Monday's Stock Market Selloff Explained

Hello and welcome back to The Trading Floor and a little bit of a breaking news episode because the headline reads on Bloomberg this morning, a $6.4 trillion stock wipeout as traders fearing the Great Unwind is just getting started.

Piers, just crawl into, find a cave somewhere. Crawl in there, hide. The world has ended. Well, look, or not.

Yeah, so this is what we're going to discuss. So in this episode, we're going to look at some of the reasons why the Nikkei fell 12% on Monday. The NASDAQ— I'm going to take again some of the Bloomberg snippet here— the NASDAQ plunged 6% in seconds. Cryptocurrency sank VIX soared and investors piled into Treasury bonds, and Nvidia was down 14% at the market open yesterday. So there's, there's a number of reasons here of why the market did what it did yesterday, all the way from actual factual things like the Bank of Japan— we're going to talk about interest rates, the carry trade, US jobs data, recession risk in the US, um, we'll talk a little bit about Warren Buffett trimming his Apple, uh, stake talk about AI stocks. I'll talk about what the Fed have had to say about this because there's been a couple of key speakers since the market rout. And then importantly, I think it's pertinent to talk about market psychology and behavior that fuels a lot of these moves. Because I don't know about you, Piers, we were both in the office yesterday and quite a few people were in. And it's so interesting how some of the younger members of the team, and when I say younger, I mean that these guys are in their mid-20s. I mean, they're not kids, but their market kind of experience is probably in that 2 to 5 year bucket.

Yeah.

And they were looking a little bit panicked.

Yeah. Well, if you're fed a narrative by the media, then that's what drives the panic, right? The sensationalism, um, from coming from the media is— I don't know, the older I get, the more cynical I get. I think that's probably a natural trend for everyone, but that cynicism comes from experience. And so, you know, each time you have a market event like this, and it is definitely a market event, um, you know, I become more and more exacerbated about how it's being reported on. By the media and how this has a big, big sort of influence in kind of feeding that panic story. And then of course, that then just exacerbates the whole negative sentiment and that feeds into things like near panic. And it's when you start to get these big, big moves. But once you unpack it all, once you just go, hang on, just hang on a second. then actually you can start to, you know, apply some rational thoughts to events. And, you know, that's why, you know, I think we both said to us, you know, yesterday we both thought, you know, pretty much straight away this is an overreaction, at least short-term. And so I think we're justified in that given what's happened at the market open in Asia, um, overnight, um, which we'll get on to. But yeah, certainly a sensational event.

Let's start then at the beginning of— before we talk about the Nikkei's record one-day recovery that we've had just 24 hours later, maybe let's talk about the, the sequence of events here, right?

I think, yeah, and I think the best way to— because remember, when you're thinking about this whole media story, well, really it's Friday and Monday, right, where we had the big major moves we saw across global markets. All right, but really the story, I personally, I think goes back to Wednesday. So Wednesday last week, Japan, the, the Japanese central bank hiked interest rates. Now that was the second hike of the year. They did hike rates back in March by 0.1%, but then they surprised us by hiking again in July. Remember that they're hiking rates, right? Of course Everyone else is cutting rates. So the EC— when I say everyone, you know, the major central, you know, developed economy central banks. Europe are cutting rates. Bank of England cut rates last week. The Fed, okay, they haven't started, but they as good as said they're going to start, you know, in September. So people are cutting. And hang on, the Bank of Japan are kind of going the opposite way. Um, we won't go to the finer details of that maybe in this episode, because that's a whole— that's a whole episode in of itself. But the point is, they surprised us with a hawkish move on Wednesday, okay, which triggered— well, it didn't trigger, it continued to push a move that we've been seeing in the dollar-yen, okay. So the yen has been appreciating against the dollar, okay, and that's been a situation that's been happening for a number of weeks And this surprise move by the Bank of Japan last week just kind of helped that move along, um, another section. So we'll talk about market reaction in a minute. But look, Japan hiked rates Wednesday. Thursday— so, so that's one part, one key element of this whole story is Japan, all right? In my opinion, the epicenter of the whole thing. We'll come back to that. Thursday we began to get some U.S. economic data. So we had something called the ISM Manufacturing Report. It's a really important economic Data report happens at the start of each month, gives us an update on the conditions within the manufacturing sector in the US. And the point about this was, look, it just came in really bad, okay? It was a bad data print and it came in lower than expected, and it suggests that the manufacturing sector in the US is in more contractionary territory than we had thought. But one of the key components of this report where you get a lot of data, one of them was about the employment conditions within the manufacturing sector, and that number was worst of the whole lot. Um, to be exact, it was 43.4 compared to 49.4, right, that was expected. So everyone's thinking, oh my God, right, is this the first chink in the armor of this labor market in the US? Has the labor market fallen over? In which case, that's our recession alarm bell. You know, ultimately, in a US economy where it's all about the consumer, if the labor market cracks people start losing their jobs and that whole consumption story deteriorates, well, that's your recession risk. So we monitor the labor market incredibly closely for any signs of weakness to say, right, when might we have a recession? How deep might it be? And so that one number on Thursday was like, wow, that's really surprisingly bad. Okay. This then got compounded on Friday by a US— the actual labor market report, the nonfarm payrolls report. Which again came in worse than expected. And it's just— I mean, look, it was worse than expected, all right? 114,000 jobs created, um, which was a big, big miss from, from the forecast of 175,000. But, and, and because of the data the day before, everyone jumped on that again, right? But it's not, it's not that bad a number. In fact, the number in April was worse. So whilst, you know, in my opinion, this is a continuing softening of the US labor market. It's not like we've suddenly fallen off a cliff, but because of the sequence of events, these things started to add up in some people's minds, right? Now, over the weekend, we then had news that Berkshire Hathaway— so Warren Buffett— uh, have sold now up to half of their stake in Apple. Apple being their biggest position in their portfolio. Very famously, Buffett, very bullish Apple, has been for, I don't know, over 10 years now, right? And it's such a massive position of his portfolio. He sold half of it. Now again, everyone's like, panic, panic, panic. He's been selling Apple stock. He's been coming out of his Apple position for weeks and weeks and weeks, right? So the fact that now, oh my God, he sold half of his position— well, he's been doing this for weeks. But anyway, sorry, he is in that—

he is in that Apple trade also, up nearly 800%, right?

And he wants to book a bit of profit. But Buffett has been very vocal about how he feels that currently the risk-free rate, as in the yield you get on a US Treasury bond, is incredibly high and very attractive. And so he's coming out of some of that Apple story that's made him an absolute fortune, and he's parking it and getting a very nice high yield, thanks very much, for no risk. So that trade's been going on for weeks. So I don't know why now all of a sudden everyone thinks Apple's just— sorry, Buffett's pressed the emergency red button. He hasn't. Um, but nevertheless, on Friday— I— well, we'll come back to market reaction in a second. Monday, um, after that weekend news flow, Japanese equities just got absolutely killed. Um, it goes back to the Japanese being the epicenter of this story, and something called the carry trade we'll come on to. But ultimately, Japanese stocks got killed. Um, U.S. stocks again had another big sell-off. So really, we had two big sell-offs, the Friday and the Monday. Um, which is all part of this multi-layered story and sequence of events.

There you have it.

So now it's rebounded, or at least some of it.

Yeah. Well, perhaps then, um, before we go on to like the psychology of why it was so ferocious, the move on, on Monday, um, perhaps you could talk to me a little bit about this carry trade idea that's been banded around quite a bit. There's quite a few people saying it's carry trade, unwind. There's some people saying that's rubbish. Firstly, let's start with what is a carry trade and then why are people talking about it in this specific situation?

The carry trade is very simple. It's where you're looking, essentially you're looking to exploit what I would call infresh interest rate differentials. Right now that might sound complicated, but all you're looking for is a country that has super low interest rates, and then a country that has much higher interest rates. And that's the difference, that's the interest rate differential. And you're right, how can I trade that? How can I profit from the fact that there's two different interest rates in these territories? And so you take a low interest rate environment. Japan has been the classic, um, carry trade, uh, for decades. Because it's had much— it has basically zero interest rates, you know, by and large, uh, for decades. I mean, you go back to— let me qualify that— you go back to 1995 and their interest rate was 0.5%. So that was the kind of end of their major cutting cycle in their financial crisis in the '90s. Since the mid-'90s, rates have been basically zero. So the— so therefore, if interest rates are really low in Japan, you can borrow really cheaply. Okay, so the carry trade is I'm going to borrow money in yen and I'm going to be paying Japanese interest rates, which are basically zero. Cheap borrowing. All right, so now I've got my funding currency, yen. All right, I'm holding yen. Now I need to move it to a country where interest rates are higher. Now this has been— you could move it to the US these days because interest rates in the US are like 4.5%, 5%, right? Thinking about Treasuries, um, a big trade has been moving it to Brazil, the Brazilian real, or the Mexican peso— two very key currencies in this big carry trade over the last 12 months or so, right? So you're— let's, let's use Brazil as an example. So you, you borrow in yen, you take the yen that you now have, I convert it to Brazilian real, so I'm selling the yen. So the yen has been devaluing massively over the last sort of 12 months, okay, because everyone's selling it because they're then buying another currency. You you, you then, you now hold Brazilian reais, and then with those reais you buy Brazilian government bonds, for example, which actually I don't know the yield on a Brazilian government bond, but let's just say it's, I don't know, 6%. So you're borrowing at zero and you're lending at 6%, and you're profiting the spread there. Okay, now this trade has been a huge trade. There's so much money in this trade because it's been a sort of, in inverted commas, a no-brainer, almost a risk-free play, because Japan's rates have been at zero forever. You've got really high interest rates elsewhere now because of this massive interest rate hiking cycle we've had because of the inflation, um, crisis and so on. Okay, so that's the setup. The problem— your risks as a hedge fund, let's say, with this big trade on— and people put huge money into this because they deem it as being quite low risk— but your risks to the trade are really twofold. Mainly it's exchange rate risk. So Japanese yen versus the Brazilian real— if all of a sudden the Japanese yen appreciates in value, you've got a problem because that's the currency you're borrowing in. And ultimately, when you have to pay back your loan, ultimately you've got to convert everything back to yen. But if the yen's now more expensive you're going to get less yen, right? So yen strength is a really, really big risk. And then the other one is the exchange rate differential narrows, so the spread between the two gets tighter. The issue is all of a sudden, triggered by— it's been happening slowly, but triggered by that rate hike from Japan last week, also feed in more likelihood the Fed are going to cut Europe's cutting, UK's cutting, so you've got this interest rate differential narrowing. But all of a sudden the yen has had a massive spike because people have started to say, you know what, this trade's been great, this is the top, I'm out. So to get out, you've got to unwind this really complex setup which has led to the yen spiking. Which has triggered then other people, well, hang on, I need to get out as well now. And it triggers this sort of stampede. So definitely with the yen carry trade, there's been full-on panic for good reason and a stampede out of the trade, which has led to a big spike in the yen.

And I remember in a few episodes ago we were talking about a lot of sell-side banks were quite bullish Japanese equities.

Yeah. So good point. So the other— there's a simpler version of the carry trade in recent— in, in 2024, which is let's remove the exchange rate risk entirely. Basically, they're borrowing in yen and forget about moving it somewhere else and buying Brazilian bonds. Actually, Japanese equities look super attractive. So actually, they've been borrowing yen and just buying Japanese equities. Um, and so if you want to unwind— if all of a sudden, remember, the exchange rate risk So if you're a US hedge fund or a UK hedge fund, whatever, to buy Japanese equities, you've got to, you've got to have yen, right? So you've got to convert your dollars to yen, or you've got to borrow in yen, whichever. But if you're converting your dollars to yen, then you're buying Japanese equities, and then the yen appreciates in— you know, this is the, the exchange rate risk triggers a kind of move out of this. And of course, one of the key beneficiaries of the yen's weakness has been Japanese exporters, which is one of the reasons why Japanese stocks have been on a tear, the best performing index in the world basically prior to this last week. And so look, people are booking profit and the carry trade's being unwound, and that's the kind of epicenter of all of this in my opinion.

Yeah, and just explain to me a little bit about how those particular moves can be exacerbated by other more functional mechanisms of how people execute these trades. So talk to a little bit about maybe high-frequency trading or momentum-based trading signals, these sorts of things?

Yeah, so, you know, as market participants and the way they interact with the market— how do they buy, how do they sell— as that's evolved and become ever more complex, what we've definitely seen, you know, we talked about hedge funds like Citadel and Millennium and these lot, right? And they've really been the stellar performers of recent years, and their funds have been getting bigger, their assets under management has been getting bigger, they've become an ever bigger portion of daily market flow, and so therefore an ever bigger influence on how those markets move and how prices behave. Now, a lot of their strategies are momentum strategies. Now, the thing about a momentum trade, it's quite— in one sense, it's quite technical in that I don't know, talk about an uptrend, Japanese stocks, right? I'm going to buy Japanese stocks. You might— the rationale for buying them might be fundamental, right? But then you say, right, I'm going to stay in that trade until the uptrend reverses, and that's a technical signal. Now what's happened with this sell-off, um, maybe part of this carry trade unwind, but what's happened with this sell-off is the trend has been broken. and then that's the signal. So, right, okay, it's an algorithmic decision. It's, it's a, it's a pre-programmed reaction. If the trend reverses, then sell. And so of course then if the Japanese equities are selling anyway, breaks the trend, then you get more selling because of the technical signal. Well, then of course the selling increases and there's not much on the buy side of the book, so you're getting um, liquidity problems, which essentially then just exaggerates dramatically the, the sell-off. When you get a full-on plummet in markets where you get crazy numbers, uh, what was it, 13% down, I think the, um, the Nikkei 225 was, uh, on Monday.

So, so do, given those reasons there, does margin calls come into this and further also Right, magnify the position.

Absolutely. And so a margin call is when you're, uh, essentially if you're— so again, hedge funds will be leveraged, right? They're leveraging up, they're using derivative products, they're using complex structured strategies. Okay, now a lot of this stuff requires what's called margin, which is where you have to have a certain amount of money on deposit, cash at the trading exchange, essentially, to be able to be holding that risk that you have. Now, if those positions you hold start to lose money, then that's kind of essentially taken out of your margin account, right, to cover those losses. So the amount in your margin account's reducing to the point where, right, there's rules about this. You have to carry a certain amount of margin to take a certain amount of risk, and if your margin's reduced, then there's margin calls. That means the hedge fund gets demanded, right, you need to deposit more cash into your margin account here. What hedge funds tend to do is not, not so much, well, no worries, I'll wire more cash. They tend to get out of their trades, and so then that exacerbates the whole sell-off even more, right? Um, so it's a bit of a snowball effect, um, nothing that might have been triggered by a fundamental scenario, but the snowball these days can grow into this absolute monster because of these trend-following strategies getting triggered out, because of margin calls triggering people out, you know, liquidity vanishes, and you get this market dislocation that might have been triggered by fair enough reasons but ends up taking you to a place that's not justified by the rational fundamentals. Not that the media want to say that because they jump on the bandwagon of this snowball and try and make it as big as they can get it.

Okay, so you've got the fundamentals, the functional way of which the mechanics of markets— so where does the psychology in terms of, say, fear and greed, herd behavior— yeah, where does that fit into this equation?

I think you've got two— you've got three players in this event. We've just talked about one of them, it's the algorithms, okay? It was pre-programmed, so there's not— there's no psychology there, right? But they're a big part of then driving the psychology of the human beings, which are the other two. Now, the other two camps are the very experienced, cool, rational heads. They are, well, look, it's happening. I don't— I, you know, their, their opinion is probably, no, this is an overreaction, but I've seen overreactions continue for a long time. And look, I've got a lot of profit in some of these positions, like the MAG7, for example. I've got huge profits on my book here. I don't necessarily agree with why the market's selling off, but you know what, I'm gonna reduce my risk anyway. So I'm going to sell some of my position because I've got loads of profit, right? Rational head. Then you've got the third category, which is probably less experienced people, which is like, this is the end of the world. You know, they, they very much buy the media narrative. They look— don't get me wrong, some of these numbers are crazy, but they're thinking, oh my God, the Nikkei is down to 13%, right? This is it, this is the moment, this is the end of time, sell everything. And, and they're the ones that are kind of full-on irrational panic mode. And they're probably those that fall into the category where they're less experienced, that they've never seen this kind of stuff.

I'll take your irrationality and I'll buy your Nvidia shares. But the, um, let's talk about then, well, what happens next. I mean, we've just seen that the Nikkei in Japan has seen effectively its best one-day performance overnight since October 2008. It's just logged its single day, one of its records in single day points added to the index. But I guess one thing I heard yesterday, which I thought was highly inappropriate, which was almost a manifestation of all of that psychology of the latter point that you just mentioned, was there started to be rumors obviously circulating on likes of Twitter about the Fed holding an emergency meeting. In order to then cut before the September meeting. And I just thought that was the most ridiculous speculation I've ever heard.

Right.

Um, and what followed that were some comments from, uh, Fed's— a Fed member. So just to be clear here, so with the Fed structure, you have these reserve, uh, districts across America and, and the Chicago president, guy called Austan Goolsbee, Uh, he reiterated yesterday, so amid all the drama, he comes out and he says central bank's job is not to react to one month of weaker labor data, adding that markets are much more volatile than Fed actions. At one point yesterday, I clocked that a 50 basis point cut in September was over 90%.

I mean Again, that's— well, I know— what's your opinion? Because I'm definitely in your camp. When I was reading people calling for an emergency cut— let's, let's not wait for September, we've got to go now— I mean, they're so far away from— so detached from reality. Um, the chances of an emergency rate cut from the Fed, let me tell you right now, are zero. Um, but that doesn't mean people don't get caught up in the narrative. But my question to you is, do you think that— do you think the radical nature of the media's response to this— well, or do you think it's more radical than it used to be? Yeah, I think 20 years ago, do you think you'd have had this, we need an emergency cut right now?

Yeah, that's a good question. And I think my answer is no, I do not think the media in themselves are more radical. I think the headlines are identical, right? I think the difference here is what's happened with technology in the, uh, the spread of information. So 20 years ago or so, 15 years ago, it wouldn't have had the, the speed to be able to like propagate and go out to the masses so quickly. And obviously it's like, um, Chinese whispers. Yeah, it starts with a headline and then you start adding in a Fed emergency meeting and then these sorts of things, and it goes down to the 100th person in the queue and all of a sudden it's this massive thing. Um, so because you're so distanced from the genuine source of the information in its first, its first release, so I think it's more about the inputs and the mechanism of, of the spread of information, which is very common in all walks of life, right? From politics to, to everything else. So, but yeah, I think the Fed, the other, the main point here is about credibility. And I think that again, maybe it's just us having been in the game long enough. It's that if the Fed were to host an emergency meeting after a one-day shock like that, I mean, where does that then end? Well, because all that would trigger in my mind is another radical sell-off, and the market will test the Fed's hand, and then that's exactly where the Fed doesn't want to be.

So yeah, absolutely. Yeah, it's an interesting point about news flow and dissemination across the planet in milliseconds. Um, but I think there's— if you kind of delve a bit deeper in some of this market reaction, what was really telling for me yesterday um, when yes, U.S. stocks again had a second really bad day adding to that Friday sell-off, but you looked at things like U.S. Treasuries flat on the day, like literally flat, unchanged. That— so, so I guess, can we boil this down to what actually drove this thing, and then we can go, right, what's going to happen next in our opinion? So there's a few things people are talking about. If we kind of just re-sort of list them, it's the recession risk in the US, which is for me what— that's where the media went badly wrong in reporting this, because every headline I saw was big sell-off here, big sell-off here, big sell-off here because of increased recession risk in the US. No.

Yeah. And, and, and to further kind of fuel the flames on that, that narrative, uh, they were pushing— Goldman's had, had lifted their recession risk probability to basically 25% from 15%, which I thought was the most useless piece of information. And yet it just, it just fitted, didn't it, for yesterday? Yeah.

So that, I mean, that's a I mean, that's a good sort of, um, I guess, quantitative way of looking at this. The recession risk— yeah, look, don't get me wrong, that ISM manufacturing report was bad. The recession risk is now higher, but it's gone from 15% to 25%, i.e., to— it's become slightly less of an outlier event. But the way markets have reacted is, oh my God, the recession's here, the cliff— we've literally got to the cliff edge. Um, but we haven't. Um, but look, the recession risk in the US is one thing. People talking about the unwinding of the carry trade, you've got all those internal market dynamics in the mix. And then something we haven't talked about, which is really just the big tech trade coming to an end. And, you know, Nvidia, as you mentioned, was down I think 14% at the open yesterday. You know, so, you know, which one of these is it that's driving this? Is it actually just all of them? And, and actually, is this the beginning of something much bigger in terms of a market correction? Is this the beginning of the move into the U.S. recession or not? And the thing is, yesterday on Monday, we had ISM Services data, which is the other half of this sort of ISM report You know, remember on Thursday the manufacturing report was one of the big pieces in this panic. Yesterday the ISM Services was, was much better— well, not much, was better than expected, and the employment component was nice and strong. So completely kind of flipping and reversing that news that we had on Thursday. We can— we've actually had a good earnings season by and large in the US. So corporate America have beaten expectations, so that's kind of solid. So for me The US recession risk, yes, it has gone up, but it's still, um, the non— you know, it's, it's not the expected scenario yet. I think we've got a slowing US economy. We do not have a US economy in recession. The Fed will not have an emergency cut. Yes, they will cut in September, they've told us that already, but this narrative that the Fed have left it too late recession's already here, markets panic. I do not subscribe to that at all. And I think currently the Fed are about right, and they're going to cut in September, and they're correct to cut in September. And the economy's slowing, but it's growing still. Um, that's, that's my view. Yeah, yeah, go on.

I think the only thing to add as well is the context, particularly with the Mag 7.

Yeah.

Because I think it's easy to go Nvidia down 14%, and I even said it at the top of the show because that's a big fat figure, and of a company of that magnitude, that's a lot of, it's a lot of dough. They are still up, even with that move, over 100% on the year. But you're not— no one's ever going to put that number beside the negative 14 when the market's in freefall. So yeah, I totally, I totally subscribe to what you're saying.

Yeah, and within the Mag Seven, I mean, again, there were— NVIDIA has been the poster child, of course, of the AI revolution, let's call it. And, you know, broke $3 trillion market cap, became the biggest company on the planet. And of course, the media quite rightly were going, hang on a minute, whoa, whoa, whoa, valuations here are a bit crazy. So, so it's sold off, it's corrected. But as you said, it's still 100% up on the year. And, um, so, but look, it's happened, right? People, it's like one of those things, it's almost like, it's almost like the psychology of it is almost like the, the fear of the fear itself, um, in that we've been afraid of the AI bubble, do you want to call it? I don't know if it is a bubble yet, but the AI rally, the fear of it running out. And so it's almost like the fear that that fear is growing. Um, and look, we've been having this pullback. Some would say it's actually just a very healthy correction along what might be a, you know, an ongoing, you know, broader upward trend. But yeah, certainly Nvidia, Amazon, and Tesla out of the Mag 7, they were the 3 that got hit the most. Um, Amazon had a probably the worst earnings report out of the Mag 7. Tesla, you might say, is the most speculative stock Yeah, out of those 7, a much less mature company. Um, and Nvidia, yeah, as we've said, was the poster child of the AI boom, has gone up the most. So profit taking. The others like Microsoft, Alphabet, Meta, Apple, yeah, they've come off as well, but nowhere near as much.

Um, okay, so if anyone— maybe to conclude then, for anyone who's new to markets, whether they're a student early years of their career, whether you are an entrepreneur, an investor yourself, I know we have quite a diverse listener base.

Hmm.

Given what you've described in this episode and given your experience and having gone through episodes like this multiple occasions, what could be a useful practical framework of how to approach this to stay rationally minded?

It's a very, very, very Good question. I think that, you know, behavioral market events— ignore them at your peril. You know, don't be stubborn. On the one hand, don't dismiss it as ridiculous. Like, I, you know, some of what I've been saying really probably falls in that camp. I go, you know, the media is like this and it's all ridiculous and I don't agree with it and Fine, but don't get too embedded in that view because behavioral events, whilst to begin with may well be irrational and may well be not justified by fundamentals, but they can manifest into then actually a genuine, real, straight out even recession. I mean, I'm not talking about overnight like markets have been reacting to in the last few days. Talking over a number of months, you know, it can lead to people, businesses changing their opinion on, right, how much are we going to invest in growth over the next 12 months? Let's pull back a little bit. Let's maybe cut some of our workforce, start to streamline. You know, even that, that's a psychological decision. And if companies out there are being influenced by these radical moves in markets, it can genuinely lead to a change in strategy, which can genuinely lead to a deterioration in growth, right, which then leads to the recession. So it doesn't take much to trigger that, you know, just to tip the snowball off the top of the mountain, and then it can build, right? But what will happen along the way is you'll get some— I think what's happening, what's been demonstrated in the last week, is whilst that's always been the case for the history of markets I think the volatility levels have dropped. The, the short-term volatility is dramatically increased, so you're getting massive swings now because of all the reasons we've said, which just makes it all the more uncomfortable to, to ride this. So like, what am I thinking? I'm thinking, well, this is a short-term panic that's not justified. So I'm not like, right, sell everything. I mean, almost quite the opposite, to be honest. It's almost like, well, you know, let's buy because it's kind of overdone on the downside for the short term. I'm talking to you really short term now. This could be like— maybe let me frame it in a more obvious way. Has Nvidia stock topped out for the year? And I would say yes, right? Nvidia had a double top in June and July and now we're like 30% down. Okay, is Nvidia going to go back to its high and break a new high before the end of the year? I don't think so. So I do think the AI sort of revolution story chapter one's done. Yes, it all got a bit frothy and bubbly These stocks went too high, they've come back down, right? They're not going to go back to the high. Now, will Nvidia collapse? And it's down 30%. Will it be down 50%? Will it be down 70%? I don't think so, is my current thought. I, I might change that opinion in the weeks ahead, but I think this will be a really sensational episode. But won't be the beginning of the end. And I do think that ultimately the US economy— let's get back to the real fundamentals— I do think the US economy is still solid. It's slowing, but like the, you know, Chicago, um, the Atlanta Fed, uh, GDP tracker is still tracking like 2.5% growth for Q3. I mean, that's not recession. That's solid stuff. So I think that this is a phenomenal episode in markets, but things will calm down. But the whole AI tech boom, the Mag 7 boom, has probably reached its zenith, and things may well stabilize around this area. That's, that's my current thought.

Good stuff. What we'll do is I'll add a poll if you do listen via Spotify, and we'll get the listeners' thoughts. What do you think? I'll put it down a few options. But yeah, thank you for unpacking that, Piers. Great to get the breakdown. Any comments or questions at all as well on Spotify, I think you can leave a comment. If you don't already subscribe to the show, because I know there is a portion of listeners who don't, please do. We have two episodes every week, one on global markets like this and the other on corporate finance. With that, we'll see you next week. Thanks, Piers.

Catch you later.