Rachel Reeves’s Tears Move Markets and the AstraZeneca Wake-Up Call
16:47 Share

Pay later and all major cards so you can focus on scaling up.

When it's time to get growing, there's one platform for all business. PayPal Open. Grow today at paypalopen.com. Loans subject to approval in available locations. At GSK, our focus is on doing the right thing for patients. We believe they should be free to focus on doing what they love, especially when they're living with a disease like cancer. That's why we focus where we can make the biggest difference matching the right treatment with the right patient.

At GSK, we're pioneering advanced technologies like antibody drug conjugates that precisely target and attack cancer cells. By uniting science, technology, and talent, we work tirelessly to stay ahead of cancer together. Visit gsk.com to discover more.

In business, plans change fast and your brand has to keep up. That's why teams rely on 4imprint for promotional products that deliver. 4imprint offers thousands of options including apparel, drinkware, tech, and trade show gear. Many available with 24-hour turnaround, helping you move quickly and never compromising quality. You'll enjoy free samples, expert support, and every order backed by their 360-degree guarantee. So it arrives right and on time. Explore more at 4imprint.com. 4imprint.

Welcome to the Merrin Talks Money Market Wrap, where we talk about the biggest moves in the markets this week and what's driving them. I'm Merrin Thumbset-Webb, Editor-at-Large for Bloomberg UK Wealth. And I'm John Stebic, Senior Reporter for Bloomberg and author of the Money Distilled newsletter. We've got another person for our list, haven't we, John? The people who we have to refer to only by putting poor in front of their name. Yeah. And here we are, poor.

Poor Rachel Reeves, what a day. Yeah. We're speaking on Wednesday the 2nd, by the way, and we've just been watching, as we say, poor Rachel Reeves, a bit tearful in Parliament and things really not going well for her. Pound down, yields up. Not good, is it, John? No, it's very messy. And obviously the background to this is that last night, as in Tuesday evening, the government had to pull its welfare benefits bill out

which was meant to save £5 billion. And that was basically the kind of last hope for Rachel Reeves to come anywhere close to meeting her fiscal rules. And so by this morning, she was complete. And we should say to come anywhere close because it was already a kind of rubbish bill. It wasn't saving very much. It wasn't saving nearly enough. It wasn't a root and branch reform. It was just a clip here and a clip there. It was never good enough.

But not even that, with that huge majority, this government couldn't even get that through. Yeah, and I mean, there's definitely fair criticisms of the bill. I suspect that the majority of people who voted against it are not thinking about those particular criticisms. And it does need a sort of root and branch reform to make it work much more cheaply and also, you know, from a fairness point of view.

But basically, it's basically the third kind of budget-related U-turn that they've had. There's the inheritance tax sort of semi-U-turn. There was the winter fuel payments, which they had to completely U-turn on. So this is their third big one. It's also the most embarrassing because...

I mean, you know, it's been very badly managed. You know, there were plenty of points at which they could have pulled this, which would have been less embarrassing. And instead you've been treated to the site of the PM running around, trying to convince the rebels, making all sorts of promises and then still not getting it over the line. And that kind of means that very obviously to anyone,

with eyes the the chancellor's kind of position is untenable um you know the october budget is going to be a big deal and the october budget has to stick it has to land whatever's in it um and so she can't be the one to deliver it so at this point in time she hasn't you know resigned but i mean her her time in that role now surely has to be numbered in

you know, days, if not hours, rather than, you know, weeks or months, as some people maybe thought about a week ago. Interesting. And given how

Well, useless. She turned out to be in this role. Although I would say, as we've said before, I can't really see what anyone could do in this role. It feels like this age of entitlement somehow has to just end badly. There's no easy way out of this. There's nothing that a chancellor can do realistically, particularly not a Labour chancellor with this group of backbenchers. Nothing anyone could realistically do to turn things around at this point.

But nonetheless, you'd think that given that she hasn't done a great job, but perceived to have done a great job, her going, because we're now pretty certain that she will be going, would be kind of good for gilt markets and kind of, you know, maybe good for the pound. Everyone would go, well, there'll be somebody better. But the awful thing that the markets are telling us is that nobody believes that there is somebody better. Is that fair? Yeah. I mean, the problem is, and again, I mean...

This is something that isn't common knowledge. This is the most, if you want to call it this, right-wing configuration possible for the Labour government that's in power just now. So whoever you get and whatever configuration you get, it's going to be more left-wing, more inclined to spend money, more inclined to try and basically buck the markets, which won't work because that's kind of not how it works.

And I guess it's not just Rachel Reeves. I don't think Marcus is just worried about who will replace Rachel Reeves. The fact is that the Prime Minister's authority has been just irreparably damaged by this. So you are back to the position where you're basically back to the position that we were in

are not far off the position we were in just after Liz Truss or even during Liz Truss where markets are losing confidence in the country's ability to be governed properly.

and don't know what's coming next. And the only reason we haven't had an actual crisis is because we don't have the same conditions as we did under Liz Truss, which was, you know, the Bank of England doing rampant kind of QT at the same time and also massive leverage having been built up by pension funds. Basically, LDI isn't a problem anymore. We'd already have kind of blown out by now, I think, if LDI was still there. Yeah.

It's also third world, isn't it? Do you remember that bit when the Labour government first got in, when everyone said, oh, the grown-ups are in the room, welcome to stability? I think we felt for that ourselves a bit, John. We thought they'd do all kinds of stuff we didn't like, but we at least thought they'd do it in a stable environment and that that would somehow be good for the UK stock market, good for the bond market, et cetera, instead of which, here we are, and all that muttering about how everything is going to be fine in the UK, the market is going to rise. I mean, it has, it has. The markets don't well. Give me that. But, but, but, but,

But AstraZeneca, which you've written about this week. Yeah, and to be fair, that's not actually directly related to this, but this certainly won't help. So there was a news story. It's not related to it, but it's part of the whole story of the dysfunction of AstraZeneca.

the UK. You know, this, of course, it's not directly related to what's happening with Rachel Reeves and Keir Starmer right now, but it's related to the fact that people look at our market, look at our economy, look at everything and go, this is a dysfunctional state that should not be valued in the same way

as some other states, which is miserable. And now we have one of our largest companies, one of our most well-known globally, UK companies, AstraZeneca. And you wrote about it this morning, saying it accounts for over 7%, over 7% of the whole FTSE 100. And now they're muttering about leaving for the US, not just muttering it. Well, yeah, I mean, so this was a report in The Times. And it's, you know, it's one of those reports that is

confirmed by multiple sources, which was journalism speak for we couldn't get anyone to actually put their name to this. But multiple sources, you know, I mean, yeah, of course they're talking about it. The real question is whether they're talking about it loudly enough to act on it. But the fact that it's being reported like this, the fact that whenever the rumour came out yesterday afternoon, AstraZeneca's share price kind of jumped by 3%. I mean, that's a real kind of slap in the face, the idea that

It's like people in London are thinking, yeah, it'd be a great idea if you left and kind of, you know, went over the U.S.,

I mean, you can see why they would want to do it. There's been longstanding irritations. They're not kind of the question marks of the regulatory environment in the UK. Obviously, Trump's tariffs are an issue because that would make you think, actually, maybe it'd be better if we were listed in the US and then that might make things more politically easy over there.

But absolutely, the other issue is that the governance here has been so unpredictable for such a long time now. The thing I was thinking about even before this morning happened was,

I was thinking, well, somebody had said on Twitter after this story broke, if I was Rachel Reeves, I'd be phoning Pascal Soria right now and asking him what his concerns are. And I was thinking, yeah, but Pascal would be well within his rights to turn around to Rachel and say, yeah, but you're saying all these things now. How do I know you're going to be the customer services person in the job by the end of the week? And so it's that inconsistency that's another issue. But Adolf,

It would also be within his rights to say it's not like any of this is new. All the problems with the UK stock market are well known. Lord, John, we've been writing and talking about this for, I mean, years at this point. There is no new information here. A good chancellor, as we've said from the very beginning of her being in the job, a good chancellor would have been on this immediately.

Trying to find ways to improve the environment for the UK stock market. And the obvious way to do that, of course, as we say over and over, is to get rid of stamp duty or at the very least bring it somewhere near to global norms. That would have been the obvious and immediate thing to do to send a signal to the world that we are open for business, instead of which we send signal after signal saying, actually, do you know what? We're kind of closed. Closed. Actually, completely closed. Totally closed.

And in chaos, by the way. We haven't even got the bandwidth to think about whether you should list here or not because we're kind of busy infighting. Yeah, and that is the frustration because, I mean, one of the reasons that we gave the new government something to the benefit of the doubt is because whenever... Yeah, aye, we did. And whenever they came in,

The UK economy was pointed in the right direction. And before the election, they were talking as if they were kind of pleased about that, that they'd taken that on board and that they were going to run with it. And as soon as they came in, they embarked on a punishment budget.

which was basically in order to kind of scorch earth and take advantage of the lingering sense that Liz Truss and the Tories had somehow blown up the economy. And they kind of wanted to imprint that fiscal irresponsibility on the rival party.

So basically settling old scores from probably still feeling a bit kind of like annoyed that the Tories had done the same thing in 2010. But instead what they did is they screwed themselves. You know, we could be in a much better position right now if it hadn't been for the tactics that have been deployed in the last year. I firmly believe that. And you're right, we should have scrapped stamp duty because it costs like three and a half billion.

a year that's all it makes um which is buttons and when and we and we know what it does to our market listen while she's still in place there's one more thing i'd like to be crossed with rachel reeves about i mean it will be nicer about it when she's gone tomorrow the day after end of the week whenever it is but anyway before she goes this is one one more thing i want to talk about which is private equity and one of the things that she has discussed at length is this idea that um

pension funds will be obliged to put a certain amount of money into UK private companies or private projects at least. And I don't know if you saw this, there was an article in the Wall Street Journal competition alert about a letter written by a US politician, Elise Stefanik, asking for an investigation into Harvard's financial disclosures to their bondholders. And what she's really talking about in this letter, which we'll put in the show notes, actually a link to it,

What she's really talking about in this letter is asking for a good look at the percentage of the assets that Harvard has that are tied up in private equity funds and the extent to which those funds are overvalued. And one of the things she says is that perhaps

Just maybe the real realizable value of those assets is likely far below stated values. Now, I looked at that at around the same time that I started reading a note sent to us by Dan from Verdad. We met him on before. Excellent podcast. Go back and listen to that if you haven't, everybody.

He sent around a note saying that they've had a look comparing, everyone will want to complain about their methodology. So again, I'll put that link in the show notes. Go and look at it yourself. Comparing companies owned by private equity with S&P 500 companies. And here's the data. S&P 500 companies pay 1% of their revenues out in interest. They pay an interest rate of around 4% on their debt. They have EBITDA margins of 25%, free cash flow margins of 9%.

For PE companies, those numbers are 4%, 8%, 7%, and 2%. So overall, what we're saying here is that private equity-owned companies are smaller. We know that bit. They're more leveraged. They pay higher interest rates, and they have much lower margins than public companies. Yet, yet, private equity fund management firms...

want you to pay more for these companies than you would for a listed company. Now, that would work. That would be fine to a degree if they were growing very, very significantly faster than listed companies, right? Very significantly faster. But guess what? They're not.

The PE companies that come out in VEDA data are growing in revenue terms at about the same speed as S&P 500 companies. So you haven't even got the growth. So you look at that and you don't have to wonder anymore why it's so hard for private equity companies to exit at the moment. They can't get rid of these things to listed companies because they know all this stuff and they certainly can't list them at the kind of price that they want to list them. And then of

Of course, as you and I know, that if you really want to buy small and illiquid companies, you can do that way, way cheaper with the added bonuses tucked in for free of daily market to market and possibly even some transparency. Yeah, you can buy listed small caps. Yeah. Why wouldn't you? And I was talking to Alec Cutler, who, again, we've had on the podcast before about this earlier.

And he's like, it's just branding, literally branding. Private equity has an incredibly successful branding campaign and managed to make people believe that a small, illiquid, slow-growing small cap is worth more when you can't find out anything about it than it is when you can. It's basically you're paying a premium for going behind the velvet rope.

That's it. It's like a members club. And do you know what I love best about private equity? It was the way that they managed to turn the illiquidity issue into a premium by saying that it was basically a behavioural bonus.

So because you didn't know what it was worth and because you couldn't sell it anytime you wanted, that meant you should pay more for private equity because it would stop you from doing something stupid. I thought that was staggering. That was the best sort of like, the most amazing prices forming rationale

was turning that argument on its head. It was just spectacular work. And maybe, just maybe, just maybe, those private equity companies will be eventually listed. We will have a pile of IPOs at the right price. It'll all be very interesting. Our markets will expand again and we'll be back on track. That's with no help from Rachel Reeves, but it could happen that way, right? Yeah. So what you're saying is we're on buy and aim tracker now.

Yeah. But all I would say, John, is that whenever anybody on any podcast or in any interview starts a sentence with, well, what you're saying is, almost always that person is not saying that. That's my experience. That's...

That's the closest thing, a caveat, you're ever going to get in this podcast. That's good. It really is. Anyway, anyway, okay. All eyes on Rachel Reeves and we'll be back to talk about this more next week. Thanks, John. Thanks, Mel. Thanks, Mel.

Thanks for listening to this week's Merrin Talks Money debrief. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter. We will be watching UK politics very closely over the next few days. I'm at Merrin SW and John is John underscore Stepak. John also needs new followers. Please follow him. He's very far behind me on followers. I've just hit 60,000. I'm so winning. John is still languishing around 20. Help him get to my level.

This episode was produced by Sam Asadi and Tala Ahmadi. Production support and sound design by Blake Maples. Questions and comments on this show and all our shows are always welcome. Our show email is merrimoney at bloomberg.net.

Pay later and all major cards so you can focus on scaling up.

When it's time to get growing, there's one platform for all business. PayPal Open. Grow today at paypalopen.com. Loans subject to approval in available locations. As a contractor, I don't pay for materials I don't use. So why would I pay for stuff I don't need in my mobile plan? That's why the new MyBiz plan from Verizon Business is so perfect. Now I can choose exactly what I want,

So, have you heard the story about the prescription plan with savings automatically built in?

It's where a family of any size can feel confident the cost of their medication won't hold them back. Go to cmk.co.stories to learn how CVS Caremark helps members save just by being members. That's cmk.co.stories. This is an iHeart Podcast.