IL39: Is Trump Making Europe Great Again? ft. Koen De Leus & Philippe Gijsels

Episode Transcript
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(00:08):
We say here, now, in Europe,okay, Trump is MAGA - Trump is making
Europe great again. And forthe next four years, I think that
is going to be and is going tocontinue to be the case. Which is
pretty good because I thinkEurope had fallen asleep and now
it's, it's wide awake andtrying to reform itself. So, in that

(00:30):
sense, I think Trump is thebest thing that could happen to Europe.
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(00:51):
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(01:22):
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(01:47):
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(02:09):
Okay, thanks Niels, andwelcome everyone to the Ideas Lab.
Almostexactly one year ago,we talked with Chief Economist and
Chief Strategist at BNPParibas, Koen De Leus and Philippe

(02:37):
Gijsels who had just publishedtheir book, the New World Economy

in Five Trends (02:52):
Investing in Times of Super Inflation, Hyper Innovation
and Climate Transition.Now,they identified five trends:
innovation and productivitynumber one, climate number two, multi
globalization number three,debt number four, and aging. Now,
their book was looking forward5, 10 years, even more in some cases.
But given all that'stranspired in the last 12 months,
I thought it'd be interestingfor all of us to bring them back
and ask them how some of theseevents have impacted their forecasts.
Have they changed their minds?And if so, how? Or if they haven't
changed their minds, why?So,gentlemen, thanks for joining
us today and welcome back tothe show.
Thanks for having us.

(03:12):
Thanks for the invitation.
Well, there's a lot that'schanged, but one thing that hasn't
changed in the last year is myphonetic ability. So again, please
accept my apologies if I'vepronounced your names wrong.
No worries. You got closerthan most.
Maybe that's one of the trendsyou can identify is my ability to

(03:50):
get your names right.Hopefully we'll get there eventually.
So,as I said, the first twotrends in the book are innovation,
and productivity, and climate.And then the third trend is multi
globalization. And givenwhat's going on right now with the
US tariffs, et cetera, thatseems like a natural place of interest
to start. So,I'm wondering,can you first of all just explain
what you mean by the termmulti globalization and then we can
kind of dig into some of the details.
Well, I think I'll take thisone. When we look over the past 20,

(04:19):
30, 40 years, you see therehas been a period of hyper globalization
after 2000 up to 2010. Andthen you see there has been a slowdown

(04:46):
in globalization from 2008until 2020. Now in 2019, Donald Trump
had increased the importtariffs for Chinese products. And

(05:06):
at that point in time, whatdid China do? They said, okay, instead
of exporting directly to theUnited States, we're going to invest

(05:30):
in Vietnam, we're going toexport intermediate products to Vietnam,
and then Vietnam can export tothe United States. Andthat is what
we call multi globalization.Instead of having only China, that
was really globalizing, yousee that quite a lot of emerging
markets like Vietnam, likeMalaysia, like Philippines, have
come out of the shadow ofChina and have put themselves in
between China and the UnitedStates in order to not have to pay
these import tariffs. And thatis what we call multi globalization.
It is, yeah, an additionalstep. And so, it adds to the costs
of globalization from theother side. It'spretty good development
for these emerging marketsbecause like that they get out of
the shadow of China, and,okay, they increase their wealth
via trade as well.
If I can add something tothat. And going back even to your

(07:32):
initial question, after havingwritten the book, would you change

(08:51):
anything? Well,today I havemore conviction, even more conviction
of what we have written than Idid a year ago. And the multi globalization
story is one of them. If Itake one step back on that, we have
drawn very heavily on the workof Neil Howe and The Fourth Turning.
Well,a lot of things that Isee in the world today really subscribe
to the view of a FourthTurning, a world that's fragmenting,
a world where everybody goesback to its own parish and its own
church and the world breaksdown in parts. And that creates a
lot of geopoliticaluncertainty and volatility. Inthat
perspective, everything thathappens in the United States, with
Donald Trump, with thetariffs, with, now, Pakistan and
India, a lot of things in theworld seem totally random but if
you take that view, well,things start to look more logical
and then there starts to beorder in the entire story. So,in
a Fourth Turning, you expectwars, unfortunately. You expect extremist
parties taking power. Youexpect sitting presidents, sitting
governments, sitting partiesto loot the elections. So that's,
in fact, what you see.Andyeah, unfortunately, in a Fourth
Turning, the mechanism to gofrom a Fourth Turning to a First
Turning is that it first getsworse before it gets better. So,
we can expect more of this.And it's always hard to predict where
it will happen exactly, but itwill, basically. And that's important
because (and we will talkabout markets, certainly, afterwards)
this geopolitical uncertaintywill clearly translate into volatility
in markets. Andalso, takingthe point of Koen one step further,
I think we can no longer talkabout a globalized economy, and therefore
we can no longer talk about aglobal business cycle. Five, ten
years ago, we could do that,but now it's very easy to imagine
that Europe and US will groweconomically at a different speed.
Everybodywould have put allthis money on the fact that the US
would grow faster. Now you seesome cracks in the economy in the
US, and the Marshall Plan, oralmost the Marshall Plan, is on the
table in Europe. Maybe Europeand Germany are going to go faster.
Chinahas clearly a balancesheet recession. They will probably
stimulate their economy. Theyreduced interest rates, also, recently,
and they will grow at adifferent speed. It's hard to say
if will grow the fastest, butit will be at a different speed.
InJapan there, inflation isgoing up there. It's very well possible
that the bank of Japan willincrease interest rates. And I think
we should see this a littlebit as tectonic plates. They moved
all these different blocks.They moved in the same direction
at the same speed. Today, theymove at a different direction at
different speeds. They willcollide. And these collisions will
create volatility in themarkets. And that's what we see in
the euro/dollar, that you seein gold, in rates, and commodities,
and everywhere.
Okay, well, I mean, Iappreciate that view. And by the

(09:15):
way, we did have Neil Howe onthe show here talking about his book.
So, that's a good episode forpeople if they're interested in Neil's

(09:52):
idea. So,I want to maybe justgo back to the multi globalization
aspect and pick up on whatKoen said, at the begin, about how
China reacted to the initialround of tariffs, which was to essentially,
instead of exporting a lotdirectly to the US, kind of exporting
through third parties, thirdcountries, Vietnam in particular.
Is that still a viablestrategy though now? Because the,
obviously the US Understandsthat's what's going on. The tariffs
apply to Vietnam, thePhilippines, et cetera. So, what
happens to that aspect ofmulti globalization now that, you
know, essentially, I don'tknow if it being blocked is the right
word, but certainly being hindered.
No, that's a very goodobservation. And I think with tariffs
of 49% on products that areimported from Vietnam, this is no

(10:23):
longer viable. I don't thinkit will keep on being that high,
49%, yeah. Okay, then at thatpoint in time, certainly this globalization,

(10:54):
if this multi globalizationnetwork is finished that would be
a drama, certainly, forcountries like Vietnam. Because if

(11:18):
you look to the export fromVietnam to the United States, instead
of having a share of 4%, theydoubled their share to 9% over the

(11:51):
past five years. Fromtheother side, I think as well that
there are going to be somecorporates that are going to talk,
hopefully, going to talk toDonald Trump and say, hey, if you're
going to do that, yeah, we arenot able. We will not be able anymore
to outsource some of ourproductions to Vietnam, or to South
Korea, or to the Philippines.So, this means that at that point
in time your imported productsare going to be way higher compared
to where they are now. And ofcourse, in the short run, probably
Donald Trump will say, okay,we'll bite the bullet. But this is
not short-term pain. IftheseAmerican companies can't outsource
anymore to countries likeVietnam, or South Korea, or Philippines
because they're going to beimport tariffs of about 50% on shoes,
on trainees. I don't thinkthat the American people are going
to accept that. And the closerthat mid-year elections are nearing,
the more that I think thatthat Donald Trump, yeah, will have
to reverse course.
I want to talk about Europebecause you guys are based in Brussels
and you're talking to a lot ofEuropean clients, and I suspect when
you were writing the book thatyou were thinking perhaps the world…

(12:18):
And maybe not, maybe it'smulti globalization is different
than what I'm about to say.But certainly, I was kind of imagining
the world might bifurcate intoa sort of Chinese oriented technology
sphere and a Western orientedtechnology sphere. And now I just

(12:42):
kind of wonder if that's evenlikely to happen, given how the US
has treated Europe. Imean,ifyou're a European company, would
you really feel safe nowrelying on US technology if that
relationship can be used as achoke point for, you know, for economic
negotiations and leveragegoing forward?
I think this is a veryimportant point and a very important

(13:18):
question. And I agree withwhat you say. And so, you could indeed

(13:45):
see the world falling in twoparts, an American sphere and a Chinese

(14:13):
sphere, and Europe wouldlogically be in the American camp.

(14:34):
At the moment I do not seeEurope falling in the Chinese camp

(15:02):
either. ButI think with ourclients, there are two things. First
of all, they try to understandwhat's happening because we come
to a totally new worldsituation where you have no longer
the big brother United Statestaking care of everything that's
defense, military things. Youlook at the Federal Reserve, when
there are problems, to come inand help the world economy. When
it was risk-off in the market,you would typically go to treasuries
into dollars. That does notseem the case anymore because today
I see equity markets, whenequity markets go down, they go risk-off.
Typically, the dollar goesdown and treasuries go down, so,
interest rates go up. That'ssomething totally new. We will see
how permanent that will be.But that's a totally different way
of thinking. So,I think thatEurope is, in a way, realizing that
Europe should come together tofind a way to be a voice, once again,
in the world economy. But in aFourth Turning, that's very difficult
because you have to worktogether. Andthe Marshall Plan,
that's on the table inGermany, that's the first step. Money
is always difficult, but moneyis even probably the easiest because
there are other things.Youneed unified capital markets,
you need more innovation, youneed less regulation. So, there is
a long and winding road totravel for Europe to be really a
world power once again. But Ithink that thinking is with our clients.
So,they try to understand howthe world is changing. We are looking
for solutions, but we do notimmediately have them. But the awareness,
the sense of urgency with ourclients is there. And then everybody
is looking for answers. Andeverybody is trying to study the
United States, and everybodyis trying to study how permanent
this is. Is this a DonaldTrump thing that could reverse in
a couple of years or issomething that's more permanent?
But isn't even just the wayyou phrase that question suggestive
of an answer in the sense thatif you're asking yourself how long
is this going to be in placeand will it be reversed by, say,
a new Congress or a newpresident? Doesn't that uncertainty,

(15:23):
in itself, tell you, hey, Ican no longer rely on, as I said,
US technology or, say, USenergy imports because those things
could be switched off and onat the flip of administration. So,
doesn't that, just asking thequestion in some sense, tell you
that it is a permanent shift?

(15:45):
Well, I think it is. I thinkit is. If we look to what is happening

(16:19):
in the economy, what you see,what Europe realizes, is that we

(16:43):
are far too dependent on theUnited States. Before we were far

(17:08):
too dependent on the UnitedStates for defense, far too dependent

(17:31):
on China for our exports, andfar too dependent on Russia for our

(17:58):
energy. And then all of asudden Russia invaded Ukraine, and

(18:21):
all of a sudden we became muchmore dependent on the United States,

(18:48):
as well for, for our gas.Andthen all of a sudden you saw
there was a big problem inChina with regards to growth because
there was basically a realestate bubble that exploded. And
again, we became much moredependent again on the United States
for our exports. Sonow, allof a sudden, we are in a situation
where we are very, verydependent on the United States for
energy, for our safety, andfor our exports. And all of a sudden
there is an agonisticpresident. And so yeah, we really
realize we have a big, big,big problem. Andwhat you see today
is that Europe is reacting.Europe is reacting. You had the Draghi
report, you had the Lettareport and all these reports. What
they do is say, okay, we haveto step up our innovation, we have
to step up our independence.Because in this world where we are
living in today, in this newworld economy, we can't be too dependent
anymore on anybody. Not on theUnited States for technology or for
defense because, certainly,with Donald Trump, it's all about
coercion. And he's going nowit's about trade. Next time maybe
he will use SWIFT to putpressure on Europe. He has used SWIFT
already to put pressure onRussia, on Iran, why not to put pressure
on Europe? Andso yeah, we arein a world where we, as Europe, have
to develop our own markets,our own technology, we have to install
our own energy infrastructureand, of course, build quite a lot
of sustainable energy, butmaybe as well nuclear energy in order
that we reduce all thesedependencies on the United States,
but as well on China and allthe other countries. So, we are in
an all different ball game.And yeah, we say here now in Europe,
okay, Trump is MAGA - Trump isMaking Europe Great Again. Andfor
the next four years, I thinkthat is going to be, and is going
to continue to be the case,which is pretty good because I think
Europe had fallen asleep andnow it's wide awake and trying to
reform itself. So, in thatsense, I think Trump is the best
thing that could happen to Europe.
As you're talking about that,I kind of had this vision in my mind

(19:24):
of two futures for Europe.There's, I think, the future you're
potentially describing, whichis kind of Europe as a whole gets

(19:58):
together and says, okay, wehave to develop our own technology,
our own security. We have todevelop enough power that we can

(20:34):
kind of act on our own.Butthere's an alternative version
which is that, you know,acting as a single entity, obviously,
in Europe isn't that easy. Andwe still don't have a kind of, as
you said, unified capitalmarket. We don't have a deep and
liquid market for Euro bonds,things like that, that would make
the European financial marketsa more serious competitor to the
US. There'san alternative, Iguess, future, and I'm not suggesting
that I think that's going tohappen, but it's one that I could
sort of visualize as you'retalking, which is Europe kind of
splits. And you have certainstates that say, you know what, I'm
just going to align myselfdirectly with the US, and I'll do
what they want, and you,maybe, have Eastern Europe saying,
I'm going to align myself withChina. And because of a frustration
or an inability for Europe toact as a whole, maybe you get this
kind of splitting. AndI knowthat's, oftentimes, an Anglo Saxon
perspective on Europe. And I'mconscious of that because I've lived
in Europe for a while and Iknow that Anglo Saxons tend to be
more pessimistic about Europethan Europeans, and we're typically
wrong about that. But I mean,is that the kind of second future
something that you worry about?
Yeah, you should worry aboutit, I guess. And in the Fourth Turning,

(21:08):
once again, that's what wouldlogically happen because in the Fourth
Turning, it's very difficultto work together. So, then you can

(21:48):
imagine that countries willindeed split off and start to have
their own industrial policyand everything. And some will work

(22:26):
maybe more with the UnitedStates. So, that's something that
you can envision and thatwould be, in a sense, logical.
Ithinkit's either one or twoscenarios, one or two, and either
you integrate more and goforward, or you indeed run the risk
of falling behind, and fallingbehind in parts. And back to your
point of technology, and Iagree with what Koen says, and we
have the sense of urgency, andwe have the wake-up call, and so
on. But this is all easiersaid than done because the reality
of the matter is also that wehave not built a single company,
in the last 30 years, inEurope, that has a market cap of
$100 billion, like Palantirhas, for example. And I'm not even

(22:55):
talking about the Apples andthe Microsofts. So,we have a lot
of building blocks. We havegood universities, we have innovation,
we have centers of innovation,we have quite a bit of savings. So,
we have the building blocks,but you have to do it. And in Europe,
scaling up is alwaysdifficult. We build good companies
but we do not manage to scalethem up fast enough. Also, as you
mentioned Anglo Saxon, alsonot In UK and London, I love the
city, it's been a beacon ofinnovation for centuries. Butlook
at the FTSE, the FTSE 100,they have companies of 100 and 150
years old. In the S&P, you seethe birth of new companies all the
time. So, that ecosystem, youhave to build that. You can put money
against it, and you can havethe belief, and the will, and the
wakeup call, and everythingthat you want, but at the end of
the day it's not easy to do. Iwassaying we have to be independent
in technology. That's a verynoble cause to strive for, but it's
not a walk in the park. So,everybody realizes that. ButI totally
agree with what you say, thateither you get your act together
and you go forward as one, or,indeed, you run the risk that it
falls in different parts. Andin a Fourth Turning, maybe the latter
scenario is maybe what youwould expect. So yeah, it will not
be easy.
But from the other side, if welook to Europe, we see that it takes

(23:32):
big strides forward every timethere is a crisis. And if you look

(23:56):
over the past 20, 30 years,it's always like that. And I think

(24:20):
I'm much more optimistic.Ifwe look what has happened over
the past couple of months, wesee huge shifts, really huge shifts.
If you look to… So, theadoption of regulation, all of a
sudden the European Commissionrealized, okay, we have probably
gone too far in regulatingEurope, so we're going to reduce
it by 30%. Germany, nobodythought that they would stop it.
And now, all of a sudden,they're going to invest 500 billion
in infrastructure plus again,500 billion in defense. Ifwe look
to all the countries who arestepping up their defense, which
probably is going to promoteinnovation as well, that makes me
pretty optimistic. Okay, it'snot going to be a walk in the park,
that's for sure. But as longas Donald Trump is putting pressure
on us, I think we going tomove forward. And okay, we have some
difficult countries likeHungary and some others. But sooner
or later, yeah, we'll see whatwe'll do with them as well.
Yeah, I, I think that's anexcellent point. And that, that was

(24:41):
definitely my experience,living in Europe for a long time,
is that you had, as I said,the Americans and the British were

(25:04):
always very skeptical, butevery time there was a crisis, Europe
kind of doubled down. So yeah,I think you're right. That's certainly

(25:28):
a possibility. Iwantedtokind of extend this conversation
about multi globalization. Inyour book, within the multi globalization
chapter, you had a section onglobal currencies, and you were particularly
bullish on gold. And that'sobviously been correct. And I know,
in the book, you weren'tmaking a forecast for the next year
or so. But gold has doneexceptionally well. And so, it's
a topic everyone's interestedin right now. What do you see as
the forces driving gold higheror potentially driving gold higher
from this point on?
Well, in the book we putforward the target of $4,000 per

(26:12):
ounce, which was at that timea bit ambitious because I think we

(26:55):
were at $1,800 or $2,000 orsomething. Today we have $3,300,

(27:32):
$3,400 somewhere. I thinkthere is still potential. Up until

(28:06):
now this has been a centralbank thing, only almost a central

(28:46):
bank thing. So,it startedwhen Russia, like Koen said, invaded
Ukraine. The US weaponized thedollar, Russians were kicked out
of SWIFT, the assets werefrozen. And that made a lot of countries
like China, a lot of countriesin the Middle East, Iran and others
think, hey, if we get into aquarrel with the United States, the
same will happen to us. So, wehave to diversify from treasuries
and we have to go to somethingelse. There is no obvious candidate
to be the reserve currencyexcept the dollar. So, they went
to gold. So, this has beenbuying by central banks, almost solely
buying by central banks.So,that means there cannot be a
bubble in the gold marketbecause investors have been absent
from the gold market or havebeen net sellers in the gold market
for the last three years. Theystarted buying in January. So, this
year we have seen this, andyou see the flows in ETFs and other
funds. And so, we can monitorthis quite closely. So,since the
beginning of the year, theinvestors are back on board. But
before the last three years,investors were net sellers of gold
and the only buyers werecentral banks. And I think they will
continue to do so. If you lookat the percentages, central banks,
of course, have increasedtheir percentages in gold compared
to their total reserves. Butthere is still a lot to go. Ifyou
look at the investors at thismoment, on average in the world,
in an average portfolio in theworld, they hold gold and gold related
things, silver miners, and soon. The holdings in an average portfolio
is only 1%. Back in the ‘60s,that used to be 50%, 60%. Well, we
never will go back to theselevels, I think. But if investors
would go back, on average, to3% or 5%, there is still a lot to
go, a long way to go. So,Istill think even though we have increased
quite a bit and then we'reprobably technically overbought,
and we will see someconsolidation, maybe some correction
depending on what happens withthe negotiations with China and so
on. But if you ask me wheregold will be over the next couple
of years, it will be wayhigher than it is today. Andif I
have to pick one commoditytoday, it would be silver, because
silver has lagged gold badly.Also, because central banks have
not bought silver, they've notbought miners, they just bought gold.
So,when investors come backon board, they will probably also
start to buy miners and theywill start to buy silver, which by
the way is also, on theindustrial side, very important because
if you look at demand forsilver, it's 50% basically industrial
and 50% precious metal. So,there's a lot of demand for silver
from solar panels andbatteries and everywhere new energy
things. So, I think there's alot of potential. I'm very positive
on gold. But if I were tochoose, I would even prefer silver
today.
You mentioned ‘the miners,’and you do talk about that in the
book as well. And I'm curious,from an investor perspective, how
should you think aboutinvesting in the physical metal,

(29:09):
say a gold ETF, versusinvesting in the miners themselves.
Yep.
How do you calibrate kind ofthat relative value? And you know,
if you're advising clientsnow, are you saying, hey, the miners
look more attractive than thephysical metal or is it not worth
playing the miners because ofall the other aspects that come into

(29:30):
owning the stock versus justthe physical metal?
Indeed, that's a very, verygood point. Now, I think the miners
are vastly undervaluedcompared to the physical gold or

(29:59):
whatever. Just to give you anexample, it's not a buy or a sell
recommendation because I donot exactly know what a rating on

(30:30):
the stock is. But if you lookat Newmont Mining, for example, they
were at $80, the highestlevel, and they now at $53. While

(31:01):
gold has gone up so much.Ifyou look at Barrick, it's the
same. So, why has thishappened? Well, because banks have
bought gold, they have notbought miners. But they're creating
a lot of cash flow and arevery much undervalued. But as we
also say in the book, they'reextremely volatile. It's a hated
sector basically for many,many, many years. And it's also a
lot of risk to the downsidebecause the day that gold corrects
about 10% or 15%, you run therisk to go down 30%. Andwhat you
can propose to clients, andit's maybe an easy solution, but
we always say to clients,look, if you want to invest in the
space, take 3/4 or 4/5 inphysical gold and take 1/4 or 1/5
in miners. Because then whenyou write, you get an extra upside,
a booster, a turbo on it. Butyou do not get guilt if you're wrong
on the physical side. ButIthink, to your question, fundamentally,
they're extremely undervalued.They have a way to catch up. Typically,
this will come in a secondphase. But given the volatility of
these things, I would be alittle bit more careful. So, I would
buy a little bit of miners,and I would buy the largest majority
still in the physical metal.
Well, thanks for that. Well,since we're talking metals, let's
pivot a little bit and talkabout another theme in the book,

(31:33):
which is climate. And youknow, you say, in your section in
the book on climate, one ofthe things you said is that the energy

(32:01):
transition (and we can talkabout whether or not we're still
going to have an energytransition), the renewable energy

(32:22):
industry relies a lot on rawmaterials, metals in particular.
And, you know, we've done someepisodes on that as well. Andyou
say that, you know, we're onthe brink of, essentially, a super
cycle in raw materials, andparticularly those that are critical
for the energy transition. Andcopper was one that you were particularly
keen on. AndI think both fromthe point of view that demand's going
to go up, but supply isconstrained and it's very difficult
to bring a new supply ofcopper on the market quickly. Obviously,
you know, copper hasn't doneparticularly well since then. And
I know your view is morelong-term, not short-term, but if
the tariffs are going to causea kind of a stagflation sort of environment
in the world economy, the USpotentially going into recession,
that sounds like it's not goodfor copper. Traditionally it hasn't

(32:43):
been. So,I'm kind of curious.I've got multiple questions here,
but maybe the first one is, doyou still have that long term bullish
view because of supply anddemand imbalances for copper?
Absolutely. And the point is,indeed that's one of the things,
a lot of things in the bookhave materialized, but the super

(33:15):
cycle in metals that I wasenvisioning has not yet materialized.
And copper is still okay. It'snot done great, but some like lithium,

(33:46):
cobalt have done even worse.So,indeed, there is the problem
that you mentioned that indeedthe world economy is slowing. The
Chinese economy is still weak.We are basically in a balance sheet
recession in China. So, Ithink that has delayed the story.
But that does not change thelong-term view, especially in copper.
Demand is still increasing.Ifyou look at demand for copper,
it's still going up stronglyeven though China is weak. If you
would have a chart of thecopper demand, it is clearly decoupled
from China. So, it's going upeven though China is weak. So, even
as China works to stimulatethis economy, demand would go through
the roof. Now,copper has donereasonably well still, but that's
not doubled like it's in thebook. But I still believe this is
going to happen and it'sclearly a demand and a supply story.
Could I just follow up onthat? Again, I'm definitely not an
expert in raw materials, but Ithink like everyone else, I've gotten

(34:15):
more interested in them overtime. And, as I said, we did an episode
on the kind of constraints formining here in the US and we talked

(34:41):
a lot about copper supply andlithium as well. Butyou know, my
understanding is now there'sbeen some big technological improvements
in copper extraction and theability to get copper onto the market.
It seems like it's faster nowthan it used to be and I'm wondering,
does that change yourlong-term outlook on supply? Because
I, you know, part of theargument is not only is demand going
up, but you can't bring supplyon the market that quickly. And some
people are arguing. Well,actually, the supply part of the
argument isn't as binding asit used to be.
Well, that's an extremely goodpoint. And what I always tell clients,

(35:20):
as you can hear, I have a verybig conviction on the super cycle

(35:55):
in commodities. But I alwayssay the more wrong I am on this,

(36:27):
the better the world looks.Because if you look at the world

(36:58):
from a material point of view,all the atoms, all the molecules,

(37:28):
everything is here.What'sinnovation, what's progress?
It’s being able to rearrangethese things, these atoms and these
molecules in a better way. Andthat has happened in a number of
things. Look for example atthe nickel market. Thenickel market
is at the moment oversuppliedjust because of new technology with
Chinese money, Chinesetechnology. A lot of the nickel ore
comes from Indonesia. It wastypically low-grade ore. Well, with
new technology they managed toextract, in a better way, nickel
from low grade ore. And,basically, the world is flooded with
nickel to the extent that someof the mining majors are just writing
down their entire assets andholdings in nickel because they're
not worth anything anymore. Sothat risk you run. Shaleoil is the
same thing. And if you look atthe oil market, it's 103.5 million
barrels a day, demand andsupply. Oil prices are very low at
the moment. Saudi Arabia ispumping a lot. You have a price war
again, but you have shale inthe United States. Shale is about
7 million barrels a day oreven more. Imagine an oil market
where shale would never haveexisted, a new technology, prices
would be way higher.So,recycling, new technologies,
better extraction are allthings that can help. So, I still
think, because it will take awhile, even if you were to open new
mines today at a rapid pace,you need 200 new mines, more or less,
the estimates say. Well, youwould only have more copper in 10,
12 years time. If you couldreduce that time frame, well, it
would help. So,to yourquestion, I'm still a big believer
in this cycle. You have tolook commodity by commodity. Nickel
is not cobalt, it's notcopper. They are different things.
So, I still think that thecopper price is going to double.
But I'm absolutely not blindto your argument. That is a very
valid one. If indeed youmanage to have new technologies,
better technologies, betterextraction and so on, then maybe
the cycle will not be asviolent or as strong as I envision.
And then I will make lessmoney, but probably the world will
be a better place because thatmeans that you find ways to manipulate
the materials in a better way.So, yeah, I agree with you.
Okay, just one last questionon, I guess, energy and the energy
transition. I mean, should westill be using the term the energy
transition? I mean, given theTrump administration's hostility

(37:49):
to green energy, I mean, doesthat change the picture? Does that
just mean that we're going tosee progress outside of the US, and
that the transition is on, butthe US is not going to be participating
in the way that we kind ofmaybe had thought it would?

(38:12):
I do not remember, Kevin, thatyou had Adam Rozencwajg on your show?
Yeah, he was on the macroseries with Niels about a month ago,
I think.
Yeah, yeah, he’s one of thebrightest thinkers, I think, in the

(38:47):
commodity space that I know.And he has this concept that we also

(39:11):
used in the book, the EROI,the energy return on investment.

(39:32):
It's not the return oninvestment in terms of money, but

(39:53):
how much energy you put intosomething and how much energy you

(40:16):
get out of something.Andyou've moved from a world where
the EROI was 5 and then youget your industrial revolution. And
then with coal it was 15, andwith oil it was 25, and with nuclear
it was 50. So, you get 50times more output than input. So
that's fantastic. Andwhat youcan argue is that wind and solar
and all these otheralternative energies do not have
an EROI that's as high asmaybe oil or as nuclear. And that
would be the first energytransition ever which has a lower
EROI. Andif you're a lowerEROI, it means that you reduce the
total amount of welfare thatyou can basically distribute uto
a population. That createstensions and so on. So, imagine a
world where the US gets out ofalternative energy and Europe keeps
pushing this. Well, it's allabout EROI. IfEurope manages to
improve the batteries and thegrid and the wind and the solar and
everything, that it reallybecomes competitive compared to the
classic energy. Well, it is abig benefit. But then you have to
have this innovation alsofairly quickly. Ifyou look at markets,
of course, the totalalternative energy space has been
killed in terms of performance- stock price performance. I think,
now the sentiment is sonegative, and probably the election
of Donald Trump and hisabsolute dislike for alternative
energy, was the final blow. IThink investors are still holding
these stocks. And these teams,well, they're the die-hards. They're
not going to sell anymore. So,I think that the sentiment is so
negative that, from aperspective of a couple of years,
it’s a buying opportunity.
Yeah, I mean, Adam isexceptionally smart and I really…

(40:36):
If you haven't listened tothat episode, you should. It's really
good. And he does talk aboutthe, you know, undervaluation of

(41:02):
raw materials and why hethinks it's an excellent time to
kind of consider that from aninvestment perspective. Onething
that I'm, I guess, a littleskeptical about the EROI argument
is, you know, it's the oldidea in economics of externalities,
and if we're leaving out thecosts of fossil fuels and then, you
know, we're really notcalculating the EROI correctly (energy
return on investment). Andwe're starting to see that. I mean,
where I live in California, alot of people can't get home insurance
because of fire risk. We'regoing to see flood damage. So, we
have potential impacts on theeconomy all over, particularly in
the insurance markets, that,as far as I understand, are not incorporated

(41:22):
in that measure.
That's why we have not put afigure… All the other figures that
I've mentioned for nuclear andoil and so on that are figures that

(41:50):
are well documented. We havenot put a figure on solar or wind
just because of the reasonthat you mentioned. Of course, if

(42:15):
you look at a windmill, youhave to recycle it as well. So,then
you get into the discussion,are you going to use a plastic bottle
or you're going to use abottle in glass? And both sides,
they have armies of scientiststhat can prove that the one is better
than the other one. So that'sa discussion that's complicated.
ButI think Adam's generalview on this is a very good frame
to think about these things.And what I find a little bit disturbing
is that, in the world that wehave, we can no longer have the discussion.
Sometimes we should sit aroundthe table and just discuss about
this because the answer to thequestions that you have asked, and
that we're talking about, areextremely important. And that's also,
once again, typical for aFourth Turning. The two sides cannot
talk anymore. And that's a problem.
We've got maybe five or tenminutes left here, and I want to

(42:37):
kind of touch on the firsttheme in your book, which was productivity
and innovation. And, you know,I think I'd ask Koen, in that initial
conversation, at what pointcould we start seeing AI make meaningful

(42:59):
impact on productivity. Ithink his answer was, you know, that's
still kind of 5 to 10 yearsoff. AndI'm curious if he's updated
that view of when AI mightstart helping us out in the sense
of generating a fastereconomic growth.
Yeah, it's a good question.And I didn't change my view yet.

(43:21):
You see that development isgoing very, very, very fast. But
if we look to all kinds ofproductivity indicators, we still
don't see a big increase inproductivity because of this artificial

(43:46):
intelligence. So, for themoment, you see, of course, that
the uptake is going very,very, very fast. But is ChatGPT,
because I think everybody isnow using ChatGPT in a daily basis,

(44:11):
Is that really increasingproductivity? I don't have the impression
that that is increasingproductivity enormously. Ithinkit
hasn't reached manufacturingyet. Okay, on an individual basis,
I may do a little bit more, Imay increase my productivity a little
bit more compared to, let'ssay, a year ago. But if you really
are going into themanufacturing, if you're going to
the services, if you're goinginto the corporates, I don't see
any increase in productivity yet.
Yeah, you know, we had PhilipCarlsson on the show, and he had
his book out called Shocks,Crisis and False Alarms where he

(44:33):
talked about this notion of AIimpacting productivity. And, you
know, the way he framed it wasthat we're not going to get a big
impact on productivity untilwe see labor being displaced at scale.
That's really where you getthe gains and that's where real wages
go up. And, you know, whenreal wages go up, then people have

(44:54):
more money and they spend iton things that they haven't spent
it on before. And that's whenyou get the new jobs being created
and you get this kind ofeconomic transition happening. Do
you broadly agree with that perspective?
Yeah, yeah, I think so. Ithink we should see, at some point,

(45:29):
labor is going to be displacedby artificial intelligence, by new
innovations. Of course, thatis, as well, a scary picture that

(46:02):
you hear everywhere. Thetrouble is (a little bit), okay,
they're going to be new jobscreated, but these new jobs, these

(46:36):
people that are going to bedisplaced, are they going to be ready
to fill in these jobs? Thatis, a little bit, the question in

(47:15):
going this fast. Now,in theprecedent of, let's say, industrial
revolutions, what you saw isthat this change and this displacement
in jobs, it took 20 years, ittook 30 years. And okay, after 30
years you had seen a bigdisplacement. But okay, the next
generation, they were up tothe game and they filled in the new
jobs. Iftoday we see thatwe're going to have a big displacement
because of artificialintelligence, because of innovations,
my scare is that thisdisplacement is going to go so fast
that people are not going tobe able to find very fast, new jobs.
And that is, for me, that is alittle bit scary. Okay.productivity
might go up from the otherside. What is very good as well is
that compared to the lasttime, what we see today is that we
have an active population,certainly in the west, besides the
United States, that's goingdown. So, we need some kind of automation
to still be able to increasethe revenues, to increase productivity
and to increase our output.But maybe it's going to go too fast
and that is a little bit scary.
I've got some friends who are,you know, working very closely at
very high levels in that area.They were saying that the next generation,

(47:47):
and when I say nextgeneration, I don't mean in a couple
years, I mean very, veryshortly, of these bots will essentially

(48:10):
be able to program code betterthan any existing computer programmer
out there. So, the pace ofchange in some of these previously

(48:33):
high paying industries couldbe unusually fast. And I've referenced
this a couple times. WehadErnest Scheyder on talking about…
He had a book called the WarBelow where he talks about the mining
and the controversies aroundthat. And one point he makes there
(I am going to tie this intoAI) is that you know, there are lot
of good jobs being created inthe mining industry. High paying
jobs that don't necessarilyrequire a lot of education and there's
an inability to fill thosejobs in the US. But to your point,
it's not like computersoftware engineers are necessarily
going to be able to go out andwork in the mines in Arizona right
away. So, you have this kindof odd situation, potentially, where
you've got maybe higher thannormal unemployment but a lot of
job openings at the same time.
Yeah, that are not going to befilled in. And to your point, to

(48:54):
my point as well, what we seein China for example, in big companies
like Alibaba, what you sawbefore is that these young people
just coming from university,they were put to work in some kind

(49:15):
of jobs that were not toodifficult, that were a little bit
IT related. But what you seetoday is that quite a lot of these
jobs, which are pretty easyjobs, have been taken over now by

(49:35):
artificial intelligence. Andthat is a big challenge for China
as well, and certainly forthese young guys that come out of
university. So,yeah, if thatis happening in China today, then
probably this is going tohappen in Europe tomorrow and in
the United States tomorrow aswell. So, there are some warning
signals that something isabout to happen in this sphere.
If I can add, Kevin, oneinvestment idea around this, because

(50:06):
I agree with you, I think nextgeneration AI, and then I'm mostly

(50:28):
thinking about AI agents andsmart agents and so on, they will

(50:48):
replace a lot of jobs. So thatwill maybe make the cake bigger,

(51:10):
but it will become arepartition problem. So,it will
be a bigger cake, but it willprobably be more distributed more
unevenly with the risk thatyou get social tensions and problems
and so on. So that's onepoint. What is an investment idea,
and I think we've writtenabout it, I do not remember exactly,
but we've written about it inthe book as well. You want to own
robots. Youwant to own therobots, because if you cannot make
your money from the salariesyou're going to get, you can maybe
make it from the investmentsor you want to be invested probably
in this new technology. So, Ithink even with the Magnificent Seven
down, with some of therobotics companies down and so on,
it would be a mistake not tobe invested in technology because
nobody knows how fast it'sgoing to go and what the exponential
growth will be. So, it wouldbe a mistake not to be invested.
Butat the end of the day,maybe the best investment is to invest
in yourself, because if youneed new skills in the new world,
you have to keep up to speed.And some people will do that. They
will just get into lifelonglearning, but others will not, and
they will get left behind. Andthat will create more inequality
in the world with all therisks that are attached to that.
Yeah, well, thanks for that,Philippe, and you know, that's. It's
an interesting point which I'mjust going to mention. I don't know

(51:32):
if we have to explore it. Iteach at Berkeley, and I've got two
of my kids, one's a graduatestudent, one's an undergraduate student.
And, you know, there'sinvesting in yourself by education,
but what we're seeing now, inthe educational world, is students
being utterly reliant onChatGPT. So, they're kind of getting

(51:55):
through the traditionaleducation process, but they're really
not learning that much.They're kind of outsourcing a lot
of their work to these bots.So, it's not just doubling down on
personal education, it'sactually being intentional about
that and genuinely acquiringskills. I'mnot sure if that's something
that has come up in Europe. Isuspect it's global.
I see my kids also writingpapers using ChatGPT, and so on.

(52:37):
So yeah, that's really goingto… Maybe the skill set that we need

(53:02):
in the future is maybe goingto be different. But a lot of young

(53:30):
people know where to findthings, but they don't have the active

(53:53):
knowledge of these things.AndI read somewhere a very interesting
thing, if you were to go back200 or 300 years, and I would go
back and I'm an engineer bytraining, but I'm not very good at
computers and so on. So, I donot know how to switch on a presentation
or something like that. But ifI were to go back 300 years, I would
know about cars, I would knowabout electricity and so on. But
if people 300 years in thepast would ask me, build me a car,
or build me a video recorder,I couldn't do it. So that's the point.
Andthat will be more and morethe case. We will know how to use
these things, but we do notknow how to make them anymore. Andthen
you get a class that's even abook, I don't know the exact title
or the writer, but that arethe makers and the takers, or whatever.
So, you will have a group ofelite people who still manage to
make all the stuff and all therest will become consumers. Andthen
you get to the economicproblem. How will the consumers get
money if they do not get itanymore from salaries? And, yeah,
then you come to discussionsof global income for everyone or
stuff like that. Becausewiththe new technology in the new world
that we're going to have, it'sclear that education will have to
change, but that also, the waythat we organize society, that will
have to change. And educationis still organized. And I love tradition,
and I love Oxford andCambridge and all the tradition that
goes with it. But maybe,indeed, at a certain moment in time
you will have to look at theeducational system as well.
Yeah, we love Berkeley aswell, of course.
Most of all, we just love Berkeley.
All right, thanks for that,guys. Okay, well, I think that's
a good place for us to leaveoff today. So, thanks, Philippe and

(54:17):
Koen, for joining us on thisone year anniversary conversation.
That was really, really funand enjoyable.
Thank you, sir.
Thank you very much. And whengold touches on $8,000, I hope we
get again invited.
We'll have a special show.
Let's have five or six, maybe.
I'll put an alert on my YahooFinance to tell me to organize that.
Okay,so the book, again, iscalled the New World Economy in Five

(54:41):
Trends. And please make sureyou go out and get a copy because
I think you can see from thisconversation that a lot of the topics
that we talked about here arenot being discussed enough on mainstream
media. So, for all of us hereat Top Traders Unplugged, thanks

(55:03):
for listening and we'll seeyou next time.
Thanks for listening to TopTraders Unplugged. If you feel you
learned something of valuefrom today's episode, the best way
to stay updated is to go onover to iTunes and subscribe to the
show so that you'll be sure toget all the new episodes as they're
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(55:24):
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