February 21, 2025 • 32 mins
Every decade has its story for investors. The 1970s were all about gold. The 1980s were all about Japan. In the 1990s it was the Internet. In the 2000s, we all shoveled money into China and emerging markets. And in the 2010s, we had eyes for nothing but software and American exceptionalism. So what’s next? That’s the question Jawad Mian, founder and managing editor of Stray Reflections, tries to answer on this week’s Merryn Talks Money.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:16):
Welcome to Maren Talks Money, the podcast in which people
who know the markets explain the markets. I'm Meren Somerset Web.
This week I'm speaking with Jo word Mean, chief strategist
at Stray Reflections and Independent Global Macro Research and Trading Advisory. Now,
one of the reasons I wanted to speak to Jo
word this week is because he looks at markets with
quite a historical context, and regular listeners will know that
(00:38):
we're mildly obsessed with the stock markets of the nineteen
sixties and the nineteen seventies, what happened there and how
that reflects onto today. So Joad, thank you very much
for joining us.
Speaker 3 (00:49):
Welcome, pleasure to be with you.
Speaker 2 (00:50):
So let's start by looking at the sixties and the seventies,
what happened in those markets and how you feel they
tell us something about today.
Speaker 3 (01:01):
So a couple of interesting trends that we've seen recently
that we can find echoes in the past. In the
last decade we talked about especially post pandemic, there was
this idea of the yolo market and the smack boom,
and when you go to the sixty that what's interesting
is back then you had Jerry Say, who led this
movement within the Go Go Years, as it was named.
(01:24):
Go Go fund assets increased from two hundred million dollars
in nineteen sixty three to three point four billion in
nineteen sixty eight, an increase of seventeen times. And you
can compare that to Kathy Woods, who became the star
of the Yolo market in some ways, and her firm's
assets row seventeen times as well, from five billion to
eighty five billion, another you know, increase of seventeen times.
(01:44):
Go Go finds made three and forty four percent between
nineteen to three and nineteen sixty eight. Woods Frackship fund,
our innovation jump more than three and fifty percent just
from the pandemic low to February twenty twenty one. The
other thing was, back then you had the conglomerates boom
and John Brooks described that as an era of show
offs and shenanigans, and that sort of led to again
(02:05):
what we see today or more recently, SPACs, which was
at once obscure Niche Nestleveico became the hottest trend on
Wall Street. And then the third thing I would say
was the idea of how retail completely changed the landscape
back then. Mary Lynch opened over two hundred thousand new
Brokes's accounts in the first five months of nineteen sixty eight,
(02:28):
and there were about thirty one million Americans who owned
the stock, more than one in every four adults, a
fifty three percent increase in nineteen sixty five when they
were just over twenty million. And if you look at
it again comparing it to the recent times, you had
fifteen nine million people who held accounts with one of
the top seven years workers in twenty nineteen. By twenty
twenty one that number each ninety six million, a sixty
percent increase, with seventeen million new accounts open in twenty
(02:50):
twenty and twenty million more in just than the first
out of twenty twenty one.
Speaker 2 (02:55):
Okay, so you have this dynamic where you have a
big name, kind of leading hero fund manager. Right, you
go through this period and Gerald's side, he was with
their Fidelity right initially and then set up on his
own and became a sort of a brand in his
own right, same as Kathy Woods, who, by the way,
we have had on this podcast before. Anyone who's interested
in what Kathy Woods thinks about markets. Please go back
(03:16):
and listen to that one. It was also great fun
to do. So you have these sort of celebrity fund managers,
You have these fast rising markets. You have these products
that old timers in the market might look at and say, well,
that makes no sense. But maybe you have a new
generation of avestas who haven't seen bad things happen in
the market before, and so they come on at speed.
(03:38):
You get this huge retail participation, you get a bubble,
and then of course eventually the old timers who've been
bearished for far too long or right, but after everyone
else has made a big part of money. That makes sense,
But we're still in a bull market, Kathy Woods as
her performance might not be so good anymore. So maybe
we can compare to Gerald's side back then, but nonetheless
(03:59):
we are still in a bill market. It doesn't reflect
exactly right, or does.
Speaker 3 (04:03):
It it does? I think? So let me explain the
price action. Right, So back then from the nineteen sixty
six the bearmarket. In nineteen sixty six, we had the
first stop and then SP five hundred dropped twenty four percent,
and that bear market lasted eight months. It was not
followed by recession. Instead, a new speculative binge, the second
in the decade, took hold, and the averaging daily training
(04:23):
volume for nineteen sixty seven on the NYC surpassed ten
million shares, a new high by long shot, and compare
that today. We had the peak in January twenty twenty two,
and what followed was again a twenty seven percent bear
market over nine months. No recesion follows, and we've had
another stock market boom. That's that's continued. In nineteen sixty
eight was the second peak, and it was sixteen percent
(04:45):
above the nineteen sixty six peak, and it's led to
the next big decline of over thirty percent over the
next two three years, wiping all of the games out
from the Google years. And again right now, this is
where we are. You know. The key point is this,
after a climactic like the twenty twenty one peak, exhaust
spective energy, the next space isn't another vigorous bull market,
(05:06):
but a more subdued one with sort of less upside.
And so here we are today where we're about twenty
five percent up from the twenty twenty one level, and
we're seeing concentration in the MAC seven names, which speaks
to the desire to be in trusted, cash rich earning
generating companies more so than the spective one that we
saw previously.
Speaker 2 (05:27):
Yeah, although twenty five percent up doesn't feel very subdued,
that feels like that's quite a big rise.
Speaker 3 (05:32):
Only if you think that this can discon continue, right,
I mean, twenty five percent over the twenty twenty one high.
To me, that's not seemed very significant. And I think
it's about where do we go from here?
Speaker 2 (05:44):
Okay, Mike, I guess that is the key question. Then
where do we go from here?
Speaker 3 (05:48):
Look? I think what's interesting is if you also jump
into the seventies next, you'll notice that there's another comparison
that you can make between the MAC seven and the
nifty fifty stocks and back then, you know, the few
fifty stocks straighted at about forty two times earnings at
their peak, more than double the SB five hundreds average
of nineteen, and their valuations were said to be okay,
(06:11):
because these guys we're going to continue to grow into
their earnings like no price was high enough. And while
that prediction was correct, the misconception was it didn't matter
what you've paid for them, because they continue to generate
earnings growth around nine percent of the next twenty five years,
but they had it in to endure a pretty decent
(06:32):
decline over the nineteen seventies bear market and then the
Magnificent seven like the nifty to fifty at their peak,
we're treating at more than double the SB five hundreds
valuation multiple in July of last year. The basket as
a whole has peaked in December of last year. And
so if history is any guide, you know you have
to keep in mind that the price matters. And so
(06:54):
the idea is, what if the SP five hundred is
right now reaching heights that won't be surpassed the next decade.
So what I mean by that is if you do
see a thirty percent decline from here, and we can
discuss specific reason as to why that may happen, but
if you see a thirty percent decline from here, you're
looking at a bottoming somewhere around twenty twenty seven. It
takes about two and a half years to typically recover
(07:17):
from a bear market low to the high water mark again,
which means we could be stuck around the six hundred
level back in again in twenty twenty nine or twenty thirty. Even.
Speaker 2 (07:26):
Yeah, let's go back to the nifty to fifty AM
and the lesson that was learned then that needs to
be learned over and over and over again, it seems,
is that a good company is not necessarily a good investment,
and price does matter. So the feeling then, and you
get this feeling now as well in large parts of
the market. I think the feeling then was that it
doesn't matter what the price you pay, because this is
(07:48):
a great company, it's going to keep growing, it's solid,
it's absolutely fine listening's but absolutely true about lots of
those companies. But still the price can be too high.
So that was the lesson that investors learned then and
investors of maybe some investors have already forgotten.
Speaker 3 (08:04):
Yeah. So interesting because even if you bought the ninety
fifty stocks at their peak, the return from those investments
would have still closely massed they as we five hundred
and twelve percent annual return over the next twenty five years.
But it's just that you had to endure a decline
in some of those stocks upwards of eighty five percent.
Speaker 2 (08:20):
Yeah, so you just paid too much upfront and you
had to wait a long time for that return to come,
but it did come, which is crucial. So if you look, now,
let's take that over to their Magnificent seven or perhaps
the AI or the AI adjacent stocks as we now
call them, and again we look at those stocks, or
part of the market looks at those stocks and says,
it doesn't really matter what you pay because they will
(08:41):
grow into those valuations, which might be true, but that
growing into the valuation could take a very long time
and that there could be a big correction. First, is
that the correct way to look at the mirroring from
the nineteen seventies.
Speaker 3 (08:53):
I think so, and I think we've reached those sorts
of extremes. And our fundamental belief is that you know,
you know, whatever period off the last few decades we
look at that, we can get into the eighties and
the nineties as well. But we believe that that stocks
are in a topping process more broadly, and the topping
process isn't a specific point or there's just one catalyst.
(09:13):
It takes you know, typically you know, seven to eight
months up towards twelve months, because different sectors and styles
speak at different times. But just for you know, context sake,
let's keep in mind. The NICKE peaked in July of
last year. Microsoft peaked in July, the semiconductor index peaked
in July, the high yield sector you know, peaked in September.
Home builderspeat in October. Now, semiconductors and the home builders
(09:36):
were the top two performing sectors since October twenty pointy
two low following that you've had in November, micro strategy peak,
the transports peaked, swakacs peaked nine seven, like I said,
as a basket peaked in December. Apple and Testla peaked
in December. Mean coins peak in December, in Vidia peaked
in January, and so far bitcoins peaked in January as well.
(09:57):
So we can see the sort of over arch topic
process developing, and they're now a function of what are
specific catalysts that could happen that could lead us into
a bear market? What are they? So? I think there's
certain conditions that are necessary but not sufficient, amongst which
(10:17):
is bullish sentiment. It is consumer expectations for stocks over
the next twelve months. It is you know, stronger dollar,
higher interest rates, it is insider selling, Michau cash levels
at record low levels. All of these things are you know,
part of what you want to see as necessary but
not sufficient. And I think what's interesting is the deep
Seek news moment that occurred recently. I think creates a
(10:41):
crack in the AI narrative to an extent. And you know,
Soros had this sort of framework of how he would
look at a bubble, which follows a predictable pattern, you know.
And you know stage four of a five stage process
was at twilight period where faith waivers. And I think
what we're seeing with deep Seek is this idea for
(11:02):
the first time in this cycle that perhaps we may
be able to lower the cost per unit of intelligence
going forward. You know, every bubble, you know, every innovation,
every technological wave as all a similar pattern of innovation, application,
eventual democratization driven by competition and constroductions. And it looks
(11:23):
like that's happening again. So we will be finding more
efficient approaches to challenge the route for GPU intensive taradine.
Speaker 2 (11:30):
And this is the case with every period of intense
industrialization or some kind of technological change, you very often
find and we've seen this again, I mean speed lots
written about it happening with the railways, happening with the internet,
having with cables, et cetera, et cetera, that the people
who put the vast amount of money into the capital
expenditure in the first wave of the new technology aren't
(11:53):
necessarily the ones who really benefit from it.
Speaker 3 (11:56):
Absolutely, and I think a core belief underpinning the album
mark it was that the massive instructure of spending will
create unastainable boats for the US tech giants. But we're
still seeing that the returns all those investments remain unclear.
It's definitely going to impact their return invested capital, and
I think starting the next earning seasons, at some point
(12:16):
this year, we will see shareholders begin to question that
those endless cap ex plans if they future returns right,
because I think cost of active scaling them matters much
more than chasing performance breakthrough, which American tech giants are
sort of focused on right now.
Speaker 2 (12:30):
Might that then challenge the idea of American exceptionalism, And
we talk about this quite a lot on this podcast,
because there is a general idea, particularly among the new
generation of investors investors, that the American market has always
been exceptional. That is completely natural for the American market
to be valued significantly more highly than any other global markets.
That's just no more, Whereas, of course, you know, as
(12:52):
old these know that that's only a function of the
last fifteen fifteen or so years, and before that it
wasn't the case. Does this shift in the AI narrative perhaps,
is that the first beginning of a challenge to the
idea of American exceptionalism.
Speaker 3 (13:07):
So let's remind listeners, right, So, if you think about it,
coming out of GFC, America was not the place you
wanted to invest. You had the twenty ten flashcress. In
twenty eleven, you had the credit rating downgrade, the dollars
at a fifty year low. In twenty twelve, Facebook went
public and it was a disaster if the IPO flopped.
It was the world's largest technology ipo. Obama was increasing regulation.
(13:29):
There was mistrust of the Fed. You know, top investors
in the colonumists were writing a letter saying, stop qv
you're going to create hyper inflation, You're going to debase
the dollar. At that time, Marion, the thinking was emerging
markets to serve a higher pe because of their superior
growth prospects. Commodities deserve an allocation in your portfolio. So
I'm sure a problems would say, you know, there's nothing
more deceptive than the obvious fact. But that was the
(13:50):
time you wanted to really be invested in the US.
And I think what was exceptional about America was last
decade three specific things. First, America had predicate and plessy leadership,
the first of which was coming out of GFC, the
FED the Ganqui cleaned up the banks before any other country.
Then it followed with Trump's tax cuts and deregulation, so
yet political and policy leadership. The second was the shale revolution,
(14:14):
which was totally unexpected, which made America and energy independent nation.
The third thing was Silicon valley innovation, which eventually led
to the bubble. Now what's interesting is I don't think
we're in an American exceptional market anymore. I think which
we're seeing in the American exuberance where hype has run
ahead of reality, and we can sort of look into
(14:35):
that because instead of political and policy leadership, what we
have now is a country that's running a deficit of
seven percent without any sort of recession or wartime, which
is not the best policy prescription. At this point in
the cycle. The shale companies have gone from prioritizing maximum
output to maximizing profits now, Silicon Valley seems to be now,
(14:57):
especially post nine twenty one, with where we are today,
still struggling in the larger startup landscape and potentially seeding
its lead in certain other technologies. So I don't think,
you know, America is as exceptional, and I think specifically,
if we are in an AI powered bull market, how
is it that since October twenty twenty two or November thirtieth,
(15:20):
twenty twenty two, when chat GPT was launched, how come
the German DAX is upperforming the SABA five hundred Germany,
which is which has a ward in its continent, It's
graptical energy crisis, political instability, China a comparatitive threat. How
is that possible that German equities have now performed US equities?
(15:40):
If AI is an American story, and you've also had
the Chips Act, you have the IRA, you had a
massive graptical capex, and if you're also in an AI
powered bull market, how is it so that a barberous relic,
an ancient sort of value like gold is uperforming them
both up sixty five percent compared to SB five hundred
and sub fifty close to fifty percent. So there's something
(16:01):
not right, something not acceptable about what's happening, either where
two bearers on the prospects of Europe or perhaps overestimating
America's strength at this point in the cycle.
Speaker 2 (16:11):
Yeah, I mean in terms of Germany, European stocks, even
UK stocks that they have done fairly well recently. Is
that really just the function of global fund managers looking
at their exposure to the US and saying, well, sixty
seventy percent, this is maybe beginning to push it. Look
at the relative valuations, or just shift a little bit out,
and given the underweighting of non US markets, it doesn't
(16:35):
take that much to start pushing them up a bit.
Speaker 3 (16:38):
I think that's certainly part of it, you know. I
just think that it's important to ask in a question,
which is what is happening that shouldn't be, what is
not happening that should be? And if we are truly,
you know, in an air powered world market, then this
should not be happening where the SEP founder is underperforming.
If we are taking a technological leap forward, then goals
(16:58):
should not be performing three four hundred. Something else is
going on. And we may not have all the answers,
but you know, one way I think about this, Marin
is again, if I go back in time, you know,
each decade there's a a powerful event that occurs which
turns into the zeitgeist and eventually into a mania. So
back in the seventies, it was the big tann of
(17:18):
Britton Wlds in nineteen seventy one, which lected the gold
world market, but in nineteen eighty that stopped working. In
the nineteen eighties, it was Japan's sticking over the world.
You're long Japians equity, Japanese real estate, but nineteen eighty
nine that stopped working. In the nineteen nineties, the zeitgeist
was the Internet. It only really kicked in nineteen ninety five.
But you want to be long Nasdaq March two thousand.
That stopped working in the two thousands. The zeitcast was
(17:42):
shining as interesting to the World Trade Organization in two
thousand and one, so you're ready long China em commodities
that stopped working in twenty ten, twenty eight to eleven.
Based on whatever asset you pick, the zeitcast of the
last decade was best articulated by Mark and Resent in
twenty eleven, and a Wall Street Journal article titled software
is Eating the World? That zeit guys, in my opinion,
(18:02):
ended in twenty twenty one.
Speaker 2 (18:04):
What do you think the one for the next decade is?
Speaker 3 (18:06):
Then?
Speaker 2 (18:06):
Where are we going next?
Speaker 3 (18:08):
Yeah, there are a few interesting points here right. So first,
because these are ten year trends, a lot of careers, reputations,
businesses are built on that success. It takes a while
to dethrone dominant beliefs and behaviors that served them. So
even up until twenty fourteen, twenty fifteen, we still thought
emerging markets are going to come back. We still thought
gold and commodities are going to continue to do well.
It didn't really happen. And up until mid twenty fifteen,
(18:30):
people still thought, you know, America is not the place
to be. You know, back in twenty fifteen, Bill Gurly says,
Silicon vllies in a bubble, So it's very difficult to discern,
you know, when that shift is happening. There's certain candidates,
you know, that we can look at. I think that
are a handful. You know, we've been talking about as
zodcast portfolio with our clients. The first could certainly be AI,
(18:50):
in which case you want to be long in VideA.
This I think is too close to the prior's archives
to be the one. The second could be health and obesity,
so in which case you will belong evalily. And the
third candidate could be defense in a multiplier world, so
in which case you will belong palenteer and you know
(19:11):
some certain European defense names. And I think the fourth,
which is where I leaned most is it could be
the energy transition, the race to zero emissions and the
global energy transition. So this idea of electrification in trying
to serve the climate goals. And I think that's important
because just like last decade it was America's decade. If
(19:34):
climate or the sort of energy transition becomes the dominant team,
then the country most important for this decade is actually China,
because China is the renewals of a power of the world.
And so just like ten, twelve, fourteen years ago, it
wasn't obvious that America was the place to be, it's
not obvious right now that China is the place to be.
Who would want to invest in a country that was
(19:55):
a shrinking in gage population or leader for life, a
slow march and property crass, civil leverage, you know, potential
war with Taiwan. And yet and yet, you know, Chinese
tech stocks have performed the US market last year and
they're pretty songly this year. So again, something else is
going on that we may need to pay attention to.
Speaker 2 (20:14):
It's interesting, though, isn't it that you pull that out
when if you flick through the papers, look at what
we write, look at what we talk about. It actually
seems that what we're seeing in most of the world,
the UK side, we haven't got there yet, but we
probably will. What you're mostly seeing is a pullback from
the idea of trying to pursue zero, a pullback from
the idea of moving away from fossil fuels too quickly,
(20:34):
because it clearly isn't working at this feed that a
lot of people would like it to. So we're seeing
more of a pullback than to push forward in that area.
Speaker 3 (20:43):
And that's how surprisingly how markets work, right. It's just
very counterintuitive. And I think it's more about just understanding
the capets are required to upgrade the US electrical trade. It's,
you know, what's required to sort of create the electricity
and the power needed to support even the AI boom now, right,
And I think all of that feeds into energy transition
(21:05):
and in some ways the race to ZERI emissions, because
you're going to have to find sources that are alternative
to conventional ones to sustain this.
Speaker 2 (21:15):
To us, that seems to suggest that there'll be a
nuclear boom rather than anything else.
Speaker 3 (21:21):
I mean a certainly part of it. I think naturally
guys are They're a big role to play in the interim.
But the reason I think Germany is also performing is
because if we are in the sort of climate era,
and then the solution to climate is not technological, it's industrial.
So there's also a time where industrial companies do better.
It's not ventually capital, it's project finance, it's you know,
(21:42):
working with other governments, and in most cases, you know,
China is way ahead of any other nation when it
comes to the key technologies needed for that push, which
I see bringing Europe in China closer. Even if the
US sort of heats up political pressure on both spend.
Speaker 2 (22:00):
That further, Why does that bring China and Germany closer together?
Speaker 3 (22:04):
I think ultimately what you're gonna have to see is
desire for more investment from China, and so you know
America could benefit from that. Europe could benefit from that.
So you're gonna play economic diplomacy, is you're gonna see
a shift towards ees globally. You can try if you
want to stop that, delay that, but we're already seeing
it happening in across emerging markets, and the developed world
(22:28):
is going to be slower because of political preferences. But
ultimately you're more likely to see Chinese companies taking over
European auto plans than European companies competing or out competing
Chinese ones, And so it makes sense, and I think
it's a very interesting comment even by Risula recently where
she talked about how we need to figure out that
ways to compete and collaborate with China and get closer,
(22:50):
so you know, we're not necessarily at the cusp of
this delinking globally from trade linkages and sharing technologies that
sort of will help prepare us to the next sort
of iteration of global growth.
Speaker 2 (23:03):
Okay, I want to come back to European structure in
a minute, but before I forget, I want to go
back to Gold where you said something's going on there.
What is it that you think is going on with
the goal price?
Speaker 3 (23:16):
I think it really began for US with the sanctions
in Russia. You know, So there are three basic strikes
to pack Americana. You know. Strike one was Post nine
to eleven, where you know, America suddenly went against the
international order and neaded the country a soueign nation and
you realize, wait a minute, sovereignty doesn't mean anything. So
(23:37):
that was the beginning of the rise as a strong man.
So you certainly lost faith in America as the global
protector or as the benign hedge of one. The second
strike was in the GFC, when you realize, wait, we
can't trust America as the global eclomic manager because subprime
was an American creation. And that's when China sort of
decided that we got to separate usself from US banks
(23:58):
as much as possible in the US financial system. The
third strike was the sanctions on Russia where you confiscate
state assets, where you suddenly realize, wait, we can't even
trust the national property rights anymore. I mean, that was
our sacrisanct. And so I think since then you've seen
you know that strike three of facts Americana, which basically
means we're entering a different world order going forward, right,
(24:18):
And the risk is that America is acting like a
hedgemon in a multi poder world. That creates incivility, that
creates uncertainty. However, since then, what we're noticing is that
gold buying among center banks has really picked up. And
it's also to a point where you know, it's not
responding to the rise and real interstrates, its start responding
to the rise and the dollar. And I think that
(24:39):
is an extremely powerful trend and I think that continues.
Speaker 2 (24:43):
Okay, we did a podcast on gold a little while ago,
so we can leave listeners go and re listen to that,
because I think a lot of a lot of things
that you said chime very very neatly with what we
discussed previously. You also mentioned bitcoin, which you say has peaked.
Do you see bitcoin as central banks aside fulfilling the
(25:04):
same role for investors as gold, or do you see
it as something completely separate.
Speaker 3 (25:12):
I think the big question with bitcoin specifically is that
does it trade like NASDAK or does it trade in
the rest of the dollar. And I think historically it's
traded like NASDAK. So given our scenario where we think
risk assets could be down materially over the next two
(25:34):
and a half years. It's difficult for me to see
bitcoin de couple from that, even initial signals from creating
political tension, whether it's tariff news. You see bitcoin sort
of selling off on that, you know, across the sort
of crypto total market cap sells off on that. So
it's difficult to see that as a hedge or trading
(25:55):
inversely to broader risk sentiment.
Speaker 2 (25:58):
Yeah, no, it's interesting. We do keep being told, don't
mean that bitcoin is a diversifier and a long term
store of value and all these things where we have
no evidence of that yet. And when we look at
golden when we look at bitcoin, when we discuss bitcoin,
and when people come on and discuss bitcoin with us,
its value today is based on its perceived role in
(26:19):
the future, Whereas when we talk about gold its value
is based on the role it has already played in
the past, and we can expect it continue to play
that role. And that's very very different assets, one based
on history and one based on expectations.
Speaker 3 (26:33):
I still think it's all a function of the cycle. Right.
At some point, you know, a bitcoin post COVID has
crossed the rubicon where you're seeing now even greater traditional adoption.
So I think it's an asset that continues to be
relevant and we'll continue to make institutional in roads. The
question is when the invest at watch point in the
cycle are we in And what we typically see is
(26:57):
when the cycle turns, have micro strategy giving you in
some indication where marcro strategy peaks and it coin follows,
you know, months later. So as of right now, microsolurgy
beat in November. As of now, Bitcoin pete in January.
I'm open minded to another move to like one one
thirty maybe in the next few months, but I do
(27:19):
suspect that will be at top that stays in place
for quite some time.
Speaker 2 (27:22):
Okay, so you're advising institutional clients in the main I think.
But let's imagine that you're talking to a retail investor
possibly and listen to this podcast. How would you recommend
that they allocated their assets at the moment?
Speaker 3 (27:37):
Time frame matters. But if you were to say this
is a multi year sort of.
Speaker 2 (27:42):
Allocation, looking for a decade, let's go for a decade.
Speaker 3 (27:44):
Yeah, then I would I would say, you want to
be long China and Chinese acuities. You know, I think
we are underestimating the innovation coming out of China and
Chinese brands, and I think, so you want to be
long China, I would say, is that it's the top one,
and there's specific companies you can look at there. I
(28:07):
would say you would want to maintain exposure to gold
and silver as well as part of your allocation, and
you would want to get exposure to commodity names that
would sort of benefit from the execation and deconbonization story, right,
So that is copper, that is aluminum that would do well.
(28:29):
I think there is going to be a natural gas
or LNG boom that was sort of perhaps you know,
left national gas prices as well, so there's something to
be done over there too. But the best decision that
investor can make typically is avoiding the zycass of the
previous decade. So you know, in twenty tens, if you
just avoided China, em commodities would done fantastically well. If
(28:49):
in the nineties you avouted Japan, you could have done well.
In two thousand, if you know what about it nas
that you could have done well. So that just tells
you that we're in an era now where the US
will begin to underperform the rest of the world.
Speaker 2 (29:00):
If you were too. If you were, if you didn't
do anything else, if you're at the very least to
rebalance yourself away from the US, away from tech, away
from AI, you might be doing yourself a favor.
Speaker 3 (29:13):
I think.
Speaker 2 (29:14):
So, okay, interesting, And what about what about access to
the extraordinary dynamic entrepreneurialism in the Middle East? So, for example,
in the UA, you go to Dubai, Debbi, and you
see these extraordinary economies being built. Is there any way
to get exposure to that? And would you advise.
Speaker 3 (29:30):
That it's not an area of focus on me? I mean,
a lot of the innovation that you're talking about is
happening mostly in private markets and through venturing capital funds, right,
so I think that would be the way to get exposure.
How we haven't had a long enough cycles really determine
how those funds have truly performed. The gootage dynamic where
(29:51):
the economy is not so much reflected in the stock
market in terms of the marketab versus economic weights, and
so you know, the stock market is on this side
of the best exposure either. So it's really a function
of what you want to do or what your view
on oil is. It's because because fundamentally speaking, it's looking
at the public markets. It does tried the beta to
(30:14):
oil to a certain degree, DoD.
Speaker 2 (30:16):
I'm going to ask you a question I've I used
to ask everybody, but I've slightly stopped asking now and
I already think I know where you're going to go
with this, But I'm going to ask you. Anyway, over
this ten year period, if I offered you a choice
of bitcoin or gold, which one would you take? You're
only allowed one.
Speaker 3 (30:30):
By the way, I would take gold.
Speaker 2 (30:33):
Yeah, I thought you might. I thought you might from
what we've just talked about. And if during that ten
years you were to recommend a book two people to
read that might help them get through this next decade
in markets or in life, what would you recommend?
Speaker 3 (30:49):
You think I would recommend The screw Tape Letters by
the C. S. Lewis. I think it's the most important
book of our time. It's basically a senior demon writing
letters to a junior demon about how to corrupt humans,
which he calls the patient and keep him away from
the enemy, which is God. So it's a fascinating exchange
(31:12):
of letters which is basically the inside game of how
we are foiling ourselves. And so in a decade, which
could be you know, more problematic politically, economically, socially. I
feel like we need to have a better understanding of
how we are being led astray. And I can't think
of a better book than C. S. Lewis. It was
(31:33):
actually better is to listen to it because John Cleese
does the audio version, which is fantastic in his voice.
Speaker 2 (31:40):
That sounds great. Okay, so we are being led astray?
Who do you think is leading us astray?
Speaker 3 (31:46):
The enemy? I have seen the enemy and it is us.
Speaker 2 (31:51):
Thank you, Thank you very much for joining us today.
Speaker 3 (31:55):
Pleasure. As always, thanks.
Speaker 2 (32:00):
For listening to this week's Maren Talks Money. If you
like our show, rate review and subscribe wherever you listen
to podcasts, and keep sending questions or comments to Marron
Money at Bloomberg dot net. You can also follow me
and John on Twitter or x I Met Marinus w
and John is John Underscore Steppy. This episode was hosted
by Me Maren's Sunset Web. The show is produced by
Summersadi and Moses and sound designed by Blake Maples and
(32:24):
special thanks of course to jo at me on Thank
You
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:16):
Welcome to Maren Talks Money, the podcast in which people
who know the markets explain the markets. I'm Meren Somerset Web.
This week I'm speaking with Jo word Mean, chief strategist
at Stray Reflections and Independent Global Macro Research and Trading Advisory. Now,
one of the reasons I wanted to speak to Jo
word this week is because he looks at markets with
quite a historical context, and regular listeners will know that
(00:38):
we're mildly obsessed with the stock markets of the nineteen
sixties and the nineteen seventies, what happened there and how
that reflects onto today. So Joad, thank you very much
for joining us.
Speaker 3 (00:49):
Welcome, pleasure to be with you.
Speaker 2 (00:50):
So let's start by looking at the sixties and the seventies,
what happened in those markets and how you feel they
tell us something about today.
Speaker 3 (01:01):
So a couple of interesting trends that we've seen recently
that we can find echoes in the past. In the
last decade we talked about especially post pandemic, there was
this idea of the yolo market and the smack boom,
and when you go to the sixty that what's interesting
is back then you had Jerry Say, who led this
movement within the Go Go Years, as it was named.
(01:24):
Go Go fund assets increased from two hundred million dollars
in nineteen sixty three to three point four billion in
nineteen sixty eight, an increase of seventeen times. And you
can compare that to Kathy Woods, who became the star
of the Yolo market in some ways, and her firm's
assets row seventeen times as well, from five billion to
eighty five billion, another you know, increase of seventeen times.
(01:44):
Go Go finds made three and forty four percent between
nineteen to three and nineteen sixty eight. Woods Frackship fund,
our innovation jump more than three and fifty percent just
from the pandemic low to February twenty twenty one. The
other thing was, back then you had the conglomerates boom
and John Brooks described that as an era of show
offs and shenanigans, and that sort of led to again
(02:05):
what we see today or more recently, SPACs, which was
at once obscure Niche Nestleveico became the hottest trend on
Wall Street. And then the third thing I would say
was the idea of how retail completely changed the landscape
back then. Mary Lynch opened over two hundred thousand new
Brokes's accounts in the first five months of nineteen sixty eight,
(02:28):
and there were about thirty one million Americans who owned
the stock, more than one in every four adults, a
fifty three percent increase in nineteen sixty five when they
were just over twenty million. And if you look at
it again comparing it to the recent times, you had
fifteen nine million people who held accounts with one of
the top seven years workers in twenty nineteen. By twenty
twenty one that number each ninety six million, a sixty
percent increase, with seventeen million new accounts open in twenty
(02:50):
twenty and twenty million more in just than the first
out of twenty twenty one.
Speaker 2 (02:55):
Okay, so you have this dynamic where you have a
big name, kind of leading hero fund manager. Right, you
go through this period and Gerald's side, he was with
their Fidelity right initially and then set up on his
own and became a sort of a brand in his
own right, same as Kathy Woods, who, by the way,
we have had on this podcast before. Anyone who's interested
in what Kathy Woods thinks about markets. Please go back
(03:16):
and listen to that one. It was also great fun
to do. So you have these sort of celebrity fund managers,
You have these fast rising markets. You have these products
that old timers in the market might look at and say, well,
that makes no sense. But maybe you have a new
generation of avestas who haven't seen bad things happen in
the market before, and so they come on at speed.
(03:38):
You get this huge retail participation, you get a bubble,
and then of course eventually the old timers who've been
bearished for far too long or right, but after everyone
else has made a big part of money. That makes sense,
But we're still in a bull market, Kathy Woods as
her performance might not be so good anymore. So maybe
we can compare to Gerald's side back then, but nonetheless
(03:59):
we are still in a bill market. It doesn't reflect
exactly right, or does.
Speaker 3 (04:03):
It it does? I think? So let me explain the
price action. Right, So back then from the nineteen sixty
six the bearmarket. In nineteen sixty six, we had the
first stop and then SP five hundred dropped twenty four percent,
and that bear market lasted eight months. It was not
followed by recession. Instead, a new speculative binge, the second
in the decade, took hold, and the averaging daily training
(04:23):
volume for nineteen sixty seven on the NYC surpassed ten
million shares, a new high by long shot, and compare
that today. We had the peak in January twenty twenty two,
and what followed was again a twenty seven percent bear
market over nine months. No recesion follows, and we've had
another stock market boom. That's that's continued. In nineteen sixty
eight was the second peak, and it was sixteen percent
(04:45):
above the nineteen sixty six peak, and it's led to
the next big decline of over thirty percent over the
next two three years, wiping all of the games out
from the Google years. And again right now, this is
where we are. You know. The key point is this,
after a climactic like the twenty twenty one peak, exhaust
spective energy, the next space isn't another vigorous bull market,
(05:06):
but a more subdued one with sort of less upside.
And so here we are today where we're about twenty
five percent up from the twenty twenty one level, and
we're seeing concentration in the MAC seven names, which speaks
to the desire to be in trusted, cash rich earning
generating companies more so than the spective one that we
saw previously.
Speaker 2 (05:27):
Yeah, although twenty five percent up doesn't feel very subdued,
that feels like that's quite a big rise.
Speaker 3 (05:32):
Only if you think that this can discon continue, right,
I mean, twenty five percent over the twenty twenty one high.
To me, that's not seemed very significant. And I think
it's about where do we go from here?
Speaker 2 (05:44):
Okay, Mike, I guess that is the key question. Then
where do we go from here?
Speaker 3 (05:48):
Look? I think what's interesting is if you also jump
into the seventies next, you'll notice that there's another comparison
that you can make between the MAC seven and the
nifty fifty stocks and back then, you know, the few
fifty stocks straighted at about forty two times earnings at
their peak, more than double the SB five hundreds average
of nineteen, and their valuations were said to be okay,
(06:11):
because these guys we're going to continue to grow into
their earnings like no price was high enough. And while
that prediction was correct, the misconception was it didn't matter
what you've paid for them, because they continue to generate
earnings growth around nine percent of the next twenty five years,
but they had it in to endure a pretty decent
(06:32):
decline over the nineteen seventies bear market and then the
Magnificent seven like the nifty to fifty at their peak,
we're treating at more than double the SB five hundreds
valuation multiple in July of last year. The basket as
a whole has peaked in December of last year. And
so if history is any guide, you know you have
to keep in mind that the price matters. And so
(06:54):
the idea is, what if the SP five hundred is
right now reaching heights that won't be surpassed the next decade.
So what I mean by that is if you do
see a thirty percent decline from here, and we can
discuss specific reason as to why that may happen, but
if you see a thirty percent decline from here, you're
looking at a bottoming somewhere around twenty twenty seven. It
takes about two and a half years to typically recover
(07:17):
from a bear market low to the high water mark again,
which means we could be stuck around the six hundred
level back in again in twenty twenty nine or twenty thirty. Even.
Speaker 2 (07:26):
Yeah, let's go back to the nifty to fifty AM
and the lesson that was learned then that needs to
be learned over and over and over again, it seems,
is that a good company is not necessarily a good investment,
and price does matter. So the feeling then, and you
get this feeling now as well in large parts of
the market. I think the feeling then was that it
doesn't matter what the price you pay, because this is
(07:48):
a great company, it's going to keep growing, it's solid,
it's absolutely fine listening's but absolutely true about lots of
those companies. But still the price can be too high.
So that was the lesson that investors learned then and
investors of maybe some investors have already forgotten.
Speaker 3 (08:04):
Yeah. So interesting because even if you bought the ninety
fifty stocks at their peak, the return from those investments
would have still closely massed they as we five hundred
and twelve percent annual return over the next twenty five years.
But it's just that you had to endure a decline
in some of those stocks upwards of eighty five percent.
Speaker 2 (08:20):
Yeah, so you just paid too much upfront and you
had to wait a long time for that return to come,
but it did come, which is crucial. So if you look, now,
let's take that over to their Magnificent seven or perhaps
the AI or the AI adjacent stocks as we now
call them, and again we look at those stocks, or
part of the market looks at those stocks and says,
it doesn't really matter what you pay because they will
(08:41):
grow into those valuations, which might be true, but that
growing into the valuation could take a very long time
and that there could be a big correction. First, is
that the correct way to look at the mirroring from
the nineteen seventies.
Speaker 3 (08:53):
I think so, and I think we've reached those sorts
of extremes. And our fundamental belief is that you know,
you know, whatever period off the last few decades we
look at that, we can get into the eighties and
the nineties as well. But we believe that that stocks
are in a topping process more broadly, and the topping
process isn't a specific point or there's just one catalyst.
(09:13):
It takes you know, typically you know, seven to eight
months up towards twelve months, because different sectors and styles
speak at different times. But just for you know, context sake,
let's keep in mind. The NICKE peaked in July of
last year. Microsoft peaked in July, the semiconductor index peaked
in July, the high yield sector you know, peaked in September.
Home builderspeat in October. Now, semiconductors and the home builders
(09:36):
were the top two performing sectors since October twenty pointy
two low following that you've had in November, micro strategy peak,
the transports peaked, swakacs peaked nine seven, like I said,
as a basket peaked in December. Apple and Testla peaked
in December. Mean coins peak in December, in Vidia peaked
in January, and so far bitcoins peaked in January as well.
(09:57):
So we can see the sort of over arch topic
process developing, and they're now a function of what are
specific catalysts that could happen that could lead us into
a bear market? What are they? So? I think there's
certain conditions that are necessary but not sufficient, amongst which
(10:17):
is bullish sentiment. It is consumer expectations for stocks over
the next twelve months. It is you know, stronger dollar,
higher interest rates, it is insider selling, Michau cash levels
at record low levels. All of these things are you know,
part of what you want to see as necessary but
not sufficient. And I think what's interesting is the deep
Seek news moment that occurred recently. I think creates a
(10:41):
crack in the AI narrative to an extent. And you know,
Soros had this sort of framework of how he would
look at a bubble, which follows a predictable pattern, you know.
And you know stage four of a five stage process
was at twilight period where faith waivers. And I think
what we're seeing with deep Seek is this idea for
(11:02):
the first time in this cycle that perhaps we may
be able to lower the cost per unit of intelligence
going forward. You know, every bubble, you know, every innovation,
every technological wave as all a similar pattern of innovation, application,
eventual democratization driven by competition and constroductions. And it looks
(11:23):
like that's happening again. So we will be finding more
efficient approaches to challenge the route for GPU intensive taradine.
Speaker 2 (11:30):
And this is the case with every period of intense
industrialization or some kind of technological change, you very often
find and we've seen this again, I mean speed lots
written about it happening with the railways, happening with the internet,
having with cables, et cetera, et cetera, that the people
who put the vast amount of money into the capital
expenditure in the first wave of the new technology aren't
(11:53):
necessarily the ones who really benefit from it.
Speaker 3 (11:56):
Absolutely, and I think a core belief underpinning the album
mark it was that the massive instructure of spending will
create unastainable boats for the US tech giants. But we're
still seeing that the returns all those investments remain unclear.
It's definitely going to impact their return invested capital, and
I think starting the next earning seasons, at some point
(12:16):
this year, we will see shareholders begin to question that
those endless cap ex plans if they future returns right,
because I think cost of active scaling them matters much
more than chasing performance breakthrough, which American tech giants are
sort of focused on right now.
Speaker 2 (12:30):
Might that then challenge the idea of American exceptionalism, And
we talk about this quite a lot on this podcast,
because there is a general idea, particularly among the new
generation of investors investors, that the American market has always
been exceptional. That is completely natural for the American market
to be valued significantly more highly than any other global markets.
That's just no more, Whereas, of course, you know, as
(12:52):
old these know that that's only a function of the
last fifteen fifteen or so years, and before that it
wasn't the case. Does this shift in the AI narrative perhaps,
is that the first beginning of a challenge to the
idea of American exceptionalism.
Speaker 3 (13:07):
So let's remind listeners, right, So, if you think about it,
coming out of GFC, America was not the place you
wanted to invest. You had the twenty ten flashcress. In
twenty eleven, you had the credit rating downgrade, the dollars
at a fifty year low. In twenty twelve, Facebook went
public and it was a disaster if the IPO flopped.
It was the world's largest technology ipo. Obama was increasing regulation.
(13:29):
There was mistrust of the Fed. You know, top investors
in the colonumists were writing a letter saying, stop qv
you're going to create hyper inflation, You're going to debase
the dollar. At that time, Marion, the thinking was emerging
markets to serve a higher pe because of their superior
growth prospects. Commodities deserve an allocation in your portfolio. So
I'm sure a problems would say, you know, there's nothing
more deceptive than the obvious fact. But that was the
(13:50):
time you wanted to really be invested in the US.
And I think what was exceptional about America was last
decade three specific things. First, America had predicate and plessy leadership,
the first of which was coming out of GFC, the
FED the Ganqui cleaned up the banks before any other country.
Then it followed with Trump's tax cuts and deregulation, so
yet political and policy leadership. The second was the shale revolution,
(14:14):
which was totally unexpected, which made America and energy independent nation.
The third thing was Silicon valley innovation, which eventually led
to the bubble. Now what's interesting is I don't think
we're in an American exceptional market anymore. I think which
we're seeing in the American exuberance where hype has run
ahead of reality, and we can sort of look into
(14:35):
that because instead of political and policy leadership, what we
have now is a country that's running a deficit of
seven percent without any sort of recession or wartime, which
is not the best policy prescription. At this point in
the cycle. The shale companies have gone from prioritizing maximum
output to maximizing profits now, Silicon Valley seems to be now,
(14:57):
especially post nine twenty one, with where we are today,
still struggling in the larger startup landscape and potentially seeding
its lead in certain other technologies. So I don't think,
you know, America is as exceptional, and I think specifically,
if we are in an AI powered bull market, how
is it that since October twenty twenty two or November thirtieth,
(15:20):
twenty twenty two, when chat GPT was launched, how come
the German DAX is upperforming the SABA five hundred Germany,
which is which has a ward in its continent, It's
graptical energy crisis, political instability, China a comparatitive threat. How
is that possible that German equities have now performed US equities?
(15:40):
If AI is an American story, and you've also had
the Chips Act, you have the IRA, you had a
massive graptical capex, and if you're also in an AI
powered bull market, how is it so that a barberous relic,
an ancient sort of value like gold is uperforming them
both up sixty five percent compared to SB five hundred
and sub fifty close to fifty percent. So there's something
(16:01):
not right, something not acceptable about what's happening, either where
two bearers on the prospects of Europe or perhaps overestimating
America's strength at this point in the cycle.
Speaker 2 (16:11):
Yeah, I mean in terms of Germany, European stocks, even
UK stocks that they have done fairly well recently. Is
that really just the function of global fund managers looking
at their exposure to the US and saying, well, sixty
seventy percent, this is maybe beginning to push it. Look
at the relative valuations, or just shift a little bit out,
and given the underweighting of non US markets, it doesn't
(16:35):
take that much to start pushing them up a bit.
Speaker 3 (16:38):
I think that's certainly part of it, you know. I
just think that it's important to ask in a question,
which is what is happening that shouldn't be, what is
not happening that should be? And if we are truly,
you know, in an air powered world market, then this
should not be happening where the SEP founder is underperforming.
If we are taking a technological leap forward, then goals
(16:58):
should not be performing three four hundred. Something else is
going on. And we may not have all the answers,
but you know, one way I think about this, Marin
is again, if I go back in time, you know,
each decade there's a a powerful event that occurs which
turns into the zeitgeist and eventually into a mania. So
back in the seventies, it was the big tann of
(17:18):
Britton Wlds in nineteen seventy one, which lected the gold
world market, but in nineteen eighty that stopped working. In
the nineteen eighties, it was Japan's sticking over the world.
You're long Japians equity, Japanese real estate, but nineteen eighty
nine that stopped working. In the nineteen nineties, the zeitgeist
was the Internet. It only really kicked in nineteen ninety five.
But you want to be long Nasdaq March two thousand.
That stopped working in the two thousands. The zeitcast was
(17:42):
shining as interesting to the World Trade Organization in two
thousand and one, so you're ready long China em commodities
that stopped working in twenty ten, twenty eight to eleven.
Based on whatever asset you pick, the zeitcast of the
last decade was best articulated by Mark and Resent in
twenty eleven, and a Wall Street Journal article titled software
is Eating the World? That zeit guys, in my opinion,
(18:02):
ended in twenty twenty one.
Speaker 2 (18:04):
What do you think the one for the next decade is?
Speaker 3 (18:06):
Then?
Speaker 2 (18:06):
Where are we going next?
Speaker 3 (18:08):
Yeah, there are a few interesting points here right. So first,
because these are ten year trends, a lot of careers, reputations,
businesses are built on that success. It takes a while
to dethrone dominant beliefs and behaviors that served them. So
even up until twenty fourteen, twenty fifteen, we still thought
emerging markets are going to come back. We still thought
gold and commodities are going to continue to do well.
It didn't really happen. And up until mid twenty fifteen,
(18:30):
people still thought, you know, America is not the place
to be. You know, back in twenty fifteen, Bill Gurly says,
Silicon vllies in a bubble, So it's very difficult to discern,
you know, when that shift is happening. There's certain candidates,
you know, that we can look at. I think that
are a handful. You know, we've been talking about as
zodcast portfolio with our clients. The first could certainly be AI,
(18:50):
in which case you want to be long in VideA.
This I think is too close to the prior's archives
to be the one. The second could be health and obesity,
so in which case you will belong evalily. And the
third candidate could be defense in a multiplier world, so
in which case you will belong palenteer and you know
(19:11):
some certain European defense names. And I think the fourth,
which is where I leaned most is it could be
the energy transition, the race to zero emissions and the
global energy transition. So this idea of electrification in trying
to serve the climate goals. And I think that's important
because just like last decade it was America's decade. If
(19:34):
climate or the sort of energy transition becomes the dominant team,
then the country most important for this decade is actually China,
because China is the renewals of a power of the world.
And so just like ten, twelve, fourteen years ago, it
wasn't obvious that America was the place to be, it's
not obvious right now that China is the place to be.
Who would want to invest in a country that was
(19:55):
a shrinking in gage population or leader for life, a
slow march and property crass, civil leverage, you know, potential
war with Taiwan. And yet and yet, you know, Chinese
tech stocks have performed the US market last year and
they're pretty songly this year. So again, something else is
going on that we may need to pay attention to.
Speaker 2 (20:14):
It's interesting, though, isn't it that you pull that out
when if you flick through the papers, look at what
we write, look at what we talk about. It actually
seems that what we're seeing in most of the world,
the UK side, we haven't got there yet, but we
probably will. What you're mostly seeing is a pullback from
the idea of trying to pursue zero, a pullback from
the idea of moving away from fossil fuels too quickly,
(20:34):
because it clearly isn't working at this feed that a
lot of people would like it to. So we're seeing
more of a pullback than to push forward in that area.
Speaker 3 (20:43):
And that's how surprisingly how markets work, right. It's just
very counterintuitive. And I think it's more about just understanding
the capets are required to upgrade the US electrical trade. It's,
you know, what's required to sort of create the electricity
and the power needed to support even the AI boom now, right,
And I think all of that feeds into energy transition
(21:05):
and in some ways the race to ZERI emissions, because
you're going to have to find sources that are alternative
to conventional ones to sustain this.
Speaker 2 (21:15):
To us, that seems to suggest that there'll be a
nuclear boom rather than anything else.
Speaker 3 (21:21):
I mean a certainly part of it. I think naturally
guys are They're a big role to play in the interim.
But the reason I think Germany is also performing is
because if we are in the sort of climate era,
and then the solution to climate is not technological, it's industrial.
So there's also a time where industrial companies do better.
It's not ventually capital, it's project finance, it's you know,
(21:42):
working with other governments, and in most cases, you know,
China is way ahead of any other nation when it
comes to the key technologies needed for that push, which
I see bringing Europe in China closer. Even if the
US sort of heats up political pressure on both spend.
Speaker 2 (22:00):
That further, Why does that bring China and Germany closer together?
Speaker 3 (22:04):
I think ultimately what you're gonna have to see is
desire for more investment from China, and so you know
America could benefit from that. Europe could benefit from that.
So you're gonna play economic diplomacy, is you're gonna see
a shift towards ees globally. You can try if you
want to stop that, delay that, but we're already seeing
it happening in across emerging markets, and the developed world
(22:28):
is going to be slower because of political preferences. But
ultimately you're more likely to see Chinese companies taking over
European auto plans than European companies competing or out competing
Chinese ones, And so it makes sense, and I think
it's a very interesting comment even by Risula recently where
she talked about how we need to figure out that
ways to compete and collaborate with China and get closer,
(22:50):
so you know, we're not necessarily at the cusp of
this delinking globally from trade linkages and sharing technologies that
sort of will help prepare us to the next sort
of iteration of global growth.
Speaker 2 (23:03):
Okay, I want to come back to European structure in
a minute, but before I forget, I want to go
back to Gold where you said something's going on there.
What is it that you think is going on with
the goal price?
Speaker 3 (23:16):
I think it really began for US with the sanctions
in Russia. You know, So there are three basic strikes
to pack Americana. You know. Strike one was Post nine
to eleven, where you know, America suddenly went against the
international order and neaded the country a soueign nation and
you realize, wait a minute, sovereignty doesn't mean anything. So
(23:37):
that was the beginning of the rise as a strong man.
So you certainly lost faith in America as the global
protector or as the benign hedge of one. The second
strike was in the GFC, when you realize, wait, we
can't trust America as the global eclomic manager because subprime
was an American creation. And that's when China sort of
decided that we got to separate usself from US banks
(23:58):
as much as possible in the US financial system. The
third strike was the sanctions on Russia where you confiscate
state assets, where you suddenly realize, wait, we can't even
trust the national property rights anymore. I mean, that was
our sacrisanct. And so I think since then you've seen
you know that strike three of facts Americana, which basically
means we're entering a different world order going forward, right,
(24:18):
And the risk is that America is acting like a
hedgemon in a multi poder world. That creates incivility, that
creates uncertainty. However, since then, what we're noticing is that
gold buying among center banks has really picked up. And
it's also to a point where you know, it's not
responding to the rise and real interstrates, its start responding
to the rise and the dollar. And I think that
(24:39):
is an extremely powerful trend and I think that continues.
Speaker 2 (24:43):
Okay, we did a podcast on gold a little while ago,
so we can leave listeners go and re listen to that,
because I think a lot of a lot of things
that you said chime very very neatly with what we
discussed previously. You also mentioned bitcoin, which you say has peaked.
Do you see bitcoin as central banks aside fulfilling the
(25:04):
same role for investors as gold, or do you see
it as something completely separate.
Speaker 3 (25:12):
I think the big question with bitcoin specifically is that
does it trade like NASDAK or does it trade in
the rest of the dollar. And I think historically it's
traded like NASDAK. So given our scenario where we think
risk assets could be down materially over the next two
(25:34):
and a half years. It's difficult for me to see
bitcoin de couple from that, even initial signals from creating
political tension, whether it's tariff news. You see bitcoin sort
of selling off on that, you know, across the sort
of crypto total market cap sells off on that. So
it's difficult to see that as a hedge or trading
(25:55):
inversely to broader risk sentiment.
Speaker 2 (25:58):
Yeah, no, it's interesting. We do keep being told, don't
mean that bitcoin is a diversifier and a long term
store of value and all these things where we have
no evidence of that yet. And when we look at
golden when we look at bitcoin, when we discuss bitcoin,
and when people come on and discuss bitcoin with us,
its value today is based on its perceived role in
(26:19):
the future, Whereas when we talk about gold its value
is based on the role it has already played in
the past, and we can expect it continue to play
that role. And that's very very different assets, one based
on history and one based on expectations.
Speaker 3 (26:33):
I still think it's all a function of the cycle. Right.
At some point, you know, a bitcoin post COVID has
crossed the rubicon where you're seeing now even greater traditional adoption.
So I think it's an asset that continues to be
relevant and we'll continue to make institutional in roads. The
question is when the invest at watch point in the
cycle are we in And what we typically see is
(26:57):
when the cycle turns, have micro strategy giving you in
some indication where marcro strategy peaks and it coin follows,
you know, months later. So as of right now, microsolurgy
beat in November. As of now, Bitcoin pete in January.
I'm open minded to another move to like one one
thirty maybe in the next few months, but I do
(27:19):
suspect that will be at top that stays in place
for quite some time.
Speaker 2 (27:22):
Okay, so you're advising institutional clients in the main I think.
But let's imagine that you're talking to a retail investor
possibly and listen to this podcast. How would you recommend
that they allocated their assets at the moment?
Speaker 3 (27:37):
Time frame matters. But if you were to say this
is a multi year sort of.
Speaker 2 (27:42):
Allocation, looking for a decade, let's go for a decade.
Speaker 3 (27:44):
Yeah, then I would I would say, you want to
be long China and Chinese acuities. You know, I think
we are underestimating the innovation coming out of China and
Chinese brands, and I think, so you want to be
long China, I would say, is that it's the top one,
and there's specific companies you can look at there. I
(28:07):
would say you would want to maintain exposure to gold
and silver as well as part of your allocation, and
you would want to get exposure to commodity names that
would sort of benefit from the execation and deconbonization story, right,
So that is copper, that is aluminum that would do well.
(28:29):
I think there is going to be a natural gas
or LNG boom that was sort of perhaps you know,
left national gas prices as well, so there's something to
be done over there too. But the best decision that
investor can make typically is avoiding the zycass of the
previous decade. So you know, in twenty tens, if you
just avoided China, em commodities would done fantastically well. If
(28:49):
in the nineties you avouted Japan, you could have done well.
In two thousand, if you know what about it nas
that you could have done well. So that just tells
you that we're in an era now where the US
will begin to underperform the rest of the world.
Speaker 2 (29:00):
If you were too. If you were, if you didn't
do anything else, if you're at the very least to
rebalance yourself away from the US, away from tech, away
from AI, you might be doing yourself a favor.
Speaker 3 (29:13):
I think.
Speaker 2 (29:14):
So, okay, interesting, And what about what about access to
the extraordinary dynamic entrepreneurialism in the Middle East? So, for example,
in the UA, you go to Dubai, Debbi, and you
see these extraordinary economies being built. Is there any way
to get exposure to that? And would you advise.
Speaker 3 (29:30):
That it's not an area of focus on me? I mean,
a lot of the innovation that you're talking about is
happening mostly in private markets and through venturing capital funds, right,
so I think that would be the way to get exposure.
How we haven't had a long enough cycles really determine
how those funds have truly performed. The gootage dynamic where
(29:51):
the economy is not so much reflected in the stock
market in terms of the marketab versus economic weights, and
so you know, the stock market is on this side
of the best exposure either. So it's really a function
of what you want to do or what your view
on oil is. It's because because fundamentally speaking, it's looking
at the public markets. It does tried the beta to
(30:14):
oil to a certain degree, DoD.
Speaker 2 (30:16):
I'm going to ask you a question I've I used
to ask everybody, but I've slightly stopped asking now and
I already think I know where you're going to go
with this, But I'm going to ask you. Anyway, over
this ten year period, if I offered you a choice
of bitcoin or gold, which one would you take? You're
only allowed one.
Speaker 3 (30:30):
By the way, I would take gold.
Speaker 2 (30:33):
Yeah, I thought you might. I thought you might from
what we've just talked about. And if during that ten
years you were to recommend a book two people to
read that might help them get through this next decade
in markets or in life, what would you recommend?
Speaker 3 (30:49):
You think I would recommend The screw Tape Letters by
the C. S. Lewis. I think it's the most important
book of our time. It's basically a senior demon writing
letters to a junior demon about how to corrupt humans,
which he calls the patient and keep him away from
the enemy, which is God. So it's a fascinating exchange
(31:12):
of letters which is basically the inside game of how
we are foiling ourselves. And so in a decade, which
could be you know, more problematic politically, economically, socially. I
feel like we need to have a better understanding of
how we are being led astray. And I can't think
of a better book than C. S. Lewis. It was
(31:33):
actually better is to listen to it because John Cleese
does the audio version, which is fantastic in his voice.
Speaker 2 (31:40):
That sounds great. Okay, so we are being led astray?
Who do you think is leading us astray?
Speaker 3 (31:46):
The enemy? I have seen the enemy and it is us.
Speaker 2 (31:51):
Thank you, Thank you very much for joining us today.
Speaker 3 (31:55):
Pleasure. As always, thanks.
Speaker 2 (32:00):
For listening to this week's Maren Talks Money. If you
like our show, rate review and subscribe wherever you listen
to podcasts, and keep sending questions or comments to Marron
Money at Bloomberg dot net. You can also follow me
and John on Twitter or x I Met Marinus w
and John is John Underscore Steppy. This episode was hosted
by Me Maren's Sunset Web. The show is produced by
Summersadi and Moses and sound designed by Blake Maples and
(32:24):
special thanks of course to jo at me on Thank
You
Host
Merryn Somerset Webb
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com