Looking at 2025
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push. Is the most wonderful time of the year twenty twenty five look had season. This annual exercise by investment houses and big bank seems to get earlier and earlier every year. Still here, IT is. And it's a good way to test the market mood and try and figure out what everyone thinks have next.

Today on the show, we're asking, what are they asking? What are the big questions, the big puzzles to crack? If you wanna get twenty, twenty five rights and still plenty of twenty, this you got shoes. okay? This is on head the markets in finance for the financial times and i'm katy Martin, a mark colomiers at the at in london back in the studio after recording a few episodes in the pub in island good times. Join me down the line from new york to figure this all out as a couple of sad widows like me who read loads of year ahead outlooks from banks, rob armstrong, who want listener referred to me in an email the other day as my boss. Amusingly.

they that persons can see the future and or has extremely good .

character .

judgment. We should read and add writer a who rob really is, his boss, poor adam, on the unheard newsletter listeners. As a reminder, if you get confused, eight is the one whose Young, clever Robin iah just trying to keep up with him. Uh, guys, is that going how outlook season treating you?

It's going well. There is one thing that everyone seems to agree on, and I be interested to hear, Kitty, if you've heard any dissent from this. The absolute consensus thing is amErica rules and will continue to rule in markets. So everybody thinks it's been awesome to own america, keep owning IT think that's the consensus.

I wish I could disagree with you because this going to be highly annoying like of work but yeah I mean, that is you know amErica first is definitely playing out. What i'm picking up from asset manager from investment banks at the moment is that you know americans like kicked the rest the world ask for however longer IT is in stock markets and it's gna keep on doing that, yes, at least through the course of twenty twenty five because if Donald trumps agenda ends up not happening and there's no reason to think that IT won't, this is simply has to like suck growth away from the rest of the world, suck exports away from the rest of the world. And it's just very difficult to make a big investment case to be overweg europe, poor await, you know, asia in that kind of environment.

That is unless his policies make everybody really, really mad, make the dollar weaker and try everybody is something else.

But that's that's the great thing. About twenty twenty five, none of the policies will have been implemented yet. So twenty, twenty five is the year where we just get to keep imagining what trumps policies might do when they are implemented.

Twenty twenty six is when we actually open the box and see what is inside. Maybe like twenty twenty five, something will happen. But you know I think that's that's an issue.

I for one cannot wait now. I mean, as we've previously discussed on this podcast, there's a number of things that investors are actually worried about in relation to a trump agenda. You look at the tariff s you look at the deportation policy. See, you look at the possibility that you know that these gonna cut taxes and deregulate and all that sort of stuff might be inflation rate that might hit the bomb market, which might have a second round effect on putting down the stock market.

But what I find interesting is what people are saying to me is the Normally the thing that considered to be a break on access by governments, any government, where is these so called bond vigilantes? right? The point at which the bond market says, stop IT knocked off. We're onna, sell your bones this time. What is important is the stock vigilantes never .

heard of a stock vigilant. This is one hundred percent new term to me. Well.

I heard at the other day then the person who mentioned IT to me who said he thought he had just made that up so that actually he'd read IT somewhere else first. So i'm not claiming to be first with this brave. What I am saying is that I think we can all agree that Donald trump loves that when stock markets are going up and he likes to get a validation from the stock market. And so the thing that might kind of restrain them around some of the more extreme elements of what he wants to do on economic policy is the possibility that he might hurt stock. So stock vigilant.

okay. Can I take the other side .

of that argument?

You may here, IT is an important fact for trump skeptics to remember, is that the worst amErica screws things up. The Better american risk sets will do. Because even in a world, amErica is screwing up terribly.

And i'm not sitting in here saying the trump is going to screw up the world. I'm addressing myself to people who think he will big american companies will still be the safest equity bet out there. Bad policy will push U. S. Stocks up. That is my prediction.

Is the dollar smile in the market?

yeah. So that's that's what I predict. If we are worried about government excesses under a unified government LED by someone who is a bit unpredictable, I think we're still counting on the bond market who's going to save our bacon. And if there is a problem, i'm not predicting a problem .

in coverage that be the man ashington resistance this time from people who oppose. Are they just all gonna pile into the bond market? Should we go to, you know, local cafes and coffee shops and open everybody equally .

in bound account if you want keep?

But but yeah, this is definitely .

something that i've been hearing from, like chief investment officer types. You particularly the europeans, is like what really nervous about this. A gender actually was a lots, lots of bit of IT. We don't but we feel like we don't have any option button by U. S.

So you know it's not just you know what we call risk assets like stocks, right? You know, in the event that something horrible happens to the independence of the federalists, for example, any other bits of U. S.

Institutional resilience. Guess what? People are onna buy they're going to buy U. S. Government bonds and they're going to buy the dollar because that's what they've done and because currently, there is no real alternative to the super liquid market.

However, kd, the the ten year treasury yield is at four and half percent and IT is getting towards the level now where IT has bothered stocks before. If you look at may, just look at these dates, late twenty twenty two, late twenty twenty three and April of this year, we had Spikes in the treasurer yield and the stock market peaked a little bit. Not not big pukes, but notable peaks.

You know you get up towards five again. And I think people are jumpy about what happens to stocks for a couple of reasons. One, if you get five percent yellow on a ten year treasury, owning a stock is less appealing too.

Five percent yield shows you that financial conditions are getting a little tight. You know, maybe that's gone to show up in weaker profit, bad stuff. Maybe it's indication of more inflation, which stocks don't love.

So were flying into the danger zone. What is that song? Way, way to the .

danger zone.

We are on the highway to the danger zone.

That was the title of a note from the ages. Bc, the day actually have one we can remember. But like so as you say, that bomb Prices have been falling, right, which has pushed the yield up to about four point five percent on the ten year.

But I was listening into the goldman sax outlook just the other day and they were saying, look, it's not just the level here that's important in the yields as the at which we've got to four point five rites. So we've gone from a bow are going to say three point eight to four point five since just before the election that say whatever to standard deviation move you, I can try some clearer about IT. But the point is that a lot in a short space of time for this sort of instrument and Normally a move of that magnitude is associated with something like a five percent drop in stocks.

嗯， and that is absolutely not what we've seen this time around. So what that's telling you is, you know, first of all, amErica hacked yeah. And secondly that you know, the election has just introduced animal spirits into market.

So one debate i've definitely heard among strategists and equity people investors is, is this rise in the ten year boomy or inflationary? And what the stock market saying is it's a boomy rather than inflationary. Now inflation expectations have crept up a bit.

People are talking about inflation. A lot terrify inflationary. Immigration controls are inflationary. But what the combination of stocks and bonds the move and sucks bound to telling you is people think this is a growth move more than they think it's an inflation move that could turn out to be wrong here.

I think the markets also kind of of a split mind, or at least talking out of both sides of its mouth when IT comes to inflation and rates. Right now, if you look at work, which you know sees what the market is thinking about the next fed meeting with the look, it's like how .

tell our friends who listened what work is.

Work is the world. Interest ate probability, I believe. And essentially IT just looks markets and determines whether or not people think there's going to be a cut at the next set meeting and how big that cut would be.

And right now, it's about even between people expecting no cut and people expecting a cut. And that's even after jay power said, hey, don't think going to be out of rush. Yeah, no rush.

So the market seems to be thinking, oh, inflations going to kick up in the future. But there are still somewhat expecting a cut in december that might be because of how bad the jobs report was in the U. S.

In november, which was in the october jobs report. But still it's it's kind of of two minds, and I think it's going to be interesting to see what direction they go in december and you know in the same meeting. And that will really have an impact on these valuations, these equities and to what extent there actually could be a correction .

as if we're mention guys all right now, either you guys they are cut five best points and will take you'll take .

IT looking .

at the most recent jobs support.

that was really weak. If the next job report we get before the december meeting is stronger than he's really and have no reason to cut.

I just think you cut fifty basis points, then you cut twenty five basis points, then trump gets elected and you decide not to cut. I think the fed governance, me like we don't want to listen to these guys moon at us for the next six months. We can just kick IT down road.

will cut and then I mean, theod ally.

shut up. And then more theoretically.

they are more independent and will do their jobs and not think about politics, period. Yeah, I do agree that going to be something around the edge. But also as we said after the election, they I mean, they cut two days after days.

the election .

theyve something enough anyway.

we we have a point bet on. I think you're going to cut you're saying they .

don't cut with rob on this. Much as I hate .

to agree with him.

I you can drink one point.

yes.

but 我也想 so we can。 Sherry. So like one of the questions that you're asking in your in your news letters today, IT, was is there a level for the ten year treasury yield that will cracked the equity market? You crack stock markets and i'll begin to get there soon.

You say yes and yes, I say yes and no. I I think the level of which the stock market starts to really get spooked by the bomb market is a little bit of a way off. Just a hunch, but I just think .

that's a if we get to five, we're going have a series conversation.

get that's a long way away. But yes, we get to five, then it'll start getting as we break me to say, a bit .

square pteor. I will remind you, kd Martin, we were at three, six, five, here we are in november, and we're at four point four two. The train is moving, baby. The rates train is flying down .

the track stick five is quickly bomb territory. Rest bit we can handle on a sort of related no, you were asking in your new letter about the credit cycle, where where are we like with like corporate bonds, right? Bonds that are issued by companies because the thing that is getting a little bit alarming now is OK default rates are kind of they're picking up.

They're pretty low. The so by standards, yeah, but the spreads on these things, right? So the little extra that you get for buying these things rather than buying government, it's super, super, super skinny. It's so skinny it's getting too skinning.

Yes, equivalent of the valuation on stocks. A big valuation on stocks equal small spread on corporate bonds. And I assume this question or a larger question that should, in theory, be kind of easy answer, which is, what part of the economic cycle are we in? So in a Normal economic cycle, you have a recession, you have a recovery, you have mid cycle where things are start just going well.

Then you usually have some kind of late cycle euphoria where everything is going too well and then you have another recession. And that can take any number of years. But that's the general pattern.

And I have I know we're not in a recession, but other than that, I don't know where that we are or even if we are anywhere in that pattern, you know mean. And so what the spreads are telling you is things are a little bit you for it's light cycle. You know these look like the spreads that we had in like two thousand five, two thousand six.

and we know how that ended badly.

yes. Similarly, they look like the spreads of nineteen ninety seven thousand and eight. So that is maybe we're in a recovery. We're still recovering in some sense from.

I don't know what we always going to be in these weird half semi cycles because of that was not a true recession.

Yes, that's the thing you need a recession, that's my argument is you need a recession to. That's the control of delete of .

the economics.

And we never press we never really press control, all delete on the economy. So now we're in this weird space where we won't know where we are until we have another recession, and god knows when that will happen. So until then, we're just feeling around in the dark.

I just i'm just sort of increasingly feeling like all the things that let boring old people let me a new rope do to tell us where we are in a cycle. Aren't really working at the moment because Normally would say are. But look at these stock valuations.

everything's very expensive that me into the four rates.

we we're onna come back to something more Normal. You look at default rates, they are gonna to something more Normal. Look at corporate bond spreads, they're gonna to something more Normal, which says correction.

And then what the market actually does this say? I'm not correcting anywhere. I am still going. And so something weird has changed in the way that you read. Markets this is have not yet properly flushed out didn't .

mention there, which is also sending very confusing signals. I know its views on this is the job market. It's like know the unemployment rate is going up and the you know the hirings and firings numbers are weird.

So like part of your cynical understanding would be the reading you're getting from the job market. And that thing is very confusing and difficult to read. Yeah.

it's confusing, difficult to read. And it's arguably got ten more confusing, difficult read because of population change, at least in the other states when people decry immigration. We talked about this before. Part of what I did is change the break given number. So the fed IT seems to be be attuned to that they started talking about in the last couple meetings, but it's still bizarre to read this. And again, there's labor hoarding potentially going on, and it's just hard to say what actually was the reset because the recession calls people to hold onto their labor as most to let go of their labor, at least for some firms, especially on the smaller and the spectrum.

But nobody's quitting their job. This is a number that's kicking around wall street lot this week is to quits number. And usually that's a bad sign. People quit when they're feeling good, king of which this will be my life.

Would you quit your job ahead of like possibly the most uncertain policy environment .

in the american? Yeah maybe that's part of IT. Yes, that's a good point. Good point.

Anyway, so I but my answer to that question is I have no idea where we are in the cycle. I don't know where in a cycle. Ask someone else.

Thank you for coming to my tig. So the last question on your list, your news last day was, is A I A bubble to which I think you were saying.

yes, yeah think IT. Or will be.

will be. Well, that doesn't.

Does a bubble have to pop?

Yes, yes. IT does. That is part of the definition eight. And I had lunch with the famously barris h, but often write jeremy grant from the other day.

how did you? yeah.

And he, he's the go founded this asset, metro, called G M O, consider himself a bubble historian. And he was true. And he said, basically, the mistake, the conceptual mistake people are making is there saying, A, I is an incredible technology that is going to change everything.

Therefore, IT can't be a bubble, but his point is all contrary. IT is precisely the technologies that are gona change. Everything that caused bubbles to happen, the railroads of the internet.

You have a technology. Everybody can look at this and say, holy crow, this is an amazing thing. That's gonna everything, but you don't really know how it's going to change everything.

So you build up the Price of everything. Insight have a massive bubble is great. You know, excitement and then railroads, internet crash and it's out of the ashes of that crash. That the real businesses grow .

and it's IT where even starting to see this in this earnings season, right? So well, street is starting ting to actually punish people who have spent a lot of on A I capex or say they're going to spend a lot but don't have anything to show for IT or don't have a clear story for how they're using the eye, right? Google, amazon, which actual have use cases well and then you know meta, apple and microsoft, they be earnings to which they always do, but they fell partially because their A I cap acx just didn't seem like IT was going to be playing out in .

the conductive in in the medium term.

Ah and the tesla is its own. We you personality stock from for musk in video is like an enabler. Er so they are not really held .

to the same standards well but the in video I mean that is my counterpoint, right put out results this week IT like doubled its revenues from a year ago. Yes, and thirty billion bucks in the co ber. It's not obvious to me this is out of work with this shade. I know the ship is a but .

videos is whether it's in a revenue bubble. In other words, right now, IT is the monopoly maker of AI grade GPU. And how much are we pricing them, them being that forever when eventually some clever person is gonna make a competitive product that really works. And we know that, for example, amazon is working extremely hard at making its cheaper in house alternative .

or the captain spending slows down, right? All these big numbers, they have to build these units and then they have them. How much more chips do .

they need after that in the p tio, which is I think in the now given its revenue growth, that makes perfect sense. The question is whether the revenue growth is going to continue and how long.

The funny thing is they they benefit from, you know the barkeep punishing microsoft and meta for overspending on cap acs. But video is the direction cipo into all of that overspending.

basically punish ing them for giving too .

much money to let let me wrap up. Unlike one kind of quick question for the interview like IT really strikes me this was like the very start of our conversation today was like you read through all the look ahead pieces for twenty twenty five. They're all saying more or less the same thing. Is IT just me who finds that a little bit unnerving? That seems to be a lot of consensus here, and that isn't always healthy.

No, it's rarely healthy. In fact, you need a rock solid consensus for something really bad to happen. It's one of the the boxes you have to check before something awful can happen, like when people don't know what's going on. It's probably a reasonably safe market will probably go up when everybody thinks they know what's going on. Then you are on the highway to the danger zone.

Got right, this time I didn't .

we on the highway to the danger zone, and I apologized. This is for the air that the need for the rest of the day, it's hard to say. Well.

there's consensus about A I I think as we said before, there's so much uncertainty about what will come down the pike in twenty five and specifically in twenty twenty six, at least from a policy direction in the U S. And then you A R geopolitical war situation in the middle east and in eastern europe. So I think there is consensus maybe a little around the A I think, but the rest the market might be balancing IT out with how unclear things are going to be.

So you're saying no danger zone, Robin. I saying dangers.

I no, i'm bullishly for twenty and twenty five. I want want to be totally on the biggest on the baLance of risks. The uniformity of consensus is on the the liability side. Yeah, it's about I think we agree.

I also say .

we're dangerous .

on yeah you're GTA A A A chance for the wisdom of crowds, folks on which notes we're going to be back in a set with long, short.

What do you see on the horizon, uncertainty or opportunity? Whatever you see at p gem, we can help you rise to the chAllenges of today, providing outlooks on the market with deep global and local expertise with over fourteen hundred investment professionals in pursuit of long term returns. Our investments shape tomorrow, today, pursue your tomorrow with P, G, M, A leading global asset manager.

Already it's time for a long short that put the show where we go. Long a thing we love or short a thing we hate. And what you go um I am .

long hair products. I my hair is longer red than a Normal husband just because I other com lazy or I just can't see what I wanted dead with IT. And yesterday I forgotten put in hair product and I just felt a proof ball day. And the lack of something really, really changes your appreciation. I am very grateful for IT.

I find all disgusting of hair products .

to be a personal attack. Yes, I was about to say chrome down and chat.

I'm mci. I'm short turkey. And this time a year you get a wave after wave of newspaper articles about how to prepare turkey.

None of these techniques work because turkey stinks. Is the west IT is lowest of the proteins. I am against IT. We will be getting a cap .

on at my house. This is, well.

that's the thing with a secret. You can look IT up after the shows over.

It's just like a turkey. I am a limit long josh kha, brother of jitney, a great read in the f capital firm. His whole deal is that IT goes big on a really small number of investments, which is quite A A weird thing for venture capital firm to do. But one of the exec at at thrive capital gave a comment to us saying diversification is for people that don't know what they're doing. I I just want to put a little pain in that so that we all remember IT just in case that all goes wrong.

I mean, with their connections to the policy world, IT will probably go well.

Yes, I mean, that's quite a thing to say. So I remember that one.

Or do we get to to rap .

IT up there? IT quit your laughing and your banter. You got to wrap IT up listeners, we do love to have you.

So drop us a line at t, at F, T. come. And we will be back in your feet on tuesday.

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