WEBVTT - Why SocGen's Albert Edwards Sees Double-Digit Inflation Coming Back 0:00:02.720 --> 0:00:17.079 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.040 --> 0:00:20.840 Hello and welcome to another episode of the Ad Thoughts Podcast. 0:00:20.880 --> 0:00:22.240 I'm Tracy Alloway. 0:00:21.960 --> 0:00:23.160 And I'm Joe Wisenthal. 0:00:23.600 --> 0:00:25.599 Joe, I think I think a lot of people don't 0:00:25.680 --> 0:00:29.800 understand the role of bears in finance and markets. 0:00:30.200 --> 0:00:32.720 It's to create headlines for tweeting, right. 0:00:32.800 --> 0:00:35.400 Well, technically it's just sell newsletter. 0:00:36.680 --> 0:00:39.160 I was going to say it's to get emails opened, right, 0:00:39.200 --> 0:00:39.680 that's right. 0:00:39.960 --> 0:00:41.840 So I think you know, being a bear who's selling 0:00:41.840 --> 0:00:44.159 a newsletter, we can all kind of see the business 0:00:44.159 --> 0:00:47.440 model there. But if you're an analyst at a big 0:00:47.920 --> 0:00:51.720 sell side firm and you're known as a bear, that 0:00:51.800 --> 0:00:54.800 seems incredibly difficult to me, because, like the tendency on 0:00:54.880 --> 0:00:57.800 Wall Street and investment in finance is towards optimism, right, 0:00:57.880 --> 0:00:59.840 you have to place bets on the future, you have 0:00:59.880 --> 0:01:02.520 to put your money to work. And if you're managing 0:01:02.600 --> 0:01:05.560 to be a sort of like long run bear and 0:01:05.600 --> 0:01:08.240 a big cell side institution, that's pretty impressive to me. 0:01:08.360 --> 0:01:11.800 Oh so you're selling, Yes, it is, you're selling. They 0:01:11.840 --> 0:01:14.880 call it the cell side. And if you know there's 0:01:14.920 --> 0:01:18.840 all these financial instruments that the financial institution has and 0:01:18.880 --> 0:01:20.760 you're the bear. It's like, well, I'm not going to 0:01:20.800 --> 0:01:24.679 buy anything, you know, it's the cell side. You're supposed 0:01:24.680 --> 0:01:26.720 to have something to sell, and that's other people to sell. 0:01:26.840 --> 0:01:28.960 The clue is truly in the name. But the other 0:01:29.000 --> 0:01:31.360 thing that's very impressive is if you're a long run 0:01:31.400 --> 0:01:34.640 bear at a cell side institution who also manages to 0:01:34.680 --> 0:01:39.520 be the top ranked macro analyst in your category for 0:01:39.640 --> 0:01:43.280 thirteen years in a row. That's pretty impressive, right, It 0:01:43.360 --> 0:01:43.960 is impressive. 0:01:44.000 --> 0:01:47.840 And this gets to another important point, which is people 0:01:48.000 --> 0:01:50.600 like to read. And I think about this even with 0:01:50.720 --> 0:01:55.000 podcasts and other forms of any sort of media, whether 0:01:55.120 --> 0:01:58.040 it's formal media and a PDF that a bank cent 0:01:58.320 --> 0:02:02.400 sells or a news organization. People like to consume ideas. 0:02:02.440 --> 0:02:04.600 And it doesn't mean they're going to consume the ideas 0:02:04.640 --> 0:02:08.120 and say, oh, this was convincing by sell. But they 0:02:08.240 --> 0:02:10.400 like to hear a range of ideas. They like to 0:02:10.440 --> 0:02:13.240 have their thought process influenced, they like to stress test. 0:02:13.440 --> 0:02:15.480 Well, this is what I was going to say. Like 0:02:15.560 --> 0:02:17.600 to me, the role of a true bear on Wall 0:02:17.600 --> 0:02:21.320 Street is for big investors and institutional clients to actually 0:02:21.680 --> 0:02:23.920 test some of their thinking. You know, if you have 0:02:23.960 --> 0:02:25.600 a bunch of analysts who are trying to pitch you 0:02:26.160 --> 0:02:28.639 tech stocks at the moment, like you want to hear 0:02:28.720 --> 0:02:31.680 an opposing viewpoint that says, well, maybe here is the 0:02:31.720 --> 0:02:32.760 downside scenario. 0:02:33.200 --> 0:02:36.120 Well, here's the other thing right now we're recording this 0:02:36.200 --> 0:02:40.280 in early May twenty twenty six, which is that equity 0:02:40.320 --> 0:02:44.680 markets around the world are very high. Some would say 0:02:44.680 --> 0:02:47.480 bizarrely high, but they're very high for various reasons. We 0:02:47.520 --> 0:02:50.520 could get into. Bonds have been selling off very much, 0:02:50.600 --> 0:02:52.040 and that's sort of the story. We're here in the 0:02:52.160 --> 0:02:55.880 UK right now, and the headlines are all about generally 0:02:55.919 --> 0:02:58.959 how much guilt yields keep spiking. But we're in this 0:02:59.280 --> 0:03:03.000 moment which I would say there is a real mismatch, 0:03:03.080 --> 0:03:06.679 but between I would say gloom which you could pick 0:03:06.680 --> 0:03:09.400 your poison. Why are you gloomy? You're gloomy because the 0:03:09.440 --> 0:03:11.720 Ais are going to take us, are going to destroy 0:03:11.760 --> 0:03:13.560 the world. You're gloomy because the war and around. You're 0:03:13.600 --> 0:03:17.280 gloomy because high deficits, et cetera. You're gloomy because politics 0:03:17.560 --> 0:03:20.560 in so many countries seems to be deteriorated. There's plenty 0:03:20.600 --> 0:03:23.760 of reason for gloom out there, and yet you know 0:03:24.040 --> 0:03:27.360 you're losing if you're not in the stock market, et cetera. 0:03:27.639 --> 0:03:30.560 It is just a very weird time. But yes, there 0:03:30.600 --> 0:03:33.560 is this weird mismatch depending on how you look at it, 0:03:33.800 --> 0:03:37.480 between sentiment across any many different attempts to measure a 0:03:37.560 --> 0:03:40.280 sentiment and what least certain parts of the market are doing. 0:03:40.480 --> 0:03:42.920 Yeah, I think that's exactly right. And also, you know 0:03:42.960 --> 0:03:45.240 you mentioned bond yields going up, So we're recording this 0:03:45.400 --> 0:03:49.040 on May sixth, the thirty year UK gilt. We're in 0:03:49.040 --> 0:03:52.240 London still, by the way, hit like its highest since 0:03:52.320 --> 0:03:55.480 nineteen ninety eight or something yesterday, And you're absolutely right, 0:03:55.520 --> 0:03:58.680 there does seem to be a tension between all these 0:03:58.720 --> 0:04:02.440 little glimmers of an inflation that are out there and 0:04:02.480 --> 0:04:04.680 what's going on in the equity market, because you would 0:04:04.680 --> 0:04:08.280 expect with rates possibly going up that equities were going 0:04:08.320 --> 0:04:10.560 to take a hit. But anyway, we do in fact 0:04:10.720 --> 0:04:13.880 have the perfect guest, right, someone who is very well 0:04:13.920 --> 0:04:15.880 known not just for being a bear, but also for 0:04:16.000 --> 0:04:19.400 having very long term, sort of paradigm views on the 0:04:19.440 --> 0:04:21.200 relationship between bonds and equities. 0:04:21.360 --> 0:04:24.800 Someone we've been reading for a very long time. Prices. 0:04:25.000 --> 0:04:28.039 We finally convinced him to come on the podcast. I 0:04:28.080 --> 0:04:30.480 gave it away earlier when I said the top ranked 0:04:30.560 --> 0:04:34.039 Extel Survey macro analyst thirteen times in a row. But 0:04:34.080 --> 0:04:36.760 we are, of course going to be speaking with Albert Edwards, 0:04:36.760 --> 0:04:40.560 who is the global strategist over at SoC GEN. Thank 0:04:40.560 --> 0:04:41.560 you so much for coming on off. 0:04:41.960 --> 0:04:45.720 It's a pleasure. I don't get that much. They've let 0:04:45.760 --> 0:04:47.400 you out of the bear exactly. 0:04:47.160 --> 0:04:48.240 Right, that's right. 0:04:48.520 --> 0:04:50.800 Why don't you go ahead and explain? Well, first of all, 0:04:50.839 --> 0:04:53.440 I should ask when people introduce you as a well 0:04:53.480 --> 0:04:56.360 known bear, does it great you the way it seems 0:04:56.400 --> 0:04:59.680 to great some other people I remember Nurial Rubini would 0:04:59.680 --> 0:05:02.120 always go upset if you call them doctor Doom. Do 0:05:02.160 --> 0:05:02.760 you get upset? 0:05:02.960 --> 0:05:05.839 No, I'm please be introduced at all, and anyone's speaking 0:05:05.839 --> 0:05:08.240 to me quite frankly, okay. 0:05:08.600 --> 0:05:10.040 Is it a deserved reputation. 0:05:11.000 --> 0:05:15.320 It's deserved in the sense that the media has more 0:05:15.440 --> 0:05:19.000 latched onto, or had more latched onto, my bearish views 0:05:19.040 --> 0:05:23.080 on equity markets, but not my bullish views on government bonds. 0:05:23.680 --> 0:05:27.119 Now I joined the cell side, so I've been working 0:05:27.320 --> 0:05:30.120 in finance since nineteen eighty two. I joined the Bank 0:05:30.160 --> 0:05:32.640 of England just over the road here. But I join 0:05:32.920 --> 0:05:36.960 after his little stint on the buy side, which is why, 0:05:37.040 --> 0:05:40.120 by the way, I write such short notes, because I've 0:05:40.120 --> 0:05:44.000 actually had to read these notes on the byside over 0:05:44.040 --> 0:05:47.080 the years, and I know the clients and readers aren't 0:05:47.120 --> 0:05:49.400 sitting there waiting for them, and if they can't read 0:05:49.400 --> 0:05:51.720 them in about three four minutes, they're not going to 0:05:51.760 --> 0:05:53.360 read them. They're not going to read them at all. 0:05:53.720 --> 0:05:56.320 But I joined the cell side in nineteen eighty eight, 0:05:56.400 --> 0:05:59.240 at time Waltz became dressner time Walts. I was there 0:05:59.240 --> 0:06:01.760 for almost twenty years, but I saw the back end 0:06:01.800 --> 0:06:07.080 of the Japanese bubble, and I saw the what Richard 0:06:07.200 --> 0:06:10.479 kouat Namura used to describe the balance sheet recession in 0:06:10.560 --> 0:06:13.800 Japan and how it unraveled and by the time it 0:06:13.880 --> 0:06:16.440 got to and how Western economists were saying, you're doing 0:06:16.520 --> 0:06:19.000 it all wrong in Japan. You should be just liquidating 0:06:19.120 --> 0:06:22.200 the capital stock and get to get rid of this deflation. 0:06:23.040 --> 0:06:27.240 And I was thinking, well, firstly, actually, this what's happening 0:06:27.240 --> 0:06:29.400 in Japan, is there just ahead of you, ten years 0:06:29.440 --> 0:06:31.960 ahead of you in the West, because their bubble was 0:06:32.000 --> 0:06:34.640 a lot, their credit bubble was a lot earlier, and 0:06:34.680 --> 0:06:37.040 when it bursts in the West, you won't be doing 0:06:37.080 --> 0:06:40.520 what you're recommending that they do. You'll you'll be you'll 0:06:40.560 --> 0:06:43.799 be slashing raids, you'll be doing everything to stop recessions. 0:06:43.800 --> 0:06:47.440 But the key thing about Japan, so the back end 0:06:47.440 --> 0:06:50.360 of nineteen ninety eight, when I thought this is coming 0:06:50.400 --> 0:06:52.360 to the West, I developed what I call the ice 0:06:52.400 --> 0:06:58.200 Age view, which is secular stagnation thesis, which is next 0:06:58.520 --> 0:07:03.640 essentially Lauren Summer's the excess of savings over investment, driving 0:07:03.720 --> 0:07:07.839 down real yels and bond deals and causing a rerating 0:07:07.920 --> 0:07:12.920 of valuations. But we saw in Japan after a while 0:07:13.320 --> 0:07:16.240 that actually your inflation and bond deals and interstrates would 0:07:16.240 --> 0:07:19.480 carry on coming down, but after what it wouldn't cause 0:07:19.520 --> 0:07:23.800 any more PA expansion. Actually quite the reverse, that inflation 0:07:24.000 --> 0:07:26.800 got so low and so close to deflation it would 0:07:26.880 --> 0:07:31.160 cause PA contraction. So what I was trying to do 0:07:31.280 --> 0:07:35.560 is bolt on a financial market view onto the secular 0:07:35.640 --> 0:07:39.640 stagnation thesis, and that ran all the way from nineteen 0:07:39.760 --> 0:07:42.240 ninety six. I ran with it. I thought it was 0:07:42.320 --> 0:07:45.800 coming immediately after the Asian crisis. You mentioned guilt hell 0:07:45.840 --> 0:07:48.120 as being there higher since nineteen ninety eight. I can 0:07:48.200 --> 0:07:51.520 remember that the aftermath of the Asian crisis, the Russian 0:07:51.560 --> 0:07:55.400 GKO crisis, and this where longevity helps. By the way 0:07:55.440 --> 0:07:57.200 you can I might not be able to remember what 0:07:57.280 --> 0:08:00.480 happened yesterday, but I can remember twenty years ago quite 0:08:00.560 --> 0:08:04.440 quite well. And then from two thousand onwards you started 0:08:04.480 --> 0:08:08.760 to see as bond Yell's got lower problems with merging 0:08:08.800 --> 0:08:12.440 within the equity markets. So that was basically the ice 0:08:12.480 --> 0:08:14.760 age thesis, and it were so. Although I was an 0:08:14.800 --> 0:08:17.640 equity bear and well known for that, I was very 0:08:17.680 --> 0:08:19.520 much a bond bow government bond. 0:08:19.240 --> 0:08:22.880 Bo I'm glad you said, just reflecting. I'm glad you 0:08:23.080 --> 0:08:26.560 said the point about having come from the buyside and 0:08:26.680 --> 0:08:31.880 understood the attention spans of readers and how that informed 0:08:31.880 --> 0:08:34.719 your view of the cell side because that's something that 0:08:34.760 --> 0:08:38.520 I've said or thought many times. Having started my career, 0:08:38.520 --> 0:08:40.560 a lot of what I learned to write was from 0:08:40.640 --> 0:08:45.920 reading cell side research, and it I figured that, Okay, 0:08:46.360 --> 0:08:49.080 the cell side analysts are writing for people who are 0:08:49.120 --> 0:08:52.720 just inundated with notes, right their inboxes are filled with 0:08:52.800 --> 0:08:57.080 all kinds of notes. They must know what the type 0:08:57.080 --> 0:09:01.080 of content that the buyside is willing to read chart 0:09:01.160 --> 0:09:04.439 heavy off in concise, et cetera, and so early on 0:09:04.520 --> 0:09:06.800 in my journalism care I figured, Okay, if this is 0:09:06.840 --> 0:09:09.760 how the cell side writes, it's probably a good idea 0:09:09.840 --> 0:09:12.959 to sort of crib some of these ideas because they 0:09:13.200 --> 0:09:16.760 understand the realities of shortened attention spans and so forth. 0:09:16.880 --> 0:09:19.520 And now with social media, everyone has the attention span 0:09:19.640 --> 0:09:23.360 essentially of a byside trader. What's your job? 0:09:23.559 --> 0:09:23.800 You know? 0:09:23.960 --> 0:09:28.640 Tracy introduced you as strategists, setting aside your views specifically, 0:09:29.360 --> 0:09:32.240 what does success look like? Why do you have a 0:09:32.320 --> 0:09:34.720 role at the bank, and what is the purpose of 0:09:34.720 --> 0:09:35.240 your journey? 0:09:35.320 --> 0:09:37.240 Why am I employed on action? 0:09:37.440 --> 0:09:39.280 And I don't mean that from like why you employed 0:09:39.320 --> 0:09:41.400 like if you've gotten the equity call, et cetera. Why 0:09:41.440 --> 0:09:43.280 is this an important role though to have a bank? 0:09:43.320 --> 0:09:48.240 Well, I remember in the run up to the Nunstack 0:09:48.320 --> 0:09:51.600 bubble bursting, we were having our round table lunches at 0:09:51.640 --> 0:09:55.000 climb Waltz and Tony die Then who was head of 0:09:55.040 --> 0:09:59.839 Phillips and Jewassen Management, who had become bearished too early 0:10:00.240 --> 0:10:03.640 value a bit like Jeremy grant them value orientating and 0:10:03.679 --> 0:10:08.280 his co conspiratorality in Chicago what's his name, Brinson, who 0:10:08.320 --> 0:10:11.880 both had come under the umbrella of UBS. I remember 0:10:11.920 --> 0:10:16.320 him saying to the head of equities at climb Waltz, well, 0:10:16.360 --> 0:10:19.200 I totally agree with what Albert's saying, but why haven't 0:10:19.240 --> 0:10:23.719 you fired him? Because that's what happens to most bears 0:10:23.840 --> 0:10:27.240 or most analysts who get it wrong. Not on the 0:10:27.280 --> 0:10:30.200 bullish side, but if you if you're an economist and 0:10:30.280 --> 0:10:33.040 call a recession on the cell side and you're wrong, 0:10:33.160 --> 0:10:39.080 you're usually out pretty quickly. There's such a bias towards optimism, 0:10:39.120 --> 0:10:41.880 and it's not just confected, it's natural. It's like an 0:10:41.920 --> 0:10:46.400 analyst covering a stock. Inevitably they're going to be usually 0:10:46.559 --> 0:10:50.680 enthusiastic about their sector and stock, so that there is 0:10:50.720 --> 0:10:53.840 a natural bias, and part of my role, I mean, 0:10:53.880 --> 0:10:58.760 I've developed it over the years in that, even when 0:10:58.760 --> 0:11:03.640 I'm getting it wrong, how to avoid getting fired. We 0:11:03.720 --> 0:11:06.920 had an analyst of Climb Waltz in the late nineties. 0:11:06.960 --> 0:11:10.000 It was a tech analyst. He was very bearish on 0:11:10.120 --> 0:11:12.720 nochio and ericson he was right. He was pounding the 0:11:12.760 --> 0:11:16.080 table with analysts with sorry with their clients, and he 0:11:16.600 --> 0:11:20.760 off the clients so much he almost got fired, and 0:11:20.800 --> 0:11:24.000 the secret is to develop strategies. This is my view 0:11:24.040 --> 0:11:28.360 for what it's worth. They know my they can calibrate 0:11:28.520 --> 0:11:30.839 what I'm thinking. I'm not too much in their face. 0:11:31.040 --> 0:11:33.240 I'm not annoying them too much. And I'm a bit 0:11:33.400 --> 0:11:36.840 like I'm a bit like Caesar always used to have 0:11:37.640 --> 0:11:41.240 a slave right behind him whose job it was to 0:11:41.320 --> 0:11:44.080 say to Caesar, you are mortal. You are mortal. 0:11:45.080 --> 0:11:49.439 I'm the slave. 0:11:50.080 --> 0:11:52.960 I'm the wage slave and the actual slave. Often those 0:11:53.000 --> 0:11:57.040 slaves themselves were terminated in pretty horrendous fashion themselves. But 0:11:58.440 --> 0:12:01.760 if the clients, even times for bulls, would want to 0:12:01.840 --> 0:12:05.440 hear what I'm saying just to know what to be 0:12:05.559 --> 0:12:07.400 watching out for in the back and end, they've got 0:12:07.440 --> 0:12:10.360 to be fully invested. They've got to participate. But hey, 0:12:10.400 --> 0:12:12.559 should we you know, we've got to keep dancing as 0:12:12.559 --> 0:12:14.920 the Chuck Prince thing, But should we be dancing near 0:12:15.040 --> 0:12:17.600 the fire escapes or in the center of the room, 0:12:17.679 --> 0:12:18.360 that sort of thing. 0:12:19.400 --> 0:12:21.240 All of that makes a lot of sense, and I 0:12:21.280 --> 0:12:23.600 want to get into the risks that you're seeing now. 0:12:23.679 --> 0:12:25.200 But before we do it, just going back to the 0:12:25.280 --> 0:12:30.080 ice age thesis. So on the equity side, explain what 0:12:30.160 --> 0:12:33.599 went wrong, because this is the thing that you're criticized 0:12:33.600 --> 0:12:35.679 for and you're sort of known for, is you've had 0:12:35.679 --> 0:12:38.480 a bearish view on equities for a very very long time. 0:12:39.000 --> 0:12:40.040 It didn't work out. 0:12:40.520 --> 0:12:46.439 What happened, well, what happened from two thousand onwards. If 0:12:46.440 --> 0:12:49.080 you look at charts of bond eels carrying on falling, 0:12:49.120 --> 0:12:52.199 equity equity yields did start to rise, so you did 0:12:52.360 --> 0:12:58.920 have that exactly what you saw in Japan. What derails 0:12:59.080 --> 0:13:03.360 the de rating of equities, in my view, was certainly 0:13:03.400 --> 0:13:07.880 quanstity of easy. So the degree and the it wasn't 0:13:07.920 --> 0:13:12.120 just used once in two thousand and an eight when 0:13:12.160 --> 0:13:14.480 you were in your heyday. Well you're in your heyday 0:13:14.559 --> 0:13:18.640 now of course, but you in another, had another, another, 0:13:19.600 --> 0:13:24.920 But how it persisted all the way through over the 0:13:24.960 --> 0:13:29.160 next ten years, and that basically inflated and that was 0:13:29.200 --> 0:13:32.760 the job of QI to inflate all asset prices. Where 0:13:32.760 --> 0:13:36.800 the ice age continued to work was within the equity 0:13:36.920 --> 0:13:41.920 market because sectors which were benefited from lower bondie on, 0:13:42.040 --> 0:13:46.480 such as defensives or growth sectors, did extraordinarily well and 0:13:46.520 --> 0:13:52.080 rerated to huge p premiums versus cyclicality or value stop. 0:13:52.240 --> 0:13:56.840 So even though the equity manager might ignore what I'm 0:13:56.880 --> 0:13:59.600 saying at the macro level where the market's not going down, 0:13:59.679 --> 0:14:03.040 actually within the equity market it was still very very relevant. 0:14:03.600 --> 0:14:06.560 This Japanification of the West. 0:14:06.880 --> 0:14:30.200 Feet let's talk about then Japanification and within Japanification, Japan specifically, 0:14:30.280 --> 0:14:33.880 because this is an important there's a lot going on 0:14:34.000 --> 0:14:37.360 right now that's very important. In the twenty tens, the 0:14:37.520 --> 0:14:41.440 JGB market. For a long time, it was characterized as 0:14:41.440 --> 0:14:44.520 the widow maker, right because everyone looked at the size 0:14:44.560 --> 0:14:48.280 of the Japanese debt stock and they say, it's going 0:14:48.360 --> 0:14:50.520 up and up and up. It's big. Japanese debt to 0:14:50.560 --> 0:14:54.240 GDP is getting higher and higher, and yet rates were 0:14:54.320 --> 0:14:57.120 going down. This confused a lot of people. You were 0:14:57.160 --> 0:15:00.880 correct on the call that that was actually sort of irrelevant, 0:15:00.880 --> 0:15:03.960 that actually that stuck could go higher and hire rates 0:15:04.000 --> 0:15:08.200 could keep going down. Japanese yields famously zero, probably negative 0:15:08.240 --> 0:15:14.280 in many instances post COVID. However, that's changed and now Japan, 0:15:14.360 --> 0:15:17.640 as well as every other developed market economy, the rates 0:15:17.680 --> 0:15:21.080 are going up. So this relationship, whatever was going on, 0:15:21.160 --> 0:15:25.960 has flipped. What flipped really post COVID, In your view, 0:15:26.600 --> 0:15:30.440 such that rates are going up all around the world, 0:15:30.520 --> 0:15:33.920 including in Japan, but also especially in the UK. That 0:15:34.080 --> 0:15:37.720 ice age of disinflation and lower rates has truly come 0:15:37.760 --> 0:15:38.200 to an end. 0:15:38.400 --> 0:15:43.280 I mean what flipped in my view was prior to 0:15:43.320 --> 0:15:48.320 the COVID recession. By the way, before the COVID recession, 0:15:48.440 --> 0:15:53.240 I was writing in early twenty twenty, before the pandemic 0:15:53.320 --> 0:15:57.840 came along, that actually the next recession would see a 0:15:57.960 --> 0:16:01.360 transition away from the ISA I was moving and it 0:16:01.480 --> 0:16:03.960 worked for me for quite a long time. But actually 0:16:04.000 --> 0:16:06.840 I was thinking we were going to move to a 0:16:06.960 --> 0:16:10.600 new paradigm and that falling bond of your story was 0:16:10.800 --> 0:16:14.840 going to stop. And the reason was, up until that point, 0:16:15.800 --> 0:16:22.000 quantitative easing had been injected primarily in virtually entirely into 0:16:22.040 --> 0:16:25.360 the veins of wall streets. The idea that the Q 0:16:25.640 --> 0:16:29.680 didn't create inflation was nonsense. He created loads of inflation, 0:16:30.040 --> 0:16:33.360 but the sort of inflation people like in housing, in 0:16:33.480 --> 0:16:36.840 financial assets asset prices, and no one complains about No 0:16:36.880 --> 0:16:40.240 one complains about that unless you don't own the asset 0:16:40.280 --> 0:16:43.440 price is. What it caused was a lot of generational tension, 0:16:43.920 --> 0:16:46.280 with younger people not being able to afford which is 0:16:46.400 --> 0:16:48.480 we can come on too populism later. But one of 0:16:48.560 --> 0:16:51.720 the reasons populism has come along in space, so it 0:16:51.800 --> 0:16:55.680 caused lots of inequality, which even the central banks eventually realized. 0:16:56.280 --> 0:16:59.920 But what I thought would occur was the next one. 0:17:00.200 --> 0:17:03.400 When it came along, you were so close to outright deflation. 0:17:03.800 --> 0:17:07.800 And certainly remember at that time you were having negative bonds, 0:17:07.920 --> 0:17:10.879 so much of the market was negative bond deals. Europe 0:17:10.880 --> 0:17:15.560 had quite clearly fallen into the Japanification trap. The US 0:17:15.720 --> 0:17:21.560 was heading there, I thoughts and predicted that we would 0:17:21.560 --> 0:17:27.040 get a flip over into a modern monetary theory type 0:17:27.760 --> 0:17:31.480 QE where they started injecting money into the veins of 0:17:31.600 --> 0:17:39.080 main streets and a bits fiscal so basically classic tax cuts, 0:17:39.280 --> 0:17:43.960 checks dropping on people's doorsteps, paid for by monetary creation. 0:17:44.760 --> 0:17:50.000 And I didn't foresee clearly the pandemic made the situation, 0:17:50.480 --> 0:17:55.200 the inflationary situation on consumer prices a lot worse because 0:17:55.240 --> 0:17:59.960 of the restricted supply chains. And having read I've got 0:17:59.920 --> 0:18:02.440 a lot of sympathy with the lot of I don't 0:18:02.520 --> 0:18:06.720 tend to have any dogmatic views monetarists, ken zin or whatever. 0:18:07.320 --> 0:18:10.160 I'm quite catholic. I bring all the themes in there's 0:18:10.240 --> 0:18:13.240 quite a lot about MMTR I agree with, but reading 0:18:13.280 --> 0:18:17.640 Stephanie Kelton's book, one thing was absolutely clear. They were saying, yes, 0:18:17.680 --> 0:18:20.720 we can do this, it doesn't create inflation, but when 0:18:20.720 --> 0:18:23.879 you hit capacity constraints, you have to stop doing it. 0:18:24.359 --> 0:18:28.000 And nothing could have been more capacity constrained than global 0:18:28.040 --> 0:18:31.800 economy during the COVID. So in my view, it was 0:18:32.040 --> 0:18:35.320 that crazy to do what they were doing, and it 0:18:35.400 --> 0:18:38.320 was going to create the money. You could see it 0:18:38.359 --> 0:18:39.520 from the broad money growth. 0:18:40.760 --> 0:18:43.200 So just to be clear, and I know you said 0:18:43.200 --> 0:18:46.600 we were going to skip ahead to the populism, which 0:18:46.640 --> 0:18:49.920 is very intertwined. I would say, or many people would say, 0:18:50.840 --> 0:18:54.280 with what's going on with economic policy right now, is 0:18:54.320 --> 0:19:00.400 the failure the basically the premise the government could ever 0:19:00.560 --> 0:19:05.360 stop the fiscal expansion once the capacity constraint is hit. 0:19:05.600 --> 0:19:08.280 So you have the money drops, you have the helicopter drops, 0:19:08.320 --> 0:19:11.080 you have the checks, you have the tax cuts, arguably 0:19:11.200 --> 0:19:15.040 quite justified during the worst of the COVID. Is the 0:19:15.080 --> 0:19:19.800 core analytical error the notion that after you hit that 0:19:19.840 --> 0:19:24.480 capacity constraints, that governments have the internal capacity to say, Okay, 0:19:24.480 --> 0:19:26.320 we've hit that point now where we have to raise 0:19:26.359 --> 0:19:27.320 taxes to stop. 0:19:27.119 --> 0:19:28.200 The check Democratically. 0:19:28.880 --> 0:19:32.719 Democratically elected officials are capable of saying, you know what, 0:19:32.760 --> 0:19:35.600 we've hit these capacity constraints and now we have to 0:19:35.680 --> 0:19:36.560 unwind the checks. 0:19:38.359 --> 0:19:41.040 I don't think that. I don't think congenitoually they are 0:19:41.119 --> 0:19:42.320 able to do that. 0:19:42.320 --> 0:19:44.199 That's what I'm saying, is that where that where the 0:19:44.240 --> 0:19:46.160 analysis breaks. 0:19:46.160 --> 0:19:49.560 Well, that's where the that's where the proscription breaks do 0:19:50.000 --> 0:19:54.840 That's where the future, if you like, is so scary 0:19:55.040 --> 0:19:59.120 because well, actually, in the US, for example, the budget 0:19:59.119 --> 0:20:03.760 deficit attached itself from economic reality before COVID hit in 0:20:03.880 --> 0:20:07.920 chance first term, and that's when you first started seeing 0:20:08.400 --> 0:20:12.720 such a deficits heading to six percent of GDP in 0:20:12.880 --> 0:20:17.760 an absence of a recession or a crisis, and we're 0:20:17.800 --> 0:20:19.840 at seven percent of GDP. I was looking to be 0:20:19.880 --> 0:20:22.840 IMF numbers. Before I came in, you were seven percent 0:20:22.880 --> 0:20:27.040 of GDP. When unemployment is this slow, there's no appetite. 0:20:27.800 --> 0:20:32.119 And if politicians try and do it, and I would 0:20:32.160 --> 0:20:35.159 say part of the problem with the UK at the moment, 0:20:35.200 --> 0:20:39.720 so that yields at twenty twenty eight year highs. It's 0:20:39.840 --> 0:20:41.760 not that they haven't tried to do it. They have 0:20:42.000 --> 0:20:44.920 tried to do it. But if you it's a very 0:20:45.000 --> 0:20:50.840 fine type wrote clackating the bond markets and taking off 0:20:50.880 --> 0:20:53.240 your electorate so much that you're on your way out 0:20:53.440 --> 0:20:56.280 to do Bai. Well, you know you're on your way 0:20:56.280 --> 0:20:56.959 out of government. 0:20:57.880 --> 0:21:00.280 You're saying you're on your way out of the election. 0:21:00.960 --> 0:21:03.600 Taxpayers are some of them are on the way out 0:21:03.640 --> 0:21:06.400 to Dubai and then then then looping back somewhere else 0:21:06.440 --> 0:21:09.760 at the moment, but you're you're out a government, and 0:21:10.080 --> 0:21:12.719 this is the problem. One of the problems for the 0:21:12.800 --> 0:21:19.320 UK government is the electoral electorate won't tolerate unless there's 0:21:19.320 --> 0:21:24.959 a crisis, so almost politicians need a Eurozone type Greek, 0:21:25.200 --> 0:21:31.000 Spanish Italian crisis to be able to implement the measures 0:21:31.040 --> 0:21:36.600 that everyone knows needs to take place, but electorates currently 0:21:36.600 --> 0:21:38.600 have no appetite for I. 0:21:38.560 --> 0:21:41.120 Saw this amazing chart. You probably saw it too because 0:21:41.119 --> 0:21:43.520 it was an Adam Tuosa's newsletter recently, but it was 0:21:43.520 --> 0:21:47.719 from TS Lombard and it showed fiscal support during the 0:21:47.760 --> 0:21:51.280 twenty twenty two energy crisis in Europe as a percentage 0:21:51.320 --> 0:21:56.399 of GDP, and I hadn't realized just how substantial it 0:21:56.440 --> 0:21:59.080 actually was. Like energy tax cuts, and so of course 0:21:59.119 --> 0:22:01.679 the question now is with oil going back up and 0:22:01.720 --> 0:22:03.840 people coming under pressure, if we're going to see that 0:22:03.920 --> 0:22:07.040 same type of fiscal response, I. 0:22:07.000 --> 0:22:10.119 Don't think you can. Well, first of all, it's even 0:22:10.200 --> 0:22:13.000 in Europe. The rise in the gas price is nowhere 0:22:13.040 --> 0:22:15.440 near as bad as it was in twenty twenty two. 0:22:15.440 --> 0:22:17.960 And they will do stuff, and they have done stuff 0:22:17.960 --> 0:22:22.359 in places like Spain, despite the European Commission warning the 0:22:22.440 --> 0:22:25.560 countries that actually you haven't got the buffers to be 0:22:25.600 --> 0:22:27.879 able to do this. They are trying to. They have 0:22:28.000 --> 0:22:32.199 been reducing vat but I quite like quite in the 0:22:32.320 --> 0:22:35.639 US it's somewhat different, just over the saying. I've just 0:22:35.680 --> 0:22:38.040 over in Boston recently. I can see the gas price 0:22:38.480 --> 0:22:39.840 well above two dollars. 0:22:39.800 --> 0:22:40.920 Especially in Massachusetts. 0:22:41.000 --> 0:22:44.680 H yeah, but the natural gas price isn't it hasn't 0:22:44.720 --> 0:22:48.080 really gone up in the US. And winding back to 0:22:48.119 --> 0:22:52.159 that famous statement in the early seventies of this is 0:22:52.200 --> 0:22:56.720 our currency, but your problems to the Europeans, this is 0:22:56.760 --> 0:23:00.679 our war, US war, but it's your problem Europeans and 0:23:00.800 --> 0:23:05.600 especially Asia, particularly Asia which gets so much of its 0:23:05.640 --> 0:23:10.080 derivative chemical supplies out of the Gulf. And I saw 0:23:10.160 --> 0:23:13.359 your chart of the Urea versus the Corn Prize showing 0:23:13.400 --> 0:23:18.720 as absolutely stratospheric. But so much of the so much 0:23:18.920 --> 0:23:23.119 derivative chemical products come out of the Gulf, especially to 0:23:23.280 --> 0:23:28.480 age Asia. I saw that eighty percent of India's ammonia 0:23:28.720 --> 0:23:32.800 comes from the Gulf. Now the Asia is in real, 0:23:33.080 --> 0:23:37.800 real trouble, and this is coming down. I mean, one 0:23:37.840 --> 0:23:40.960 thing I think that's really surprised me in the early 0:23:41.080 --> 0:23:45.320 part of the war was when I looked at five 0:23:45.440 --> 0:23:50.320 year versus five year inflation swaps, They've come down. They 0:23:50.320 --> 0:23:54.280 hadn't started going up. So recently the two year into 0:23:54.440 --> 0:23:57.480 year a shot up, and the five year and five 0:23:57.560 --> 0:24:00.199 years started to go up. The people have started to 0:24:00.280 --> 0:24:05.040 realize this is dragging on. And why the taco your 0:24:05.080 --> 0:24:09.639 your former colleague Rob Armstrong, who invented the taco description, 0:24:10.680 --> 0:24:14.240 why the taco trade isn't working? Here, I saw a 0:24:14.359 --> 0:24:17.639 very nice quip, which is because in RAN's involved, it 0:24:17.680 --> 0:24:22.480 takes two to taco uh and Trump can announce these 0:24:22.640 --> 0:24:26.800 U turns, but they're not effective unless Iran is also 0:24:27.200 --> 0:24:32.280 participating or dancing the same dance. So when I hear 0:24:32.359 --> 0:24:35.560 are ail analysts are commodity analysts on our call the 0:24:35.600 --> 0:24:38.359 equity guys that it's still really bullished. The bond guys 0:24:38.359 --> 0:24:42.040 somewhere between. The commodity guys are basically sobbing into their 0:24:42.080 --> 0:24:45.840 microphones because if they know, they know the inflation coming 0:24:45.880 --> 0:24:48.960 down the track here in fertilizers and food and everything. 0:24:49.359 --> 0:24:52.600 This is the funny thing talking about all the commodity 0:24:52.680 --> 0:24:56.119 guys the doom. It's like it's knocking on our door 0:24:56.240 --> 0:24:58.960 and everyone, we'll see what happens. I want to talk 0:24:59.000 --> 0:25:03.120 more since working in the UK, I mentioned the Dubai thing, 0:25:03.720 --> 0:25:07.080 and I'm actually very fascinated by this. Not Dubai people 0:25:07.119 --> 0:25:11.240 moving to Dubai specifically per se, but the political economy 0:25:11.359 --> 0:25:16.280 generally of fiscal consolidation, which includes the possibility of leaving 0:25:16.320 --> 0:25:19.440 and when the issue that I think people would cite 0:25:19.480 --> 0:25:23.639 across UK and across Europe is probably twofold. One is 0:25:24.160 --> 0:25:30.399 declining productive capacity, manufacturing getting eaten by Chinese competition, and 0:25:30.640 --> 0:25:33.680 digital industry that can't keep up with what's happening in 0:25:33.680 --> 0:25:38.720 the United States, particularly with Ai. Okay, you say it's obvious, 0:25:38.760 --> 0:25:40.879 and many people say it's obvious. We all know that 0:25:40.920 --> 0:25:44.800 the government needs to shrink the deficit, but it's very 0:25:44.840 --> 0:25:48.640 tough if people can leave wealth. Taxes are very difficult, 0:25:48.640 --> 0:25:52.199 almost infamously so, and particularly in an era where the 0:25:52.240 --> 0:25:56.080 big money is being made through equity markets, not through 0:25:56.320 --> 0:26:00.240 traditional wage or labor income, et cetera. It'st I read 0:26:00.320 --> 0:26:05.120 to say. Obviously fiscal consolidation is the move, but even 0:26:05.160 --> 0:26:09.200 sitting aside electoral constraint, is there an obvious path towards 0:26:09.840 --> 0:26:13.679 reducing the deficit given the means through which the people 0:26:13.720 --> 0:26:16.040 with money can avoid paying tax. 0:26:16.920 --> 0:26:19.399 It is very difficult. And you mentioned the UK. The 0:26:19.520 --> 0:26:25.240 UK is a very specific problem in that so many 0:26:25.760 --> 0:26:29.760 young people after the pandemic have been signed off as 0:26:29.840 --> 0:26:32.240 permanently sick. They don't even have to look for work. 0:26:32.760 --> 0:26:37.720 So the welfare Bill has to a large extent gone 0:26:37.720 --> 0:26:41.920 out of control in the UK. And even though the 0:26:42.040 --> 0:26:46.040 labor governments here has an overwhelming majority, it couldn't get 0:26:46.040 --> 0:26:50.119 it through Parliament, couldn't get any reform measures through Parliament, 0:26:50.760 --> 0:26:54.840 and the markets, seeing that and the number of U 0:26:54.920 --> 0:27:01.000 turns they've had to do as their own MP's have rebelled, rebelling. 0:27:01.920 --> 0:27:05.280 I mean, it's very very difficult, and defense. 0:27:05.280 --> 0:27:09.080 Especially young people right because there's the heating assistance that 0:27:09.119 --> 0:27:11.800 the old people and the triple locks, so that the 0:27:11.800 --> 0:27:15.560 pension goes up by the maximum or the whatever the 0:27:15.560 --> 0:27:19.160 maximum of three different inflation measures are it's it's the old. 0:27:19.280 --> 0:27:20.240 It's the old as well. 0:27:20.200 --> 0:27:23.919 Right, yeah, no, absolutely, And this is one of the 0:27:23.960 --> 0:27:30.919 things which exacerbates into generational hostility tensions is that the 0:27:31.000 --> 0:27:34.560 younger people who can't get on the housing ladder see 0:27:34.600 --> 0:27:37.760 the older people protected through things like the triple lot 0:27:37.920 --> 0:27:42.879 pensions going up of wage inflation, price inflation or the 0:27:42.920 --> 0:27:45.639 minimum of two and a half percent, so on a 0:27:45.800 --> 0:27:51.000 real escalator and clearly totally unaffordable. However, when I look 0:27:51.040 --> 0:27:53.200 at the CBO and the US is just when I 0:27:53.240 --> 0:27:56.040 look at the CBO projections of US debt to GDP, 0:27:57.040 --> 0:27:59.639 they go off to infinity, and you know this is 0:27:59.680 --> 0:28:04.080 un sustainable because infinity is not a number which is sustainable. 0:28:04.640 --> 0:28:06.840 The IMF has looked at this quite close. The only 0:28:06.880 --> 0:28:09.280 other country to go off to infinity even quicker than 0:28:09.280 --> 0:28:13.160 the US is Strangely, China and the IMF have cited 0:28:13.280 --> 0:28:17.840 the US and China as the two basket cases. Now, 0:28:18.240 --> 0:28:22.879 the UK isn't the worst miscreant in terms of a 0:28:22.920 --> 0:28:26.119 stistical situation. France, I look at the IMF numbers. France 0:28:26.240 --> 0:28:28.879 is much worse, but it's under the protection of the 0:28:29.000 --> 0:28:33.320 euro Zone umbrella. The US is much worse, but it's 0:28:33.760 --> 0:28:37.080 under the protection of the dollar, being of the reserve currency. 0:28:38.320 --> 0:28:42.920 The bond vigilantes are woken up. They're pretty off looking 0:28:42.960 --> 0:28:45.520 around at what's going on. You know, they've got a 0:28:45.640 --> 0:28:49.360 dusty copy of rhine Art and Rogoff under their desks. 0:28:49.360 --> 0:28:51.160 They're thinking, you were getting here, We're going over one 0:28:51.200 --> 0:28:54.120 hundred percent of GDP. We're getting near the levels of 0:28:54.160 --> 0:28:56.560 where it's a problem. And to be fair on the 0:28:56.600 --> 0:28:59.320 public sector, what they've done is transfer a lot of 0:28:59.360 --> 0:29:02.200 the excess debt which was there in the household sector 0:29:02.240 --> 0:29:06.600 and corporate sector onto their own balance sheets. But you 0:29:06.640 --> 0:29:09.240 look at these and you think, well, well, actually, you 0:29:09.360 --> 0:29:12.560 look at the vigilantes are looking to pick someone off 0:29:13.160 --> 0:29:16.560 and give them a bloody good kicking, basically to teach 0:29:16.600 --> 0:29:20.080 everyone else. And the guild market is the weakest. Yeah, 0:29:20.160 --> 0:29:22.880 it hasn't got enough protection. It's the weakest kid in 0:29:22.920 --> 0:29:25.720 the playground and it's gonna get It's going to get 0:29:25.760 --> 0:29:29.400 beat badly beaten up at some points. And I think 0:29:29.440 --> 0:29:32.320 Bill grows. Bill grows many years ago, So the guilt 0:29:32.360 --> 0:29:37.160 market was sitting on a better, better kryptonite crypt nitro. 0:29:38.160 --> 0:29:41.040 And when you saw the oil price come down yesterday, 0:29:41.760 --> 0:29:45.000 but the guilt price, the guilt you're going up. That 0:29:45.200 --> 0:29:48.960 is a real that's a real issue, especially as Starmer 0:29:49.080 --> 0:29:52.560 Prime Minister Starmer exits the scene at some stage soon. 0:29:52.840 --> 0:29:56.280 That's right, we're recording this also during local elections, just 0:29:56.320 --> 0:29:59.080 to make sure the maximum amount of stuff possible could 0:29:59.080 --> 0:30:02.440 happen between when we record this and what it actually publishes. 0:30:02.960 --> 0:30:06.640 But actually, okay, you say the bond vigilantes have woken up, 0:30:07.240 --> 0:30:09.840 and one could infer from that statement that, like, we 0:30:09.880 --> 0:30:13.200 are now in a longer term period where bond yields 0:30:13.200 --> 0:30:15.360 are going to be higher and inflation is possibly going 0:30:15.400 --> 0:30:18.479 to be higher. But on the other hand, it feels 0:30:18.520 --> 0:30:21.920 like the news cycle is so compressed nowadays, and new 0:30:22.000 --> 0:30:24.479 stuff is happening all the time, and there's so much 0:30:24.560 --> 0:30:27.800 chaos in global politics. It also feels really difficult to 0:30:27.840 --> 0:30:31.680 have a sort of parademic is that a word pard 0:30:36.160 --> 0:30:38.160 You know, it's hard to have a longer term view 0:30:38.240 --> 0:30:39.800 on the market in the way that one could have 0:30:39.840 --> 0:30:43.680 an ice Age thesis in the early two thousands, is 0:30:43.720 --> 0:30:45.920 that possible for you now or are you sort of 0:30:45.960 --> 0:30:48.600 all moving in the short term like everyone else seems 0:30:48.640 --> 0:30:48.840 to be. 0:30:49.160 --> 0:30:52.200 I think it is possible, at least I'm trying to 0:30:52.280 --> 0:30:56.240 make it possible. But as you say, markets so volatile. 0:30:56.480 --> 0:30:59.720 I was reading that the recent rally in the equity 0:30:59.760 --> 0:31:03.640 mark ten percent plus rally, this was the fastest ever 0:31:03.880 --> 0:31:08.840 rebound ten percent rebound after a ten percent correction. And 0:31:08.880 --> 0:31:13.760 it's particularly on the equity market. They have become so 0:31:14.440 --> 0:31:19.880 fixated with the byThe on dips mantra that actually the 0:31:19.880 --> 0:31:22.320 freed of God are backs. There will never be recessions again. 0:31:22.360 --> 0:31:24.520 If there was a recession is because of the pandemic 0:31:24.960 --> 0:31:28.800 we can't actually remember two thousand and eight, which is 0:31:28.840 --> 0:31:32.280 a consequence of a very long period of growth building 0:31:32.360 --> 0:31:35.840 up excesses. No, I think there is a place for 0:31:35.880 --> 0:31:38.160 a long term theme, and the long term theme is 0:31:39.200 --> 0:31:46.120 actually it's fiscal continents, political weakness, and eventually the monetary 0:31:46.160 --> 0:31:50.560 authorities having to monetize away these debts. Because in the US, 0:31:50.760 --> 0:31:55.920 when you're paying four percent of GDP as government on 0:31:55.960 --> 0:32:02.160 your interest payments, that is absolutely I mean ten years ago, 0:32:02.320 --> 0:32:04.360 I was looking at the chart ten years ago, it 0:32:04.400 --> 0:32:07.000 was roughly the same as the Eurozone at around two percent. 0:32:07.520 --> 0:32:11.920 It's absolutely crazy numbers. So the endgame for me, I 0:32:11.960 --> 0:32:15.680 can remember twenty eight percent inflation in the UK and 0:32:16.040 --> 0:32:19.640 in the in the seventies. In the seventies, I certainly 0:32:19.800 --> 0:32:24.160 think we go back everywhere to double digit inflation. 0:32:24.440 --> 0:32:27.800 Because really the headlines to the episode. 0:32:27.840 --> 0:32:33.240 Yeah, no, I think fiscal dominance, which is there. The 0:32:33.320 --> 0:32:36.480 central bank beers will have no other option. I mean, 0:32:36.520 --> 0:32:39.280 you could get some consolidation on the crisis, but I 0:32:39.320 --> 0:32:43.640 think that's where we're heady. Just monetize away this. They'll 0:32:43.800 --> 0:32:44.920 cautured different lead. 0:32:45.640 --> 0:32:47.760 Sure, they won't say and now we are monetizing that. 0:32:47.960 --> 0:32:48.800 Yeah. Yeah. 0:32:48.880 --> 0:32:54.000 Do you ever do you ever talk to either new 0:32:54.080 --> 0:32:59.000 colleagues or clients for whom talking about two thousand and eight, Well, 0:32:59.000 --> 0:33:02.240 we talk about the nineteen thirties great depression, because this 0:33:02.440 --> 0:33:05.000 is like I feel like this is happening more and 0:33:05.040 --> 0:33:07.080 more in my life, something that I take for granted. 0:33:07.200 --> 0:33:09.560 Oh well, remember when Lehman and I might as well 0:33:09.600 --> 0:33:12.160 be talking about credit anstall or something like that. 0:33:12.840 --> 0:33:17.200 No, exactly, And with the retail participation in the mark 0:33:17.240 --> 0:33:20.320 and you get these one day options which I don't 0:33:20.440 --> 0:33:25.800 understand it's so short term, but having I mean, one 0:33:25.840 --> 0:33:30.600 of the advantages of being in finance since nineteen eighty 0:33:30.640 --> 0:33:34.480 two is I can remember the Asian crisis, which is 0:33:34.560 --> 0:33:37.280 one of the first times I got myself into deep trouble, 0:33:37.360 --> 0:33:42.680 being banned from Malaysia after writing that, are you still banned? 0:33:42.960 --> 0:33:45.600 I don't, I don't know. I don't feel for you. 0:33:45.720 --> 0:33:47.840 But what you and this relates to the AI theme, 0:33:47.840 --> 0:33:51.760 which we could do, is going in nineteen ninety six 0:33:52.480 --> 0:33:56.680 writing that the Asian miracle was basically a pack of 0:33:56.760 --> 0:34:00.120 cards waiting to collapse. And I had my bookshelf, this 0:34:00.160 --> 0:34:05.320 book from the World Bank, Thailand's Economic Miracle, Sustainable Growth 0:34:05.680 --> 0:34:09.080 and Development, And you just think I've seen me so 0:34:09.280 --> 0:34:12.319 many times before and going into the I remember going 0:34:12.800 --> 0:34:16.600 in the late nineties going around the US saying, look, 0:34:17.080 --> 0:34:19.640 this is a huge bubble which is going to collapse. 0:34:20.080 --> 0:34:24.240 It's very similar to the Asian crisis. I'm basically my boss, 0:34:24.360 --> 0:34:27.720 the chief economists, having to restrain the clients from punching 0:34:27.719 --> 0:34:31.160 my lights out. But when I read what I do 0:34:31.239 --> 0:34:34.799 now about the AI, et cetera, I just think, yeah, 0:34:35.480 --> 0:34:38.919 I've heard this so many times, and maybe that's maybe 0:34:39.000 --> 0:34:42.000 being young is better because you don't have that baggage. 0:34:42.360 --> 0:34:44.760 Well, being young, I think you're more of an optimism. 0:34:44.920 --> 0:34:46.600 So you've got a lot less gray hair and your 0:34:46.640 --> 0:34:47.319 beard than I have. 0:34:47.880 --> 0:34:49.879 Yeah, but more than I had a year ago. So 0:34:50.560 --> 0:34:52.239 I'm catching up these podcasts. 0:34:52.280 --> 0:34:55.680 Pick up color the cameras here a pretty good black, 0:34:55.760 --> 0:34:57.839 make a black white, make it black and wise. 0:34:58.280 --> 0:35:00.719 I can confirm though when we started this podcast, you 0:35:00.760 --> 0:35:03.200 did not have any gray hair, and it all sort 0:35:03.200 --> 0:35:05.359 of set in over the course of ten years. 0:35:05.560 --> 0:35:06.440 I noticed more. 0:35:23.719 --> 0:35:25.960 Since you mentioned AI and since we were talking about 0:35:26.000 --> 0:35:29.600 historic parallels, there seem to be a lot of similarities 0:35:29.680 --> 0:35:32.719 with the dot com bubble, just wild enthusiasm for a 0:35:32.760 --> 0:35:35.440 new technology and this expectation that everyone's going to be 0:35:35.440 --> 0:35:40.080 making money. On the other hand, the argument against dot 0:35:40.080 --> 0:35:43.560 com reducs is this idea that well tech companies have 0:35:44.160 --> 0:35:46.440 very very heavy valuations at the moment, but they are 0:35:46.520 --> 0:35:49.160 actually earning money, and if you look at the multiples, 0:35:49.239 --> 0:35:51.279 they are nowhere near where some of the dot com 0:35:51.320 --> 0:35:55.719 companies actually were. What's your thinking there? How much of 0:35:55.760 --> 0:35:57.480 a parallel or analogy is this? 0:35:57.840 --> 0:36:01.920 I mean, the main parallel I would draw is with 0:36:02.200 --> 0:36:06.280 the telecoms. Part of the ti SO dot com bubble 0:36:06.400 --> 0:36:11.560 was more TMT telecom media and technology. People forget it 0:36:11.600 --> 0:36:14.279 was a bit it was a bit wider. But the 0:36:14.360 --> 0:36:17.680 telecom side was quite similar to what you're seeing now 0:36:17.719 --> 0:36:22.520 with AI because they actually went out and dug trenches 0:36:22.719 --> 0:36:27.160 and laid cable. There was a Capex boom, and if 0:36:27.200 --> 0:36:29.640 you were selling cables in the same way you were 0:36:29.680 --> 0:36:34.360 selling in the video selling semiconductor chips, you benefited from 0:36:34.520 --> 0:36:38.759 producing picks and shovels for the goal rush. Essentially, there 0:36:38.800 --> 0:36:42.839 was real profits there on the telecom side at least. 0:36:43.120 --> 0:36:47.680 But the problem is the euphoria is the narrative is 0:36:47.719 --> 0:36:52.080 so compelling that you're given these companies are given free 0:36:52.160 --> 0:36:56.000 money essentially, although Oracle it's not quite so free anymore. 0:36:56.200 --> 0:37:00.680 But you're being given free money and you go off 0:37:00.840 --> 0:37:03.960 and spend it on it. You blow it on Capex, 0:37:04.080 --> 0:37:10.520 which isn't necessarily going to be profitable ten years down 0:37:10.600 --> 0:37:15.279 the road. And what you've got is basically when you 0:37:15.320 --> 0:37:19.799 look at the US I T megacaps, they've gone from 0:37:19.840 --> 0:37:25.160 being hugely free cash flow generative to zero I saw 0:37:25.280 --> 0:37:31.319 Chat twenty twenty seven. Zero. It's gone. It's being blown. Now. 0:37:32.040 --> 0:37:34.640 You might say well, they're at least they're not borrowing 0:37:34.760 --> 0:37:39.120 very heavily. But actually it's transforming their balance sheet. So 0:37:39.160 --> 0:37:41.520 I just read your quote. I brought a quote along here. 0:37:41.560 --> 0:37:45.000 I wrote it down so I didn't forget it. But 0:37:45.160 --> 0:37:49.959 it's it's about it could be about the AI transformation. 0:37:50.200 --> 0:37:55.040 So not so long ago, a leading experts O pine that, 0:37:55.280 --> 0:37:56.719 and I put this in mind, this sort of thing 0:37:56.760 --> 0:38:00.880 I write in my notes the opine that in retrospect, 0:38:01.400 --> 0:38:04.799 we will look back and recognize that the US economy 0:38:05.160 --> 0:38:10.840 was experiencing a once in a century acceleration of innovation 0:38:11.560 --> 0:38:17.799 which propelled forward productivity, output, corporate profits, and stock prices 0:38:17.960 --> 0:38:24.359 at a pace not seen in generations. If ever, now 0:38:24.400 --> 0:38:28.560 that absolutely applies to what is going on now. That's 0:38:28.800 --> 0:38:33.759 quote from Alan Green Span thirteenth of January two thousand 0:38:34.560 --> 0:38:38.200 at the New York Economic Club of New York just 0:38:38.280 --> 0:38:41.200 before now is that collapse? Now all that was true. 0:38:41.200 --> 0:38:43.280 And by the way, I was reminded of that quote 0:38:43.840 --> 0:38:46.880 reading Jeremy Grantham's book Making of a Perma Bear, Another 0:38:46.920 --> 0:38:49.440 Perma Bear. I went to his book launch. And I 0:38:49.480 --> 0:38:51.680 don't read many books. I'm quite lazy. I don't read 0:38:51.719 --> 0:38:53.640 many books. I thought as I was going to his 0:38:53.640 --> 0:38:56.120 book launch, I better read it. And he had some 0:38:56.160 --> 0:38:59.480 of these great quotes from Bananky and green Span, which 0:38:59.480 --> 0:39:03.800 they probably like to erase from people's memory, but that 0:39:04.000 --> 0:39:08.960 equally applies to now. It is absolutely transformational. It probably 0:39:08.960 --> 0:39:11.759 will be transformational. Doesn't mean you can't have a stock 0:39:11.840 --> 0:39:12.680 market collapse. 0:39:12.880 --> 0:39:16.320 Yeah, when bears have a book party, is it a picnic? 0:39:16.520 --> 0:39:18.200 Be it's a good one. 0:39:18.239 --> 0:39:18.520 Thank you. 0:39:18.719 --> 0:39:20.200 Sorry, I was trying to think of a Bear that 0:39:20.239 --> 0:39:20.840 was the best record. 0:39:22.239 --> 0:39:24.359 So many different directions we could go in. I want 0:39:24.360 --> 0:39:27.319 to ask you, there's something about the twenty tens that 0:39:27.400 --> 0:39:31.320 I've thought a lot about. You're talking about qi Qui 0:39:31.560 --> 0:39:33.879 ended in the mid twenty tens. Yeah, Now, I mean, 0:39:33.960 --> 0:39:36.560 first they stopped cutting rates. You know, it was a series, 0:39:36.560 --> 0:39:39.480 it was a sequence, right, But then they actually started 0:39:39.480 --> 0:39:42.879 shrinking the balanceyt it didn't affect stocks. Stocks just kept 0:39:42.880 --> 0:39:47.400 going up. And now we look today and again the 0:39:47.440 --> 0:39:50.680 stocks have at least in the US, but stocks are 0:39:50.680 --> 0:39:54.160 doing all very well. This is despite the fact that 0:39:54.400 --> 0:39:57.239 rates are the rate picture is nothing like it was 0:39:57.760 --> 0:40:01.280 in the beginnings of what you characterized as the ice age. 0:40:01.520 --> 0:40:05.960 Did that make your question anything? Have you revised any 0:40:06.040 --> 0:40:09.880 past views in light of the fact that it turns 0:40:09.920 --> 0:40:15.919 out evidently that ultra low rates and quantitative easing may 0:40:16.000 --> 0:40:20.120 not have been such a precondition for these incredible equity 0:40:20.120 --> 0:40:22.640 market games. How do you reconcile that? 0:40:22.920 --> 0:40:28.719 I think, well, certainly, back in the prior to the 0:40:28.760 --> 0:40:32.520 COVID recession, the quantity of easing for quite lengthy period. 0:40:32.560 --> 0:40:37.320 If you like got things going, got that momentum going, 0:40:37.360 --> 0:40:40.560 and one of the most profitable ways methods of investing 0:40:40.680 --> 0:40:46.200 is just momentum trasure. I sit near head of Quantity 0:40:46.239 --> 0:40:50.520 Andy Lapthorn, who I've worked with for thirty years. Last 0:40:50.600 --> 0:40:53.400 month he's actually trying to move a few desks away 0:40:53.440 --> 0:40:56.799 from me. But I know, looking at his quant work, 0:40:56.880 --> 0:41:02.600 momentum investing is absolutely fine. And actually, if I was participating, 0:41:03.040 --> 0:41:05.680 if I was fund manager fully invested, I'd be quite 0:41:05.719 --> 0:41:10.160 happily with that investment style. But looking at the technicals 0:41:10.200 --> 0:41:13.080 for when to get me out is the macro story changing? 0:41:13.520 --> 0:41:17.719 Is something changing. I've been writing recently that yes, profits 0:41:17.960 --> 0:41:21.720 are booming in the tech sector, but actually the second 0:41:21.800 --> 0:41:25.960 derivative is starting to turn over because you can't go 0:41:26.120 --> 0:41:31.120 parabolic forever. It's the second derivative is starting to turn over, 0:41:31.160 --> 0:41:36.760 so still very healthy profit zone. It started to slow 0:41:38.880 --> 0:41:45.040 and when you've got bubble conditions, then is this something 0:41:45.520 --> 0:41:47.920 the bulls should be looking at? Even if you're a bull, 0:41:48.160 --> 0:41:50.720 think well, actually that that is a change I should 0:41:50.719 --> 0:41:53.520 be watching. What I would say at the moment is 0:41:53.760 --> 0:41:58.160 I think when did earlier? I think the retail in particular, 0:41:58.600 --> 0:42:05.640 which certainly after the liberation trade bearmark came in early 0:42:05.719 --> 0:42:10.000 before the professional investors. They've been consistently the ones to 0:42:10.160 --> 0:42:13.000 drive the market back up. And it is a bit 0:42:13.080 --> 0:42:18.560 like what causes big bear markets are recessions. It's when 0:42:18.880 --> 0:42:21.080 and usually when you're at the peak of the cycle, 0:42:21.120 --> 0:42:25.080 you're on the wrong valuation, wrong forward pe, and prices 0:42:25.120 --> 0:42:27.520 collapse go. If you're a copper stock, normally at the 0:42:27.520 --> 0:42:31.279 peak of earnings, you're on you're p on four and 0:42:31.320 --> 0:42:34.239 so you're geared up for the collapse in prices. They 0:42:34.280 --> 0:42:37.440 have some memory there, but what tends to happen in 0:42:37.520 --> 0:42:40.920 bubbles you end up on a twenty three like the 0:42:41.040 --> 0:42:44.360 SMP on a twenty three times forward p at the 0:42:44.400 --> 0:42:47.400 point of recession. So you're the wrong earning forward earnings 0:42:47.440 --> 0:42:51.680 and the wrong pe, and there's no acknowledgment that there 0:42:51.719 --> 0:42:54.640 could be a recession out there, apart from the AIS 0:42:54.680 --> 0:42:58.759 spending on investment, which could collapse at any We've seen 0:42:58.840 --> 0:43:04.279 it before. Another deep seat comes along, something happens to 0:43:04.440 --> 0:43:09.000 blow that narrative up. But I had side of that. 0:43:09.840 --> 0:43:12.600 You look at the US economy and you look at 0:43:12.640 --> 0:43:15.880 the conception. Yeah, last year it's seen no employment growth 0:43:16.440 --> 0:43:19.440 when the economy is toddling along quite happily between two 0:43:19.520 --> 0:43:22.360 and three percent, and not just because of the public sector. 0:43:22.480 --> 0:43:27.319 Private payrolls ye're on year slowed to zero. You're thinking, yeah, yeah, 0:43:27.360 --> 0:43:30.360 it is having an effect here, has a positive effect 0:43:30.440 --> 0:43:33.680 on some ways on UNI labor costs, but this is 0:43:34.360 --> 0:43:40.120 really undermining consumption. So US real household incomes are up 0:43:40.320 --> 0:43:43.440 half a percent year on year, half a percent. The 0:43:44.280 --> 0:43:47.400 consumer spending in real terms is still up over two percent. 0:43:47.800 --> 0:43:51.040 Why is that the savings ratio in the US and 0:43:51.080 --> 0:43:55.279 the last year has collapsed from over five percent this 0:43:55.440 --> 0:43:58.799 time last year to three and a half percent. Now, 0:43:59.480 --> 0:44:02.280 that is as low as it. The only other times 0:44:02.320 --> 0:44:06.240 it's been lower is as people were spending the COVID checks, 0:44:06.280 --> 0:44:07.920 So it got down to two and a half percent 0:44:08.520 --> 0:44:12.600 or just before the two thousand and eight global financial crisis, 0:44:12.600 --> 0:44:16.239 when you had that credit bubble, the consumer is totally 0:44:16.400 --> 0:44:19.680 tapped out. And if you get a wave of inflation 0:44:19.960 --> 0:44:24.400 coming through the economy through cost push. Last time, companies 0:44:24.480 --> 0:44:26.960 just whacked up their margins that they put up their 0:44:27.000 --> 0:44:30.680 prices whacked up their margins as well, an unprecedented fashion 0:44:30.680 --> 0:44:34.480 because margins sort of contracted as costs went up, they didn't. 0:44:34.520 --> 0:44:40.480 It was absolutely unprecedented greedflation. And the saluis Fed named 0:44:40.480 --> 0:44:44.759 the sectors which did it, Retail, wholesale, and construction with 0:44:44.920 --> 0:44:49.239 the three big contributors to that whole economy level. But 0:44:49.640 --> 0:44:53.840 people had pandemic checks there, so companies could get away 0:44:53.840 --> 0:44:57.440 with doing it. Then this time around, this wave of 0:44:57.520 --> 0:45:01.239 cost push pressure comes through, our company's going to be 0:45:01.239 --> 0:45:03.520 able to get away with it When the savings ratio 0:45:03.600 --> 0:45:07.480 is already solo. Is it going to start squeezing the 0:45:07.520 --> 0:45:13.560 corporate sector margins which are ludicrously, obscenely inflated in my view. 0:45:14.200 --> 0:45:17.600 And when these margins start, if these margins start coming 0:45:17.640 --> 0:45:21.399 down because they can't pass on these price increases, will 0:45:21.440 --> 0:45:25.520 they then react to that by cutting jobs and cutting investments. 0:45:25.840 --> 0:45:30.200 So could the one surprise we get is actually the 0:45:30.239 --> 0:45:34.239 economy outside of AI investment is far weaker than we 0:45:34.320 --> 0:45:38.319 think and actually could tip over into recession. Now that 0:45:38.360 --> 0:45:41.439 could be a real surprise because that could take down 0:45:41.880 --> 0:45:45.720 the AI sector as well. It's not just an exogynous force. 0:45:46.080 --> 0:45:50.480 So I think that's an interesting that's an interesting black 0:45:50.520 --> 0:45:53.719 swan because no one is thinking this or price could 0:45:53.719 --> 0:45:54.560 cause a recession. 0:45:55.280 --> 0:45:58.120 One question I want to ask, given your long career, 0:45:58.320 --> 0:46:01.359 when were you most worried about the future. Is there 0:46:01.360 --> 0:46:05.480 a particular moment looking back where you were really hitting 0:46:05.520 --> 0:46:06.360 the panic button. 0:46:09.200 --> 0:46:11.560 I tend to stay very close to the panic button 0:46:11.600 --> 0:46:15.759 a bit two to close. Some people sir, that's your job. 0:46:16.960 --> 0:46:19.760 I tend to see problems around the corner. Actually instead. 0:46:19.800 --> 0:46:24.440 I was on a conference call with clients yesterday and 0:46:24.520 --> 0:46:28.399 I said, well, probably the most bearish thing I can 0:46:28.480 --> 0:46:31.839 think of from my side is I don't feel as 0:46:31.880 --> 0:46:35.120 bearish as I have done in the past. I struggled 0:46:35.120 --> 0:46:40.080 to see an immediate catalyst for collapse, and the positive 0:46:40.160 --> 0:46:43.480 narratives are always very compelling. I remember the time I 0:46:43.680 --> 0:46:47.880 was most worried globally was two and six, two thousand 0:46:47.920 --> 0:46:51.120 and seven, where it was obvious to me and I 0:46:51.120 --> 0:46:54.279 don't understand much about crypto and all these complicated things, 0:46:54.400 --> 0:46:57.200 or the details of air. But I actually got to 0:46:57.239 --> 0:46:59.759 the bottom of CDOs. And this was before the Big 0:46:59.760 --> 0:47:03.000 Show film where they made it a bit simpler. I 0:47:03.000 --> 0:47:08.120 actually understood CDOs. I went to a CDO conference in 0:47:08.200 --> 0:47:11.799 two thousand and two thousand and seven, and I was 0:47:11.880 --> 0:47:15.480 amazed that they weren't optimistic. They were getting really worried. 0:47:15.520 --> 0:47:19.080 And I just thought, as a macro person, when someone 0:47:19.120 --> 0:47:23.080 like Bananke says were asked about the housing bubble, I guess, 0:47:23.400 --> 0:47:25.520 I don't accept your premise there is a bubble, and 0:47:25.560 --> 0:47:29.680 there's never been a nationwide house price recession in history. 0:47:30.040 --> 0:47:33.560 I just say, you're an idiot. You should not be 0:47:33.880 --> 0:47:38.200 in your job. Basically, And yes, he was the right 0:47:38.239 --> 0:47:40.960 person at the time when the bubble burns. But if 0:47:41.000 --> 0:47:42.640 you looked at his because people said, well he did 0:47:42.640 --> 0:47:45.080 the thesis on the Great Depression, you looked at his 0:47:45.160 --> 0:47:48.200 thesis about the Great Depression, there was nothing about the 0:47:48.200 --> 0:47:52.120 credit bubble that preceded it at all. And similarly, he 0:47:52.239 --> 0:47:56.440 just did not understand the and where I'm not a 0:47:56.440 --> 0:48:00.600 big fan of central bankers or the banking improved dramatically 0:48:00.640 --> 0:48:03.319 after I left it the quality of the quality of 0:48:03.360 --> 0:48:08.280 the people there, because they just so reluctant to admit 0:48:08.400 --> 0:48:12.280 they're just constantly screwing it up and making it worse. 0:48:12.360 --> 0:48:15.640 For benevolent reasons. They're trying to make it better, but 0:48:15.920 --> 0:48:19.360 they make it a lot worse. And quantitive easing, i 0:48:19.480 --> 0:48:22.200 am my view, made it. They might have been an 0:48:22.280 --> 0:48:25.759 argument for doing the first quantitive easing, but just to 0:48:25.840 --> 0:48:30.439 keep on going poor Volka viscerated just before he died, 0:48:30.520 --> 0:48:33.799 a viscerated the fact by saying, you know you can't 0:48:33.840 --> 0:48:36.719 measure inflation that that closely it. You've got a two 0:48:36.800 --> 0:48:41.040 percent target for inflation. Anywhere between one to three is 0:48:41.160 --> 0:48:44.520 okay essentially as long as it's not accelerating off, and 0:48:44.560 --> 0:48:47.480 this is we're between one, broadly between one and three now. 0:48:47.840 --> 0:48:49.640 But he said we were getting down to one with 0:48:49.800 --> 0:48:53.040 measurement errors. It was ludicrous to try and push it 0:48:53.080 --> 0:48:56.600 back up to two percent. You didn't need to do that. 0:48:57.360 --> 0:49:00.640 And personally I just think central bad because needs to 0:49:00.680 --> 0:49:02.000 be rained quite closely. 0:49:02.440 --> 0:49:04.560 I do think in retrospect, when we look back to 0:49:04.640 --> 0:49:08.000 the sort of late twenty tens era of inflation, it 0:49:08.520 --> 0:49:11.520 felt pretty good, even though we were target and I have. 0:49:11.480 --> 0:49:15.680 A lot of thoughts the idea of undershooting and is 0:49:15.800 --> 0:49:19.080 never and I, I'm on record, is saying this not 0:49:19.200 --> 0:49:23.200 just in retrospect. I've never understood people whining about it 0:49:23.239 --> 0:49:26.280 too little inflation. So all right, seeds. 0:49:26.520 --> 0:49:29.799 Well, Albert, that was fantastic fun. Thank you so much 0:49:29.840 --> 0:49:31.439 for finally coming on, as. 0:49:31.120 --> 0:49:32.640 It's been a real pleasure. And I hope I. 0:49:32.640 --> 0:49:36.680 Have bears are fun. You're a pleasant guy. 0:49:36.880 --> 0:49:39.440 Well, people who read my stuff think I'm really miserable, 0:49:39.440 --> 0:49:43.600 but I'm actually a very happy And I went and 0:49:43.640 --> 0:49:48.200 I wear a nice shirt trying to cheer people up weirdly, 0:49:48.320 --> 0:49:50.520 but I haven't depressed too many of reviews. 0:49:50.640 --> 0:50:09.720 Yeah, I apologized, but I've got. 0:50:06.880 --> 0:50:07.120 Joe. 0:50:07.120 --> 0:50:09.240 That was really good fun. I'm glad we could finally 0:50:09.239 --> 0:50:09.680 have them on. 0:50:09.880 --> 0:50:14.239 We've been reading Albert really literally for decades or at 0:50:14.320 --> 0:50:16.839 least over a decade now really fun to finally. 0:50:17.600 --> 0:50:18.759 Really are fantastic. 0:50:18.880 --> 0:50:19.000 YEA. 0:50:19.239 --> 0:50:20.600 One thing that stood out to me, you know, I 0:50:20.640 --> 0:50:22.239 was thinking about what he was saying about the US 0:50:22.320 --> 0:50:24.879 savings rate and the ability of companies to push through 0:50:24.920 --> 0:50:27.759 price increases, and earlier this week I was reading the 0:50:28.239 --> 0:50:32.120 earnings transcript for Colgate and they were talking about packaging 0:50:32.160 --> 0:50:37.040 costs going up quite significantly because of higher petrochemicals prices, 0:50:37.719 --> 0:50:42.160 and also guiding their margin lower for the full year, 0:50:42.200 --> 0:50:44.560 so basically saying that they're going to absorb the costs. 0:50:44.640 --> 0:50:47.720 And there was one analyst on the transcript who was like, well, 0:50:48.040 --> 0:50:51.759 why don't you raise prices? And they basically didn't, you know, 0:50:51.880 --> 0:50:54.759 classic executive style. They didn't really say anything. They were 0:50:54.840 --> 0:50:57.719 just like, if I were you, I would incorporate the 0:50:57.760 --> 0:51:01.880 lower margin guidance into your algorithm. Leave it at that, 0:51:02.239 --> 0:51:05.080 but you know, like there might be something there totally. 0:51:05.239 --> 0:51:07.040 Can I just say this is going to be the 0:51:07.120 --> 0:51:09.520 type of thing that someone says at the very top 0:51:09.760 --> 0:51:13.400 and so forth. But before we flew to London, I 0:51:13.560 --> 0:51:17.560 downloaded Ray Curse Wilds The Singularity Is Near, a book 0:51:17.719 --> 0:51:21.040 about this is published in two thousand and four, in 0:51:21.080 --> 0:51:22.880 which he predicts that in the first half of this 0:51:22.960 --> 0:51:25.759 century we would have machines that are more intelligent than 0:51:25.840 --> 0:51:29.600 humans on almost every scale. But one of the things 0:51:29.640 --> 0:51:32.759 he says in the book part of his theory is 0:51:32.800 --> 0:51:35.680 that computers are going to keep getting better and better, 0:51:36.440 --> 0:51:39.000 and as they get better, more money will flow into 0:51:39.040 --> 0:51:42.840 computer investments because they can do more things, and they're 0:51:42.840 --> 0:51:46.080 War's law and all that. That actually the rate of acceleration, 0:51:46.560 --> 0:51:49.680 the derivative of the derivative can actually keep going up 0:51:49.719 --> 0:51:51.680 and up and up until you do get that vertical. 0:51:52.280 --> 0:51:55.719 And so now I'm thinking, like, we all know, the 0:51:55.760 --> 0:51:58.759 stock market would not be nearly where it was where 0:51:58.800 --> 0:52:01.120 it is right now if it weren't for AI obviously 0:52:01.320 --> 0:52:03.160 right might be in a bear market, might be in 0:52:03.160 --> 0:52:03.720 a recession. 0:52:03.960 --> 0:52:06.200 Yeah, the economy wouldn't be nothing. 0:52:06.000 --> 0:52:08.719 Like it is now. But now I'm like in that 0:52:08.920 --> 0:52:12.279 mood reading this so like, and Albert said, he's like, 0:52:12.280 --> 0:52:14.160 I feel a little weird right now because I don't 0:52:14.160 --> 0:52:16.480 know what the obvious bearish catalyst is. I'm in a 0:52:16.520 --> 0:52:19.280 little bit of a weird situation. And me I'm reading 0:52:19.320 --> 0:52:21.520 this book. It's like, what if, like earning is literally 0:52:21.640 --> 0:52:24.520 just go to infinity. Maybe it could happen, I don't know, 0:52:24.680 --> 0:52:25.080 but no. 0:52:25.120 --> 0:52:28.200 If Albert Edwards feels pretty good about stocks right now that. 0:52:28.440 --> 0:52:31.040 I'm talking about how earning should go to affinity, yeah, 0:52:31.080 --> 0:52:33.719 this is the side that maybe these are the types 0:52:33.760 --> 0:52:35.319 of episodes we record nearer the top. 0:52:35.960 --> 0:52:39.000 Okay, shall we leave it there? Yes, Okay, this has 0:52:39.000 --> 0:52:41.840 been another episode of the All Thoughts podcast. I'm Tracy Alloway. 0:52:41.840 --> 0:52:43.480 You can follow me at Tracy all the Way. 0:52:43.640 --> 0:52:46.719 And I'm Joe Wisnanhal you can follow me at The Stalwart. 0:52:47.000 --> 0:52:50.320 Follow our producers Carmen Rodriguez at Carman Arman, Dash, O 0:52:50.360 --> 0:52:54.120 Bennett at Dashbod Killbrooks at Killbrooks and Kevin Lozano at 0:52:54.160 --> 0:52:57.000 Kevin Lloyd Losano. And from our odd Loot's content. Go 0:52:57.080 --> 0:52:59.279 to Bloomberg dot com slash odd Lots. 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