Systems Rewritten: Markets

Transcript

Systems Rewritten: Markets

KAREN (00:03):
The hyperscalers are feeding a lot of fish in the equity pond all around the world.

JOHN (00:08):
I think people are trading around about 50 to 60% larger size. So they're trading with significantly more conviction than they were this time last year.

RUSS (00:18):
That's your risk is you're paying peak for peak. And if there is a pause in the pace of the frontier, that could filter through to AI, which has been a huge driver of USGDP growth and corporating. So that I think is a legitimate risk.

JOHN (00:29):
And if [00:00:30] I had to sum it all up in one word, it's uncertainty. We really don't know what's gonna happen.

KAREN (00:33):
Governments want to spend, companies want to spend, and the problem is they don't have the cash flow to do so, so everyone's turning to the bond market. And the bond market is judge, jury, and sometimes our list trust executioner, and is a very healthy adjudicator in all this spending that's going on.

RUSS (00:51):
Bank of England has actually did some slightly unusual things with its guilt holdings. That's what the gold and silver market is sniffing out, and that's why commodities are currently outperforming equities on some measures. [00:01:00] This decade, it does feel as if we're getting nearer to some form of end game than we were five, 10, or 15 years ago.

TOM (01:09):
It's Q3 2026. The systems that form the global economy are currently being rewritten by the digitally led fourth industrial revolution and the geopolitical repositioning of power. You're an investment banker, a portfolio manager, or a retail investor looking at trading screens flash red and green. There's a hive [00:01:30] of activity, but what to make of it? The indicators continue to flash, but the signals are conflicting. On one side sits the bull case, real AI-driven corporate revenue, strong earnings, record stock prices, and the unprecedented cash flow of the hyperscalers. On the other side sits the bear case, historically concentrated index valuations, an ever-widening gap between monetization and infrastructure spending, [00:02:00] and an increasingly fragile global debt landscape. It leaves you, as well as other investors, economists, and central banks, asking some big questions. Are we witnessing a durable tech-driven productivity shift, a once in a multiple generation opportunity to transform individual corporate and societal wealth?

(02:23):
Are we rewriting the whole world economy or are we sitting giddy and foolishly [00:02:30] riding a Teflon-coated bubble that will soon burst? Well, welcome to the Next five podcast. I'm Tom Parker, and today we're launching a brand new three-part series titled Systems Rewritten. Over the next three episodes, we will examine three core systems of our global economy, capital markets, artificial intelligence, and transport, to test whether their foundations are standing strong or if we're simply propping up a house of cards. [00:03:00] Today, in episode one, we tackle the markets. Joining me to navigate this volatile financial landscape and discuss the indicators investors are really looking out for are three experts. First, we have John Noble, CEO of TradeNation. John, welcome.

JOHN (03:17):
Morning, Tom. Should be a fascinating conversation.

TOM (03:19):
It should be. Next is Russ Mould, investment director at AJ Bell. Russ, great to have you on.

RUSS (03:24):
Delighted to be here. Thank you, Tom.

TOM (03:26):
And finally, Karen Ward, chief market strategist for EMEA at JP [00:03:30] Morgan Asset Management. Karen, welcome.

KAREN (03:32):
Hi, Tom. Great to be here.

TOM (03:33):
Well, let's get sucked straight into it. I wanna look at this bull versus bear debate. Could each of you lay out what the market is telling us from a bull perspective? What is driving these incredible valuations, prices, and rallies over the last 12 months? John, let's start with you.

JOHN (03:53):
Really, I'd point at three different things that are driving it. And the first one is really very, very simple. I think it's FOMO. If you look at the, [00:04:00] the sheer scale of the bull run we've been on with, you know, the S&P going up around 12% year to date, 16% the year before, 23% the year before that, it just builds increasing confidence amongst investors, be they retail or all the way through to institutional, that the market is bullish and it is going up. I think just that FOMO is really important and we shouldn't underestimate it. 26 record highs year to date on the S&P. Secondly, I'd, I'd call out the, the sheer scale of the investments into technology and AI that's driving the [00:04:30] indices. I'm sure we're gonna get onto that and I'm not gonna steal other's thunder at this stage. You know, we can't forget about it.

(04:35):
And it's a real moment in time, um, that we'll come back to and look at, I think, in history. And finally, we shouldn't forget the sheer scale of general asset price appreciation that's going on around the market. Gold up near four and a half thousand dollars an ounce. You know, there's a real sense of invest for the future that is driving this, all of the markets, including the equity indices, I think.

TOM (04:57):
Yeah, Karen.

KAREN (04:58):
I think what's striking about the bull market [00:05:00] is the geopolitical backdrop that it sits against. And certainly in the conversations I have, that's where the nerves come from. You know, how can it be that we reach those 26 all-time highs? I, I think you said there when the world feels chaotic, you know, geopolitically, whether it's within nations or between nations, things don't seem particularly great on that front. But actually, I think what the market is picking up is that actually because [00:05:30] of that chaos, so not despite, because of that chaos, that is unleashing to giant forms of spending. Governments are spending more because suddenly they're trying to reshore all these critical activities that we had formally relied on friends and neighbours, so defence, energy, technology, critical minerals, and that's a multi-year spending programme. And then companies are spending more because the world of technology is changing very rapidly and everybody [00:06:00] wants to win the AI arms race.

(06:02):
So we've actually got these two enormous spending forces and that spending is what's driving economic growth, and that's what's turning up in quarterly earnings, which every quarter are spectacular. And it's earnings that just keep pushing the market higher. So I think paradoxically that actually the bull case is because the world is somewhat chaotic and we've got to spend our way to adapt.

RUSS (06:28):
Yeah. Russ, corporate earnings [00:06:30] growth. As a former equity analyst at an investment bank, I used to start off with my earnings forecast high in January, lower in December this year. Earnings forecasts have been going up and that's a hugely powerful tool for momentum and it helps valuations. And all that's coming from the trends that Karen's been talking about. So 20% plus trend earnings growth in the US this year and next year. Other asset classes, commodities I think is the debasement trade. People are worried about what that may mean for monetary policy. And bonds, if you want to talk about a bear market, well, a 40-year bull market's just broken, hasn't it? And that's, if you're looking for trouble, [00:07:00] that's why you're probably gonna find it at the moment that at least there now with yields where they are, you may be at least being paid to take some degree of risk, which you certainly weren't five years ago.

TOM (07:08):
Well, yeah, you just mentioned the bear case. I want to go onto that now. Global equity markets in 2026 are showing some of the most extreme concentrations on record. The top 10 stocks account for roughly 38% of the S&P 500 market capitalization higher than the roughly 27% share held by the largest names at the peak of the dot-com [00:07:30] bubble in 2000. And now Nvidia alone has reached a market capitalization north of five trillion. That's the difference we're playing with. It's not the first time in history that the markets have hit this level of concentration. But is it a warning sign? Karen, what's different about today than a quarter of a century ago?

KAREN (07:48):
What's different is that these technology companies are already producing spectacular earnings. So back when I started my career actually, my first year [00:08:00] was 1999, so, uh, this isn't my first rodeo. But we weren't seeing there was the promise of new technology, but we weren't seeing it in the company's earnings. We are seeing that today, so that's the difference. But I think honestly, we have to recognise that the similarity is the same with every tech cycle, which is that there are two distinct phases. There's the creation of the technology and then there's the deployment of the technology. And the creation of the technology is the fun part because [00:08:30] that's where it's all the hopes and dreams and promise of how this is going to change the world, change society, change corporate earnings growth. And we all can, you know, get hyped up on the drama of, of how spectacular this is gonna be.

(08:47):
The second stage is the tricky bit, because that's the deployment. That's when we learn whether all we've been told is true. So are companies managing to use these new technologies [00:09:00] to drive productivity, to drive customer experience, to drive their revenues, and therefore, how much are they willing to pay for it? So when I get the ask the question, you know, is AI a bubble? My answer is holy, an answer which I could give a different, Tom, which is I don't know. But what's important is actually sometimes I don't know is the most important answer because you pointed to the concentration. Do I want 30% of my US holdings [00:09:30] on one theme? Do I want 50% of my emerging market exposure? Because concentration is not just in the US market on one single theme. And because I don't know, the answer to that is I don't want all my eggs in one basket.

(09:46):
So really thinking about diversification so that you are accessing multiple different themes out there, I think is exactly what investors should be doing.

TOM (09:58):
Yeah, absolutely. Ross, Karen started [00:10:00] there talking about corporate earnings. I want to look a little bit more at that. Because the comparison between today and the turn of the century, at the height of the dot-com era, Cisco briefly became this valuable company in the world with a market cap of $569 billion after its shares rose by 3,800% in five years. Just over two years later, the tech conglomerate had lost 93% of its value from its all-time high, not due to a fall in revenue, just that investors no longer believed in the hype [00:10:30] surrounding the internet. In March 2000, Cisco's price to earnings ratio was over 200 times. Now Nvidia reached a PE of 147 times at its peak in April 2023. It's now, today, sits at 29 times. That, by the way, is 46% lower than its 10-year median. Is the risk today about earnings multiples or is it about a widening gap between $1.2 trillion in corporate tech debt and [00:11:00] actual downstream enterprise revenue?

(11:02):
Are earnings fears as heightened, I suppose, compared to the dot-com era?

RUSS (11:07):
The danger is you're paying peak multiples for peak earnings. That's your worst case scenario, which is exactly where you were in 1999, 2000. The internet and 3G mobile spectrum was other exciting things we were talking about back then, delivered everything that any analyst dreamed of and more. They just didn't necessarily do it quite as quickly as the valuations required. I think internet compound usage has been 40-odd percent since the mid - 1990s. It's been [00:11:30] amazing, but it didn't necessarily happen exactly on time. And given a lot of that spending at the time was funded with debt and some very unusual corporate vehicles, when there was an accident, the ripple effects were felt very, very quickly. And I think that's the danger that we face now. I don't want to get involved in a debate of is AI about to wipe out humanity or not? I don't know what's.

(11:48):
I don't know what's going on in the labs. I really don't. But equally that, you know, if you're looking at a prospectus, one of the risk factors probably should be we may exterminate the human race which may affect the multiple you're prepared to pay for that equity. I, I would personally argue. So [00:12:00] I think that, that's your risk is you're paying peak for peak. And if there is a pause in the pace of the frontier, that could filter through to AI, which has been a huge driver of USGDP growth and corporating. So that I think is a legitimate risk. As Karen said, we genuinely don't know, but it has to be factored in. And valuation is your ultimate arbiter of investment return, so you probably do need to be a little bit careful with how much exposure you've got to what theme, yes.

TOM (12:23):
Yeah. John, uh, Russ is saying now you've got to be a little bit careful. Um, from where you sit and the real-time data the Trade Nation tracks [00:12:30] on active investors, uh, are they being careful? What is the client positioning actually telling us right now? Are traders net long or short on this AI trade? And how significantly have execution volumes shifted?

JOHN (12:41):
So we created a basket of AI equity names just to look at this theme, just to really understand what people are doing. And that basket contains all the listed names that you would expect. Obviously doesn't contain the, the big IPOs yet to come. We'll get to that soon. However, the first thing to say is that the volumes on those stocks [00:13:00] have become the predominant trade, certainly for the retail and, and professional investor on our platform. They are up nearly seven times on this time last year in terms of volume, replacing whatever the thing that people were trading last year, maybe more energy based or maybe more crypto based. The second thing really to look at is the trade sizes, and I think that's much more interesting. People are trading around about 50 to 60% larger size. So they're trading with significantly more conviction than they were this time last [00:13:30] year.

(13:30):
And I think that just simply reflects partly the news flow. Things like this podcast give retail investors a greater sense of understanding of what's going on, um, and that builds conviction and partly just, you know, their own sense of where they believe the world is going. Are they

RUSS (13:43):
Using more leverage?

JOHN (13:45):
Uh, they are using about the same leverage, uh, but it's relatively fixed on our platforms around the world, so that's probably not an indicator of anything. Um, the thing that I would say is probably the most surprising though is actually that the sentiment is almost exactly flat over the last month [00:14:00] or so. As many buys as sells, as many longs as shorts. If you go back a year, the sentiment was wildly positive on these stocks, and that has changed. It shifted to a much more kind of net flat. What proportion of that is people taking profits on the enormous share price appreciations? You know, we don't know, but clearly retail investors feel we're, you know, we're at a point where they're as happy to buy as they are to sell.

TOM (14:23):
Brilliant. Thank you. Karen, I want to touch more on how the hyperscalers are funding their revolution. Over the last [00:14:30] couple of years, the big seven predominantly fueled their AI build-outs from CapEx. But in recent months, they've taken on debt, $350 billion worth to keep up with the pace required. When cash-rich tech giants start going to their balance sheets for funding, what does this say about the confidence in AI? Or is it just, you know, another worrying signal?

KAREN (14:49):
I think what it tells us is that the stakes are higher because when you're funding your CapEx out of your cash flow, if it turns out that there isn't the [00:15:00] demand for it, et cetera, you haven't got anybody you've got to pay back. So coming to the debt markets, I think does slightly raise the stakes. That being said, you know, and again, it comes back to my very suboptimal answer of I just wish if I had a crystal ball to look at how the global economy looks in three years time, that would help me so much because, you know, what hyperscalers will tell you is the reason we're coming to the [00:15:30] debt markets is because we are so incredibly confident about end demand that we just can't build these data centres and these technology quickly enough. So we've been building using our free cash flow.

(15:44):
Now, given they don't have really any leverage, I mean, this is the not worrying part of the answer is that they are. Their balance sheets are incredibly strong, so they're coming from very low leverage. So they're saying, "Look, we're just accessing all forms of capital because [00:16:00] we are so confident in the demand for this technology." And therefore that comes back to, you know, my point of we, we don't know at this stage that end demand. Now, their signals so far seem fine. We're still seeing demand rising. Token demand overall is still rising. So I would say, Tom, that it's not necessarily something to worry about, but it raises the stakes in end demand meeting those very high expectations.

TOM (16:29):
Yeah, absolutely. [00:16:30] Moving on from the stakes being higher, I wanna look behind the market debate at a sort of bigger structural story, global debt. The Institute of International Finance in February put total global debt at a record $348 trillion after a $29 trillion rise in 2025 alone. While the IMF projects gross global public debt will cross 100% of world GDP by 2029, a year earlier than previously forecast. Digging a little deeper into those figures, [00:17:00] there are currently 23 economies that now carry general government debt above 100% of GDP, including Japan at 204% and the United States at 126%, rising towards 142% by 2031. In light of Scott Bessen's bond market intervention at the end of August, putting him on a collision course with the Fed's plan slower inflation, what does this mean for markets over the next 12 months? And what does the global picture on rising debt mean [00:17:30] for the next five years?

(17:31):
Ross, I'm gonna come to you first.

RUSS (17:32):
I think the gold and silver price is something that something unusual may be coming around the corner. And that's how I know gold bugs have got their own narrative and always have and always will. But I think they are looking at this growth in debt saying, "Well, this can't go on forever really, can it? And what is the solution to it?" The best way out of a large debt to GDP number is to use a common phra - a popular phrase now growth in every postcode. Genuinely, economic growth is the best way. It salts your debt to GDP ratio down. It brings in tax revenues and it reduces welfare payments. So frankly, let's hope it works. [00:18:00] Admittedly, I believe it could be pulled. It would probably be pulled by now. Nevertheless, that is the way forward. Maybe AI will deliver it, and that will be a huge benefit to everybody.

(18:08):
If it doesn't work out, where do you go? Well, you can try austerity, but be out of a job as a politician within four years. You can default. Well, that's just far too expensive. You can start a war. No, please don't do that. Or you then end up with some form of financial repression and, and, and yield curve control or heaven forbid going back to quantitative easing. And the fact that Treasury 6% is starting to stick his finger in that pie. The Bank of England [00:18:30] is starting to do some slightly unusual things with its guilt holdings. That's what the gold and silver market is sniffing out, and that's why commodities are currently outperforming equities on some measures. This decade, it does feel as if we're getting nearer to some form of endgame than we were five, 10 or 15 years ago.

TOM (18:44):
Yeah, absolutely. John?

JOHN (18:46):
I completely agree with you. I mean, if I had to sum it all up in one word, it's uncertainty. <laugh> Um, you know, we really don't know what's gonna happen. And, and I think this inherent tension between fiscal policy and monetary policy, particularly in the US, is really going to lead to [00:19:00] a kind of polarisation of the views and the consequence swings in asset prices as, as one argument seems to win out over the other, almost on a daily basis. Um, we're gonna see those tensions probably outside the equity market first. We're gonna see them in the price of gold, as you say. We're gonna see them in currency markets and in, in the increased bond market flare-ups. And that, that's what we've really gotta watch. I agree though, if we can grow our way out of this problem, it's probably the only way to - It is.

(19:26):
To get there. Um, it's very, very hard for me to see [00:19:30] another happy ending other than growing out of the problem. But, you know, that is possible. You know, I wouldn't discount the idea that the world economy can grow its way out of this debt mountain, given the investment that's going into a revolutionary technology right now.

TOM (19:42):
Difficult to find another happy ending apart from growing out of this problem. Um, Karen, what are your views?

KAREN (19:47):
I'll come back to what I said at the beginning, which is that the big structural feature of what's going on is everyone wants to spend all of a sudden. Governments want to spend, companies want to spend. Now, the problem is they don't have [00:20:00] the cash flow to do so, so everyone's turning to the bond market. So there's this enormous competition, and the bond market is just saying, "I have choice," all of a sudden. And the bond market is judge, jury, and sometimes our list trust, executioner, and is a very healthy adjudicator in all this spending that's going on. So the bond market is just looking at all this spending and, and thinking, "Okay, well, who's spending this money well?" A- and I would say, actually, the bond market is the judgement , [00:20:30] is that the mo - the money is largely being spent well. We can kind of get a sense of that by decomposing yields into how much yields are rising because people are worried about inflation versus real yields.

(20:42):
And actually, the vast majority of the increase, the uplift we've seen in recent years in bond yields is because of real yields. So people are expecting, actually, that this is gonna generate growth that will then pay for itself. So I think actually, you know, the bond market is certainly telling [00:21:00] us that times have changed. I don't think it's negative necessarily. Um, and I don't think it will necessarily be a problem for risk markets unless the perception is that this money is starting to be spent badly. And it will certainly be a problem for certain chancellors, companies trying to tap the bond market, because as I say, uh, the bond market can be executioner at times, [00:21:30] and if, uh, the bond market doesn't judge, you're gonna use the money well, it's got plenty of other options to go to. But that's, that's gonna be a very healthy course corrector in this political world that we find ourself in.

TOM (21:43):
Yeah, absolutely. One thing you said there was that times have changed. I wanna look a little bit at some of the figures around this. The OECD expects governments and companies to borrow record $29 trillion from bond markets in 2026. That's double the figure from a decade ago, with AI companies alone responsible for about $1.2 [00:22:00] trillion of new corporate debt issuance to 2031. How much structurally higher interest rate risk can capital markets absorb before corporate debt servicing costs start dragging on global growth? Or are we seeing a, a different correlation between bonds and equities now? Because at the end of August, the 30-year treasury yields reached a 19-year high above 5.3%, yet the S&P 500 was only just below record highs earlier in the month. John, [00:22:30] I'm gonna come to you first.

JOHN (22:31):
So, I mean, I think an interesting way to almost rethink or rephrase that question is to think about whether or not earnings growth can just continue to outrun debt servicing costs. That's what we're really talking about here. And, you know, as we've mentioned earlier, there is a strong earnings growth happening right now. But we are seeing this kind of broken correlation effect that those of us who've worked in finance for a long time are finding slightly strange, um, at the moment. Do I think that can continue? Well, it really depends on whether this investment [00:23:00] continues to work out. The last survey that I saw, um, of kind of corporate America as opposed to the financial side, opposed to Wall Street, said that around 90% of firms had yet to see their investment in AI and token increase actually hit the bottom line on Main Street as opposed to the predictions of what will happen.

(23:21):
That's gotta change quite quickly, I think. And if it does, right, you know, all this investment has been great and we can, we can see that that broken correlation [00:23:30] might well end. The one thing I would say is particularly, you know, wearing my hat thinking about the retail investor in this conversation is that that kind of traditional bonds versus equities kind of mix in their portfolio and, and the correlation that they relied on, they rely on it a lot less now and they have other forms of hedge against equity indices, be that commodities, be that crypto, be that property. So I think it's almost less of a worry at some ends of the market than at others that if [00:24:00] that correlation doesn't become predictable thing we've all known and loved for so long.

TOM (24:03):
Was that, uh, corporate study that you're referring to, the MIT study, uh, for the Q1 2025, which said 95% of AI productivity gains were not realised. So there was an ROI, 95% of them.

JOHN (24:17):
Hedge said more than 90, but yes, you're exactly right. <laugh>

TOM (24:20):
Okay, good. Just checking. Uh, Karen, I'm gonna come to you.

KAREN (24:24):
Yeah, I mean, two things I wanna say here. The first is that the debt problem is on government balance sheet. Actually, [00:24:30] the private sector in most Western countries looks good. I mean, in the UK here, the numbers are staggering. Our household debt is lower than any time since 2002. Corporate debt is lower than it's been since 1998. So the vulnerability of higher interest rates is. And the pressure it's putting on is government's balance sheets and forcing them to make difficult choices and difficult decisions. And, you know, it's uncomfortable [00:25:00] for them. You know, it's creating problems, of course, for our chancellor. You mentioned earlier, Scott Bessent had a little go at trying to push down those borrowing costs with an intervention. So that's where the stress is being created. I do think it will cause governments to perhaps reconsider or reign in some of their spending plans.

(25:19):
So that's where the stress comes. Now on diversification for investors, this is really important because the reason we could rely on that negative correlation was because we [00:25:30] only had one type of shock that hit us, which was recessions. And when recessions hit us, central banks immediately slash interest rates that sends the value of your bonds up and that compensates for what's happening in your equities. The problem we have today is that it's no longer just recessions we have to worry about because now we also have inflation shocks. And when it's inflation that's causing us the problem, that causes both stocks and bonds to fall. So I think it's worth remembering, we're still gonna be [00:26:00] hit by recessions. So we're spending a lot of time talking about tech risk. If tech does turn into a problem, I think that will put the US quite quickly into recession and the fed will slash interest rates.

(26:11):
Your government bonds in that scenario are gonna give you, I would say, probably more than 20%. So it's gonna provide an enormous cushion to your portfolio. So holding government bonds for that risk is still very worthwhile. The thing we need to think about, which is new, is this other shock, inflation. What [00:26:30] do we bring in that protects our capital from inflation? It's a totally different tool that we need. And the best options are in alternatives, things like transportation assets, core infrastructure. Now I know not everyone can access those. The more liquid forms are things like hedge funds. But that is the way I think people should think about it. It's simply not that we can now have one tool to protect us from risk. We now have two risks and we need two tools.

TOM (26:58):
Yeah, there can't be one tool to [00:27:00] rule them all. Okay. Russ, onto you.

RUSS (27:01):
Commodities is kind of intriguing me just on the, the hedging concept. You mentioned NVIDIA earlier on, market cap's about five trillion US dollars. So if I was to offer you that $5 trillion or the West seven oil majors, which you could buy twice over and have a trillion dollars in cash left, which would you prefer? Now obviously NVIDIA is clear there's huge confidence in NVIDIA's longevity of earnings and cash flow and not much confidence there once in the longevity of hydrocarbons. But if you were looking for a hedge with everybody not interested in oil, [00:27:30] and in contrast to AI CapEx, oil CapEx to sales ratios are historic averages across the majors. There's not much capacity coming on stream there at all. That's very much a mirror image of what we saw in the late 1990s. Huge CapEx booming tech, no CapEx in oil because oil hit 10 bucks in 1998, not much in mining.

(27:46):
Lo and behold, in the 2000s, commodities outperformed tech and miners and oils outperformed tech. Full stop. And we're in exactly the same situation now, which is an echo that's going round in my head because I sat through it as a tech analyst looking very smugly over at the materials and oils teams for three [00:28:00] years and then feeling like a bit of a clown for the next five or six.

TOM (28:02):
Well, that's exactly what we're gonna get onto actually in episode two because we're looking at this infrastructure and energy play that is behind the big AI, uh, tech stocks. Before we get to that, I want to reflect on the investor landscape and, and what's changed over the last five years. Retail participation in US equities pre-pandemic was low single digits, but the start of this year has risen to nearly 20% of average daily trading activity. Thinking back to the GameStop saga and in light of [00:28:30] SpaceX's IPO offering 20 to 25% of shares to retail investors, what does this say about how market participation is changing and the respect for retail investors now? Karen, over to you.

KAREN (28:43):
Well, first of all, you know, I really like the idea of retail investors being more involved in the stock market. You know, I've been on this sort of pet project of what's going on here in the UK and why we don't access the equity market. Go on LinkedIn, you can find all the stuff I've been writing on that. But I do think, you [00:29:00] know, we have to pay attention to it. I mean, Tom, your question was, how has it changed the landscape? I think it has. Um, and I think what is introduced is more single stock volatility because we do see these sort of means and themes having a much more, uh, a much greater impact on the broader markets, creating more single stock volatility. Now, I think for active managers like ourselves, that creates opportunities, but also challenges. You know, you have to, I think, have research teams [00:29:30] that feel really empowered to focus on the fundamentals and stick to the fundamentals, because what can happen is you can have single stock names doing some things that are totally unexplainable by the fundamentals, and yet, you know, having sometimes benchmark implications.

(29:49):
So being able to sort of stick to your guns and continue investing based on fundamentals can at times become more challenging. So I think it is something we, we pay a lot more attention [00:30:00] these days, but mostly in terms of making sure we're keeping our heads.

TOM (30:04):
Yeah, Ras, continuing on here, will retail investors take larger shares of, of trading and, and IPOs in the future? Or is it just that hype companies are courting retail investors because they can't find demand from institutions?

RUSS (30:19):
I think it's good that people have got the choice and the access to do so. I think my bigger concern is where companies are perhaps you could argue cynically using limited free floats and index inclusion, lever every [00:30:30] type of investor into exposure, whether they know they've got it or not through tracker funds or ETFs, for example. And I'm, I don't view that as a particularly healthy phenomenon. I think that's where, if there is concentration risk, it may well come out in time. But I think looking at some of our client's trends, trading in the Mag seven, for example, has actually cooled off quite a lot and they are now looking, looking at maybe valuations or where there are other different opportunities. We've actually seen a lot of interesting guilts this year. Now that that magic 5% numbers crawl out of the woodwork on the 10 year, on the 10 year gilt and the 10 year treasury, we're actually seeing investors looking, "Maybe [00:31:00] I am being paid to take a little bit of risk there." Whether that's J.H.

(31:03):
Clapham's blind capital seeking its 5% from his Cambridge Economic History of Britain, economic history of Britain that he wrote, what, 120 years ago or something? Or, or whether it's something more fundamental than that, I don't know, but investors are, at the moment at least, keeping their wits about them and being fairly discerning. But yeah, if you wanted me to list what would be a big risk, I would be worried to see a massive list of IPOs of limitators and, and so on coming down the pipe because that's what did do some damage in the late 1990s, early 2000s.

TOM (31:28):
Yeah. And, and John, [00:31:30] stories like GameStop or, or SpaceX dominate the headlines and appeal to the more passive first time retail investor, let's say. But what about the more seasoned active traders? What is some of the data from your platform telling you about how these experienced traders are actually positioning themselves right now? Are they using leverage, short positions or, or tailored hedges and which specific instruments are driving that volume?

JOHN (31:54):
If you strip away the kind of GameStop style narrative about retail traders all becoming a single herd [00:32:00] and kind of flying into a single asset, clearly that, that is a story and it does happen occasionally, but that's not the norm. So if you look roughly over the last month or so, our clients have actually got an incredibly balanced view across the big macro assets. Um, so if you're looking at the big indices, uh, at gold across, uh, major currency pairs, we've seen around 52% long trades versus 48% short trades. That's fairly normal. It, it shows that there is not a, a, a weight of retail decision making in one direction or the other. [00:32:30] Where there is a difference though is actually echoing what Russ was just talking about in the commodity space, and we've seen real directional conviction in energy. Over the last month, 70, over 75% of trades have been long versus short.

(32:42):
Now that might simply be driven by short-term trends around Iran and, and oil supply and but it, you know, it's interesting hearing Russ talk about it in a long, you know, cyclical context. And actually I see it every day on the, on the desk that is playing out that retail investors are, are getting very long energies [00:33:00] right now. Um, and then the only other thing I would say is that, you know, the scale of these upcoming IPOs for the, you know, for the big AI labs will undoubtedly return us to a theme of retail investors investing in those IPOs. There's just no way that that's not going to become a, a massive headline and a massive story over the next year, 18 months. Doesn't mean that's where they're positioning themselves now though.

TOM (33:23):
Okay. Well, we're getting towards the end of the episode and what we do at the end of our episode is have a quick fire questions [00:33:30] to all. First off, what's the single biggest indicator that you would keep eyes on to see if the market will stay Teflon coated or whether the bubble will burst in say the next 12 months? Uh, John, let's go to you first.

JOHN (33:44):
Debt markets move before equity markets typically, so I'd keep a really close eye on the spreads on these AI-linked corporate bonds. You know, if they blow out, I think that will give us a really strong bur signal.

TOM (33:56):
Okay, brilliant. Karen?

KAREN (33:57):
Hyperscaler CapEx plans. So it's [00:34:00] not a date point. I need to listen through the earnings season, but the hyperscalers are feeding a lot of fish in the equity pond all around the world. SK Hynix, the Korean memory provider is up over 2000% in the last three years. All of those companies, Nvidia, et cetera, we spoke about earlier, are being fed by this hyperscaler build out. They start to scale back or even just pause their plans that I think could challenge that whole [00:34:30] input trade. So that would be on my wishlist for my crystal ball.

TOM (34:34):
Crystal ball Christmas wishlist. Yeah, love it. Uh, Russ.

RUSS (34:38):
I'm gonna follow one from Karen, the Philadelphia Semiconductor Index or the SOX. I'm a tech analyst. It's a trillion dollar industry gonna be this year, so it's pl - but there's ubiquity silicon chips everywhere from servers to spaceships to computers to laptops. It's a great read on the economy, definitely plugs into the AI theme. And from an investor point of view, the momentum stocks par excellence. Feed off upgrades, recoil from downgrades, and generally speaking, it rolls [00:35:00] over six months before the S&P 500 dozen picks up six months before it turns up. So I'll hope that the SOX stays pulled up.

TOM (35:05):
Brilliant. Well, what's your one hope for how investors and policymakers navigate this $348 trillion debt mountain while supporting global AI transformation over the next five years? Um, John, we'll come up to you.

JOHN (35:19):
Really simple from me. I simply hope that policymakers can move at a similar speed or ideally even faster than the innovation that's happening across the economy and particularly in the AI labs. Um, [00:35:30] we've seen before what happens when policy follows innovation and doesn't usually end that well. I hope this time we've learned the lesson.

KAREN (35:36):
Karen? Productivity. I just hope productivity shows up nice and quickly because if it does, then all of that spending that I've been talking about, we know it's been put to good use, that the CapEx that the hyperscalers have been doing is turning up in corporate earnings and productivity that governments are going to be able to repay their enormous debts. So I hope we [00:36:00] see lots of fruitful signs of productivity all around the, uh, corporate sector in the coming year.

TOM (36:06):
Brilliant. And finally, Ross.

RUSS (36:08):
Karen slightly nicked mine. I was gonna paradox is that you see the computer edge everywhere except in the productivity statistics and the earnings numbers. And US corporate profits growth has trended at 6% over 20 and 40 years, despite everything that we've seen. So we're currently, what, pricing in 20 plus? So we'd better see that AI boom come through or, and be given every chance to come through in a safe way, or there could [00:36:30] be more difficult times ahead.

TOM (36:31):
Well, thank you to everyone. It's been a fascinating discussion, but one that alas must come to an end. So I'd love to thank my guests, John Noble. Thank you. Karen Ward.

KAREN (36:41):
Hi everyone. Really great to have been here.

TOM (36:43):
And Russ Maud.

RUSS (36:44):
Von, thank you very much.

TOM (36:46):
In today's discussion, we've tackled the signals that define the conflicting narratives of 2026 markets. I'm reflecting on some of the points that our guests have made. Karen's times have changed and the stakes are higher, ring true. [00:37:00] Russ, discussing whether a pause in the pace of the frontier is gonna be worth it. And then John touching on growth being the only way out of the problem. But the last point that Karen made about feeding more fish in the equity pond is a real thinker. And for everyone listening out there wondering what the markets are gonna do now, we don't have crystal balls available to us, unfortunately. We don't know whether to focus on the record high corporate earnings [00:37:30] versus equity concentration or the ballooning global debt pile versus a new correlation between bond markets and equities. It's a really interesting time to be looking at the markets.

(37:42):
One could argue that we're on the precipice of a human and technological greatness not seen before. I think we can all agree on that. But looking back on past booms and busts, we all must take stock. Remember that markets are a reflection of human [00:38:00] endeavour mixed with human anxiety and fear. Whether it's hype or value driving the markets today, precision is key. Well, in our next episode, we focus much more on AI, asking if the valuations are justified by examining what's behind it all, the infrastructure race across semiconductors, data centres, and power grids that make the modern and future economy possible. [00:38:30] For now, I'm Tom Parker and this has been the next Five Podcast. Thanks for listening.