Latest / Merryn Talks Money / Why Avoiding Investments Is as Important as Investing

Transcript

Why Avoiding Investments Is as Important as Investing · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
• 0:16
  Speaker 2: Welcome to Maren Talks Money, the podcast in which people
• 0:19
  Speaker 2: who know the markets explain the markets. I'm Meren Somerset Web.
• 0:23
  Speaker 2: This week I'm speaking with Jo word Mean, chief strategist
• 0:25
  Speaker 2: at Stray Reflections and Independent Global Macro Research and Trading Advisory. Now,
• 0:31
  Speaker 2: one of the reasons I wanted to speak to Jo
• 0:33
  Speaker 2: word this week is because he looks at markets with
• 0:35
  Speaker 2: quite a historical context, and regular listeners will know that
• 0:38
  Speaker 2: we're mildly obsessed with the stock markets of the nineteen
• 0:41
  Speaker 2: sixties and the nineteen seventies, what happened there and how
• 0:44
  Speaker 2: that reflects onto today. So Joad, thank you very much
• 0:48
  Speaker 2: for joining us.
• 0:49
  Speaker 3: Welcome, pleasure to be with you.
• 0:50
  Speaker 2: So let's start by looking at the sixties and the seventies,
• 0:55
  Speaker 2: what happened in those markets and how you feel they
• 0:58
  Speaker 2: tell us something about today.
• 1:01
  Speaker 3: So a couple of interesting trends that we've seen recently
• 1:04
  Speaker 3: that we can find echoes in the past. In the
• 1:07
  Speaker 3: last decade we talked about especially post pandemic, there was
• 1:10
  Speaker 3: this idea of the yolo market and the smack boom,
• 1:14
  Speaker 3: and when you go to the sixty that what's interesting
• 1:16
  Speaker 3: is back then you had Jerry Say, who led this
• 1:20
  Speaker 3: movement within the Go Go Years, as it was named.
• 1:24
  Speaker 3: Go Go fund assets increased from two hundred million dollars
• 1:26
  Speaker 3: in nineteen sixty three to three point four billion in
• 1:29
  Speaker 3: nineteen sixty eight, an increase of seventeen times. And you
• 1:32
  Speaker 3: can compare that to Kathy Woods, who became the star
• 1:34
  Speaker 3: of the Yolo market in some ways, and her firm's
• 1:37
  Speaker 3: assets row seventeen times as well, from five billion to
• 1:40
  Speaker 3: eighty five billion, another you know, increase of seventeen times.
• 1:44
  Speaker 3: Go Go finds made three and forty four percent between
• 1:46
  Speaker 3: nineteen to three and nineteen sixty eight. Woods Frackship fund,
• 1:49
  Speaker 3: our innovation jump more than three and fifty percent just
• 1:51
  Speaker 3: from the pandemic low to February twenty twenty one. The
• 1:55
  Speaker 3: other thing was, back then you had the conglomerates boom
• 1:58
  Speaker 3: and John Brooks described that as an era of show
• 2:01
  Speaker 3: offs and shenanigans, and that sort of led to again
• 2:05
  Speaker 3: what we see today or more recently, SPACs, which was
• 2:08
  Speaker 3: at once obscure Niche Nestleveico became the hottest trend on
• 2:12
  Speaker 3: Wall Street. And then the third thing I would say
• 2:15
  Speaker 3: was the idea of how retail completely changed the landscape
• 2:21
  Speaker 3: back then. Mary Lynch opened over two hundred thousand new
• 2:24
  Speaker 3: Brokes's accounts in the first five months of nineteen sixty eight,
• 2:28
  Speaker 3: and there were about thirty one million Americans who owned
• 2:30
  Speaker 3: the stock, more than one in every four adults, a
• 2:32
  Speaker 3: fifty three percent increase in nineteen sixty five when they
• 2:35
  Speaker 3: were just over twenty million. And if you look at
• 2:37
  Speaker 3: it again comparing it to the recent times, you had
• 2:40
  Speaker 3: fifteen nine million people who held accounts with one of
• 2:42
  Speaker 3: the top seven years workers in twenty nineteen. By twenty
• 2:45
  Speaker 3: twenty one that number each ninety six million, a sixty
• 2:48
  Speaker 3: percent increase, with seventeen million new accounts open in twenty
• 2:50
  Speaker 3: twenty and twenty million more in just than the first
• 2:53
  Speaker 3: out of twenty twenty one.
• 2:55
  Speaker 2: Okay, so you have this dynamic where you have a
• 2:57
  Speaker 2: big name, kind of leading hero fund manager. Right, you
• 3:01
  Speaker 2: go through this period and Gerald's side, he was with
• 3:03
  Speaker 2: their Fidelity right initially and then set up on his
• 3:07
  Speaker 2: own and became a sort of a brand in his
• 3:09
  Speaker 2: own right, same as Kathy Woods, who, by the way,
• 3:11
  Speaker 2: we have had on this podcast before. Anyone who's interested
• 3:13
  Speaker 2: in what Kathy Woods thinks about markets. Please go back
• 3:16
  Speaker 2: and listen to that one. It was also great fun
• 3:18
  Speaker 2: to do. So you have these sort of celebrity fund managers,
• 3:21
  Speaker 2: You have these fast rising markets. You have these products
• 3:26
  Speaker 2: that old timers in the market might look at and say, well,
• 3:29
  Speaker 2: that makes no sense. But maybe you have a new
• 3:31
  Speaker 2: generation of avestas who haven't seen bad things happen in
• 3:35
  Speaker 2: the market before, and so they come on at speed.
• 3:38
  Speaker 2: You get this huge retail participation, you get a bubble,
• 3:41
  Speaker 2: and then of course eventually the old timers who've been
• 3:44
  Speaker 2: bearished for far too long or right, but after everyone
• 3:47
  Speaker 2: else has made a big part of money. That makes sense,
• 3:50
  Speaker 2: But we're still in a bull market, Kathy Woods as
• 3:54
  Speaker 2: her performance might not be so good anymore. So maybe
• 3:56
  Speaker 2: we can compare to Gerald's side back then, but nonetheless
• 3:59
  Speaker 2: we are still in a bill market. It doesn't reflect
• 4:02
  Speaker 2: exactly right, or does.
• 4:03
  Speaker 3: It it does? I think? So let me explain the
• 4:05
  Speaker 3: price action. Right, So back then from the nineteen sixty
• 4:08
  Speaker 3: six the bearmarket. In nineteen sixty six, we had the
• 4:10
  Speaker 3: first stop and then SP five hundred dropped twenty four percent,
• 4:14
  Speaker 3: and that bear market lasted eight months. It was not
• 4:16
  Speaker 3: followed by recession. Instead, a new speculative binge, the second
• 4:20
  Speaker 3: in the decade, took hold, and the averaging daily training
• 4:23
  Speaker 3: volume for nineteen sixty seven on the NYC surpassed ten
• 4:26
  Speaker 3: million shares, a new high by long shot, and compare
• 4:29
  Speaker 3: that today. We had the peak in January twenty twenty two,
• 4:32
  Speaker 3: and what followed was again a twenty seven percent bear
• 4:35
  Speaker 3: market over nine months. No recesion follows, and we've had
• 4:38
  Speaker 3: another stock market boom. That's that's continued. In nineteen sixty
• 4:42
  Speaker 3: eight was the second peak, and it was sixteen percent
• 4:45
  Speaker 3: above the nineteen sixty six peak, and it's led to
• 4:48
  Speaker 3: the next big decline of over thirty percent over the
• 4:50
  Speaker 3: next two three years, wiping all of the games out
• 4:53
  Speaker 3: from the Google years. And again right now, this is
• 4:56
  Speaker 3: where we are. You know. The key point is this,
• 4:58
  Speaker 3: after a climactic like the twenty twenty one peak, exhaust
• 5:02
  Speaker 3: spective energy, the next space isn't another vigorous bull market,
• 5:06
  Speaker 3: but a more subdued one with sort of less upside.
• 5:09
  Speaker 3: And so here we are today where we're about twenty
• 5:12
  Speaker 3: five percent up from the twenty twenty one level, and
• 5:15
  Speaker 3: we're seeing concentration in the MAC seven names, which speaks
• 5:20
  Speaker 3: to the desire to be in trusted, cash rich earning
• 5:23
  Speaker 3: generating companies more so than the spective one that we
• 5:26
  Speaker 3: saw previously.
• 5:27
  Speaker 2: Yeah, although twenty five percent up doesn't feel very subdued,
• 5:30
  Speaker 2: that feels like that's quite a big rise.
• 5:32
  Speaker 3: Only if you think that this can discon continue, right,
• 5:35
  Speaker 3: I mean, twenty five percent over the twenty twenty one high.
• 5:38
  Speaker 3: To me, that's not seemed very significant. And I think
• 5:41
  Speaker 3: it's about where do we go from here?
• 5:44
  Speaker 2: Okay, Mike, I guess that is the key question. Then
• 5:46
  Speaker 2: where do we go from here?
• 5:48
  Speaker 3: Look? I think what's interesting is if you also jump
• 5:51
  Speaker 3: into the seventies next, you'll notice that there's another comparison
• 5:55
  Speaker 3: that you can make between the MAC seven and the
• 5:58
  Speaker 3: nifty fifty stocks and back then, you know, the few
• 6:00
  Speaker 3: fifty stocks straighted at about forty two times earnings at
• 6:03
  Speaker 3: their peak, more than double the SB five hundreds average
• 6:06
  Speaker 3: of nineteen, and their valuations were said to be okay,
• 6:11
  Speaker 3: because these guys we're going to continue to grow into
• 6:14
  Speaker 3: their earnings like no price was high enough. And while
• 6:17
  Speaker 3: that prediction was correct, the misconception was it didn't matter
• 6:21
  Speaker 3: what you've paid for them, because they continue to generate
• 6:26
  Speaker 3: earnings growth around nine percent of the next twenty five years,
• 6:29
  Speaker 3: but they had it in to endure a pretty decent
• 6:32
  Speaker 3: decline over the nineteen seventies bear market and then the
• 6:36
  Speaker 3: Magnificent seven like the nifty to fifty at their peak,
• 6:38
  Speaker 3: we're treating at more than double the SB five hundreds
• 6:41
  Speaker 3: valuation multiple in July of last year. The basket as
• 6:44
  Speaker 3: a whole has peaked in December of last year. And
• 6:47
  Speaker 3: so if history is any guide, you know you have
• 6:49
  Speaker 3: to keep in mind that the price matters. And so
• 6:54
  Speaker 3: the idea is, what if the SP five hundred is
• 6:57
  Speaker 3: right now reaching heights that won't be surpassed the next decade.
• 7:01
  Speaker 3: So what I mean by that is if you do
• 7:03
  Speaker 3: see a thirty percent decline from here, and we can
• 7:06
  Speaker 3: discuss specific reason as to why that may happen, but
• 7:08
  Speaker 3: if you see a thirty percent decline from here, you're
• 7:11
  Speaker 3: looking at a bottoming somewhere around twenty twenty seven. It
• 7:14
  Speaker 3: takes about two and a half years to typically recover
• 7:17
  Speaker 3: from a bear market low to the high water mark again,
• 7:20
  Speaker 3: which means we could be stuck around the six hundred
• 7:22
  Speaker 3: level back in again in twenty twenty nine or twenty thirty. Even.
• 7:26
  Speaker 2: Yeah, let's go back to the nifty to fifty AM
• 7:28
  Speaker 2: and the lesson that was learned then that needs to
• 7:30
  Speaker 2: be learned over and over and over again, it seems,
• 7:34
  Speaker 2: is that a good company is not necessarily a good investment,
• 7:38
  Speaker 2: and price does matter. So the feeling then, and you
• 7:42
  Speaker 2: get this feeling now as well in large parts of
• 7:44
  Speaker 2: the market. I think the feeling then was that it
• 7:46
  Speaker 2: doesn't matter what the price you pay, because this is
• 7:48
  Speaker 2: a great company, it's going to keep growing, it's solid,
• 7:51
  Speaker 2: it's absolutely fine listening's but absolutely true about lots of
• 7:54
  Speaker 2: those companies. But still the price can be too high.
• 7:57
  Speaker 2: So that was the lesson that investors learned then and
• 8:00
  Speaker 2: investors of maybe some investors have already forgotten.
• 8:04
  Speaker 3: Yeah. So interesting because even if you bought the ninety
• 8:06
  Speaker 3: fifty stocks at their peak, the return from those investments
• 8:10
  Speaker 3: would have still closely massed they as we five hundred
• 8:12
  Speaker 3: and twelve percent annual return over the next twenty five years.
• 8:15
  Speaker 3: But it's just that you had to endure a decline
• 8:18
  Speaker 3: in some of those stocks upwards of eighty five percent.
• 8:20
  Speaker 2: Yeah, so you just paid too much upfront and you
• 8:23
  Speaker 2: had to wait a long time for that return to come,
• 8:25
  Speaker 2: but it did come, which is crucial. So if you look, now,
• 8:28
  Speaker 2: let's take that over to their Magnificent seven or perhaps
• 8:30
  Speaker 2: the AI or the AI adjacent stocks as we now
• 8:32
  Speaker 2: call them, and again we look at those stocks, or
• 8:35
  Speaker 2: part of the market looks at those stocks and says,
• 8:37
  Speaker 2: it doesn't really matter what you pay because they will
• 8:41
  Speaker 2: grow into those valuations, which might be true, but that
• 8:44
  Speaker 2: growing into the valuation could take a very long time
• 8:47
  Speaker 2: and that there could be a big correction. First, is
• 8:50
  Speaker 2: that the correct way to look at the mirroring from
• 8:51
  Speaker 2: the nineteen seventies.
• 8:53
  Speaker 3: I think so, and I think we've reached those sorts
• 8:55
  Speaker 3: of extremes. And our fundamental belief is that you know,
• 8:59
  Speaker 3: you know, whatever period off the last few decades we
• 9:02
  Speaker 3: look at that, we can get into the eighties and
• 9:03
  Speaker 3: the nineties as well. But we believe that that stocks
• 9:06
  Speaker 3: are in a topping process more broadly, and the topping
• 9:10
  Speaker 3: process isn't a specific point or there's just one catalyst.
• 9:13
  Speaker 3: It takes you know, typically you know, seven to eight
• 9:17
  Speaker 3: months up towards twelve months, because different sectors and styles
• 9:19
  Speaker 3: speak at different times. But just for you know, context sake,
• 9:24
  Speaker 3: let's keep in mind. The NICKE peaked in July of
• 9:26
  Speaker 3: last year. Microsoft peaked in July, the semiconductor index peaked
• 9:29
  Speaker 3: in July, the high yield sector you know, peaked in September.
• 9:33
  Speaker 3: Home builderspeat in October. Now, semiconductors and the home builders
• 9:36
  Speaker 3: were the top two performing sectors since October twenty pointy
• 9:38
  Speaker 3: two low following that you've had in November, micro strategy peak,
• 9:44
  Speaker 3: the transports peaked, swakacs peaked nine seven, like I said,
• 9:48
  Speaker 3: as a basket peaked in December. Apple and Testla peaked
• 9:50
  Speaker 3: in December. Mean coins peak in December, in Vidia peaked
• 9:53
  Speaker 3: in January, and so far bitcoins peaked in January as well.
• 9:57
  Speaker 3: So we can see the sort of over arch topic
• 10:00
  Speaker 3: process developing, and they're now a function of what are
• 10:06
  Speaker 3: specific catalysts that could happen that could lead us into
• 10:10
  Speaker 3: a bear market? What are they? So? I think there's
• 10:14
  Speaker 3: certain conditions that are necessary but not sufficient, amongst which
• 10:17
  Speaker 3: is bullish sentiment. It is consumer expectations for stocks over
• 10:20
  Speaker 3: the next twelve months. It is you know, stronger dollar,
• 10:23
  Speaker 3: higher interest rates, it is insider selling, Michau cash levels
• 10:27
  Speaker 3: at record low levels. All of these things are you know,
• 10:30
  Speaker 3: part of what you want to see as necessary but
• 10:32
  Speaker 3: not sufficient. And I think what's interesting is the deep
• 10:37
  Speaker 3: Seek news moment that occurred recently. I think creates a
• 10:41
  Speaker 3: crack in the AI narrative to an extent. And you know,
• 10:45
  Speaker 3: Soros had this sort of framework of how he would
• 10:48
  Speaker 3: look at a bubble, which follows a predictable pattern, you know.
• 10:53
  Speaker 3: And you know stage four of a five stage process
• 10:56
  Speaker 3: was at twilight period where faith waivers. And I think
• 11:00
  Speaker 3: what we're seeing with deep Seek is this idea for
• 11:02
  Speaker 3: the first time in this cycle that perhaps we may
• 11:07
  Speaker 3: be able to lower the cost per unit of intelligence
• 11:11
  Speaker 3: going forward. You know, every bubble, you know, every innovation,
• 11:15
  Speaker 3: every technological wave as all a similar pattern of innovation, application,
• 11:18
  Speaker 3: eventual democratization driven by competition and constroductions. And it looks
• 11:23
  Speaker 3: like that's happening again. So we will be finding more
• 11:26
  Speaker 3: efficient approaches to challenge the route for GPU intensive taradine.
• 11:30
  Speaker 2: And this is the case with every period of intense
• 11:33
  Speaker 2: industrialization or some kind of technological change, you very often
• 11:37
  Speaker 2: find and we've seen this again, I mean speed lots
• 11:39
  Speaker 2: written about it happening with the railways, happening with the internet,
• 11:42
  Speaker 2: having with cables, et cetera, et cetera, that the people
• 11:46
  Speaker 2: who put the vast amount of money into the capital
• 11:50
  Speaker 2: expenditure in the first wave of the new technology aren't
• 11:53
  Speaker 2: necessarily the ones who really benefit from it.
• 11:56
  Speaker 3: Absolutely, and I think a core belief underpinning the album
• 11:59
  Speaker 3: mark it was that the massive instructure of spending will
• 12:03
  Speaker 3: create unastainable boats for the US tech giants. But we're
• 12:06
  Speaker 3: still seeing that the returns all those investments remain unclear.
• 12:10
  Speaker 3: It's definitely going to impact their return invested capital, and
• 12:13
  Speaker 3: I think starting the next earning seasons, at some point
• 12:16
  Speaker 3: this year, we will see shareholders begin to question that
• 12:19
  Speaker 3: those endless cap ex plans if they future returns right,
• 12:23
  Speaker 3: because I think cost of active scaling them matters much
• 12:25
  Speaker 3: more than chasing performance breakthrough, which American tech giants are
• 12:28
  Speaker 3: sort of focused on right now.
• 12:30
  Speaker 2: Might that then challenge the idea of American exceptionalism, And
• 12:34
  Speaker 2: we talk about this quite a lot on this podcast,
• 12:36
  Speaker 2: because there is a general idea, particularly among the new
• 12:38
  Speaker 2: generation of investors investors, that the American market has always
• 12:42
  Speaker 2: been exceptional. That is completely natural for the American market
• 12:45
  Speaker 2: to be valued significantly more highly than any other global markets.
• 12:49
  Speaker 2: That's just no more, Whereas, of course, you know, as
• 12:52
  Speaker 2: old these know that that's only a function of the
• 12:54
  Speaker 2: last fifteen fifteen or so years, and before that it
• 12:57
  Speaker 2: wasn't the case. Does this shift in the AI narrative perhaps,
• 13:02
  Speaker 2: is that the first beginning of a challenge to the
• 13:05
  Speaker 2: idea of American exceptionalism.
• 13:07
  Speaker 3: So let's remind listeners, right, So, if you think about it,
• 13:10
  Speaker 3: coming out of GFC, America was not the place you
• 13:13
  Speaker 3: wanted to invest. You had the twenty ten flashcress. In
• 13:16
  Speaker 3: twenty eleven, you had the credit rating downgrade, the dollars
• 13:18
  Speaker 3: at a fifty year low. In twenty twelve, Facebook went
• 13:22
  Speaker 3: public and it was a disaster if the IPO flopped.
• 13:25
  Speaker 3: It was the world's largest technology ipo. Obama was increasing regulation.
• 13:29
  Speaker 3: There was mistrust of the Fed. You know, top investors
• 13:32
  Speaker 3: in the colonumists were writing a letter saying, stop qv
• 13:34
  Speaker 3: you're going to create hyper inflation, You're going to debase
• 13:35
  Speaker 3: the dollar. At that time, Marion, the thinking was emerging
• 13:39
  Speaker 3: markets to serve a higher pe because of their superior
• 13:42
  Speaker 3: growth prospects. Commodities deserve an allocation in your portfolio. So
• 13:46
  Speaker 3: I'm sure a problems would say, you know, there's nothing
• 13:47
  Speaker 3: more deceptive than the obvious fact. But that was the
• 13:50
  Speaker 3: time you wanted to really be invested in the US.
• 13:52
  Speaker 3: And I think what was exceptional about America was last
• 13:56
  Speaker 3: decade three specific things. First, America had predicate and plessy leadership,
• 14:01
  Speaker 3: the first of which was coming out of GFC, the
• 14:03
  Speaker 3: FED the Ganqui cleaned up the banks before any other country.
• 14:06
  Speaker 3: Then it followed with Trump's tax cuts and deregulation, so
• 14:10
  Speaker 3: yet political and policy leadership. The second was the shale revolution,
• 14:14
  Speaker 3: which was totally unexpected, which made America and energy independent nation.
• 14:19
  Speaker 3: The third thing was Silicon valley innovation, which eventually led
• 14:22
  Speaker 3: to the bubble. Now what's interesting is I don't think
• 14:25
  Speaker 3: we're in an American exceptional market anymore. I think which
• 14:30
  Speaker 3: we're seeing in the American exuberance where hype has run
• 14:33
  Speaker 3: ahead of reality, and we can sort of look into
• 14:35
  Speaker 3: that because instead of political and policy leadership, what we
• 14:38
  Speaker 3: have now is a country that's running a deficit of
• 14:41
  Speaker 3: seven percent without any sort of recession or wartime, which
• 14:46
  Speaker 3: is not the best policy prescription. At this point in
• 14:48
  Speaker 3: the cycle. The shale companies have gone from prioritizing maximum
• 14:53
  Speaker 3: output to maximizing profits now, Silicon Valley seems to be now,
• 14:57
  Speaker 3: especially post nine twenty one, with where we are today,
• 15:00
  Speaker 3: still struggling in the larger startup landscape and potentially seeding
• 15:06
  Speaker 3: its lead in certain other technologies. So I don't think,
• 15:10
  Speaker 3: you know, America is as exceptional, and I think specifically,
• 15:13
  Speaker 3: if we are in an AI powered bull market, how
• 15:16
  Speaker 3: is it that since October twenty twenty two or November thirtieth,
• 15:20
  Speaker 3: twenty twenty two, when chat GPT was launched, how come
• 15:24
  Speaker 3: the German DAX is upperforming the SABA five hundred Germany,
• 15:29
  Speaker 3: which is which has a ward in its continent, It's
• 15:32
  Speaker 3: graptical energy crisis, political instability, China a comparatitive threat. How
• 15:37
  Speaker 3: is that possible that German equities have now performed US equities?
• 15:40
  Speaker 3: If AI is an American story, and you've also had
• 15:44
  Speaker 3: the Chips Act, you have the IRA, you had a
• 15:47
  Speaker 3: massive graptical capex, and if you're also in an AI
• 15:50
  Speaker 3: powered bull market, how is it so that a barberous relic,
• 15:53
  Speaker 3: an ancient sort of value like gold is uperforming them
• 15:56
  Speaker 3: both up sixty five percent compared to SB five hundred
• 15:59
  Speaker 3: and sub fifty close to fifty percent. So there's something
• 16:01
  Speaker 3: not right, something not acceptable about what's happening, either where
• 16:05
  Speaker 3: two bearers on the prospects of Europe or perhaps overestimating
• 16:08
  Speaker 3: America's strength at this point in the cycle.
• 16:11
  Speaker 2: Yeah, I mean in terms of Germany, European stocks, even
• 16:14
  Speaker 2: UK stocks that they have done fairly well recently. Is
• 16:17
  Speaker 2: that really just the function of global fund managers looking
• 16:22
  Speaker 2: at their exposure to the US and saying, well, sixty
• 16:24
  Speaker 2: seventy percent, this is maybe beginning to push it. Look
• 16:27
  Speaker 2: at the relative valuations, or just shift a little bit out,
• 16:30
  Speaker 2: and given the underweighting of non US markets, it doesn't
• 16:35
  Speaker 2: take that much to start pushing them up a bit.
• 16:38
  Speaker 3: I think that's certainly part of it, you know. I
• 16:40
  Speaker 3: just think that it's important to ask in a question,
• 16:43
  Speaker 3: which is what is happening that shouldn't be, what is
• 16:45
  Speaker 3: not happening that should be? And if we are truly,
• 16:49
  Speaker 3: you know, in an air powered world market, then this
• 16:52
  Speaker 3: should not be happening where the SEP founder is underperforming.
• 16:55
  Speaker 3: If we are taking a technological leap forward, then goals
• 16:58
  Speaker 3: should not be performing three four hundred. Something else is
• 17:01
  Speaker 3: going on. And we may not have all the answers,
• 17:03
  Speaker 3: but you know, one way I think about this, Marin
• 17:06
  Speaker 3: is again, if I go back in time, you know,
• 17:09
  Speaker 3: each decade there's a a powerful event that occurs which
• 17:13
  Speaker 3: turns into the zeitgeist and eventually into a mania. So
• 17:16
  Speaker 3: back in the seventies, it was the big tann of
• 17:18
  Speaker 3: Britton Wlds in nineteen seventy one, which lected the gold
• 17:21
  Speaker 3: world market, but in nineteen eighty that stopped working. In
• 17:24
  Speaker 3: the nineteen eighties, it was Japan's sticking over the world.
• 17:27
  Speaker 3: You're long Japians equity, Japanese real estate, but nineteen eighty
• 17:30
  Speaker 3: nine that stopped working. In the nineteen nineties, the zeitgeist
• 17:33
  Speaker 3: was the Internet. It only really kicked in nineteen ninety five.
• 17:36
  Speaker 3: But you want to be long Nasdaq March two thousand.
• 17:38
  Speaker 3: That stopped working in the two thousands. The zeitcast was
• 17:42
  Speaker 3: shining as interesting to the World Trade Organization in two
• 17:44
  Speaker 3: thousand and one, so you're ready long China em commodities
• 17:47
  Speaker 3: that stopped working in twenty ten, twenty eight to eleven.
• 17:50
  Speaker 3: Based on whatever asset you pick, the zeitcast of the
• 17:54
  Speaker 3: last decade was best articulated by Mark and Resent in
• 17:57
  Speaker 3: twenty eleven, and a Wall Street Journal article titled software
• 18:00
  Speaker 3: is Eating the World? That zeit guys, in my opinion,
• 18:02
  Speaker 3: ended in twenty twenty one.
• 18:04
  Speaker 2: What do you think the one for the next decade is?
• 18:06
  Speaker 3: Then?
• 18:06
  Speaker 2: Where are we going next?
• 18:08
  Speaker 3: Yeah, there are a few interesting points here right. So first,
• 18:11
  Speaker 3: because these are ten year trends, a lot of careers, reputations,
• 18:14
  Speaker 3: businesses are built on that success. It takes a while
• 18:17
  Speaker 3: to dethrone dominant beliefs and behaviors that served them. So
• 18:20
  Speaker 3: even up until twenty fourteen, twenty fifteen, we still thought
• 18:22
  Speaker 3: emerging markets are going to come back. We still thought
• 18:24
  Speaker 3: gold and commodities are going to continue to do well.
• 18:26
  Speaker 3: It didn't really happen. And up until mid twenty fifteen,
• 18:30
  Speaker 3: people still thought, you know, America is not the place
• 18:32
  Speaker 3: to be. You know, back in twenty fifteen, Bill Gurly says,
• 18:35
  Speaker 3: Silicon vllies in a bubble, So it's very difficult to discern,
• 18:38
  Speaker 3: you know, when that shift is happening. There's certain candidates,
• 18:41
  Speaker 3: you know, that we can look at. I think that
• 18:44
  Speaker 3: are a handful. You know, we've been talking about as
• 18:47
  Speaker 3: zodcast portfolio with our clients. The first could certainly be AI,
• 18:50
  Speaker 3: in which case you want to be long in VideA.
• 18:52
  Speaker 3: This I think is too close to the prior's archives
• 18:55
  Speaker 3: to be the one. The second could be health and obesity,
• 19:00
  Speaker 3: so in which case you will belong evalily. And the
• 19:04
  Speaker 3: third candidate could be defense in a multiplier world, so
• 19:08
  Speaker 3: in which case you will belong palenteer and you know
• 19:11
  Speaker 3: some certain European defense names. And I think the fourth,
• 19:15
  Speaker 3: which is where I leaned most is it could be
• 19:20
  Speaker 3: the energy transition, the race to zero emissions and the
• 19:22
  Speaker 3: global energy transition. So this idea of electrification in trying
• 19:26
  Speaker 3: to serve the climate goals. And I think that's important
• 19:29
  Speaker 3: because just like last decade it was America's decade. If
• 19:34
  Speaker 3: climate or the sort of energy transition becomes the dominant team,
• 19:38
  Speaker 3: then the country most important for this decade is actually China,
• 19:41
  Speaker 3: because China is the renewals of a power of the world.
• 19:44
  Speaker 3: And so just like ten, twelve, fourteen years ago, it
• 19:48
  Speaker 3: wasn't obvious that America was the place to be, it's
• 19:51
  Speaker 3: not obvious right now that China is the place to be.
• 19:54
  Speaker 3: Who would want to invest in a country that was
• 19:55
  Speaker 3: a shrinking in gage population or leader for life, a
• 19:58
  Speaker 3: slow march and property crass, civil leverage, you know, potential
• 20:01
  Speaker 3: war with Taiwan. And yet and yet, you know, Chinese
• 20:06
  Speaker 3: tech stocks have performed the US market last year and
• 20:08
  Speaker 3: they're pretty songly this year. So again, something else is
• 20:11
  Speaker 3: going on that we may need to pay attention to.
• 20:14
  Speaker 2: It's interesting, though, isn't it that you pull that out
• 20:16
  Speaker 2: when if you flick through the papers, look at what
• 20:19
  Speaker 2: we write, look at what we talk about. It actually
• 20:21
  Speaker 2: seems that what we're seeing in most of the world,
• 20:23
  Speaker 2: the UK side, we haven't got there yet, but we
• 20:25
  Speaker 2: probably will. What you're mostly seeing is a pullback from
• 20:28
  Speaker 2: the idea of trying to pursue zero, a pullback from
• 20:32
  Speaker 2: the idea of moving away from fossil fuels too quickly,
• 20:34
  Speaker 2: because it clearly isn't working at this feed that a
• 20:37
  Speaker 2: lot of people would like it to. So we're seeing
• 20:40
  Speaker 2: more of a pullback than to push forward in that area.
• 20:43
  Speaker 3: And that's how surprisingly how markets work, right. It's just
• 20:46
  Speaker 3: very counterintuitive. And I think it's more about just understanding
• 20:49
  Speaker 3: the capets are required to upgrade the US electrical trade. It's,
• 20:54
  Speaker 3: you know, what's required to sort of create the electricity
• 20:58
  Speaker 3: and the power needed to support even the AI boom now, right,
• 21:02
  Speaker 3: And I think all of that feeds into energy transition
• 21:05
  Speaker 3: and in some ways the race to ZERI emissions, because
• 21:08
  Speaker 3: you're going to have to find sources that are alternative
• 21:12
  Speaker 3: to conventional ones to sustain this.
• 21:15
  Speaker 2: To us, that seems to suggest that there'll be a
• 21:18
  Speaker 2: nuclear boom rather than anything else.
• 21:21
  Speaker 3: I mean a certainly part of it. I think naturally
• 21:23
  Speaker 3: guys are They're a big role to play in the interim.
• 21:26
  Speaker 3: But the reason I think Germany is also performing is
• 21:29
  Speaker 3: because if we are in the sort of climate era,
• 21:31
  Speaker 3: and then the solution to climate is not technological, it's industrial.
• 21:36
  Speaker 3: So there's also a time where industrial companies do better.
• 21:39
  Speaker 3: It's not ventually capital, it's project finance, it's you know,
• 21:42
  Speaker 3: working with other governments, and in most cases, you know,
• 21:46
  Speaker 3: China is way ahead of any other nation when it
• 21:49
  Speaker 3: comes to the key technologies needed for that push, which
• 21:54
  Speaker 3: I see bringing Europe in China closer. Even if the
• 21:57
  Speaker 3: US sort of heats up political pressure on both spend.
• 22:00
  Speaker 2: That further, Why does that bring China and Germany closer together?
• 22:04
  Speaker 3: I think ultimately what you're gonna have to see is
• 22:07
  Speaker 3: desire for more investment from China, and so you know
• 22:11
  Speaker 3: America could benefit from that. Europe could benefit from that.
• 22:13
  Speaker 3: So you're gonna play economic diplomacy, is you're gonna see
• 22:17
  Speaker 3: a shift towards ees globally. You can try if you
• 22:20
  Speaker 3: want to stop that, delay that, but we're already seeing
• 22:24
  Speaker 3: it happening in across emerging markets, and the developed world
• 22:28
  Speaker 3: is going to be slower because of political preferences. But
• 22:31
  Speaker 3: ultimately you're more likely to see Chinese companies taking over
• 22:33
  Speaker 3: European auto plans than European companies competing or out competing
• 22:38
  Speaker 3: Chinese ones, And so it makes sense, and I think
• 22:40
  Speaker 3: it's a very interesting comment even by Risula recently where
• 22:43
  Speaker 3: she talked about how we need to figure out that
• 22:44
  Speaker 3: ways to compete and collaborate with China and get closer,
• 22:50
  Speaker 3: so you know, we're not necessarily at the cusp of
• 22:53
  Speaker 3: this delinking globally from trade linkages and sharing technologies that
• 22:59
  Speaker 3: sort of will help prepare us to the next sort
• 23:01
  Speaker 3: of iteration of global growth.
• 23:03
  Speaker 2: Okay, I want to come back to European structure in
• 23:06
  Speaker 2: a minute, but before I forget, I want to go
• 23:08
  Speaker 2: back to Gold where you said something's going on there.
• 23:12
  Speaker 2: What is it that you think is going on with
• 23:14
  Speaker 2: the goal price?
• 23:16
  Speaker 3: I think it really began for US with the sanctions
• 23:20
  Speaker 3: in Russia. You know, So there are three basic strikes
• 23:24
  Speaker 3: to pack Americana. You know. Strike one was Post nine
• 23:28
  Speaker 3: to eleven, where you know, America suddenly went against the
• 23:31
  Speaker 3: international order and neaded the country a soueign nation and
• 23:35
  Speaker 3: you realize, wait a minute, sovereignty doesn't mean anything. So
• 23:37
  Speaker 3: that was the beginning of the rise as a strong man.
• 23:39
  Speaker 3: So you certainly lost faith in America as the global
• 23:43
  Speaker 3: protector or as the benign hedge of one. The second
• 23:46
  Speaker 3: strike was in the GFC, when you realize, wait, we
• 23:49
  Speaker 3: can't trust America as the global eclomic manager because subprime
• 23:53
  Speaker 3: was an American creation. And that's when China sort of
• 23:56
  Speaker 3: decided that we got to separate usself from US banks
• 23:58
  Speaker 3: as much as possible in the US financial system. The
• 24:00
  Speaker 3: third strike was the sanctions on Russia where you confiscate
• 24:04
  Speaker 3: state assets, where you suddenly realize, wait, we can't even
• 24:07
  Speaker 3: trust the national property rights anymore. I mean, that was
• 24:10
  Speaker 3: our sacrisanct. And so I think since then you've seen
• 24:13
  Speaker 3: you know that strike three of facts Americana, which basically
• 24:15
  Speaker 3: means we're entering a different world order going forward, right,
• 24:18
  Speaker 3: And the risk is that America is acting like a
• 24:20
  Speaker 3: hedgemon in a multi poder world. That creates incivility, that
• 24:23
  Speaker 3: creates uncertainty. However, since then, what we're noticing is that
• 24:28
  Speaker 3: gold buying among center banks has really picked up. And
• 24:32
  Speaker 3: it's also to a point where you know, it's not
• 24:34
  Speaker 3: responding to the rise and real interstrates, its start responding
• 24:36
  Speaker 3: to the rise and the dollar. And I think that
• 24:39
  Speaker 3: is an extremely powerful trend and I think that continues.
• 24:43
  Speaker 2: Okay, we did a podcast on gold a little while ago,
• 24:48
  Speaker 2: so we can leave listeners go and re listen to that,
• 24:51
  Speaker 2: because I think a lot of a lot of things
• 24:52
  Speaker 2: that you said chime very very neatly with what we
• 24:55
  Speaker 2: discussed previously. You also mentioned bitcoin, which you say has peaked.
• 25:00
  Speaker 2: Do you see bitcoin as central banks aside fulfilling the
• 25:04
  Speaker 2: same role for investors as gold, or do you see
• 25:09
  Speaker 2: it as something completely separate.
• 25:12
  Speaker 3: I think the big question with bitcoin specifically is that
• 25:17
  Speaker 3: does it trade like NASDAK or does it trade in
• 25:21
  Speaker 3: the rest of the dollar. And I think historically it's
• 25:26
  Speaker 3: traded like NASDAK. So given our scenario where we think
• 25:30
  Speaker 3: risk assets could be down materially over the next two
• 25:34
  Speaker 3: and a half years. It's difficult for me to see
• 25:37
  Speaker 3: bitcoin de couple from that, even initial signals from creating
• 25:42
  Speaker 3: political tension, whether it's tariff news. You see bitcoin sort
• 25:46
  Speaker 3: of selling off on that, you know, across the sort
• 25:49
  Speaker 3: of crypto total market cap sells off on that. So
• 25:51
  Speaker 3: it's difficult to see that as a hedge or trading
• 25:55
  Speaker 3: inversely to broader risk sentiment.
• 25:58
  Speaker 2: Yeah, no, it's interesting. We do keep being told, don't
• 26:01
  Speaker 2: mean that bitcoin is a diversifier and a long term
• 26:03
  Speaker 2: store of value and all these things where we have
• 26:06
  Speaker 2: no evidence of that yet. And when we look at
• 26:09
  Speaker 2: golden when we look at bitcoin, when we discuss bitcoin,
• 26:12
  Speaker 2: and when people come on and discuss bitcoin with us,
• 26:14
  Speaker 2: its value today is based on its perceived role in
• 26:19
  Speaker 2: the future, Whereas when we talk about gold its value
• 26:22
  Speaker 2: is based on the role it has already played in
• 26:24
  Speaker 2: the past, and we can expect it continue to play
• 26:27
  Speaker 2: that role. And that's very very different assets, one based
• 26:31
  Speaker 2: on history and one based on expectations.
• 26:33
  Speaker 3: I still think it's all a function of the cycle. Right.
• 26:37
  Speaker 3: At some point, you know, a bitcoin post COVID has
• 26:40
  Speaker 3: crossed the rubicon where you're seeing now even greater traditional adoption.
• 26:44
  Speaker 3: So I think it's an asset that continues to be
• 26:46
  Speaker 3: relevant and we'll continue to make institutional in roads. The
• 26:51
  Speaker 3: question is when the invest at watch point in the
• 26:53
  Speaker 3: cycle are we in And what we typically see is
• 26:57
  Speaker 3: when the cycle turns, have micro strategy giving you in
• 27:02
  Speaker 3: some indication where marcro strategy peaks and it coin follows,
• 27:07
  Speaker 3: you know, months later. So as of right now, microsolurgy
• 27:10
  Speaker 3: beat in November. As of now, Bitcoin pete in January.
• 27:14
  Speaker 3: I'm open minded to another move to like one one
• 27:17
  Speaker 3: thirty maybe in the next few months, but I do
• 27:19
  Speaker 3: suspect that will be at top that stays in place
• 27:21
  Speaker 3: for quite some time.
• 27:22
  Speaker 2: Okay, so you're advising institutional clients in the main I think.
• 27:26
  Speaker 2: But let's imagine that you're talking to a retail investor
• 27:30
  Speaker 2: possibly and listen to this podcast. How would you recommend
• 27:34
  Speaker 2: that they allocated their assets at the moment?
• 27:37
  Speaker 3: Time frame matters. But if you were to say this
• 27:40
  Speaker 3: is a multi year sort of.
• 27:42
  Speaker 2: Allocation, looking for a decade, let's go for a decade.
• 27:44
  Speaker 3: Yeah, then I would I would say, you want to
• 27:46
  Speaker 3: be long China and Chinese acuities. You know, I think
• 27:53
  Speaker 3: we are underestimating the innovation coming out of China and
• 27:57
  Speaker 3: Chinese brands, and I think, so you want to be
• 28:00
  Speaker 3: long China, I would say, is that it's the top one,
• 28:03
  Speaker 3: and there's specific companies you can look at there. I
• 28:07
  Speaker 3: would say you would want to maintain exposure to gold
• 28:10
  Speaker 3: and silver as well as part of your allocation, and
• 28:16
  Speaker 3: you would want to get exposure to commodity names that
• 28:19
  Speaker 3: would sort of benefit from the execation and deconbonization story, right,
• 28:24
  Speaker 3: So that is copper, that is aluminum that would do well.
• 28:29
  Speaker 3: I think there is going to be a natural gas
• 28:32
  Speaker 3: or LNG boom that was sort of perhaps you know,
• 28:34
  Speaker 3: left national gas prices as well, so there's something to
• 28:36
  Speaker 3: be done over there too. But the best decision that
• 28:39
  Speaker 3: investor can make typically is avoiding the zycass of the
• 28:42
  Speaker 3: previous decade. So you know, in twenty tens, if you
• 28:46
  Speaker 3: just avoided China, em commodities would done fantastically well. If
• 28:49
  Speaker 3: in the nineties you avouted Japan, you could have done well.
• 28:51
  Speaker 3: In two thousand, if you know what about it nas
• 28:53
  Speaker 3: that you could have done well. So that just tells
• 28:55
  Speaker 3: you that we're in an era now where the US
• 28:57
  Speaker 3: will begin to underperform the rest of the world.
• 29:00
  Speaker 2: If you were too. If you were, if you didn't
• 29:03
  Speaker 2: do anything else, if you're at the very least to
• 29:06
  Speaker 2: rebalance yourself away from the US, away from tech, away
• 29:10
  Speaker 2: from AI, you might be doing yourself a favor.
• 29:13
  Speaker 3: I think.
• 29:14
  Speaker 2: So, okay, interesting, And what about what about access to
• 29:18
  Speaker 2: the extraordinary dynamic entrepreneurialism in the Middle East? So, for example,
• 29:22
  Speaker 2: in the UA, you go to Dubai, Debbi, and you
• 29:25
  Speaker 2: see these extraordinary economies being built. Is there any way
• 29:28
  Speaker 2: to get exposure to that? And would you advise.
• 29:30
  Speaker 3: That it's not an area of focus on me? I mean,
• 29:34
  Speaker 3: a lot of the innovation that you're talking about is
• 29:35
  Speaker 3: happening mostly in private markets and through venturing capital funds, right,
• 29:39
  Speaker 3: so I think that would be the way to get exposure.
• 29:43
  Speaker 3: How we haven't had a long enough cycles really determine
• 29:47
  Speaker 3: how those funds have truly performed. The gootage dynamic where
• 29:51
  Speaker 3: the economy is not so much reflected in the stock
• 29:54
  Speaker 3: market in terms of the marketab versus economic weights, and
• 29:59
  Speaker 3: so you know, the stock market is on this side
• 30:01
  Speaker 3: of the best exposure either. So it's really a function
• 30:05
  Speaker 3: of what you want to do or what your view
• 30:08
  Speaker 3: on oil is. It's because because fundamentally speaking, it's looking
• 30:11
  Speaker 3: at the public markets. It does tried the beta to
• 30:14
  Speaker 3: oil to a certain degree, DoD.
• 30:16
  Speaker 2: I'm going to ask you a question I've I used
• 30:18
  Speaker 2: to ask everybody, but I've slightly stopped asking now and
• 30:20
  Speaker 2: I already think I know where you're going to go
• 30:22
  Speaker 2: with this, But I'm going to ask you. Anyway, over
• 30:24
  Speaker 2: this ten year period, if I offered you a choice
• 30:26
  Speaker 2: of bitcoin or gold, which one would you take? You're
• 30:30
  Speaker 2: only allowed one.
• 30:30
  Speaker 3: By the way, I would take gold.
• 30:33
  Speaker 2: Yeah, I thought you might. I thought you might from
• 30:36
  Speaker 2: what we've just talked about. And if during that ten
• 30:39
  Speaker 2: years you were to recommend a book two people to
• 30:43
  Speaker 2: read that might help them get through this next decade
• 30:46
  Speaker 2: in markets or in life, what would you recommend?
• 30:49
  Speaker 3: You think I would recommend The screw Tape Letters by
• 30:52
  Speaker 3: the C. S. Lewis. I think it's the most important
• 30:54
  Speaker 3: book of our time. It's basically a senior demon writing
• 31:00
  Speaker 3: letters to a junior demon about how to corrupt humans,
• 31:05
  Speaker 3: which he calls the patient and keep him away from
• 31:08
  Speaker 3: the enemy, which is God. So it's a fascinating exchange
• 31:12
  Speaker 3: of letters which is basically the inside game of how
• 31:16
  Speaker 3: we are foiling ourselves. And so in a decade, which
• 31:20
  Speaker 3: could be you know, more problematic politically, economically, socially. I
• 31:25
  Speaker 3: feel like we need to have a better understanding of
• 31:28
  Speaker 3: how we are being led astray. And I can't think
• 31:31
  Speaker 3: of a better book than C. S. Lewis. It was
• 31:33
  Speaker 3: actually better is to listen to it because John Cleese
• 31:36
  Speaker 3: does the audio version, which is fantastic in his voice.
• 31:40
  Speaker 2: That sounds great. Okay, so we are being led astray?
• 31:42
  Speaker 2: Who do you think is leading us astray?
• 31:46
  Speaker 3: The enemy? I have seen the enemy and it is us.
• 31:51
  Speaker 2: Thank you, Thank you very much for joining us today.
• 31:55
  Speaker 3: Pleasure. As always, thanks.
• 32:00
  Speaker 2: For listening to this week's Maren Talks Money. If you
• 32:03
  Speaker 2: like our show, rate review and subscribe wherever you listen
• 32:05
  Speaker 2: to podcasts, and keep sending questions or comments to Marron
• 32:08
  Speaker 2: Money at Bloomberg dot net. You can also follow me
• 32:11
  Speaker 2: and John on Twitter or x I Met Marinus w
• 32:14
  Speaker 2: and John is John Underscore Steppy. This episode was hosted
• 32:17
  Speaker 2: by Me Maren's Sunset Web. The show is produced by
• 32:20
  Speaker 2: Summersadi and Moses and sound designed by Blake Maples and
• 32:24
  Speaker 2: special thanks of course to jo at me on Thank
• 32:27
  Speaker 2: You