WEBVTT - Why Investors Should Expect Lower Returns From Here 0:00:02.720 --> 0:00:15.800 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:16.960 --> 0:00:19.200 Welcome to Maren Tooks Money, the podcast in which people 0:00:19.200 --> 0:00:21.160 who know the markets explain the markets. 0:00:21.200 --> 0:00:22.760 I am Maren sumrset Web. 0:00:22.960 --> 0:00:25.720 This week, I'm speaking with Luca Powerlini, chief strategist at 0:00:25.720 --> 0:00:29.159 Picta Asset Management. Now, before we start, I have to 0:00:29.240 --> 0:00:33.360 tell you that we are recording on Wednesday, May thirteenth, 0:00:33.800 --> 0:00:37.479 late afternoon, British summer time. And I'm being this precise 0:00:37.560 --> 0:00:40.159 because there is so much going on, so much in flux, 0:00:40.280 --> 0:00:42.320 that by the time you listen to this, everything could 0:00:42.320 --> 0:00:44.760 have changed. So if the UK Prime Minister Kirstamer could 0:00:44.760 --> 0:00:47.640 have resigned, Donald Trump will have been to China, probably 0:00:47.640 --> 0:00:50.080 have been to China. The US around standoff may have 0:00:50.080 --> 0:00:52.400 made progress, may not have made progress, who knows. 0:00:52.600 --> 0:00:53.600 So there's a lot. 0:00:53.400 --> 0:00:58.680 Of possible changes between right now and publication. That said, 0:00:58.880 --> 0:01:00.600 I still think there's a lot we can get from 0:01:00.920 --> 0:01:02.800 Luca today. There's norful that we can talk about that 0:01:03.080 --> 0:01:07.240 ignores there's changing issues. So Luca, welcome to talk to Money. 0:01:07.360 --> 0:01:08.199 Nice to be here again. 0:01:08.720 --> 0:01:10.640 Right, as I say, there is quite a lot going on. 0:01:11.040 --> 0:01:14.520 So let's talk first about the macro environment and how 0:01:14.600 --> 0:01:18.120 extraordinary it is really how little markets are reacting to 0:01:18.319 --> 0:01:20.600 these sort of rolling crisis in the Middle East in particular. 0:01:21.160 --> 0:01:23.160 Well, I think the main story here really is that 0:01:23.360 --> 0:01:26.119 when you look also the spin of the last few years, 0:01:26.160 --> 0:01:29.960 every shock that we're seeing globally, especially the tariffs day 0:01:30.000 --> 0:01:33.880 and last year, especially as economy been in credibly residient, 0:01:33.920 --> 0:01:37.920 everybody was expecting a big impact on inflation on the 0:01:37.959 --> 0:01:41.119 liberal market. The reality is that US growth is about 0:01:41.120 --> 0:01:45.560 two percent, even Europe is growing in a descent discent rate, 0:01:45.840 --> 0:01:49.320 Japanese recovering, Chinese fine. So the global economy has proved 0:01:49.320 --> 0:01:51.960 to be incredibly residient, a surprise to all of us. 0:01:52.240 --> 0:01:54.880 But obviously the residience of the global economy also implies 0:01:54.920 --> 0:01:57.680 that earnings are doing very well, and so looking at 0:01:57.680 --> 0:02:02.440 the past investors prussing conclusion it doesn't really pay off 0:02:02.640 --> 0:02:05.120 to be to bet rich too soon, and that's why 0:02:05.120 --> 0:02:08.359 I think the market continues to be very, very, very strong. 0:02:08.440 --> 0:02:10.760 But what do you think you're driving that resilience. I mean, 0:02:10.919 --> 0:02:14.160 you know, if you watch the news, you hear relentless 0:02:14.240 --> 0:02:17.280 drive of negativity, for example, and you know, you look 0:02:17.280 --> 0:02:19.360 at employment numbers and all that kind of thing, you 0:02:19.400 --> 0:02:21.760 begin to worry that AI is eating into employment, which 0:02:21.800 --> 0:02:23.480 is going to be a long time problem. There's an 0:02:23.480 --> 0:02:26.760 inflationary impulse across the globe. Rates are more likely to 0:02:26.800 --> 0:02:29.320 go up than down. All these things should be negative 0:02:29.360 --> 0:02:31.840 for the global economy. But nonetheless, as you said, just 0:02:32.240 --> 0:02:33.840 it's relentlessly resilient. 0:02:33.880 --> 0:02:37.040 Why I think partly because let's not forget the AI 0:02:37.200 --> 0:02:40.880 boom is not just you know, market prices going up, 0:02:41.120 --> 0:02:45.919 is a real increase in investment spending that obviously drives 0:02:46.120 --> 0:02:48.560 all the economic data high, not only in the US. 0:02:48.800 --> 0:02:50.880 Then there is another element, which I think is important, 0:02:50.960 --> 0:02:55.639 is an incredible creation of wealth that's been achieved the 0:02:55.720 --> 0:02:58.799 last few years. That basically implies that people have more 0:02:58.800 --> 0:03:01.600 money to spend, even if the global economy or some 0:03:01.639 --> 0:03:03.919 indicators are not looking good. But I have to tell 0:03:03.960 --> 0:03:07.160 you that there are some strange indicators in a way. 0:03:07.160 --> 0:03:09.720 If you look at the consumer confident in the US 0:03:10.040 --> 0:03:12.120 is an ultimate law. It's even worse than in the 0:03:12.160 --> 0:03:15.880 seventies and the eighties, lower than twenty twenty. So people 0:03:15.919 --> 0:03:19.880 are clearly worried inflation is picking up. But again, when 0:03:19.919 --> 0:03:22.840 you look at GDP, the normal indicative will look is 0:03:22.880 --> 0:03:25.800 still very solid, and I think that's what drives market 0:03:25.919 --> 0:03:29.320 and I think for US, this kind of positive macroathroc 0:03:29.400 --> 0:03:30.359 is said to continue. 0:03:30.520 --> 0:03:33.440 Okay, so even with that resilience of the economy, and 0:03:33.639 --> 0:03:35.280 we know, of course, by the way I mean historically, 0:03:35.360 --> 0:03:37.720 that is not necessarily the case that economic growth and 0:03:37.840 --> 0:03:40.600 market returns are correlated. That's not true. It's all about 0:03:40.800 --> 0:03:45.200 where valuations begin. But even with that economic growth, looking 0:03:45.240 --> 0:03:48.440 at stock markets, and let's look particularly at the US, 0:03:48.480 --> 0:03:50.120 there's definitely a valuation problem. 0:03:50.120 --> 0:03:52.480 Now, yes and no. So it is true that when 0:03:52.520 --> 0:03:54.520 you look at the for example, the price to any 0:03:54.680 --> 0:03:57.840 ratio of twenty one, well, it's the long time average 0:03:57.840 --> 0:04:01.720 is seventeen eighteen. But let's not forget that we have 0:04:02.480 --> 0:04:06.120 a private sector or a corporate sector is incredibly profitable. 0:04:06.520 --> 0:04:11.240 You have earnest growth of twenty five percent, record margins, buybacks, 0:04:12.160 --> 0:04:16.359 taxation effectly going down, model up. So the fundamental story 0:04:16.400 --> 0:04:19.359 is very, very solid. I wouldn't say that US a 0:04:19.560 --> 0:04:22.920 market is cheap, but it's not incredibly expensive. And the 0:04:22.920 --> 0:04:26.200 where I think we see some ara of excessive evaluation, 0:04:26.320 --> 0:04:29.240 not in the tech sectors, is in stocks in some 0:04:29.279 --> 0:04:32.520 consumer store the trade well above the market. And I 0:04:32.560 --> 0:04:34.760 think this is where I think it becomes interesting. Tech 0:04:34.800 --> 0:04:37.880 looks expensive. But again, if you assume that this kind 0:04:37.920 --> 0:04:41.200 of Capex story, the AI story will continue, the evaluation 0:04:41.360 --> 0:04:43.360 is not that extremely And that's why we think that 0:04:43.640 --> 0:04:46.520 you know, the valuation element is kind of a negative, 0:04:46.520 --> 0:04:49.159 but not negative enough to upset you know, all the 0:04:49.160 --> 0:04:50.880 other positive that we mentioned already. 0:04:51.040 --> 0:04:53.800 Okay, and do we assume that this Capex boom can continue, 0:04:53.839 --> 0:04:56.200 and we can assume the Capex boom will continue become 0:04:56.200 --> 0:04:58.840 we assume that returns on it will be what everyone expects. 0:04:58.839 --> 0:05:01.760 And we've done some podcasts with on AI and on 0:05:01.800 --> 0:05:04.640 the huge buildout and on the limitations of llms and 0:05:04.680 --> 0:05:08.440 the possibility that the Capex build out may be something 0:05:08.680 --> 0:05:09.480 of a false start. 0:05:10.040 --> 0:05:12.599 I think one, if you look over the next five years, 0:05:12.800 --> 0:05:17.120 probably I think these numbers cannot be sustained. You know, 0:05:17.200 --> 0:05:20.080 we're talking about you know, investment in AI in data 0:05:20.120 --> 0:05:22.120 center clause to one threellion this year in the US. 0:05:22.440 --> 0:05:26.040 This is cannot go on forever. Can we do expect 0:05:26.320 --> 0:05:28.880 a significant row down the next six to twelve months 0:05:28.880 --> 0:05:33.040 when you already had pretty much clear commitment by the 0:05:33.080 --> 0:05:37.400 top companies that will probably not So I think that 0:05:37.480 --> 0:05:39.320 the cape story is solid, and I think the question 0:05:39.400 --> 0:05:43.040 will be will other sector benefit from there? Some industrials, 0:05:43.080 --> 0:05:45.920 and our view is that this CAPEX story will get 0:05:45.960 --> 0:05:48.320 a little bit broader and there will support growth for 0:05:48.360 --> 0:05:49.760 the next at least for the next year. 0:05:50.040 --> 0:05:52.599 Okay, and then earnings across the board. You said earlier, 0:05:52.640 --> 0:05:56.080 you know, we have these extraordinary earning numbers, extraordinary margins. 0:05:56.120 --> 0:05:57.920 They're all at historical hives. 0:05:58.040 --> 0:06:00.200 And I know that we've all been looking at profs 0:06:00.240 --> 0:06:01.760 in the US for years and going look at that. 0:06:01.800 --> 0:06:03.719 They're you know, totally out of wack. This has reverted 0:06:03.720 --> 0:06:04.240 to mean etc. 0:06:04.680 --> 0:06:07.840 And they never do but at some point it feels 0:06:07.839 --> 0:06:09.200 like that should be a turning point. 0:06:09.520 --> 0:06:11.960 Yeah. I think what it's interesting about margin is that 0:06:12.000 --> 0:06:16.520 there are an all time I everywhere, even in Europe, UK, Switzerland, China, 0:06:16.640 --> 0:06:18.520 Japan at the lower level in the US better a 0:06:18.720 --> 0:06:21.120 time high. So there must be something else, And you know, 0:06:21.320 --> 0:06:24.039 something else could be real prossing powers. A lot of 0:06:24.080 --> 0:06:27.440 industry are effectively not very competitive. There are just a 0:06:27.480 --> 0:06:32.000 few major players that actually can effectively dictate prices. I 0:06:32.000 --> 0:06:35.280 think they have huge margins. There is a decline I 0:06:35.320 --> 0:06:38.920 think the in wage costs in a way in real terms, 0:06:38.920 --> 0:06:42.960 at least there are buybacks as that the help, So 0:06:43.080 --> 0:06:45.880 it's it's a more fundamental story. I don't think that again, 0:06:46.000 --> 0:06:49.440 this is unstaindable. At some point, there would be a 0:06:49.520 --> 0:06:52.760 political backlash, probably because I think people of what will 0:06:52.839 --> 0:06:55.800 not accept in all these companies to generate a huge 0:06:55.839 --> 0:06:58.040 amount of profits and when actually a lot of people 0:06:58.040 --> 0:07:00.240 are struggling. So but it. 0:07:00.240 --> 0:07:02.440 Feels like that plitical back that's just kind of under way. 0:07:03.080 --> 0:07:07.479 Yes, but you don't see this translating into let's say, 0:07:07.680 --> 0:07:11.280 anti business kind of policies, right, And I think that's 0:07:11.320 --> 0:07:14.480 probably what can change. One could be that global growth 0:07:14.480 --> 0:07:17.080 would get weaker and profit much will or there will 0:07:17.160 --> 0:07:21.920 be a change in taxation in the distribution of wealth. 0:07:22.240 --> 0:07:25.440 But so far it seems a very solid trend which 0:07:25.440 --> 0:07:28.960 is very difficult to expect to stop. And that's why 0:07:29.040 --> 0:07:30.400 I think the market is well supported. 0:07:30.520 --> 0:07:32.680 Yeah, and you believe that there's any examples that we've 0:07:32.720 --> 0:07:34.920 seen extraordinly aarny numbers we've seen in the US so far, 0:07:35.000 --> 0:07:37.120 there's yeah that they are sustainable. I mean, because you 0:07:37.120 --> 0:07:39.000 could argue that that the bubble is not in the 0:07:39.000 --> 0:07:40.000 p bit of the evaluation. 0:07:40.080 --> 0:07:41.640 But in the ebit of the valuation. 0:07:41.800 --> 0:07:44.920 Well, I think, look, when you look at the earnings 0:07:45.040 --> 0:07:47.440 that we're seeing, you know, tech is up almost fifty percent, 0:07:47.440 --> 0:07:50.160 but all sectors are up, So is it sustainable at 0:07:50.160 --> 0:07:53.360 this rate? Now? In fact, we think that the expectation 0:07:53.480 --> 0:07:55.760 for next year and at the twenty percent case is 0:07:55.760 --> 0:07:58.800 probably too too high. But again, this year has been 0:07:58.840 --> 0:08:03.480 in a way exceptional. We expect some deceleration in earnings. 0:08:03.920 --> 0:08:06.480 We steal earnings that are well above the historical norms. 0:08:06.520 --> 0:08:09.920 So you need to see more for markets to decline, 0:08:10.080 --> 0:08:12.200 and probably to see more, you need to see a 0:08:12.240 --> 0:08:14.080 significant slow down in the global economy. 0:08:14.440 --> 0:08:17.040 Okay, let's look out over the next decade. We were 0:08:17.080 --> 0:08:19.760 talking before we started Voice That podcasts. We were talking 0:08:19.760 --> 0:08:22.520 about forecasts over the next ten years or so, and 0:08:22.560 --> 0:08:24.760 you were saying that that doesn't look completely comfortable. 0:08:25.280 --> 0:08:27.360 Well, yes, and in the sense that you know, when 0:08:27.400 --> 0:08:30.760 we got used to see equity returns between ten and 0:08:30.760 --> 0:08:35.960 twenty percent, historical average between five and ten and historically 0:08:36.000 --> 0:08:38.880 when you see very low eupremium as it is now, 0:08:39.760 --> 0:08:42.920 you cannot expect significant returns in the next five or 0:08:42.920 --> 0:08:45.760 ten years. So unless we are in a new kind 0:08:45.760 --> 0:08:49.800 of world with low inflation AI pushing roles to three 0:08:49.920 --> 0:08:52.280 four percent per random level. I think you need to 0:08:52.320 --> 0:08:55.760 see at some point some deceleration in the in the returns. 0:08:56.120 --> 0:08:58.280 What is interesting is that when we look at our 0:08:58.559 --> 0:09:03.439 indicators in terms of valuation, expected growth, monetary policy, there 0:09:03.480 --> 0:09:07.800 is a significant convergence across different regions. So we talk 0:09:07.840 --> 0:09:11.760 a lot about this multipolar and this kind of fragmentation 0:09:12.360 --> 0:09:14.280 in the geopolitic or the reality is that from a 0:09:14.320 --> 0:09:17.600 macro point of view, there is actually quite a significant convergence. 0:09:18.200 --> 0:09:20.440 US is probably gonna get a little bit worse, Europe 0:09:20.440 --> 0:09:23.920 a little bit better. Valuation has kind of converged, so 0:09:24.080 --> 0:09:28.320 evaluation is similar in a way as converged, and the 0:09:28.400 --> 0:09:32.240 global or the macro economic cycles are converging, you should 0:09:32.280 --> 0:09:36.720 expect returns to be pretty much converging too, but below 0:09:36.800 --> 0:09:38.520 historical norms. So it's going to be in a way 0:09:38.559 --> 0:09:41.760 difficult because return will be lower, but I think will 0:09:41.840 --> 0:09:45.200 be more kind of spread out than now, which is 0:09:45.200 --> 0:09:47.560 basically driven by the US. So the time where the 0:09:47.679 --> 0:09:51.480 US was the only place to be invested is probably over. 0:09:51.559 --> 0:09:54.040 And I think that's the key message for investor in 0:09:54.040 --> 0:10:08.520 the next in the next decade. 0:10:13.040 --> 0:10:15.680 Okay, so what does that tell us as ordinary investors? 0:10:15.679 --> 0:10:18.120 It tells us we should be diversifying away from the US. 0:10:18.480 --> 0:10:20.560 Does it tell us there are any particular markets we 0:10:20.600 --> 0:10:21.280 should be heading for. 0:10:21.720 --> 0:10:24.080 Yeah, you have to vercify away from the US, not 0:10:24.120 --> 0:10:27.640 only because not because we expect US talks particularly badly, 0:10:28.080 --> 0:10:32.240 but because of risk consideration. So if you are passively invested, 0:10:32.320 --> 0:10:34.720 let's say you're based in the UK, you're passively invested, 0:10:35.080 --> 0:10:38.280 you end up having seventy percent almost of your asset 0:10:38.480 --> 0:10:41.439 in a market that is not even denominating your own currency. 0:10:41.480 --> 0:10:45.520 So there is a risk market risk, currency risk, political risk. 0:10:45.440 --> 0:10:47.400 Sectly risk, because so much of that is in the 0:10:47.840 --> 0:10:49.160 text acutally dominated exactly. 0:10:49.160 --> 0:10:51.319 So I don't think it's worth taking this kind of risk. 0:10:51.360 --> 0:10:54.800 So I think having a more equal weight approach reconsider 0:10:54.880 --> 0:10:57.280 your location and to a maybe even un biased, I 0:10:57.320 --> 0:10:59.640 think it would help. And also, let's not forget that 0:11:00.160 --> 0:11:02.400 when you look at the as an investor, we tend 0:11:02.440 --> 0:11:04.360 to focus on equities because that's where they tend to 0:11:04.400 --> 0:11:07.040 get the best returns. But now if you look at 0:11:07.080 --> 0:11:10.040 the where bonills are in the UK but also in 0:11:10.080 --> 0:11:12.240 the US, you know you start thinking that you can 0:11:12.320 --> 0:11:15.760 probably also maybe take some profit back and put it 0:11:15.840 --> 0:11:18.760 into fixed income because I think now for the first 0:11:18.800 --> 0:11:22.400 time I would say in a decade, the expected returns 0:11:22.440 --> 0:11:25.200 on fixed inco and product actually quite attractive, not only 0:11:25.240 --> 0:11:26.959 in the UK, also in the US. So I think 0:11:27.160 --> 0:11:29.800 maybe it's time also to put some money back into 0:11:29.840 --> 0:11:30.480 the fixeding comes. 0:11:30.640 --> 0:11:32.360 You can say, quite brave to get into the UK 0:11:32.480 --> 0:11:34.240 bob market right now, you. 0:11:34.280 --> 0:11:36.280 Know, it's always just a difficult part of our job, 0:11:36.400 --> 0:11:38.360 right I think when you look dood at the UK, 0:11:39.280 --> 0:11:41.920 you look at the guilt yields between five and six 0:11:42.080 --> 0:11:45.120 in real terms, its like India, so the effectively it's 0:11:45.200 --> 0:11:47.439 the same real yield that you have in India. And 0:11:47.720 --> 0:11:50.520 if you look at the you know, even the the 0:11:50.640 --> 0:11:54.360 everybody's talking about, you know, the problem of debt. You 0:11:54.440 --> 0:11:57.280 know the fiscal situation. And I'm not taking my numbers, 0:11:57.320 --> 0:11:59.719 take the number of the IMF. The UK is a 0:12:00.120 --> 0:12:04.319 much better position, definitely in the US, even Europe. According 0:12:04.360 --> 0:12:06.880 to the MF, not myself, the UK will have a 0:12:06.960 --> 0:12:10.280 primary budget surplus in two years time. Maybe it's not 0:12:10.320 --> 0:12:12.920 going to happen. The point is the fiscal situation the U. 0:12:13.240 --> 0:12:15.400 In the UK, it is not fantastic, but it's not 0:12:15.640 --> 0:12:18.160 as bad as everybody think it is. So I think 0:12:18.200 --> 0:12:20.400 there is some good value guilds the timing. 0:12:21.640 --> 0:12:23.800 It's just perceived as bad because no one quite believes 0:12:23.840 --> 0:12:26.280 that that fiscal surplus will exist based on current policy. 0:12:26.440 --> 0:12:28.679 Because of political instability. You don't know it's going to 0:12:28.720 --> 0:12:31.520 be in charge. Obviously, that's you pay the price for that. 0:12:31.760 --> 0:12:33.199 But the point is that when you look over the 0:12:33.280 --> 0:12:35.760 next ten years, there are a lot of political cycles. 0:12:36.040 --> 0:12:38.920 I think there is still good value in UK, in 0:12:39.040 --> 0:12:40.359 UK bonds okay. 0:12:40.360 --> 0:12:42.880 And in equities. Is there anny market that stands out. 0:12:42.720 --> 0:12:45.640 To you well? When we look at now, I think 0:12:45.679 --> 0:12:48.599 the US is still the best bet. Again, you have 0:12:49.000 --> 0:12:52.440 a good economy, you have probably potentially some rat cuts, 0:12:52.800 --> 0:12:56.680 earnest growth at twenty five percent. I think everything seems 0:12:56.720 --> 0:13:00.480 to be going well for the US. Emergy is true, 0:13:01.160 --> 0:13:04.640 and this is not just Korean Taiwan. I think we 0:13:05.120 --> 0:13:08.520 see a decent improvement in emerging market smer market already 0:13:08.559 --> 0:13:12.360 cutting rates, good valuation chip currencies. So I think it's 0:13:12.440 --> 0:13:14.880 it's EM and US and now the place to be 0:13:15.160 --> 0:13:17.559 if you extend your analysis over the next five to 0:13:17.679 --> 0:13:20.640 ten years. There is also a case for Europe. You know, 0:13:20.880 --> 0:13:24.480 Europe is kind of especially Germany, it's going to spend more, 0:13:24.920 --> 0:13:27.640 you know, cheap valuation. I think we also feel more 0:13:27.679 --> 0:13:33.160 optimistic than others on the integration story reforms. It's difficult 0:13:33.160 --> 0:13:35.040 to invest in Europe, we know, but I think if 0:13:35.080 --> 0:13:38.040 you're standing your analysis, I think everything seems to be 0:13:38.200 --> 0:13:41.079 going very is learning Europe in the right direction, and 0:13:41.160 --> 0:13:44.160 I think the market is not the kind of priceful 0:13:44.280 --> 0:13:45.080 for that improvement. 0:13:45.360 --> 0:13:47.559 We're all just the branch about Europe and the UK. 0:13:48.320 --> 0:13:50.480 Yeah, because actually the history tells you that it's not 0:13:50.800 --> 0:13:53.280 worth investing in Europe. But you know, at some point 0:13:53.360 --> 0:13:55.600 things will change. And in fact, when you look at 0:13:55.640 --> 0:13:58.000 the performance of euro versus the US, but if the 0:13:58.120 --> 0:14:01.439 UK locally, the past five years a big difference. So 0:14:01.520 --> 0:14:03.839 I think it's important to highlight that, you know, not 0:14:04.000 --> 0:14:07.240 everything is better in Europe. But obviously, you know there 0:14:07.320 --> 0:14:09.480 is a reason why Europe and the UK trade a 0:14:09.559 --> 0:14:12.319 significant discount to the US. We just think that this 0:14:12.600 --> 0:14:15.000 kind of discount is a little bit too wide. 0:14:15.200 --> 0:14:16.480 And thinks should change for the best. 0:14:16.720 --> 0:14:19.840 What about commodities, I mean, obviously the energy marketers have 0:14:20.040 --> 0:14:22.720 great interest to everybody at the moment, but across the 0:14:22.760 --> 0:14:25.920 board there's renewed interest in the commodity sector and talk 0:14:25.960 --> 0:14:28.200 of a new super cycle and commodities, et cetera. A 0:14:28.240 --> 0:14:30.160 lot of our listeners are particularly interested in gold. 0:14:31.200 --> 0:14:34.320 I don't believe in a commodity supercycle. If you look, 0:14:34.320 --> 0:14:37.480 the last one was riven by a huge increase in 0:14:37.600 --> 0:14:41.240 investment in China, especially in the real estate, which is 0:14:41.440 --> 0:14:45.440 very commodity intensive. The current capex cycle is this less 0:14:45.920 --> 0:14:49.560 kind of commodity intensive. You still need, especially industrial metals, 0:14:50.400 --> 0:14:52.680 not by a chance industry metal strad and all time high, 0:14:53.560 --> 0:14:55.760 so you have to be differentiated. I think the gold 0:14:55.880 --> 0:15:00.120 price is set to increase, not at the same pace. Know, 0:15:00.200 --> 0:15:04.240 the dollars already appreciated a lot, there is limited downside 0:15:04.280 --> 0:15:08.200 and rates if the geopolitical situation improved. I think gold 0:15:08.360 --> 0:15:11.160 still has the potential to do well, but not at 0:15:11.160 --> 0:15:13.280 the same pace of the last few the last few years, 0:15:13.840 --> 0:15:18.360 the old pride thing is trending down unless something goes wrong. 0:15:18.440 --> 0:15:22.680 Obviously in the Middle East, where I think the most 0:15:22.800 --> 0:15:26.840 interesting bit on the commodity side is industry metals, because 0:15:26.880 --> 0:15:30.200 I think you can claim that industry metals are critical 0:15:30.720 --> 0:15:35.320 in the green transition, there is limited supply, a strong momentum. 0:15:35.800 --> 0:15:37.600 That's probably the air of the market, which I think 0:15:37.680 --> 0:15:41.560 is more interesting. But betting on a commodity supercycle when 0:15:41.640 --> 0:15:44.960 grossy is okay man not booming, I find it difficult. 0:15:45.000 --> 0:15:47.160 But at the same time, with all our kind that 0:15:47.240 --> 0:15:50.800 a position in commodities is required, special in gold because 0:15:51.120 --> 0:15:54.160 if there is a spiking inflation, you still want. 0:15:54.040 --> 0:15:55.040 A to it. 0:15:55.680 --> 0:15:57.720 Yeah, yeah, I mean, it's it's it's something that you 0:15:57.800 --> 0:16:00.400 know sometimes when you look at your perform you don't 0:16:00.480 --> 0:16:03.520 want to just pick the asset class they will do 0:16:03.640 --> 0:16:05.840 necessarily be the best, but the one that can give 0:16:05.880 --> 0:16:08.760 you some protection something goes wrong, and I think commodities 0:16:09.200 --> 0:16:11.720 I think fit this kind of description. 0:16:12.040 --> 0:16:14.160 Yeah. I So when we were talking earlier about Europe 0:16:14.200 --> 0:16:16.920 and the UK and reasons people don't feel particularly comfortable investing, 0:16:17.320 --> 0:16:19.600 and one of the reasons that people often give them 0:16:19.640 --> 0:16:22.720 part is because of the extremely expensive energy prices in 0:16:22.840 --> 0:16:25.840 European in the UK, and that makes it very difficult 0:16:25.920 --> 0:16:27.480 to think, well, these are places that are going to 0:16:27.520 --> 0:16:30.200 grow incredibly fast in the future of economic activity. 0:16:30.240 --> 0:16:33.480 Is energy transformed, etc. Is germanly really the place to be? 0:16:33.680 --> 0:16:35.480 Is UK really place to be because it's hard to 0:16:35.560 --> 0:16:37.720 see great growth on the back of that kind of price. 0:16:38.120 --> 0:16:41.800 Well, I mean, Europe roughly imports three percent of GDP, 0:16:42.160 --> 0:16:45.360 so that's the cost of the import bill in terms 0:16:45.400 --> 0:16:48.040 of in terms of energy, so three percent GDP is significant. 0:16:48.040 --> 0:16:51.080 The US is an ect exporter one. There is one 0:16:51.160 --> 0:16:53.600 positive element to all this. First of all is that 0:16:53.720 --> 0:16:56.080 we expect first of all oil prices to decline, but 0:16:56.200 --> 0:17:01.240 also the fact that renewables are a much bigger role. 0:17:01.360 --> 0:17:04.400 That means that Europe slowly, with time, potentially by two 0:17:04.400 --> 0:17:07.000 thousand and forty will be energy independent. 0:17:06.960 --> 0:17:09.040 Assuming battery technology everyone. 0:17:10.000 --> 0:17:12.280 I mean it's two thousand and twenty six. Two thousand 0:17:12.280 --> 0:17:13.639 and four is a long time, but I think Europe 0:17:13.720 --> 0:17:16.320 is going in the right direction. My worried about Europe 0:17:17.000 --> 0:17:21.080 is that this process of there are also on real reforms. 0:17:21.960 --> 0:17:24.600 Another example, you look at the periphery today looks even 0:17:24.640 --> 0:17:26.720 more solid than the core. So we tend to forget 0:17:26.760 --> 0:17:29.080 that Europe has a lot in the last decade, but 0:17:29.200 --> 0:17:31.720 it's still too slow. There is that I see for 0:17:31.840 --> 0:17:36.120 Europe Party in the UK that you need another existential 0:17:36.240 --> 0:17:40.679 crisis for the actual reform to be implemented and Awfully, 0:17:40.720 --> 0:17:43.320 it's not going to happen. But that's my worry that 0:17:43.440 --> 0:17:46.200 we are still too comfortable in Europe and the UK 0:17:46.760 --> 0:17:49.440 to make the decision that we have to make again. 0:17:49.640 --> 0:17:52.399 I hope that you're going the right direction without a crisis, 0:17:52.480 --> 0:17:54.600 but I feel that we need maybe more. 0:17:54.600 --> 0:17:58.440 My life, existential crisis and physical crisis, presumably of some 0:17:58.560 --> 0:17:59.120 kind of the UK. 0:17:59.800 --> 0:18:02.600 I don't know, because again the UK, of course, it's 0:18:02.680 --> 0:18:05.800 all about the political the political environment, because the UK 0:18:06.000 --> 0:18:09.600 we are very dependent on foreign capital, something that Europe 0:18:09.680 --> 0:18:12.840 is not, for example. But at the same time, I 0:18:13.080 --> 0:18:15.359 feel that the real risk for scal risk is more 0:18:15.400 --> 0:18:18.440 in the US when you have people tend to forget that. 0:18:18.720 --> 0:18:20.879 In the especially in the euro area, the debt to 0:18:21.040 --> 0:18:22.960 GDP ratio is the same as ten years ago in 0:18:23.000 --> 0:18:25.880 the US is twenty percent higher. The US is where 0:18:25.920 --> 0:18:30.359 you see an exponential increase in public debt, not in Europe. 0:18:30.440 --> 0:18:33.280 In Europe the promise that we don't spend well what 0:18:33.440 --> 0:18:36.080 we have in the US there is an exponential trend 0:18:36.119 --> 0:18:40.399 that there is no sign of this being changed. So 0:18:40.640 --> 0:18:43.440 I think of the US, because you have the dollar, 0:18:43.480 --> 0:18:46.200 there is a currency, there's still a lot of capital 0:18:46.359 --> 0:18:48.960 inputs into the US. But this is where I think 0:18:49.040 --> 0:18:50.960 the risk are more in the US than in Europe 0:18:50.960 --> 0:18:51.680 from a fiscal. 0:18:51.480 --> 0:18:53.119 Polity anything that. I mean, you and i've had this 0:18:53.160 --> 0:18:56.240 conversation before. We've been worrying about this in the US 0:18:56.359 --> 0:19:02.040 for decades, decades, and it just keeps going. It's fine, 0:19:02.080 --> 0:19:02.840 So why would. 0:19:02.600 --> 0:19:03.160 We were now? 0:19:04.040 --> 0:19:08.080 Because the US is less. You can't trust the US 0:19:08.160 --> 0:19:09.840 in the sent where you trust the US a few 0:19:09.880 --> 0:19:13.119 years ago, and when you're very dependent on foreign coup 0:19:13.240 --> 0:19:17.959 that's throws over the UK. You cannot treat foreign investors 0:19:18.400 --> 0:19:20.840 in the wrong way. And that's the percept, the percept 0:19:20.880 --> 0:19:23.920 the US is not the safest place. It's still the safest, 0:19:24.040 --> 0:19:27.119 the best place, but not as good as it was before. 0:19:27.400 --> 0:19:29.399 And so I think if you just again we talk 0:19:29.440 --> 0:19:33.040 about the diversification, even if a small portion of foreign 0:19:33.080 --> 0:19:35.800 investors are diversify away from the US, this is a 0:19:35.880 --> 0:19:39.640 huge implication in terms of one yields evaluation of equities. 0:19:39.680 --> 0:19:42.080 We don't expect anything crazy, but we think that the 0:19:42.520 --> 0:19:46.440 we already seen the peak of exceptionalism and the US 0:19:46.560 --> 0:19:49.879 will I think already lose some the dominant position in 0:19:49.920 --> 0:19:52.520 a lot of areas, right and so I think that 0:19:52.680 --> 0:19:55.920 that's what can trigger potentially and we don't expect the 0:19:56.040 --> 0:20:00.760 US ITS investors getting worried about a dollar depreciation, the 0:20:01.240 --> 0:20:04.720 federal or the fat tools independence. This could be a 0:20:04.800 --> 0:20:08.120 significant trigger for potentially a physical crime. We don't see 0:20:08.160 --> 0:20:10.480 this happening, but you know, that's one of the risks 0:20:10.520 --> 0:20:12.600 that we have for our in our second outomes. 0:20:12.600 --> 0:20:13.920 Okay, I was going to ask you what you thought 0:20:13.920 --> 0:20:15.760 the biggest risk was out there, and I suspect that 0:20:15.960 --> 0:20:16.600 that's the one. 0:20:16.840 --> 0:20:18.480