Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Marin Talks Money,
Speaker 1: the podcast so much people who know the markets explain
Speaker 1: the markets. I'm Maren Sums at Web. This week, I'm
Speaker 1: speaking with John Hardy, chief macro strategist at Saxo Bank.
Speaker 1: Every year for at least the last two decades, Saxo
Speaker 1: Bank is released their annual Outrageous Predictions list, and today's guest,
Speaker 1: John Hardy, has been involved in those predictions since the
Speaker 1: list began? Is that right, John?
Speaker 2: Since the last began the year after the list began.
Speaker 1: I believe he began. Okay, cool enough, You've got big
Speaker 1: shoes to fill here, because we normally talk Justine Jacobson
Speaker 1: about this and he has now retired. I believe, yes,
Speaker 1: we'll trying to get seen on another time for it
Speaker 1: for a retirement debrief. Right for now, you're the guy
Speaker 1: you're gonna have to fill his shoes. Thanks so much
Speaker 1: for joining us today.
Speaker 2: I'll do my best. Thank you. I'm glad to be here.
Speaker 1: I'm feeling going to do pretty well. I have a
Speaker 1: list of these outrageous predictions in front of me, and
Speaker 1: we're not going to talk about all of them. Because
Speaker 1: listeners can go to your website right and have a
Speaker 1: look at them, the ones we don't talk about today. Sure, yeah,
Speaker 1: if you want to hear more about this, listeners, go
Speaker 1: look at the website and you can see the ones
Speaker 1: we don't talk about today. But we're going to get
Speaker 1: through quite a lot of them because they are relatively outrageous.
Speaker 1: So the first one, and I'm not going to do
Speaker 1: them in chronological order, but the first one is Trump
Speaker 1: two point zero blows up the US dollar. What's going
Speaker 1: to happen?
Speaker 2: Well, again, these are outrageous predictions. They're not our forecasts
Speaker 2: for the future. This is not our sort of baseline
Speaker 2: outlook for what's happen for are.
Speaker 1: You taking any further? If any of these things happen,
Speaker 1: you're going to call them forecast, not outrageous predictions, aren't you?
Speaker 1: If this actually happens next time we talk about it,
Speaker 1: you're going to say as a forecast.
Speaker 2: Well, no, I don't think so, because they've rarely come true,
Speaker 2: but occasionally they do. And that's the idea here, is
Speaker 2: to take some very serious issues that we see in
Speaker 2: the background, whether it's too political or financial markets otherwise,
Speaker 2: and say there's a pressing things going on. Maybe there's
Speaker 2: a lot of consensus in this case that Trump two
Speaker 2: point zero actually should mean a strong dollar. And what
Speaker 2: we're saying is maybe we have this wrong. There are
Speaker 2: ways that we could actually see this resulting in a
Speaker 2: much weaker dollar, I mean blows up, meaning of course
Speaker 2: it goes down, not that it goes up or in
Speaker 2: flights that it goes down the US dollar.
Speaker 1: Okay, so what's the mechanism.
Speaker 2: Yeah, well, the mechanism could be from just about any direction.
Speaker 2: But one of those is the sort of post Plaza
Speaker 2: Accord reality that we have economies now needing to act
Speaker 2: more in their self interest, a multipolar world. No longer
Speaker 2: the sort of global landscape of the US hegemony rules
Speaker 2: all into one global reserve currency to rule them all.
Speaker 2: But we have multiple currencies and multiple regions acting more
Speaker 2: in their self interest. And this has really been brought
Speaker 2: about from the US side because the global reserve dollars,
Speaker 2: the global reserve currency, is just not working for the
Speaker 2: US economy anymore, and so we have a much more
Speaker 2: self interested US and nationalist economics if you want to
Speaker 2: call it. The threat of terror US et cetera, and
Speaker 2: almost a weaponization and really it is a weaponization of
Speaker 2: the US dollar for those that don't want to play ball.
Speaker 2: And therefore, major trading partners, major powers in the world
Speaker 2: outside of the US will be seeking alternatives, and there
Speaker 2: they already are to a degree, but this will be
Speaker 2: something that could really pick up pace in twenty twenty five.
Speaker 1: And this has been discussed for so long that there's
Speaker 1: going to be an alternative to the US dollars that
Speaker 1: everyone's had it with always having to trade in dollars,
Speaker 1: and they're going to start trading in various different currencies.
Speaker 1: The bricks are going to create their own joint trading
Speaker 1: block exactly. These things have been this conversation has been
Speaker 1: around for ages. But there is the idea here there's
Speaker 1: a possibility that it is Trump's tariffs that could actually
Speaker 1: make it happen.
Speaker 2: Yeah, and it's kind of interesting. You see almost some
Speaker 2: foreshadowing of this when you have Trump saying, well, if
Speaker 2: the bricks current, if the bricks countries are going to
Speaker 2: seek to, you know, trade outside of the US dollar,
Speaker 2: We're going to slap one hundred percent tariffs on all
Speaker 2: of them. Well, it almost becomes a self fulfilling conclusion.
Speaker 2: If that is going to be the future of trade relationlationships.
Speaker 2: This kind of tit for tat a measure, So it's
Speaker 2: not a trivial thing to do to create a new currency.
Speaker 2: And of course the dollars days are not done, but
Speaker 2: it's a matter of degrees and a matter of perhaps
Speaker 2: rolling over and something new starting, rather than that this
Speaker 2: is something that's going to happen overnight. So I don't
Speaker 2: want to give the impression, even as an outrageous prediction,
Speaker 2: that we're talking about some kind of sudden end to
Speaker 2: the US dollar. It's about new potential currencies and ways
Speaker 2: to trade coming about.
Speaker 1: Yeah. But then there's a fascinating little bit in the
Speaker 1: middle of the summary of this where it says, while
Speaker 1: slashing deficits with the help of an Elon Musk run
Speaker 1: Department of Government Efficiency Efficiency or DOGE, and that implication
Speaker 1: that really is possible.
Speaker 2: Well, it's possible, certainly possible in theory. There's plenty of
Speaker 2: government bloat that could be attacked. But of course there
Speaker 2: are also political constituents that would not be happy to
Speaker 2: see their funding pulled. And I don't think we even
Speaker 2: necessarily need to see that to get a weeker dollar.
Speaker 2: But we have to remember that fiscal a weak fiscal
Speaker 2: impulse is also very negative for a US dollar, even
Speaker 2: if we don't go the route of the dollar weakening,
Speaker 2: because they inflate further deficits and the FED has to
Speaker 2: do some sort of new QE or something to keep
Speaker 2: the US treasury market from seizing up. If we have
Speaker 2: the dose suddenly coming in in a big way and
Speaker 2: cutting spending, that's also quite negative for the US dollar,
Speaker 2: also a negative for US growth.
Speaker 1: Yeah, I'm partly to do with this falling supply of
Speaker 1: US dollars. Yes, yes, Okay, Now let's go onto the
Speaker 1: potential market impact. Actually, I'm going to say it sounds
Speaker 1: pretty good. The crypto market quadruples to more than ten
Speaker 1: trillion dollars, and I think probably by crypto we're really
Speaker 1: talking about bitcoin, or are we talking about all types
Speaker 1: of crypto.
Speaker 2: It was just the crypto market in general. We don't
Speaker 2: like to talk specifics and we talk crypto. It's just
Speaker 2: not an area we like to make a big profile,
Speaker 2: cut a big profile in the market. So it's just
Speaker 2: a general idea that one of these alternatives could be
Speaker 2: the crypto space. And read that as you will.
Speaker 1: Interesting, you'll definitely get hate mail because almost everybody else
Speaker 1: who comes on this podcast likes to divide crypto into bitcoin,
Speaker 1: which is real, and crypto, which they considered to be
Speaker 1: less real. I'll set up for your hate mail director.
Speaker 1: So manages the USO oft falls twenty percent again major currencies,
Speaker 1: and thirty percent versus gold. The US economy continues to reflate,
Speaker 1: but wages keep up with goods inflation as production resources
Speaker 1: reshore to the US US exporters advantage. I mean it
Speaker 1: sounds great. Yeah, it sounds great for the US.
Speaker 2: It does sound good for the US, except there will
Speaker 2: be inflation. I think the key for this to be
Speaker 2: something that the US can can pull off, and there's
Speaker 2: so many ifs involved here would be potentially sort of
Speaker 2: selective inflation. I mean, the US is very well supplied
Speaker 2: in terms of energy from its own resources, from food.
Speaker 2: So if they're able to keep those key categories down,
Speaker 2: cost of living categories down in reasonable inflation levels relative
Speaker 2: to wages in particular, and people don't feel like they're
Speaker 2: getting poor from paycheck to paycheck, I think the US
Speaker 2: public could potentially not be too upset if some consumer goods,
Speaker 2: namely those produced in China and elsewhere are suddenly seeing
Speaker 2: much higher rates of inflation than those other costs of
Speaker 2: living related goods.
Speaker 1: Yeah, well, people don't mind inflation as long as their
Speaker 1: real income remains the same arises, right.
Speaker 2: Oh, real income in what category? Is the sort of
Speaker 2: the nuance I'm trying to introduce there?
Speaker 1: But yes, in general, yes, okay, Well we touched on energy,
Speaker 1: so let's go straight on to another outrage of prediction.
Speaker 1: Electrification boom ends Opek. Now it's about electrical vehicles. As
Speaker 1: electrical vehicles become more affordable, could oil rich Opek become
Speaker 1: irrelevant in twenty twenty five and find itself on the
Speaker 1: ash heap of history. Now this comes at a time
Speaker 1: when all of our newspapers are full of stories about
Speaker 1: how nobody wants to in EV and the manufacturers can't
Speaker 1: sell enough evs, and they'll all just worry about whether
Speaker 1: we can really phase out petrol and diesel cars, and
Speaker 1: whether it's really possible for the government to continue to
Speaker 1: find manufacturers for not selling enough evs, etc. So the
Speaker 1: general mood at the moment suddenly in the UK is
Speaker 1: really really anti EV.
Speaker 2: In the UK. Yes, and the UK you also have
Speaker 2: a terrible infrastructure for charging evs, and that is the
Speaker 2: key challenge. I think the evs themselves have gotten to
Speaker 2: incredible levels of range, and the efficiency of an EV
Speaker 2: is quite remarkable because it's so much better an energy
Speaker 2: source to use electricity rather than fossil fuels, because you're
Speaker 2: getting so much waste heat with fossil fuels relative to
Speaker 2: the efficiency to the kinetic needs to turn wheels with
Speaker 2: an electric motor. So for those countries where they build
Speaker 2: out the infrastructure, the transition can be quicker if you
Speaker 2: look at a Norway, et cetera. But I think the
Speaker 2: key point here is one of rate of change, and
Speaker 2: one of the biggest markets is China, where already they
Speaker 2: are going beyond fifty percent evs. Now, in terms of
Speaker 2: the new passenger vehicle mix, at some point the Tesla,
Speaker 2: Semi or other companies would be making for hauling for
Speaker 2: hauling goods, so transport vehicles as well as passenger vehicles.
Speaker 2: And we're just talking about at some point, possibly within
Speaker 2: a year, possibly two or three. We're at peak oil
Speaker 2: in terms of the demand side, Now that there's some
Speaker 2: kind of absolute geological limit that we've reached, but we're
Speaker 2: at a demand peak, and what does the exponential decline
Speaker 2: curve look like? And if your country is reliant on
Speaker 2: oil exports, do you break ranks, produce more now rather
Speaker 2: than later, perhaps make a long term supply deal with
Speaker 2: somebody else. It's not so much about OPEK really, which
Speaker 2: is in the text to me, This is more about
Speaker 2: the thought process around peak oil demand and electrification and
Speaker 2: what does it mean.
Speaker 1: Yeah, I find this one really interesting because it's one
Speaker 1: of those ones that I think would it would genuinely
Speaker 1: be one of those things that is very very unexpected,
Speaker 1: in that I think a lot of people who don't
Speaker 1: look very carefully at the energy market might think, well,
Speaker 1: that sounds that sounds entirely reasonable. That could easily happen.
Speaker 1: That's what I expect to happen. But in fact, of course,
Speaker 1: we know that even as demand for electricity rises at
Speaker 1: the moment, so does the demand for fossil fuels. So
Speaker 1: we're still thinking rising demand for fossil fuels globally, and
Speaker 1: eighty percent of energy use globally remains fossil fueled. And
Speaker 1: even in Scandinavian countries, where I think it is is
Speaker 1: in Norway, where the majority of new cars sold are
Speaker 1: now evs but nonetheless more than eighty percent of the
Speaker 1: cars on the road remain combustion engine cause.
Speaker 2: About seventy five percent. But although ninety percent now are
Speaker 2: are evs of new cars, and it's a very small
Speaker 2: it's a very small country, but you're right, and you
Speaker 2: do have to get into not just passenger vehicles but
Speaker 2: other vehicles. And it does take many years for the
Speaker 2: replacement to fully happen. But once those evs become more
Speaker 2: attractive to own and they're easy to charge, perhaps the
Speaker 2: replacement accelerates. This of course is this is outrageous, right,
Speaker 2: but we are need to consider what does this look
Speaker 2: like in terms of a handful of years when there's
Speaker 2: a process change and a mentality change for those that
Speaker 2: are exporting oil, especially when you have a US that
Speaker 2: has created essentially two Saudi Arabias of oil production, and
Speaker 2: the first in the shale gas patch and then in
Speaker 2: the shale oil patch. And it really is important to
Speaker 2: differentiate here on talking oil. We know that gas is
Speaker 2: still growing and this applies will probably grow for at
Speaker 2: least another decade or if not more. So, it really
Speaker 2: is the oil side of things that we're talking about.
Speaker 2: Oil and specifically used for transports that it's biggest current use.
Speaker 1: It's interesting, and you could have had another outrage of
Speaker 1: prediction on a similar vein suggesting that the price of
Speaker 1: oil is going to collapse because the supply of oil
Speaker 1: coming out form of the US under Trump two point
Speaker 1: zero would be so high.
Speaker 2: I think that's less likely because a lot of the
Speaker 2: new production that's been brought online in the US shale,
Speaker 2: and it's much easier by the nature of US shale
Speaker 2: many many small fields, many many small sources to turn
Speaker 2: up and turn down production, versus the large field model
Speaker 2: where that's not really feasible to so quickly and dynamically
Speaker 2: change the production rates. So, you know, without being oil
Speaker 2: industry expert, I think we do have a very different
Speaker 2: structure to how the supply and demand, how supply can
Speaker 2: respond to demand and price relatives to previous regime.
Speaker 1: Okay, well lit again, if you get down to read
Speaker 1: your wit at the bottom. One potential market impact sounds great,
Speaker 1: absolutely great. Crude ol slums and price, it's a boom
Speaker 1: for airlines, We'll get to travel more. Luxury travel booms. Right,
Speaker 1: chemical paint and time manufacture is free to logistics companies,
Speaker 1: they'll boom too. This sounds amazing. The market balance is
Speaker 1: out quickly, oil prices cyber to stabilize again. You know
Speaker 1: that's good. Higher cost suppliers, particularly North America's shut down
Speaker 1: expensive shale oil production. People won't complain about that too much,
Speaker 1: will they? And the only people who end up in
Speaker 1: a bad way are the Japanese car manufacturers who find
Speaker 1: themselves in a desperate race to catch up with some
Speaker 1: other ev plants. Will anybody else suffer badly from this?
Speaker 1: This is almost entirely good news.
Speaker 2: Well, some of the open countries themselves.
Speaker 1: The countries of course slightly forgotten about.
Speaker 2: That too, reliant on their oil revenues for for their
Speaker 2: for the national income.
Speaker 1: And they're all aware of that, right, All those countries
Speaker 1: all have been trying to diversify, move into different areas,
Speaker 1: and we see that across the Middle East for example.
Speaker 2: We're just talking about bringing awareness forward to this is
Speaker 2: happening sort of now, in the few years. It's not
Speaker 2: just about a thirty year generation forward effort. This is
Speaker 2: a process that starts more or less now.
Speaker 1: Well maybe okay, it's not you know, you're not expecting
Speaker 1: a chance it might happen. Okay, So we're going to
Speaker 1: stick with energy. So we've just discussed one outrageous prediction
Speaker 1: being that oil becomes very cheap, and so one type
Speaker 1: of energy becomes extremely cheap. And we move along to
Speaker 1: the next outrageous prediction, and it's the US imposes AI
Speaker 1: data center tax as power prices run wild. Now, I
Speaker 1: thought this one was really interesting because I noted it. Gosh,
Speaker 1: but eight nine months ago, maybe a bit longer, the
Speaker 1: EU started discussing taxing AI in order to prevent it
Speaker 1: using so much energy. Do you remember that?
Speaker 2: I do remember that. And you also saw a microcosm
Speaker 2: here and there with the bitcoin mining the type of
Speaker 2: energy resources or electricity resources, Yeah, that that requires. So
Speaker 2: this could be an issue when we're talking about the
Speaker 2: acceleration and build out of these AI data centers. Now,
Speaker 2: of course, if you're particularly large, you're going to need
Speaker 2: to find the agreement to hook up to the grid
Speaker 2: somewhere anyway before you can even get started. But at
Speaker 2: the same time, the AI linked demand is is growing,
Speaker 2: and you're seeing the likes of a Microsoft wanting to
Speaker 2: restart an old nuclear reactor in the US three Mile
Speaker 2: Island to get resources for a data center. There you
Speaker 2: see the Amazon's Googles Oracles of the World talking nuclear
Speaker 2: small nuclear, small module reactors with very nuclear power. Super interesting.
Speaker 2: But what about between now and you're five six when
Speaker 2: that thing is done right, you have that five to
Speaker 2: six years of growth.
Speaker 1: And some are saying, well, content Koreans build them very quickly.
Speaker 2: I think still think we're talking a few years before
Speaker 2: something is available in in size to to power these things.
Speaker 2: And if if the calculation requirements there's one estimate, is
Speaker 2: it doubles every hundred days, that's a lot of doublings
Speaker 2: per hont you know, times x num one hundred days.
Speaker 2: Where's the energy going to come from? I just find
Speaker 2: I think it's interesting to think if this demand does
Speaker 2: grow at that pace, it's going to start that baselet
Speaker 2: requirement is going to start interacting with peak requirements for
Speaker 2: households and basic industries, and there will be a compon
Speaker 2: inflict there and it could mean that we actually and
Speaker 2: it's to remind people in general, we still live in
Speaker 2: a world with physical limits. Maybe we in the days
Speaker 2: of starship and space we think we don't, but there
Speaker 2: are some some physical limits that could get a bit
Speaker 2: more pressing with ent to AI.
Speaker 1: Yeah, and you're right here this inspires popular outrageous household
Speaker 1: see the utility bill skyrocket, aggravated by the huge banks
Speaker 1: and power prices for electricity consumed at home during peak
Speaker 1: load periods in the evening. So this is in the
Speaker 1: US right where we expect they'll get absolutely furious if
Speaker 1: their utility bills go up. And here we are in
Speaker 1: the UK, we just sit here watching them go up
Speaker 1: and up and up and up. We're not out on
Speaker 1: the streets. What's wrong with us?
Speaker 2: There's some specific challenges that were from twenty twenty two
Speaker 2: that happened in the UK, and plus of the transfer
Speaker 2: of the energy system here partially reliable and renewable energy
Speaker 2: and that and that's where's the baseload? These are these
Speaker 2: issues are plaguing at times when the wind doesn't blow
Speaker 2: or the sun doesn't shine enough. You don't have the
Speaker 2: storage out there to power when those when those energy
Speaker 2: resources are are down or not producing it the capacity
Speaker 2: you need.
Speaker 1: Yeah, okay, so again this could this could be good news. Right,
Speaker 1: so you write again down to your potential market impact,
Speaker 1: and here this looks like unmitigated good news. You're such,
Speaker 1: you're such an optimist.
Speaker 2: Not for those that are investing in AI if they're
Speaker 2: held back from.
Speaker 1: The for long. A massive boom in US investment in
Speaker 1: power infrastructure companies like Floor is that I said, I
Speaker 1: don't know. Yeah, yeah right, I'm signing massive new construction deals.
Speaker 1: Tesla is accelerating, MEGAPAC gets increasing attention. Long term US
Speaker 1: natural gas price is more than double, then we get
Speaker 1: a bit of inflation.
Speaker 2: Yeah. If you look at US natural gas prices specifically,
Speaker 2: they've been so absurdly cheap for so long because the
Speaker 2: shale patch in the US has delivered at incredible rates
Speaker 2: and they've capped the ability to export it. So just
Speaker 2: a realistic market price for natural gas that's still cheap
Speaker 2: is double what it is now in the it starts
Speaker 2: to point out the natural gas pricing around the world
Speaker 2: is not flat. It's very, very, very differentiated depending on
Speaker 2: where you live, because it's a difficult product to ship.
Speaker 2: Has to be liquefied and that's very energy and cost
Speaker 2: intensive to do so, and then shipped around the world
Speaker 2: in these incredibly expensive, very high tech ships.
Speaker 1: Yeah. Well, the one very good thing that could come
Speaker 1: out of this, because we know that the people running
Speaker 1: AI data centers or setting them up. Except all these
Speaker 1: companies have big tech companies. They want huge amounts of money,
Speaker 1: and if they really want cheap energy fast, they may
Speaker 1: well push forward what we were just talking about the
Speaker 1: development of SMRs that can be put up in a
Speaker 1: hurry and use very I mean, they could really accelerate
Speaker 1: these and that would be amazing, for example, for the UK,
Speaker 1: because we could start with all the ridiculous offshore wind
Speaker 1: and all that expensive stuff and the solo that hardly
Speaker 1: ever works, and we can just take up SMRs around
Speaker 1: cities all around the country. Problem solved.
Speaker 2: Yes, let's do it. But let's see how easy and
Speaker 2: cheap that is. It sounds so easy, but it takes
Speaker 2: many years and then the designs are still in design phase.
Speaker 2: There are some designs that are complete, but these things
Speaker 2: are not available in large quality. Yeah numbers yet.
Speaker 1: I get that. But as we often say on this podcast,
Speaker 1: if anyone can do it, the tech bros can, So
Speaker 1: if they're under pressure, may happen faster than it might
Speaker 1: have otherwise. Okay, that's a good one. Before I choose more,
Speaker 1: you must have a favorite.
Speaker 2: Well, we already covered my favorite, which was a Trump
Speaker 2: two point o blows up the US dollar and the
Speaker 2: consensus is one way, and you want to be outrageous
Speaker 2: by saying, well, what about this or what about so
Speaker 2: if this doesn't turn out the way expect and expecting
Speaker 2: a strong dollars, having your cake and eating it too,
Speaker 2: and the other consequences we talked about.
Speaker 1: So yeah, all right, okay, let's move on to a video.
Speaker 1: Then in video, blis to twice the value of Apple.
Speaker 1: Now here's the thing. It's kind of outrageous to people
Speaker 1: who look at some market history to think that any
Speaker 1: stock could keep growing like that and could become so big, etc.
Speaker 1: But if you look at for example, in the UK,
Speaker 1: at the top by lists of retail investors, any of
Speaker 1: the platforms, video is always up there at the top.
Speaker 1: There's a lot of people out there who are expecting this.
Speaker 1: You don't think this is outrageous at all, who think
Speaker 1: this is exactly what should happen. It's been going up
Speaker 1: for rages, It's going to go up more. That's just life.
Speaker 2: I agree and I disagree. So, of course, one stock
Speaker 2: market performs or stock performance on a twelve month basis
Speaker 2: is a very strong performance, indeed, but it did a
Speaker 2: lot more than that last year, right, So what's so
Speaker 2: big about one hundred percent, Well, it's talking about sheer magnitude.
Speaker 2: We're talking about a three and a half trillion dollar
Speaker 2: it's going to double in size, three to three and
Speaker 2: a half trillion dollar of market cap created. That's, you know,
Speaker 2: for perspective, maybe slightly less than the entire UK stock
Speaker 2: market is worth almost twice that the DAX forty is worth.
Speaker 2: So it's we're talking big numbers here in short, and
Speaker 2: you're talking about a company, as you pointed to, growing
Speaker 2: at incredible rates, could become the most profitable company within
Speaker 2: twelve months at least, to within fifteen months or eighteen
Speaker 2: months doing that at incredible growth rates. Whereas you've taken
Speaker 2: Apple's currently the most profitable company ever, it's grown ten
Speaker 2: twelve percent over the last three years. And that means
Speaker 2: not yearly, that means in total top line. So it's
Speaker 2: just for perspective, yes it's a richly valid company, and
Speaker 2: yes it requires that growth. What are the implications the
Speaker 2: other side of it? And this is a small point
Speaker 2: to this, and I think an important one though, is
Speaker 2: that if in Vidia, and these are simply based on
Speaker 2: projected earnings for the company going forward, if it is
Speaker 2: to earn that much money and you get that much revenue.
Speaker 2: Who is providing that revenue? This is the other mag
Speaker 2: seven stocks largely, who are building these gigantic data centers.
Speaker 2: So that becomes a headwind to their profitability because they're
Speaker 2: having to make these huge investments that aren't yet paying
Speaker 2: off in terms of the end uses of AI. So
Speaker 2: we have this AI arms race to get these data
Speaker 2: centers built to find these applications, but those applications aren't
Speaker 2: aren't yet paying the dividends and therefore just a higher
Speaker 2: cost structure for these are these you know, formerly and
Speaker 2: still really very very very profitable companies.
Speaker 1: Okay, so then back to the end game for this,
Speaker 1: The potential market impact and video share is trade well
Speaker 1: north of two hundred and fifty dollars, And then there
Speaker 1: is a suggestion that later on the market and the
Speaker 1: regulatory authority start to look at that and go, WHOA,
Speaker 1: hang on, that's got to be quite some monopoly, and
Speaker 1: then you get the scrutiny that might bring it to an.
Speaker 2: As well as I think implicitly that these growth rates
Speaker 2: can only be achieved for so long because the the
Speaker 2: size becomes so enormous you're talking about sucking up the
Speaker 2: profits of the entire economy at some point, right when
Speaker 2: a company has gotten to this magnitude.
Speaker 1: Yeah, but then you might get a wonderful moment, because
Speaker 1: I'm assuming that pretty much all Americans by now in
Speaker 1: a couple of video shares, you might get a moment
Speaker 1: when you have an amazing wealth effect from these these
Speaker 1: share price going quite that high. Great for American consumption,
Speaker 1: Okay they are with their budget being slashed, their cheap energy,
Speaker 1: there are are hundreds of thousands of dollars to eat
Speaker 1: from their stake in video.
Speaker 2: Oh they're cheaper dollar as well, so buys less than
Speaker 2: the world stage. But to put a mention in the
Speaker 2: document if I can, but yes, there is a wealth
Speaker 2: of effect. But the wealth effect is less in inequities
Speaker 2: and something like income paid out from bonds, for example,
Speaker 2: le go straight into spending when you get your when
Speaker 2: you get your coupons, whereas the wealth effect is much
Speaker 2: more muted from your share portfolio going out.
Speaker 1: But yes, there is a possible well, okay, and on
Speaker 1: the other side, what would crash in the video. I mean,
Speaker 1: to many people, it would be just as outrageous to
Speaker 1: say in video is going to a bug.
Speaker 2: I'm not so sure it's outrageous to say the video
Speaker 2: is going to fall. It seems like there's a lot
Speaker 2: of folks that recognize that the incredible ascent of this company,
Speaker 2: and there are plenty of naysayers, Not so much that
Speaker 2: it's not a good company here, doesn't have an amazing
Speaker 2: AI platform, that the Blackwell chip is there's anything amiss
Speaker 2: with it, but just that these growth rates are just
Speaker 2: not possible extended too far out into time, and somebody
Speaker 2: is right or they are right at some point. The
Speaker 2: question is always one in investing, in especially trading, of
Speaker 2: when when are you right? When does the growth curve
Speaker 2: stop going exponential? When when do they have a bad miss,
Speaker 2: for example, and suddenly you have to look forward to
Speaker 2: a no growth next year in chips, or even a
Speaker 2: ten percent fall versus what you've been used to two
Speaker 2: hundred percent originally now one hundred percent growth in these sales.
Speaker 2: You know you're on your basis, etcetera.
Speaker 1: Realistically, that's more likely, isn't it?
Speaker 2: Eventually? But again, time tim and.
Speaker 1: Tim and timing. Okay, all right, China, China. No one's
Speaker 1: been investing in China for ragies looks a little uninvestable.
Speaker 1: Your summary here, having created, having created China's most epic
Speaker 1: debt bubble, China boldly prints and prints and prints and
Speaker 1: prints and prints to try and make it all. Okay,
Speaker 1: I'm summarizing.
Speaker 2: That's kind of a fair assessment of the of the
Speaker 2: outrageous prediction. But I think our point here is one
Speaker 2: it's not so much about the magnitude. Yes, if they
Speaker 2: printed fifty trillion un in a reflationary move, this would
Speaker 2: be larger than anything they've done before. That's about seven
Speaker 2: trillion US dollars. By the way, for perspective, it's more
Speaker 2: about China needs to move away from its from its
Speaker 2: economic model that was based purely on fixed asset investment
Speaker 2: and especially the real estate bubble and debacle and dealing
Speaker 2: with all the debt that is linked to that, so
Speaker 2: that they need to power through this balance sheet recession
Speaker 2: which has echoes of in Japan's experience starting in the
Speaker 2: late eighties. And it's about fiscal It's about getting money
Speaker 2: into consumer's hand and rebalancing the economy more towards consumption.
Speaker 2: Could they start to look at producing or creating a
Speaker 2: better social safety net. They have a long term demographic
Speaker 2: crisis that needs to be addressed. A social safety net
Speaker 2: might go a long way to having more people feel
Speaker 2: comfortable about starting families. It's getting married, et cetera. These
Speaker 2: are long term social issues that China may look at.
Speaker 2: It's kind of linking to a change of behavior and
Speaker 2: something a new China relative to just the size true
Speaker 2: size of the stimulus.
Speaker 1: And again this is something that's been discussed for ye yeah,
Speaker 1: very long. How can China do this? How can they
Speaker 1: move towards a more consumption orientated economy, how can they
Speaker 1: make people spend them? There's one rather lovely idea in this,
Speaker 1: a proper kind of people's people's q E, whereby you
Speaker 1: use a digital currency to put money directly into people' accounts.
Speaker 2: And they have the technology to do that, and they've
Speaker 2: experimented with it, but they're most likely being held back
Speaker 2: by my concerns about inflation, and so there has to
Speaker 2: be of course some balance and the size of the and
Speaker 2: most relative to the type of inflation it would cause
Speaker 2: and risks from them.
Speaker 1: And if you have the technology to do that, to
Speaker 1: put money directly into people's pockets via or digital currency,
Speaker 1: presumably you also have the pad to take it right
Speaker 1: out again under for example, a social credit system or
Speaker 1: anything like that.
Speaker 2: Or yeah, or to turn it off. You started and
Speaker 2: then you turn it off if if it's uh, you know,
Speaker 2: causing problems. And we saw this, I mean the curate.
Speaker 2: The clever thing about the digital approach is you know
Speaker 2: exactly who's who's going to. Was in the case of
Speaker 2: the pandemic response, it was just showering endless amounts everywhere
Speaker 2: because you didn't know exactly how what the transmission or
Speaker 2: how good the transmission would be, and there was a
Speaker 2: lot of fraud involved in the US case and the
Speaker 2: trail of course, a big brother et cetera. Your concerns
Speaker 2: about that, But at least you know more precisely who
Speaker 2: it is going to and then the transmission mechanism.
Speaker 1: Okay, and the market impact here that would be good.
Speaker 2: Right, well, it should be good. It should be good
Speaker 2: for global growth, for global nominal growth. It should also
Speaker 2: mean higher global inflation. China would be competing for goods
Speaker 2: relative to the rest of the world. Yeah, there's a
Speaker 2: but more just a transformation of China's economic model has
Speaker 2: huge consequences and becomes a big end market for consumption
Speaker 2: which we saw at times for key companies, the German
Speaker 2: auto manufacturers for example, other companies as well, they were
Speaker 2: selling into China. Some of those are now pulling out.
Speaker 2: But can this process be stopped and turned around? I
Speaker 2: don't know, but somebody would need to satisfy that demand
Speaker 2: obviously if if it was created.
Speaker 1: So now we have this sort of rather marvelous situation
Speaker 1: whereby manufacturing is reshored to America, the Americans make up
Speaker 1: out of stuff'll sell it back to the Chinese.
Speaker 2: There you go, Let's see if you can. Let's see
Speaker 2: if it can.
Speaker 1: Happen exactly exactly what President Trump wants.
Speaker 2: Exactly what he wants. But will he get it or
Speaker 2: are we headed for towards more some kind of disentangable
Speaker 2: disengagement divorce of of chi America as some call it.
Speaker 2: It's a huge existential question for how how the global
Speaker 2: economy works in coming years, and we try to kind
Speaker 2: of touch on that in this publication with a couple
Speaker 2: of these predictions.
Speaker 1: Okay, I want to cover one last one, which is
Speaker 1: my favorite, about your favorite? This is my favorite. I
Speaker 1: hovered here between the artificial heart and and and the pound,
Speaker 1: but I've settled on the pound.
Speaker 2: Okay, okay.
Speaker 1: As Europe's economy struggles, fresh fiscal policy winds are blowing
Speaker 1: in the UK, driving sterling dactor levels versus the Euro
Speaker 1: not seen since before Brexit. The UK outlook is as
Speaker 1: constructive as ever in the post Brexit era. That sounds
Speaker 1: like a very sort of down with faint praise.
Speaker 2: I didn't want to be too effusive in my praise
Speaker 2: that there are you have this new budget, for example,
Speaker 2: from from the Labor government sort of takes takes things
Speaker 2: in the right direction, right and inverted commace because it's
Speaker 2: focusing a bit less on things like subsidizing consumption, so
Speaker 2: things like the winter fuel. We could talk about inequality
Speaker 2: and issues with folks to having the ability to pay
Speaker 2: for their heating bills, but it's not productive and it
Speaker 2: pure economic sense relative to encouraging investment in particular and
Speaker 2: then raising the incomes of public sector workers. So that
Speaker 2: keeps the nominal economy humming along to a degree, which
Speaker 2: will help on the revenue side down the road. It
Speaker 2: also helps on the Bank of England not having to
Speaker 2: or being able to cut rates as much, so it
Speaker 2: just keeps the UK economy humming along.
Speaker 1: It was a terrible budget for business. I don't know
Speaker 1: to interrupt your optimism there, but you know you can't.
Speaker 2: Talk business optimism.
Speaker 1: I'm trying to, you know, desperately trying to find a
Speaker 1: way to cut costs and cutting staff. And there's a
Speaker 1: horrible realization that maybe enough modeling wasn't done on cutting
Speaker 1: the threshold for employers and I that may have very
Speaker 1: very unpleasant consequences. So I'm going to go with you
Speaker 1: on the optimism.
Speaker 2: But an equal degree to an equal degree on this
Speaker 2: prediction was the negativity around Europe, and we see that
Speaker 2: right now and then the headlines constantly. And when we
Speaker 2: wrote these predictions, we didn't know that Germany's government was
Speaker 2: going to fail. That happened shortly afterward, and we are
Speaker 2: going to have new actions in February. And we do
Speaker 2: see the opposition making very different noises on fiscal in
Speaker 2: a very cautious German kind of way, talking about ways
Speaker 2: that they can look to avoid the imposition of the
Speaker 2: debt break or schuldin bompsen to stop the ability to
Speaker 2: expand fiscal which is desperately needed in Germany, which has
Speaker 2: had its model, its economic model disrupted by the end
Speaker 2: of cheap Russian energy inputs and now China become a
Speaker 2: global competitor for some of its key traditional exports. So
Speaker 2: that in there's France where we can see the political
Speaker 2: dysfunction there, the Barnier austerity, the terrible budget that would
Speaker 2: have really just killed the French economy. What looks like
Speaker 2: it will be avoided because Lipen wants to take down
Speaker 2: that government. But some big problems in questions at the
Speaker 2: heart of Europe, right, equally dragging on the Europe as
Speaker 2: much as we're sort of lukewarm slightly positive on the pound.
Speaker 2: And it's also again it's this sort of you know,
Speaker 2: pushing back a little bit with the outrageous prediction against
Speaker 2: the quote unquote common knowledge that breaks it as only
Speaker 2: a disaster and was only going to ever be negative
Speaker 2: for the post.
Speaker 1: I don't hear that here, right, And the result here
Speaker 1: encouraging domestic investment and a more robust growth outlook supports
Speaker 1: seiling vessels, the flailing euro seeing the euro steling rate
Speaker 1: fall as low as zero point seventy five, below the
Speaker 1: rate of the day before the Brexit vote. As a result,
Speaker 1: the UK foot seat one hundred posts a strong performance.
Speaker 1: So that's great. Here we've got we've got a stronger
Speaker 1: economy than Europe. Who can argue with that? A rising
Speaker 1: stock market, a strong pound. We're all going on holiday,
Speaker 1: aren't we.
Speaker 2: That sounds great?
Speaker 1: It does sound great of all of these. Of all
Speaker 1: of these, I know you've got your favorite, the US dollar.
Speaker 1: But if you and I know they're all supposed to
Speaker 1: be outrageous, which do you think is most likely if
Speaker 1: you had to hang your hat on one of them
Speaker 1: for next year?
Speaker 2: I still I would actually still go with my favorite,
Speaker 2: which is, yes, Trump blows up the US dollar.
Speaker 1: Okay, but it's still it's still not the most likely scenarios.
Speaker 1: So what do you think will actually happen next year?
Speaker 2: I think we could see a stronger dollar for a while.
Speaker 2: The list of factors that could drive the dollar weaker
Speaker 2: are slower to come in then than would be in
Speaker 2: the timeline of the twenty twenty five prediction, and that
Speaker 2: the dollar actually stays volatile but relatively strong. It would
Speaker 2: be a forecast that I would if I was asked
Speaker 2: to pen my forecast, that would be it for the
Speaker 2: coming year. But it will depend on so many things
Speaker 2: that and I think the cone of uncertainty is particularly
Speaker 2: wide because you have a Trump two point zero, you
Speaker 2: have forceful policy measures relative too, if you did not
Speaker 2: have Trump two point oh coming into office with both
Speaker 2: Houses of Congress, if very narrowly so in the case
Speaker 2: of the House. And the uncertainties around how China responds,
Speaker 2: how you respond, what's going to happen in Ukraine, Russia
Speaker 2: or all these all these factors, they are a heck
Speaker 2: a lot of uncertainties in this world as we head
Speaker 2: into twenty twenty five. So I almost can't imagine anything,
Speaker 2: but it becomes an out rather outrageous year probably in
Speaker 2: many ways that are absolutely not at all on our
Speaker 2: map and in our set of predictions.
Speaker 1: Are you cooking up on go? And bitcoin?
Speaker 2: Gold is just a nice to have a portion of
Speaker 2: your portfolio for retention of value. It's not a it's
Speaker 2: not a speculative asset that one should expect to go
Speaker 2: up by leaps and bounds. If you're expecting oil, sorry
Speaker 2: oil gold to go up by leaps and bounds, I
Speaker 2: really don't want to see what's to happening to the
Speaker 2: world at that point in time. And when I say
Speaker 2: leaps and bounds, I'm talking about multiples. Yes, then you're
Speaker 2: talking about some kind of hyperinflationary scenario which is really
Speaker 2: sort of beyond the pale. Even with outragious, I would
Speaker 2: say to expect that.
Speaker 1: Yeah, and bitcoin slightly feels that in video is going
Speaker 1: to the moon. Social Bitcoin.
Speaker 2: We don't really do forecasts on bitcoin. We try to
Speaker 2: keep it very generic in that space just as a
Speaker 2: as a rule.
Speaker 1: You really don't want to hate mail, do you. I'll
Speaker 1: leave it to you to thank you. John, Thank you
Speaker 1: so much for joining us day in our London studio,
Speaker 1: but appreciate it.
Speaker 2: It's been my pleasure. Thanks so much.
Speaker 1: Thanks for listening to this week's Mare and Dogs Money.
Speaker 1: If you like our show, rate review and subscribe wherever
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