. Even after the storming of the Capitol when Trump was saying the vote's been rigged, this guy was still supporting Trump, saying Trump's right. So he was a bit of a diehard, right? Obviously an incredibly wealthy man, one of Trump's biggest financial donors during the 2020 campaign. Even he's turned now. His quote was, America does better when its leaders are rooted in today and tomorrow rather than today and yesterday. So like Trump is yesterday's man, they need to modernize, move forwards. DeSantis, he's your man. If they want to win the next election, they need DeSantis to be up there. I think they'll lose it with Trump. Whether— whoever the Republicans pick, it is then important to say, well, who's going to be the Democratic party, um, candidate, and it might not be Biden, right? And by— although after the midterms—

yeah, that would play into Ron's hands though, going against Biden, right? That's like a perfect polarization of candidates.

That's right. The Republicans, they would love it if DeSantis was up against Biden, and Biden would get eaten alive, I think. Um, the problem the Democrats have is because they did better than expected in the midterms. Biden now is feeling a bit more positive about himself and is maybe going to announce that he is going to run for a second term.

But, well, one thing I was just looking at was the last Fed economic projections, because where is the economy anticipated to be by 2024 is also going to be quite crucial, particularly where we're at now. Which has been the height, if you like, of the fear of recession. We're going to get that economic kind of follow-through in the short period ahead, but where will we be in 2024? And if you look at the change in real GDP growth, uh, for the end of this year, the Fed are expecting growth of 0.2%. By 2024, back up to 1.7%. Climbing from 0.2% to 1.2% next year to 1.7%. So ever-increasing GDP growth. Unemployment, they see peaking next year at 4.4% and then staying at that level through '24. And then core PCE inflation, or let's go PCE inflation, they see 5.4% the end of this year.

Right.

And that's a peak because then they see a dramatic decline to 2.8% in 2023. And then down to 2.3% by the times really the, the mid— the, um, the election is in the end of 2024. So yeah, does, does that help? Because yeah, it's a better, way better situation than what the beginning of next year is going to look like.

It helps the Democrats. Yeah, I, I think based on economic cycles and durations of recessions and all the rest of it, it's likely pretty damn likely that in the run into the election, so let's say through the summer of 2024, you're probably going to get the economy rebounding. And that recovery phase after a recession is often like the fastest growth phase. And this is why equity prices go up the fastest. And so if the Democrats are lucky, And based on previous cycles, most likely they'll be going into that election, the last part of the election race, really buoyed by a rebounding economy. Yeah, which could play into their, their favor. Yeah, cool.

All right, well, look, to wrap things up, last thing I did promise at the beginning, I'd tell you who's gonna win the World Cup. And so I have it on very good authority that England are going to make the final. So close, but they're going to come up short again, losing to your favorite, David Beckham. Little kick out, David Beckham in Argentina. Argentina.

Yeah, actually, well, I haven't read this, guys.

Uh, yeah, where does this come from? There's this analyst called Joaquim Clement, who works for, um, Librum. I think that's how you, you say the firm he works for. But essentially, you'll, you'll see a lot of this in the press kicking off probably in the next coming days, because Goldman's has one, Morgan Stanley will put out one, which is when they have this kind of engagement piece where they'll get some of their analysts to run the models like they would do for a financial analysis, to punch out then different variables to calculate, and they anticipated pathways for different countries in the World Cup performance. And this guy, his model, which uses economic and climactic variables apparently, such as GDP per capita, population sizes, these sorts of things to predict team successes, he called the correct winners at the last two major tour— or last major tournaments, 2014, 2018, with Germany and France. Um, he has said that the Three Lions will breeze past Senegal, Mexico, and Portugal in the knockout phase but lose to Argentina in the final.

I mean, these guys— GDP per capita is one of his key variables in his model. Is he aware that the greatest World Cup side of all time, the country that's won the most Well, do you know the answer to that? There's one—

the most—

who's won the most World Cups?

Brazil.

Yes. Um, their GDP per capita is very low. Well, relatively low, right? Um, and yet they're the greatest side of all time. So I'm not quite sure there's room for GDP per capita in a World Cup prediction model. Myself.

What's the population of Brazil?

It's about 180 million, isn't it? 150?

Is it 214?

That's gone up. Yeah.

Okay, it's quite punchy.

Yeah, but I don't get the correlation GDP per capita to chances of winning the World Cup or not.

Yeah, I haven't— I didn't make the model, Piers. I don't know what offsets he's using to like level.

I do agree though, the Argentines do look pretty tasty. I think that, that's, that's who I think will win. I don't have a model, that's called a hunch.

All right, and on that hunch, we'll wrap it up. So thanks, Zebba Pearce, and, uh, thanks everyone for listening. Again, if you have made it to the end, you're probably one of our regular listeners. So thank you. Please do, as I said, share this, get it out to as many people as possible. You know, it's all aimed at trying to just help demystify really finance and investing for students and for others as well who just, you know, given, as I said at the beginning, the context of how the economy is at the moment, I think it's important that people have education on these matters. So, all right, take care and we will see you next week.

Yep, see you later.