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How to Trade in a Radically Reshaped Economy · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Hello, it's Meren Sumsair
0:11
Speaker 1: Web here for our last show of this season. Sorry
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Speaker 1: about that. Before we go on a short hiatus for
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Speaker 1: the summer, I speak with Lawrence McDonald, author of How
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Speaker 1: to Listen When Markets Speak, Risks, myths and investment opportunities
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Speaker 1: in a radically Reshaped Economy. In the book, Lawrence discusses
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Speaker 1: the predictive model that he developed in the aftermath of
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Speaker 1: Lewan Brothers collapse, outlining actuable trading ideas for a radically
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Speaker 1: reshaped economy. We discussed some of those ideas in our conversation.
0:37
Speaker 1: You're going to enjoy it, so hang on for that.
0:39
Speaker 1: But first, as always, senior reporter and author of Money
0:41
Speaker 1: Distilled Newsletter, John Staviick is with me, John.
0:45
Speaker 2: Maren before we really start.
0:48
Speaker 1: Congratulations, like this podcast Money Distilled, Your incredible newsletter can
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1:01
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Speaker 1: No one's ever grateful enough, John, Both these award winning
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Speaker 1: What makes your award winning newsletter Money Distilled so incredible?
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1:26
Speaker 1: Those of you who don't understand Scottish accents, he said, wit,
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Speaker 2: I'm calling each her. I've had enough of this.
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Speaker 1: They never called back.
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Speaker 2: That's because they don't understand my accent. We're that gay
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Speaker 1: I'll tell you why I think your newsletter is so brilliant.
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Speaker 1: Is extremely well written. You're unbelievably knowledgeable, You are wish
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Speaker 1: eat quite clever, and you take big things that happen
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Speaker 1: in the markets, in economy and in personal finance, and
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Speaker 1: you translate them into really straightforward language with actionable points
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Speaker 1: at the end. It's absolutely brilliant. If you're not reading it, everybody,
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Speaker 1: you should be reading it. And of course it is
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Speaker 1: award winning.
2:10
Speaker 2: Well, thank you very much, Melon for acting as my
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Speaker 2: translator there. That's good so well.
2:15
Speaker 1: I am a truth teller. Now, the last couple of
2:18
Speaker 1: days haven't been great for markets. We should talk about
2:20
Speaker 1: that a bit, because we have been telling everybody for
2:23
Speaker 1: ages that they want to be really careful with big tech,
2:25
Speaker 1: really careful with growth. They want to worry a lot
2:28
Speaker 1: about the high level of concentration in the US market,
2:31
Speaker 1: and they want to make sure that they are properly diversified.
2:34
Speaker 1: And of course, holding a passive fund exposed to either
2:38
Speaker 1: global markets or to US markets has been quite dangerous
2:41
Speaker 1: because it gives you a very concentrated portfolio. Those big
2:44
Speaker 1: tech companies make up a big part of every single
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Speaker 1: index being dangerous. We've been worried, and now we've started
2:51
Speaker 1: to see those tech stogs come off quite fast. All
2:53
Speaker 1: that irritating the other markets will insist all following. So
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Speaker 1: the Nickkke is super irritating. America goes down, Big teench
3:00
Speaker 1: goes down. What does Tokyo do follow so irritating? Anyway,
3:04
Speaker 1: I wasn't gonna round blow. I was gonna let you
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Speaker 1: talk John it happened.
3:08
Speaker 2: I was going to leave most of this one to you,
3:10
Speaker 2: because obviously it is entirely your fault, because you published
3:13
Speaker 2: a column yesterday talking about bubbles and pointing out that
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Speaker 2: AI was obviously a bubble, and then all of a
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Speaker 2: sudden we have this big market crash. I mean, you've
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Speaker 2: inflicted literal financial violence on the entire global stock market.
3:27
Speaker 2: I hope you are proud of yourself. Man, you're right, it.
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Speaker 1: Is literal violence. I am proud of myself. I am.
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Speaker 1: You know that someone has to be the voice of
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Speaker 1: common sense, John. And when you look at it, look
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Speaker 1: at what's been happening in the AI stocks and ridiculous
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Speaker 1: some of those big ones. Of course, it's a bubble.
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Speaker 1: And every all day was not because of this. It
3:45
Speaker 1: is not a bubble cause of that. Just this is
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Speaker 1: that I know. Look, it doesn't collapse yet, therefore it's
3:48
Speaker 1: not a bubble. Of course, it's a bubble. Well, it's
3:51
Speaker 1: got all the characteristics of a bubble. And it made
3:54
Speaker 1: me think. Actually, when I was writing writing a column
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Speaker 1: about this is you said, and I'm afraid it was
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Speaker 1: edited out, but I started with her. And that's the
4:00
Speaker 1: list of all my favorite bubbles, because I feel like
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Speaker 1: everyone who works in financial doors to have a bubble
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Speaker 1: that really talks to them. And for me, it's the
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Speaker 1: Great Diving Bell bubble, which if you go go and
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Speaker 1: down look it up online you'll find some of my
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Speaker 1: columns on it. I think it's a fascinating bubble. And
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Speaker 1: then a friend, Edward Charlester was telling me the other
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Speaker 1: day that his favorite bubble is the great Taiwanese market
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Speaker 1: bubble nineteen eighties. I didn't know that one, And I've
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Speaker 1: always been very fond of the Beanie Baby bubble.
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Speaker 2: That was a good one.
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Speaker 1: That was absolute stormer. Do you have a favorite bubble? Jone?
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Speaker 2: Well, you know, it's kind of like asking do you
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Speaker 2: have a favorite child? Really, isn't it. I Mean, the
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Speaker 2: diving bubble is one that left on you. That was
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Speaker 2: a good one. But I think actually the favorite bubble,
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Speaker 2: it's probably actually the one leading up to two thousand
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Speaker 2: and eight of such a weird bubble and also such
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Speaker 2: a catastrophic bubble. I mean, when they's thing about normal
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Speaker 2: bubbles for a bit of the world, like stock market bubbles,
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Speaker 2: is that the amount of dammies they do is usually
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Speaker 2: not widespread in terms of the you know, the whole economy.
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Speaker 2: But is it them to that in the two thousand
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Speaker 2: and eight of the two thousand and six seven bubble,
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Speaker 2: is that it was you know, a financial bubble, and
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Speaker 2: that just shuts evernth them down for the ages, which
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Speaker 2: is why we've had crap growth for so long. You know,
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Speaker 2: though no one acknowledges it.
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Speaker 1: Well, you're right, and the consequences that bubble were longer
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Speaker 1: lasting and deeper than any other bubble I can think of,
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Speaker 1: and we're stilling with the consequences of them now. Is
5:33
Speaker 1: by the way, it's something. It's part of what Lawrence's
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Speaker 1: book is about. Yeah, it's about It's about the debt
5:41
Speaker 1: bubble that has grown up since then, the consequence sold,
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Speaker 1: and what happens as a result. It's about inflation. He
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Speaker 1: agrees with with US reflation, So that's quite nice. A
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Speaker 1: little bit of confirmation bias from him. A note in
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Speaker 1: there as well about the things we've talked about, the
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Speaker 1: massive concentration in the US marketing text socks etctera and
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Speaker 1: how dangerous down BECA is. So he's probably feeling a
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Speaker 1: little indicated this morning as well.
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Speaker 2: One thing I did want to ask, or I guess
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Speaker 2: maybe pointing out, was I mean, you're right. One of
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Speaker 2: the frustrating things about all this is that the US
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Speaker 2: market has shot up an awful lot, and all the
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Speaker 2: other markets have gone up a little bit, and now
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Speaker 2: the US market falls off, all the other markets fall
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Speaker 2: off too, And I think that can leave investors, particularly
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Speaker 2: the kind of value investors feeling a bit aggrieved. But
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Speaker 2: I think the important thing to remember is that the
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Speaker 2: US has outperformed other markets for the best part of
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Speaker 2: like ten fifteen years now, but it's not always the case.
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Speaker 2: So you've got to expect a period of underperformance for
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Speaker 2: the US. And I think that although on a day
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Speaker 2: to day basis it kind of looks as if the
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Speaker 2: US is pulling everyone around, assuming that this is it,
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Speaker 2: I suspect that in five ten years time you will
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Speaker 2: have been better off putting your money in the the
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Speaker 2: world or you know, the know intake STOC better.
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Speaker 1: You'll begin to see the separation. Everything may follow the
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Speaker 1: US and in the beginning, but over time it'll shake out.
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Speaker 1: And it is worth remembering one of the things I
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Speaker 1: said in the Columbia yesterday, which is that over the
7:14
Speaker 1: long term, the long term being in the US from
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Speaker 1: nineteen twenty six, it's a matter of how much data
7:18
Speaker 1: we can get our whole hands on. Over the long term,
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Speaker 1: value investing has outperformed growth investing by a couple of
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Speaker 1: percentage points a year, which adds up to real money
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Speaker 1: over time. Obviously, the last twenty years has been unusual,
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Speaker 1: but that's the long term trend, and you can expect
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Speaker 1: usually usually things to revert to some kind of mean
7:39
Speaker 1: over the very long time. As Yeah, I used in
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Speaker 1: that it was an astratot Us astronaut a decade ago
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Speaker 1: he said that on his first base walk he realized
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Speaker 1: that he'd always thought he'd been frightened of heights, but
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Speaker 1: in fact what he was frightened off was gravity, which
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Speaker 1: I think is wonderful and of course absolutely absolutely true.
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Speaker 1: And you know, of course the less far you have
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Speaker 1: to fool, the less it's going to hurt. So being
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Speaker 1: in it at a time like this and stocks that
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Speaker 1: are less expensive evaluation in terms, is probably going to
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Speaker 1: be less painful than having an apportfolio that is extremely
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Speaker 1: concentrated into big tech.
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Speaker 3: Yeah.
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Speaker 2: I think that's a good point.
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Speaker 1: I mean, it's simplistic, but seems likely.
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Speaker 2: Yeah, And because otherwise what we're saying is your choice
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Speaker 2: as an invest that is the video or cash, and
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Speaker 2: that can't be that can't be right. You know, it's
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Speaker 2: like or the other stuff will come good over time.
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Speaker 2: So I wouldn't wy've writ it too much.
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Speaker 1: Yeah, anyway, we did. All we talk about there's quite
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Speaker 1: a lot on the podcast we talk about n video.
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Speaker 1: We talk about how we're by the energy markets. We
8:43
Speaker 1: talk about what might happen next, So let's move on
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Speaker 1: to that. Well, then to Merindrogs Money, the podcast in
8:55
Speaker 1: which people who know the markets explain the markets. I'm
8:58
Speaker 1: Marin zums up Web. Here's Michael was as with Lawrence
9:00
Speaker 1: with Donald Orthor of how to listen to when market
9:03
Speaker 1: speak risks, myths and investment opportunities in a radically reshaped economy. Larie,
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Speaker 1: thank you so much for joining us today.
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Speaker 3: Oh it's great to be here. Thank you.
9:14
Speaker 1: Larry. Can we just stop by you telling me a
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Speaker 1: little bit about the great sweep of history that you
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Speaker 1: talk about in the book that the next forty years
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Speaker 1: is going to be very different to the last forty years.
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Speaker 1: What's the big change here? What's given us this radically
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Speaker 1: reshape economic landscape as you put it in the book.
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Speaker 3: We start off in the book in Abu Dhabi. I
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Speaker 3: delivered a speech there and I sat down with James Baker.
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Speaker 3: This is several years back, and James Baker was the
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Speaker 3: former Treasury secretary, kind of a quite brilliant historian. He
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Speaker 3: made the point that we're going from a unipolar world
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Speaker 3: over to a multipolar world and what does that mean?
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Speaker 3: It reminds historians from nineteen sixty eight to nineteen eighty one. Right,
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Speaker 3: So from nineteen sixty eight to eighty one, the world
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Speaker 3: was more unstable because we didn't have a key superpower.
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Speaker 3: We had more global conflicts. Supply chains were very, very
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Speaker 3: disrupted in some cases, we had protectionism, a lot of
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Speaker 3: the same trends that are coming out of today. What
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Speaker 3: I learned in Abu Dhabi sitting down with James Baker
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Speaker 3: is around you know what it's like to actually construct
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Speaker 3: a portfolio in that period versus the period that we're
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Speaker 3: in now or the period that we've been in for
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Speaker 3: like the last fifteen years. And so in a nineteen
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Speaker 3: sixty eight to eighty one portfolio, you've got more sustained inflation,
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Speaker 3: you've got more global conflicts, so the portfolio allocation more
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Speaker 3: toward value and hard assets. To give you an example,
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Speaker 3: in nineteen eighty eighty one, forty nine percent of the
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Speaker 3: SMP was in industrials, materials, and energy, and as of
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Speaker 3: like nine months ago, this number got down to twelve
10:52
Speaker 3: thirteen percent. So that's what we talked about. A radically
10:55
Speaker 3: reshaped economy where you've got more sustained inflation, potentially much
11:00
Speaker 3: higher levels of protectionism, and that sets up for a
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Speaker 3: whole new portfolio construction.
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Speaker 1: So we expect the sustained inflation to come from the
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Speaker 1: fact that we live in a world of geopolitical tension
11:12
Speaker 1: one set one where supply chains are more difficult to
11:16
Speaker 1: have to pay more for your security and to take
11:18
Speaker 1: securities routes. You have protectionism in place. Maybe fuel is
11:23
Speaker 1: more expensive, so supply chains in general become more unstable
11:27
Speaker 1: and more expensive, and that feeds directly into inflation. And
11:31
Speaker 1: then on top of that you will have the changing
11:34
Speaker 1: power of labor I think you talk about this in
11:36
Speaker 1: the book, Power of Labor across the West, and so
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Speaker 1: possibly fasterising wages which will feed into inflation. And then
11:42
Speaker 1: on top of that you have something that I know
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Speaker 1: you talk about a lot, which is rising energy presses.
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Speaker 2: Is that right?
11:47
Speaker 1: So we have all these things feeding into a higher
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Speaker 1: inflationary environment.
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Speaker 3: Yes, And then there's two other things. So Barack Obama
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Speaker 3: is probably the most brilliant politician and just you know,
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Speaker 3: honeste great thinker. He's hold us in like twenty twelve
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Speaker 3: election rate with Romney that those jobs aren't coming back.
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Speaker 3: So both Republicans Democrats took five million jobs out of
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Speaker 3: the United States last thirty thirty five years.
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Speaker 1: By encouraging outsol saying you mean yes yes.
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Speaker 3: In other words, in globalization, it has a lot of
12:19
Speaker 3: disinflationary benefits. Right, all of our underwear was made in
12:22
Speaker 3: the United States in nineteen sixty, right, And most of
12:25
Speaker 3: the things that we live and breathe and consume every
12:27
Speaker 3: day went from being made in the United States pretty
12:31
Speaker 3: much to over forty years being made around the world.
12:34
Speaker 3: And so the supply chains that you need have to
12:37
Speaker 3: be very, very very efficient in that because we swung
12:41
Speaker 3: so far to the other side. But the most important
12:44
Speaker 3: thing goes back to my first book, So the fiscal
12:46
Speaker 3: and monetary response to Lehman to Leman, which is the
12:50
Speaker 3: Great Financial Crisis of two thousand and eight, the fiscal
12:53
Speaker 3: and monetary response was four trillion bucks. In the follow
12:58
Speaker 3: ons a three, four or five years after four trillion
13:01
Speaker 3: dollars of fiscal and monetary that's fiscal spending, and that's
13:05
Speaker 3: what the FED pulls off in terms of accommodation. The
13:08
Speaker 3: fiscal and monetary response to COVID plus Silicon Valley Bank
13:13
Speaker 3: and Signature Bank and New York Community Bank. That's about
13:17
Speaker 3: sixteen trillion now, so we've gone from four to sixteen.
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Speaker 3: So we've done this, you know, fiscal overdose from Trump
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Speaker 3: and Biden. I'm not blaming plenty any figures at any party,
13:30
Speaker 3: but it's quite extreme, and that amount of fiscal juice,
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Speaker 3: it makes it very difficult for the FED to bring
13:38
Speaker 3: down inflation. And it's in a sustained manner.
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Speaker 1: Right, Okay, all right, lad right, So let's talk then
13:44
Speaker 1: a bit about and we mentioned that, we mentioned how
13:47
Speaker 1: inflation is feeling more labor power and how we've been
13:51
Speaker 1: seeing unions making wins in the UK and the US
13:55
Speaker 1: across the place, and was in rising public sector wages, etc.
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Speaker 1: Now that all fees into inflation. But the thing that
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Speaker 1: I really wanted to talk about was your views on
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Speaker 1: energy and how have you got several funds and sounding
14:07
Speaker 1: chapters on this fossil fuels paving the way to the
14:10
Speaker 1: green meadow or not? Maybe we'll find out. Now you
14:14
Speaker 1: think that we've been massively under investing in fossil fuels
14:19
Speaker 1: in our energy infrastructure and also increasing idolgy relationships with
14:24
Speaker 1: obviously Russia but also Sadi Arabia are not helpful here.
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Speaker 3: Yes, So let's get to some very simple statistics. First
14:33
Speaker 3: of all, in terms of investment, So in twenty fourteen
14:37
Speaker 3: to twenty twenty four, the global population is about almost
14:43
Speaker 3: a billion people more, it's like nine hundred million, So
14:47
Speaker 3: you're almost up a billion human beings from twenty fourteen
14:50
Speaker 3: to twenty twenty four. Now, if you look at the
14:54
Speaker 3: trajectory from twenty ten to twenty fourteen in capital investment
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Speaker 3: in all oil and gas, metals, materials, uranium, you know,
15:04
Speaker 3: key key energy producing materials, and obviously fossil fuels, the
15:10
Speaker 3: investment track from twenty ten to twenty fourteen, if you
15:13
Speaker 3: took that forward to today and you look at where
15:17
Speaker 3: we are, we're essentially three trillion dollars behind that pace
15:21
Speaker 3: and with a population that's up almost another billion people.
15:25
Speaker 3: And so we meant, well, we took five million jobs
15:28
Speaker 3: out of the United States. But at the end of
15:30
Speaker 3: the day, we raised the standard of living in India
15:34
Speaker 3: and emerging markets world dramatically. So we've created a whole
15:38
Speaker 3: new class of carbon consumers. I mean, if you're if
15:41
Speaker 3: you work in a call center in India, you're making
15:43
Speaker 3: one hundred may maybe fifty times more than your great
15:46
Speaker 3: great great grandparents. And so now we're creating this carbon
15:52
Speaker 3: consumer class globally, even though the developed world has pulled
15:57
Speaker 3: back the underestimate, were estimating that kind of demand from
16:01
Speaker 3: that developing world. And at the same time, we've suppressed
16:06
Speaker 3: the investments on oil and gas and metals and all
16:10
Speaker 3: the all the strategic investments that you need to fund
16:14
Speaker 3: or to sustain the planet.
16:16
Speaker 1: Okay, so do you anticipate an energy shortage in the
16:19
Speaker 1: next couple of years, Yeah, it's.
16:21
Speaker 3: It's it's it's anywhere from twelve months to thirty six
16:24
Speaker 3: months out there. But when you talk to so we
16:28
Speaker 3: run a Bloomberg chat, like I said, with institutional investors,
16:31
Speaker 3: you talk with people in the energy space. You talk
16:34
Speaker 3: to different institutional investors you know that are looking five
16:37
Speaker 3: there with portfolios that are constructed for five you know,
16:40
Speaker 3: five years out, ten years out. And that's the big thing,
16:44
Speaker 3: is you, that's the big bet is that what we
16:47
Speaker 3: think is the smart money is betting on a move
16:49
Speaker 3: back toward a different portfolio for a different type of decade,
16:54
Speaker 3: a short energy shortage, material shortage. Let me give you
16:57
Speaker 3: another example, the NASAK one one hundred and now within
17:01
Speaker 3: the last month or so, was worth twenty four trillion dollars,
17:05
Speaker 3: and the energy sector was worth three trillion, So it's
17:09
Speaker 3: twenty one trillion bigger. And in two thousand and fourteen
17:13
Speaker 3: this number was six hundred billion, So you've gone from
17:16
Speaker 3: six hundred billion larger to twenty one trillion larger. And
17:21
Speaker 3: so the entire portfolio construction of all the wealth and
17:26
Speaker 3: all the four owing k's is so so so egregiously
17:31
Speaker 3: weighted toward what we call financial assets, which are stocks,
17:34
Speaker 3: growth stocks, and bonds, whereas hard assets and bitcoin and
17:39
Speaker 3: things like that. The amount of money that's in hard assets,
17:43
Speaker 3: and that includes like oil and gas companies, that includes
17:45
Speaker 3: companies like Alcoa, that includes companies like Rio tinto the
17:49
Speaker 3: amount of money is so skewed the other way. And
17:52
Speaker 3: so we're coming to a period in the next five
17:54
Speaker 3: to ten years we're potentially twenty to thirty trillion dollars
17:58
Speaker 3: leaves that crowded trade and goes into everything else.
18:02
Speaker 1: What makes it leave that crowded trade? I mean we've
18:04
Speaker 1: seen this Actually as we speak right the US textoks
18:07
Speaker 1: have not had a good week, good couple of weeks,
18:11
Speaker 1: So we're seeing that happening already was the impetus for this.
18:14
Speaker 3: Well, there's a couple of things in places come down
18:16
Speaker 3: on the last year, and Powell and the Fed governors
18:19
Speaker 3: have really cheered it along, which that's fine, you know,
18:22
Speaker 3: they want to cheer it along. And so they've got
18:25
Speaker 3: everybody convinced that inflation is going to come back to
18:28
Speaker 3: the one two percent range. And that's that's where tech
18:31
Speaker 3: stocks did great from twenty ten to twenty twenty. But
18:35
Speaker 3: in our book and in our research, we went back
18:38
Speaker 3: over two thousand years, since three thousand years of different
18:41
Speaker 3: civilizations than we're on Earth, and you know, you go
18:46
Speaker 3: back and a civilization of three percent inflation is a
18:51
Speaker 3: is a very problematic. If it's sustained at three to
18:54
Speaker 3: four percent, there's a very unlikely sustainability of over the
18:59
Speaker 3: law period of time if inflation stays there. And so
19:02
Speaker 3: that's why the Fed governors and that's why there's so
19:06
Speaker 3: much If you look at every FED speech and every
19:08
Speaker 3: FED meeting, they always use these words long term inflation
19:11
Speaker 3: expectations remain well anchored. I mean they say it every
19:15
Speaker 3: single FED meeting, and they the reason is that that's
19:18
Speaker 3: why the inflation standard of two percent. That target is
19:22
Speaker 3: part of the FED mandate. It is because how that's
19:24
Speaker 3: how dangerous inflation is to a civilization. And so there's
19:29
Speaker 3: been a psychology around this move down in inflation that
19:33
Speaker 3: has gotten everybody very comfortable with going back into tech stocks.
19:38
Speaker 3: But the net present value of all future cash flows,
19:41
Speaker 3: like think about investing in tech stock, the net present
19:44
Speaker 3: value of all future cash flows is worth a lot
19:48
Speaker 3: less if inflations to normalize a three four percent versus
19:53
Speaker 3: say one to two. And so what happens is that's
19:56
Speaker 3: why from nineteen sixty eight to eighty one. In that period,
20:00
Speaker 3: that's why the composition the S and P ended up
20:04
Speaker 3: so heavy on industrials, oil and gas and materials is
20:09
Speaker 3: because once you have sustained inflation for more than like
20:12
Speaker 3: three four five years, the psychology flips where people want
20:16
Speaker 3: to own companies that control assets, right, that control like this,
20:22
Speaker 3: what I think of the assets that real CONTENTO controls, right?
20:26
Speaker 3: Think of the assets that that say Antaro the Gas
20:31
Speaker 3: or Southwestern Energy or any of these companies that control
20:36
Speaker 3: land and assets in an inflationary world, those assets protect
20:42
Speaker 3: an investor from inflation, whereas a company that's sitting on
20:45
Speaker 3: a lot of cash or a lot of a lot
20:48
Speaker 3: of intellectual property, which is wonderful. Like a tech company,
20:52
Speaker 3: they're not protected so much against just long term sustained inflation.
20:57
Speaker 1: Yeah, no, I see that. One of the things that
20:59
Speaker 1: I find amazing when we when we have this conversation
21:02
Speaker 1: about the percentage of the US market that is now
21:05
Speaker 1: tech and the percentage that is energy, is that there's
21:08
Speaker 1: almost no ever sectors dependent on energy. But it's extraordinaries.
21:12
Speaker 1: We learn more and more about how much energy, for example,
21:15
Speaker 1: AI will use. So lots of those tech companies are
21:18
Speaker 1: dependent for their existence on the energy companies that have
21:22
Speaker 1: been so shunned.
21:23
Speaker 3: That's it. I mean, you just nailed. I mean, like
21:25
Speaker 3: this happens in every single cycle of mania. Is there's
21:30
Speaker 3: too much attention on the in videos of the world,
21:34
Speaker 3: the super micro computers, the you know, microns, and they
21:38
Speaker 3: mean well, I mean Wall Street strategists mean well, but
21:41
Speaker 3: they're just not doing the math because if you believe
21:45
Speaker 3: in videos, as you know, estimates in terms of what
21:48
Speaker 3: they're telling Wall Street, we're going to need a new
21:51
Speaker 3: power grid in the United States, right, which is gonna
21:53
Speaker 3: cost two trillion dollars. We're going to have. We're gonna
21:58
Speaker 3: need a lot more copper, We're gonna need a lot
22:00
Speaker 3: more energy infrastructure in terms of companies that actually move
22:05
Speaker 3: electricity around, like how how is that electricity transport aluminum?
22:10
Speaker 3: Things like that. And then if you take all those
22:12
Speaker 3: electric vehicles that are in the agenda for the Green
22:15
Speaker 3: economy and you also put those on the power grid,
22:18
Speaker 3: it creates even more and more stress. So it's just
22:21
Speaker 3: a crazy, crazy moment historically where everybody's focusing on, you know,
22:27
Speaker 3: one thing everybody's focused on, Like nineteen ninety nine, everybody's
22:30
Speaker 3: focused on JDS unit phase and global crossing, but nobody
22:33
Speaker 3: was looking at match dot com, you know what I mean.
22:35
Speaker 3: Nobody was looking at the facebooks of the world that
22:38
Speaker 3: didn't accept. But well, the Googles of the world. Everybody's
22:41
Speaker 3: just looking at, you know, kind of like one part
22:43
Speaker 3: of the trade.
22:45
Speaker 1: So from an investing point of view, it sounds to
22:48
Speaker 1: me like you would advise, but don't let me put
22:50
Speaker 1: words in your mouth people to be moving out of growth,
22:53
Speaker 1: moving out of tech, and moving into any anything to
22:56
Speaker 1: do with energy production. The re of the grid's not
23:01
Speaker 1: just in the US, of course, made it is very
23:02
Speaker 1: badly in the UK and across Europe as well. And
23:05
Speaker 1: hard assets, by which I think it sounds like you mean,
23:09
Speaker 1: you know, uranium, cobbolds, lithium, copper, aluminium, etc.
23:14
Speaker 3: Yes, I mean, that's a very good way to put it.
23:17
Speaker 3: You could also just look at your value stocks versus
23:20
Speaker 3: your growth stocks, or your say the Russell two thousand
23:25
Speaker 3: value versus growth. These are all at really crazy, crazy extremes.
23:31
Speaker 3: The Dow Jones Industrial Average versus the QQQS. That's simple
23:35
Speaker 3: now that the industrials aren't traditional value anymore, but there's
23:38
Speaker 3: a lot of value components to them. But the capitulation
23:41
Speaker 3: signal that we received at the end of June, we
23:45
Speaker 3: have a model that measures measures capitulations. You know, it's
23:48
Speaker 3: just a category one hurricane or a category five, and
23:52
Speaker 3: so we received at the end of June a category
23:55
Speaker 3: five hurricane in terms of growth versus value, in terms
23:59
Speaker 3: of Jones Industrial Average versus the the NASDAK or just
24:04
Speaker 3: Russell two thousand, Russell value versus growth, all these things
24:08
Speaker 3: gave us a signal that we're heading forward a really
24:13
Speaker 3: tectonic plate type shifts.
24:14
Speaker 1: Okay, so when we've been talking on this podcast for
24:17
Speaker 1: a long time now about how value's day is coming
24:20
Speaker 1: again and about and I've even wrote a column about
24:22
Speaker 1: it this week again about how over the very long
24:25
Speaker 1: term we can see it in all long term studies
24:27
Speaker 1: that value outperforms growth by a couple of percentage points
24:30
Speaker 1: every year of the very long time term as well,
24:33
Speaker 1: back as we have datail with lee, which it's only
24:35
Speaker 1: into the twenties, of course. But now the last twenty
24:38
Speaker 1: years plus have been something of an anomaly. We keep
24:41
Speaker 1: expecting value to come back, but it never actually quite does.
24:45
Speaker 1: But you think that turn is now, well.
24:47
Speaker 3: Okay, so you're one hundred percent right, So think about
24:49
Speaker 3: what you just said. What happened last twenty years disinflation?
24:53
Speaker 3: What happened the last twenty years? We had beautiful sea lanes, right,
24:57
Speaker 3: trade and transport of goods with so we're so easy.
25:01
Speaker 3: It was the easiest in our lifetimes. We had no
25:04
Speaker 3: protectionism to speak of, right, and the power of labor
25:07
Speaker 3: unions was decimated. Right, So all those things have changed. Now.
25:12
Speaker 3: Remember remember remember after COVID from twenty one to twenty two,
25:17
Speaker 3: value destroyed growth, right, So that was what I call
25:20
Speaker 3: the tremor. Everybody, yeah, everybody thought that was it. Then
25:23
Speaker 3: the fate FED height rates five hundred over five round
25:28
Speaker 3: basis points in eighteen months, and it brought down inflation,
25:32
Speaker 3: and it got everybody sucked in to the same old,
25:37
Speaker 3: stale twenty twenty to ten to twenty twenty portfolio. And
25:42
Speaker 3: what we're saying is that actually values outperforming growth since
25:47
Speaker 3: twenty twenty in some spots, like if you look at
25:49
Speaker 3: it's but it's not like you said, it's not over
25:52
Speaker 3: the last but right now because of that threat of
25:55
Speaker 3: sustained inflation, wants to Fed cuts rates or start every
25:59
Speaker 3: time the Fed moves toward easing, the dollar starts to weaken,
26:04
Speaker 3: and then we start start to get this move, you know,
26:07
Speaker 3: back toward hard assets again and value. And so you're
26:11
Speaker 3: absolutely right, hasn't worked over the last year, but it
26:14
Speaker 3: really worked well, you know, twenty twenty one to twenty two.
26:17
Speaker 1: It's crypto basically the more a growth stock coming it
26:22
Speaker 1: is not a growth stock, but should I mean, it
26:23
Speaker 1: tends to track growth, tends to track what happens in
26:27
Speaker 1: big tech. And we talk to people a lot who
26:32
Speaker 1: can't see a reason why bitcoin in particular won't be
26:37
Speaker 1: a massive long term success. I was crying to say
26:40
Speaker 1: to people what what would make this not work for you?
26:43
Speaker 1: But for people who are really obsessive about bitcoin, there's
26:46
Speaker 1: nothing that could make it not works.
26:48
Speaker 3: So in our book, we're very friendly to bitcoin because
26:53
Speaker 3: what annoys me, though, is that the evangelists and the
26:56
Speaker 3: Michael Sailors of the world, they pitched this story that
27:01
Speaker 3: is true over the long haul. In other words, the
27:04
Speaker 3: fiach currency devasits irresponsible government spending. The whole thing My
27:13
Speaker 3: entire books pitch is pro crypto, it's philosophically. But what
27:18
Speaker 3: these people don't tell investors, and it's relatively disgusting to me,
27:24
Speaker 3: is that what's happened in the early stages of bitcoin,
27:27
Speaker 3: for since twenty seventeen, when you're long bitcoin all year long,
27:32
Speaker 3: is liquidity. Like so all of this philosophy like around, Like,
27:38
Speaker 3: let's think about the deficit, the depthsits had gone from
27:42
Speaker 3: you know, five four hundred billion dollars a year under
27:44
Speaker 3: President Obama to two to three that three trillion a
27:49
Speaker 3: year consistently under Biden and Trump. Right, so we've had
27:53
Speaker 3: all this irresponsibility and you know, where is bitcoin the
27:56
Speaker 3: last two years versus inflation? It's been destroyed, Right, And
28:01
Speaker 3: so the point is is that every time the VIX,
28:05
Speaker 3: every single time the VIX has moved above say thirty thirty,
28:10
Speaker 3: every big drawn out big coin's been down in a
28:14
Speaker 3: anywhere from a ten percent draw down to it seventy
28:18
Speaker 3: percent draw it out. So what's happening is it's essentially
28:22
Speaker 3: essentially a liquidity trade. So if liquidity in the market
28:27
Speaker 3: starts starts to evaporate, big coin gets destroyed, regardless of
28:32
Speaker 3: its long term story. Now, eventually that long term story
28:36
Speaker 3: will pay off. But what happens is imagine you're like
28:39
Speaker 3: a twenty three year old kid or a thirty year
28:42
Speaker 3: old woman and you buy a Bitcoin with this great philosophy,
28:46
Speaker 3: and then you've got four draw downs since twenty seventeen
28:50
Speaker 3: eighteen of like literally fifty to eighty percent. I mean
28:56
Speaker 3: Gold's biggest draw down the last decade since Lehman Gold's
29:00
Speaker 3: biggest draw downs twenty one twenty two percent. You know
29:03
Speaker 3: what I mean. That's the store of value, right, not
29:05
Speaker 3: something that drops every couple of years about fifty to
29:09
Speaker 3: seventy percent. Because at the end of the day, when
29:11
Speaker 3: you're long Bitcoin, your long liquidity. So if liquidity drives up,
29:16
Speaker 3: if there's higher volatility in market and here's the evil
29:19
Speaker 3: thing people want to When you're long bitcoin, you're actually
29:21
Speaker 3: short to BIS. Right. Nobody will tell you this if
29:24
Speaker 3: you look, look at the bicks, vic surges, look at
29:27
Speaker 3: performance and bitcoin we've got to all I know is
29:30
Speaker 3: have seven years of evidence. It's right there for everyone
29:33
Speaker 3: to see. But you know they still what they do
29:36
Speaker 3: is at the lows, there's crickets. No one's proven the
29:40
Speaker 3: evangelist cannot be found on every single time bitcoin's in
29:43
Speaker 3: a seventy percent draw down, there's crickets every time it's up.
29:47
Speaker 3: You know, at these levels, you know how or where
29:50
Speaker 3: crypto was. You know, eight two months ago, you know
29:53
Speaker 3: the Tom Leaves of the world, they're talking about one
29:54
Speaker 3: hundred and fifty thousand dollars bitcoin. You couldn't find Tom
29:57
Speaker 3: Lee on bitcoin, you know, with the low See hilarious.
29:59
Speaker 1: I would to ask you to make a choice between
30:01
Speaker 1: holding gold or holding bitcoin over a ten year period,
30:05
Speaker 1: I think I can guess your answer.
30:07
Speaker 3: So the bitcoin gold ratio every time it's been between
30:11
Speaker 3: seven to nineteen the last like this goes back over
30:16
Speaker 3: a decade. You want to be selling your gold and
30:20
Speaker 3: buying some bitcoin, right, and every time the ratio is
30:23
Speaker 3: between twenty eight to thirty six, which is where it's
30:26
Speaker 3: been the last couple of months. You want to be
30:30
Speaker 3: selling bitcoin and buying some gold. So word by no
30:34
Speaker 3: means bitcoin enemies, I believe in the bitcoin story. What
30:38
Speaker 3: just drives me crazy is that people won't tell you
30:41
Speaker 3: that they'll pitch you this beautiful story about fiat currency protection,
30:46
Speaker 3: but they won't tell you that you're really just long liquid.
30:49
Speaker 1: Okay, interesting right now, Lara, I've taken up a lot
30:52
Speaker 1: of your time, So what I want to do now
30:54
Speaker 1: is just give you an open question. Is there anything
30:56
Speaker 1: that we haven't talked about that you I think we
31:00
Speaker 1: tell investors should be thinking about. Should they, for example,
31:03
Speaker 1: be going off and buying into Chinese equities because they're
31:06
Speaker 1: particularly cheap now, should they be focusing only on UK
31:09
Speaker 1: small caps because there's value that is as somewhere in
31:12
Speaker 1: Europe they should be looking? Is there a sector in
31:14
Speaker 1: the US we haven't talked about that we should be
31:16
Speaker 1: thinking about.
31:18
Speaker 3: Well, something that people are talking about today in our
31:23
Speaker 3: chat with the institutional investors is if Kamala gets a
31:27
Speaker 3: nice bounce, which she should get here, the solar names
31:31
Speaker 3: are going to do really well. And if you look today,
31:34
Speaker 3: the nasdaqs off three percent, which is one of the
31:37
Speaker 3: it's very unusual. We've had two three percent drops now
31:39
Speaker 3: in two weeks, so that's a very very unusual thing
31:43
Speaker 3: considering we didn't have one for at least I think
31:46
Speaker 3: nine or ten months before that.
31:48
Speaker 1: It fits to the signal as you saw at the
31:50
Speaker 1: end of June though.
31:51
Speaker 3: Yes, but yeah, but the point is is that if
31:55
Speaker 3: Kamala gets a bounce and say she brings on a
32:00
Speaker 3: unning mate, that improves the ticket. The solar names the
32:03
Speaker 3: T A N E t F your en phase is.
32:06
Speaker 3: You know, there's a whole number of them in the
32:08
Speaker 3: T A T A N E t A. But those
32:11
Speaker 3: could get a nice bounce here cannabis as well, So
32:15
Speaker 3: those are kind of your those are kind of your
32:18
Speaker 3: uh commolitories.
32:20
Speaker 1: If the solar programs everywhere are expanded, then obviously everyone
32:24
Speaker 1: wants to be little more closely. Rare as metals.
32:27
Speaker 3: Yeah, so rare earth metals right now are screaming by that.
32:31
Speaker 3: They are just they've been destroyed. Yeah, that's a great
32:35
Speaker 3: thank you, thank you for bringing me bringing that up.
32:38
Speaker 3: The rare Earth's r E m X. I think it
32:40
Speaker 3: is that has been that that that e t F
32:43
Speaker 3: is similar around that type of trade, and that's what
32:46
Speaker 3: you want to be looking at in terms of Trump trades.
32:50
Speaker 3: The big one, the big winners are going to be
32:52
Speaker 3: natural gas companies that benefit from deregulation in LNG right,
32:57
Speaker 3: which is and so there's a number of Canadian natural
33:01
Speaker 3: gas companies that are extremely cheap urmalines of the world.
33:05
Speaker 3: You know, these things have been really beaten up. And
33:07
Speaker 3: then your exploration companies and your service companies like Slumberjay
33:12
Speaker 3: probably double under Trump. And so that's what I'm seeing
33:15
Speaker 3: professional investors that are taking a view on the election
33:18
Speaker 3: because because the parties are very extreme now because you know,
33:23
Speaker 3: obviously Kamala if you look at her record, she's way
33:25
Speaker 3: to the left of Biden, right, just you look at
33:27
Speaker 3: a voting record, and whereas you look at Trump and Jdvans,
33:30
Speaker 3: you know, this is like pretty crazy. So it's uh
33:33
Speaker 3: so you're going to have different portfolio outcomes, dramatically different.
33:37
Speaker 1: Okay, so there's way we need to do a little
33:39
Speaker 1: bit of waiting and seeing how it pans out from
33:41
Speaker 1: him before we make those big decisions. Brilliant Laria, I
33:45
Speaker 1: will let you go. But that was all absolutely fascinating.
33:48
Speaker 1: Thank you so much for joining us today.
33:50
Speaker 3: There was a lot of fun and give my best
33:53
Speaker 3: to the team. We appreciate everything.
33:58
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Speaker 2: You're not taking August off by John? Maybe a week?
34:43
Speaker 2: Maybe a week, Okay,