FTSE 250 & UK MACRO ANALYSIS [Q2 2024]

I'm going to be looking at the footsie 250 and also at the macro situation in the UK before I start this video please remember I do these just for fun as a hobby and always speak to a professional financial advisor before making any investment decision so I like to start with the long-term View and we have the trend of stocks always going up or the 5250 way going up and it's quite notable the change in gradient of that ever since the Govern and the central banks started their new kingin economics Doctrine however ever since the government decisions following the woan outbreak things seems to be floundering a bit and at my previous update I had all kinds of options but actually where we are now I think that we have double bottoms here and it looks like we are in the orell new k an economics scenario now here's the footsy 100 but of course this isn't really so useful as an index because there's only a small handful of stocks dominate uh its market cap overall and most of the revenues for these companies are international so we can expect the footy 100 to carry on regardless as it has been but it's not really of much use to me anyway so here we have my macro Pro dashboard and we see that we are in really a a mild stagflationary situation here with GDP growth at around 1% and inflation at 4% these are my own guesstimates based on the current quarterly times 2 plus the previous two quarterly however we've got very low unemployment at only 4% and of course stock markets and house prices are doing great at the moment so here I've got the long long term Trend and these are all annualized numbers and we see the interest rates have returned to this historical Norm of around 5% because of the government's covid policies we had this surge in inflation but also GDP but those are withering away now to quite okay numbers unemployment is really low we see see that compared with historical data it's unemployment numbers really good at the moment and here we have the government fiscal deficit as a percentage of GDP and overall debt it's not good but it's kind of stabilizing really the key thing here I think is the inflation although of course the government like to point towards the year on-year data because it's year onye that isn't such useful data for me and I like to look at the month on-month CPI H data and I package that into quarterly data sets and from this that's how I've got my 4.1% per year number that I think is where we are bear in mind that the the May print of 0.4% that would be well over 4% per year so clearly despite what the uh year- on-year headline inflation numbers to say the real inflation that's going on as of now is actually quite High inflation is still out of control as far as I'm concerned here we have the new Kean economics control panel which the bank of England think that enables them to control the economy perfectly using mathematical models which they call the dynamic stochastic General equilibrium however this jiggery poery has only been enabled by a series of deflationary forces that we've had the fortune of living under particularly the growth of the internet technology and globalization now the globalization and AI are have question marks at the moment I mean the globalization that's probably going away at the moment as a deflationary force and then of course however the AI when it comes in could be a new massive deflationary Force but I actually think that's a long way off against this you also have inflationary forces and currently really the supply chain is the the main one particularly with the fact that the the SE Canal is not really accessible to European and American ships anymore but otherwise there's not really anything actual to report at the moment but these are things that we need to be keeping an eye on in the long run and the situation certainly is a lot better than it was a couple of years ago the other thing that enables this newy new Kian economics is the fact that we have Reserve currency status so the quantitative easing and stuff which the UK government's been able to do a lot of other countries in the world wouldn't be able to do because they have much weaker currencies so in terms of Pound Sterling it is actually fairly stable at the moment but when we look at the yield curves here's what a normal yield curve supposed to look like that's a Japanese yield curve here's our yield curve and you see it's unfortunately it's inverted and so this really is why I've got this uh with a yellow warning ring around it because um although generally yes pound sterling seems stable at the moment I do think we need to consider this inverted yield curve as a significant risk factor now there's several ways that we could get back to a normal yield curve one would be if the economy was to collapse or we'd have a a proper recession Etc then that would actually lead to deflation and inflation would completely disappear and then that would allow the bank to lower interest rates down to 2% or something and then would be back at a normal looking yield curve however another way which is really my kind of base case that I'm working off here for my main portfolio Investments is that maybe the government will drop the uh base rates by a percent or two but the because of our fiscal indiscipline issues that we have with government debt at 100% of GDP and the fiscal deficit at 6% of GDP per year this will keep the long end of the curve relatively high and so that's a kind of mechanism by which we could return to a normal looking yield curve but without the crash and that would incidentally also leave us ending up in the the longer term trend of having interest rates around here this 5% rather than down at the 0% so here's the actual individual data plots here and obviously interest rates have dated the same quantitative easing is being very slightly reduced but not much the year on-year inflation looks great however like I say when you look at the month on month we're actually in a bit of an inflationary issue at the moment and that's why I'm certain they won't be lowering interest rates at the moment or if they do they won't do for long house pric is looking great the GDP and this is very interesting because we were in a recession last year well now we are out of that recession you've got these two facts two kind of Topline facts of we're technically out of for recession we're just coming up here off a double bottom in the footy 250 this does give me bullish sentiment those two facts on their own unemployment's looking great uh government debts increased actually last month to 100% of GDP from 98 and GDP is about 2.7 trillion as his government debt and then down here we have the nasty fiscal deficit numbers so overall really there I've been exposed to a lot of negative news recently uh people talking about problems with the banking system der the derivatives markets relating to the banking system we've got the unwinding of the Yen carry trade and the potential issues there but really when I just focus on my main data points I use for my macro really what I see is we were in session last year and then technically at the footsie 250 we hit the double bottom we're back off to uh the usual Trend so for me I'm getting Deja Vu here of like a 2009 2010 feeling because I can clearly remember around here we'd had a lot of bad stuff happening but I was but it did it just somehow didn't feel like enough people had been punished enough for all the Badness that had gone on and I could remember month after month you'd hear news stories of factories closing here and there but when I went when I'd go to the rest my local restaurant it would still be packed full of people and people were still spending money people still living off debt for all the dongers and I can clearly remember back here watching Peter Shi and Jim Rogers videos but doomsday never came you know and it was actually 2009 2010 was actually the start of one of the best periods you could be in the market for so really I feel like it's the same thing again you know things will be sluggish for the UK compared with the us to start with but then you'll see the US race off and then we'll be racing off ourselves in a year or two so really my base case really is that we've had a double bottom here we're pulled out of recession and it will be maybe weak for a year but I think it's you know my base case here is that the worst is behind us and it's all stemming from this new Keenan economics model and although I think that will lead to um a major issues in the future I still think we've got I still think we're going to get another runup of easy money think I still think that this model's got quite a lot longer to go before it never collapses so according to my base case you know now is the time to start carefully picking different sectors within the footsie 250 so that really is my overall summary for the footsie 250 but now I'm going to start going into detail with some other items here I've got some of the different macro factors all all put together when I look at this I can't help but think that when we had the Wuhan outbreak the government made a mistake too much quantitative easing which then led to the rampant inflation actually they could have just not done half as much and maybe that would have been good uh and the situation now is you know um I feel like we're back to this uh situation that we were up until uh the credit crisis in terms of the interest rates and we're kind of at a kind of normal level but that's because of this excess in quantitative easing and you're going to have to wait for that all to work off before you'd be able to drop the interest rates back down to zero without causing the rampant inflation again so here I've got some fiscal things and you can see how you can see here how the government overreach during following the Wuhan outbreak has led us to being significantly poorer than we were before when you compare the GDP to government debt we actually though were in a net qualtity fiscal Surplus in q1 so that's a return to normal after a long time getting there and here I have government receipts versus government spending and you can see the government's actually spending 50% more than it was before the Wuhan outbreak here's government spending as a percentage of GDP and you can see here before World War II we were we had a free market economy whereas now we're effectively a socialist republic with over 43% of our GDP related to government spending and then the retail sales and you can see because of the inflation although the value is perhaps slightly going up the volume's down this is very bad and actually this is kind of contradictory data to my base case that I announced in my summary there before so this is something to definitely uh think about and return to maybe we see this pick up but if we don't then maybe we could get this recession here you can see how interest rates when when you go back to the 70s where we are now is actually a kind of historical normal or low even so one of my main base cases at the moment is that we're going to uh retain interest rates around this level unemployment you can see how great the employment situation is in the UK inflation you see what how horrendous it was actually the inflation we've experienced the last few years and here we have house prices and when I look at that house price trend as someone who just loves working with data I can't help but just draw a line through it and I'd argue that really house prices are continuing the trend they've had here we have GDP and obviously if my base case is right we'll see this continue to go up however again it's looking a bit jittery and so if it if the opposite happens I need to really focus on that as it would disprove my current base case and the same with M2 money supply something that's interesting is I looked at the US money supply at my last video I did and we got this really nice exponential curve whereas really it's not so exponential for the UK and I find that interesting I wonder if that's something to do with the dominance of the US dollar over the rest of the world well we don't get the same crazy benefits that they do which is something mirrored actually in the how our stock markets reacted as well compared to theirs but this is something else that I need to keep a close eye on as it could validate or unvalid my base case my base Theory at the moment here's the yield curve since the start of the year and actually our implied probability of defaults increased by 0.1% and we see that whereas at the start of the Year we're around 4% here um or even at 2% um at six mon six months previously obviously base race increased which gives us this 5.25% number up here at the short end but on the long end seen it increase from below 4% at the start of the year 2 and a half% last year to just below 4% beginning of this year to now we're we're moving towards 5% at the long end so for me the devil is in the detail and um this this supplementary info we've picked up a few things to keep an eye on to help validate my base case that we've moved off a double bottom we're back into this all hell new Keon economics trajectory but because inflation's a bit on the high side the government won't be able to lower rates also because of also because of the issues with our fiscal IND discipline so I hope you found this video useful and see you at the next one I do videos like this one just for fun as a hobby it's for entertainment purposes only always consult a qualified financial advisor before making any investment decision