WEBVTT - Why Avoiding Investments Is as Important as Investing 0:00:02.720 --> 0:00:15.560 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:16.920 --> 0:00:19.239 Welcome to Maren Talks Money, the podcast in which people 0:00:19.280 --> 0:00:22.800 who know the markets explain the markets. I'm Meren Somerset Web. 0:00:23.000 --> 0:00:25.880 This week I'm speaking with Jo word Mean, chief strategist 0:00:25.920 --> 0:00:31.560 at Stray Reflections and Independent Global Macro Research and Trading Advisory. Now, 0:00:31.640 --> 0:00:33.199 one of the reasons I wanted to speak to Jo 0:00:33.280 --> 0:00:35.440 word this week is because he looks at markets with 0:00:35.600 --> 0:00:38.839 quite a historical context, and regular listeners will know that 0:00:38.880 --> 0:00:41.600 we're mildly obsessed with the stock markets of the nineteen 0:00:41.640 --> 0:00:44.560 sixties and the nineteen seventies, what happened there and how 0:00:44.640 --> 0:00:48.479 that reflects onto today. So Joad, thank you very much 0:00:48.520 --> 0:00:49.080 for joining us. 0:00:49.120 --> 0:00:50.440 Welcome, pleasure to be with you. 0:00:50.920 --> 0:00:55.680 So let's start by looking at the sixties and the seventies, 0:00:55.720 --> 0:00:58.520 what happened in those markets and how you feel they 0:00:58.560 --> 0:01:00.840 tell us something about today. 0:01:01.520 --> 0:01:03.960 So a couple of interesting trends that we've seen recently 0:01:04.280 --> 0:01:07.480 that we can find echoes in the past. In the 0:01:07.560 --> 0:01:10.440 last decade we talked about especially post pandemic, there was 0:01:10.480 --> 0:01:14.560 this idea of the yolo market and the smack boom, 0:01:14.880 --> 0:01:16.640 and when you go to the sixty that what's interesting 0:01:16.720 --> 0:01:20.040 is back then you had Jerry Say, who led this 0:01:20.440 --> 0:01:23.320 movement within the Go Go Years, as it was named. 0:01:24.120 --> 0:01:26.679 Go Go fund assets increased from two hundred million dollars 0:01:26.720 --> 0:01:29.360 in nineteen sixty three to three point four billion in 0:01:29.440 --> 0:01:32.520 nineteen sixty eight, an increase of seventeen times. And you 0:01:32.560 --> 0:01:34.680 can compare that to Kathy Woods, who became the star 0:01:34.800 --> 0:01:37.840 of the Yolo market in some ways, and her firm's 0:01:37.840 --> 0:01:40.160 assets row seventeen times as well, from five billion to 0:01:40.240 --> 0:01:43.319 eighty five billion, another you know, increase of seventeen times. 0:01:44.200 --> 0:01:46.160 Go Go finds made three and forty four percent between 0:01:46.200 --> 0:01:49.240 nineteen to three and nineteen sixty eight. Woods Frackship fund, 0:01:49.240 --> 0:01:51.680 our innovation jump more than three and fifty percent just 0:01:51.680 --> 0:01:55.080 from the pandemic low to February twenty twenty one. The 0:01:55.160 --> 0:01:57.920 other thing was, back then you had the conglomerates boom 0:01:58.520 --> 0:02:01.320 and John Brooks described that as an era of show 0:02:01.320 --> 0:02:05.000 offs and shenanigans, and that sort of led to again 0:02:05.080 --> 0:02:08.320 what we see today or more recently, SPACs, which was 0:02:08.360 --> 0:02:12.160 at once obscure Niche Nestleveico became the hottest trend on 0:02:12.240 --> 0:02:15.359 Wall Street. And then the third thing I would say 0:02:15.480 --> 0:02:19.919 was the idea of how retail completely changed the landscape 0:02:21.240 --> 0:02:24.160 back then. Mary Lynch opened over two hundred thousand new 0:02:24.160 --> 0:02:27.119 Brokes's accounts in the first five months of nineteen sixty eight, 0:02:28.280 --> 0:02:30.320 and there were about thirty one million Americans who owned 0:02:30.320 --> 0:02:32.800 the stock, more than one in every four adults, a 0:02:32.840 --> 0:02:35.320 fifty three percent increase in nineteen sixty five when they 0:02:35.320 --> 0:02:37.640 were just over twenty million. And if you look at 0:02:37.639 --> 0:02:39.720 it again comparing it to the recent times, you had 0:02:40.080 --> 0:02:42.600 fifteen nine million people who held accounts with one of 0:02:42.639 --> 0:02:45.000 the top seven years workers in twenty nineteen. By twenty 0:02:45.040 --> 0:02:48.120 twenty one that number each ninety six million, a sixty 0:02:48.200 --> 0:02:50.720 percent increase, with seventeen million new accounts open in twenty 0:02:50.800 --> 0:02:53.480 twenty and twenty million more in just than the first 0:02:53.480 --> 0:02:54.400 out of twenty twenty one. 0:02:55.240 --> 0:02:57.760 Okay, so you have this dynamic where you have a 0:02:57.800 --> 0:03:01.400 big name, kind of leading hero fund manager. Right, you 0:03:01.400 --> 0:03:03.680 go through this period and Gerald's side, he was with 0:03:03.760 --> 0:03:06.960 their Fidelity right initially and then set up on his 0:03:07.160 --> 0:03:09.320 own and became a sort of a brand in his 0:03:09.400 --> 0:03:11.560 own right, same as Kathy Woods, who, by the way, 0:03:11.560 --> 0:03:13.760 we have had on this podcast before. Anyone who's interested 0:03:13.800 --> 0:03:16.000 in what Kathy Woods thinks about markets. Please go back 0:03:16.000 --> 0:03:17.959 and listen to that one. It was also great fun 0:03:18.000 --> 0:03:21.639 to do. So you have these sort of celebrity fund managers, 0:03:21.720 --> 0:03:26.320 You have these fast rising markets. You have these products 0:03:26.360 --> 0:03:29.000 that old timers in the market might look at and say, well, 0:03:29.000 --> 0:03:31.160 that makes no sense. But maybe you have a new 0:03:31.240 --> 0:03:35.480 generation of avestas who haven't seen bad things happen in 0:03:35.520 --> 0:03:38.280 the market before, and so they come on at speed. 0:03:38.360 --> 0:03:41.320 You get this huge retail participation, you get a bubble, 0:03:41.480 --> 0:03:44.360 and then of course eventually the old timers who've been 0:03:44.400 --> 0:03:46.960 bearished for far too long or right, but after everyone 0:03:47.000 --> 0:03:49.560 else has made a big part of money. That makes sense, 0:03:50.400 --> 0:03:53.520 But we're still in a bull market, Kathy Woods as 0:03:54.120 --> 0:03:56.680 her performance might not be so good anymore. So maybe 0:03:56.720 --> 0:03:59.800 we can compare to Gerald's side back then, but nonetheless 0:03:59.800 --> 0:04:02.160 we are still in a bill market. It doesn't reflect 0:04:02.200 --> 0:04:03.800 exactly right, or does. 0:04:03.640 --> 0:04:05.360 It it does? I think? So let me explain the 0:04:05.360 --> 0:04:08.120 price action. Right, So back then from the nineteen sixty 0:04:08.160 --> 0:04:10.600 six the bearmarket. In nineteen sixty six, we had the 0:04:10.600 --> 0:04:13.800 first stop and then SP five hundred dropped twenty four percent, 0:04:14.000 --> 0:04:16.400 and that bear market lasted eight months. It was not 0:04:16.480 --> 0:04:20.520 followed by recession. Instead, a new speculative binge, the second 0:04:20.560 --> 0:04:23.839 in the decade, took hold, and the averaging daily training 0:04:23.880 --> 0:04:26.560 volume for nineteen sixty seven on the NYC surpassed ten 0:04:26.600 --> 0:04:29.680 million shares, a new high by long shot, and compare 0:04:29.720 --> 0:04:32.520 that today. We had the peak in January twenty twenty two, 0:04:32.839 --> 0:04:35.200 and what followed was again a twenty seven percent bear 0:04:35.279 --> 0:04:38.440 market over nine months. No recesion follows, and we've had 0:04:38.440 --> 0:04:42.240 another stock market boom. That's that's continued. In nineteen sixty 0:04:42.240 --> 0:04:45.559 eight was the second peak, and it was sixteen percent 0:04:45.560 --> 0:04:48.120 above the nineteen sixty six peak, and it's led to 0:04:48.160 --> 0:04:50.520 the next big decline of over thirty percent over the 0:04:50.560 --> 0:04:53.080 next two three years, wiping all of the games out 0:04:53.120 --> 0:04:56.320 from the Google years. And again right now, this is 0:04:56.320 --> 0:04:58.840 where we are. You know. The key point is this, 0:04:58.880 --> 0:05:02.480 after a climactic like the twenty twenty one peak, exhaust 0:05:02.480 --> 0:05:06.039 spective energy, the next space isn't another vigorous bull market, 0:05:06.040 --> 0:05:08.920 but a more subdued one with sort of less upside. 0:05:09.240 --> 0:05:12.520 And so here we are today where we're about twenty 0:05:12.560 --> 0:05:15.400 five percent up from the twenty twenty one level, and 0:05:15.400 --> 0:05:20.120 we're seeing concentration in the MAC seven names, which speaks 0:05:20.120 --> 0:05:23.480 to the desire to be in trusted, cash rich earning 0:05:23.520 --> 0:05:26.000 generating companies more so than the spective one that we 0:05:26.040 --> 0:05:26.760 saw previously. 0:05:27.520 --> 0:05:30.080 Yeah, although twenty five percent up doesn't feel very subdued, 0:05:30.120 --> 0:05:32.880 that feels like that's quite a big rise. 0:05:32.800 --> 0:05:35.320 Only if you think that this can discon continue, right, 0:05:35.320 --> 0:05:38.279 I mean, twenty five percent over the twenty twenty one high. 0:05:38.640 --> 0:05:41.680 To me, that's not seemed very significant. And I think 0:05:41.760 --> 0:05:44.159 it's about where do we go from here? 0:05:44.560 --> 0:05:46.600 Okay, Mike, I guess that is the key question. Then 0:05:46.760 --> 0:05:47.960 where do we go from here? 0:05:48.520 --> 0:05:51.080 Look? I think what's interesting is if you also jump 0:05:51.120 --> 0:05:55.880 into the seventies next, you'll notice that there's another comparison 0:05:55.920 --> 0:05:58.080 that you can make between the MAC seven and the 0:05:58.160 --> 0:06:00.720 nifty fifty stocks and back then, you know, the few 0:06:00.760 --> 0:06:03.240 fifty stocks straighted at about forty two times earnings at 0:06:03.279 --> 0:06:06.640 their peak, more than double the SB five hundreds average 0:06:06.640 --> 0:06:11.520 of nineteen, and their valuations were said to be okay, 0:06:11.920 --> 0:06:14.440 because these guys we're going to continue to grow into 0:06:14.480 --> 0:06:17.919 their earnings like no price was high enough. And while 0:06:17.960 --> 0:06:21.560 that prediction was correct, the misconception was it didn't matter 0:06:21.600 --> 0:06:26.200 what you've paid for them, because they continue to generate 0:06:26.279 --> 0:06:29.320 earnings growth around nine percent of the next twenty five years, 0:06:29.360 --> 0:06:32.080 but they had it in to endure a pretty decent 0:06:32.080 --> 0:06:36.120 decline over the nineteen seventies bear market and then the 0:06:36.160 --> 0:06:38.679 Magnificent seven like the nifty to fifty at their peak, 0:06:38.920 --> 0:06:41.040 we're treating at more than double the SB five hundreds 0:06:41.080 --> 0:06:44.760 valuation multiple in July of last year. The basket as 0:06:44.760 --> 0:06:47.839 a whole has peaked in December of last year. And 0:06:47.880 --> 0:06:49.919 so if history is any guide, you know you have 0:06:49.960 --> 0:06:54.120 to keep in mind that the price matters. And so 0:06:54.240 --> 0:06:57.480 the idea is, what if the SP five hundred is 0:06:57.800 --> 0:07:00.839 right now reaching heights that won't be surpassed the next decade. 0:07:01.120 --> 0:07:03.560 So what I mean by that is if you do 0:07:03.640 --> 0:07:06.360 see a thirty percent decline from here, and we can 0:07:06.360 --> 0:07:08.720 discuss specific reason as to why that may happen, but 0:07:08.760 --> 0:07:11.040 if you see a thirty percent decline from here, you're 0:07:11.080 --> 0:07:14.080 looking at a bottoming somewhere around twenty twenty seven. It 0:07:14.080 --> 0:07:16.960 takes about two and a half years to typically recover 0:07:17.240 --> 0:07:20.000 from a bear market low to the high water mark again, 0:07:20.280 --> 0:07:22.160 which means we could be stuck around the six hundred 0:07:22.200 --> 0:07:25.720 level back in again in twenty twenty nine or twenty thirty. Even. 0:07:26.040 --> 0:07:28.440 Yeah, let's go back to the nifty to fifty AM 0:07:28.440 --> 0:07:30.680 and the lesson that was learned then that needs to 0:07:30.680 --> 0:07:33.920 be learned over and over and over again, it seems, 0:07:34.080 --> 0:07:38.320 is that a good company is not necessarily a good investment, 0:07:38.440 --> 0:07:42.080 and price does matter. So the feeling then, and you 0:07:42.080 --> 0:07:43.960 get this feeling now as well in large parts of 0:07:44.040 --> 0:07:45.960 the market. I think the feeling then was that it 0:07:46.000 --> 0:07:48.280 doesn't matter what the price you pay, because this is 0:07:48.320 --> 0:07:51.560 a great company, it's going to keep growing, it's solid, 0:07:51.600 --> 0:07:54.240 it's absolutely fine listening's but absolutely true about lots of 0:07:54.280 --> 0:07:57.640 those companies. But still the price can be too high. 0:07:57.920 --> 0:08:00.560 So that was the lesson that investors learned then and 0:08:00.560 --> 0:08:03.800 investors of maybe some investors have already forgotten. 0:08:04.000 --> 0:08:06.560 Yeah. So interesting because even if you bought the ninety 0:08:06.600 --> 0:08:10.320 fifty stocks at their peak, the return from those investments 0:08:10.360 --> 0:08:12.480 would have still closely massed they as we five hundred 0:08:12.480 --> 0:08:15.520 and twelve percent annual return over the next twenty five years. 0:08:15.760 --> 0:08:18.000 But it's just that you had to endure a decline 0:08:18.120 --> 0:08:20.760 in some of those stocks upwards of eighty five percent. 0:08:20.960 --> 0:08:23.400 Yeah, so you just paid too much upfront and you 0:08:23.400 --> 0:08:25.320 had to wait a long time for that return to come, 0:08:25.400 --> 0:08:27.920 but it did come, which is crucial. So if you look, now, 0:08:28.000 --> 0:08:30.200 let's take that over to their Magnificent seven or perhaps 0:08:30.240 --> 0:08:32.439 the AI or the AI adjacent stocks as we now 0:08:32.440 --> 0:08:35.599 call them, and again we look at those stocks, or 0:08:35.600 --> 0:08:37.480 part of the market looks at those stocks and says, 0:08:37.520 --> 0:08:41.120 it doesn't really matter what you pay because they will 0:08:41.240 --> 0:08:44.760 grow into those valuations, which might be true, but that 0:08:44.920 --> 0:08:47.280 growing into the valuation could take a very long time 0:08:47.440 --> 0:08:50.080 and that there could be a big correction. First, is 0:08:50.080 --> 0:08:51.880 that the correct way to look at the mirroring from 0:08:51.920 --> 0:08:52.880 the nineteen seventies. 0:08:53.160 --> 0:08:55.360 I think so, and I think we've reached those sorts 0:08:55.360 --> 0:08:59.120 of extremes. And our fundamental belief is that you know, 0:08:59.160 --> 0:09:02.400 you know, whatever period off the last few decades we 0:09:02.400 --> 0:09:03.800 look at that, we can get into the eighties and 0:09:03.800 --> 0:09:06.520 the nineties as well. But we believe that that stocks 0:09:06.559 --> 0:09:10.640 are in a topping process more broadly, and the topping 0:09:10.640 --> 0:09:13.800 process isn't a specific point or there's just one catalyst. 0:09:13.920 --> 0:09:17.200 It takes you know, typically you know, seven to eight 0:09:17.240 --> 0:09:19.880 months up towards twelve months, because different sectors and styles 0:09:19.880 --> 0:09:24.040 speak at different times. But just for you know, context sake, 0:09:24.280 --> 0:09:26.439 let's keep in mind. The NICKE peaked in July of 0:09:26.520 --> 0:09:29.959 last year. Microsoft peaked in July, the semiconductor index peaked 0:09:29.960 --> 0:09:33.240 in July, the high yield sector you know, peaked in September. 0:09:33.360 --> 0:09:36.560 Home builderspeat in October. Now, semiconductors and the home builders 0:09:36.559 --> 0:09:38.920 were the top two performing sectors since October twenty pointy 0:09:38.920 --> 0:09:44.120 two low following that you've had in November, micro strategy peak, 0:09:44.320 --> 0:09:48.120 the transports peaked, swakacs peaked nine seven, like I said, 0:09:48.240 --> 0:09:50.480 as a basket peaked in December. Apple and Testla peaked 0:09:50.480 --> 0:09:53.600 in December. Mean coins peak in December, in Vidia peaked 0:09:53.600 --> 0:09:57.120 in January, and so far bitcoins peaked in January as well. 0:09:57.360 --> 0:10:00.640 So we can see the sort of over arch topic 0:10:00.760 --> 0:10:06.520 process developing, and they're now a function of what are 0:10:06.559 --> 0:10:10.240 specific catalysts that could happen that could lead us into 0:10:10.440 --> 0:10:14.040 a bear market? What are they? So? I think there's 0:10:14.040 --> 0:10:17.240 certain conditions that are necessary but not sufficient, amongst which 0:10:17.480 --> 0:10:20.360 is bullish sentiment. It is consumer expectations for stocks over 0:10:20.360 --> 0:10:23.280 the next twelve months. It is you know, stronger dollar, 0:10:23.400 --> 0:10:27.520 higher interest rates, it is insider selling, Michau cash levels 0:10:27.559 --> 0:10:30.840 at record low levels. All of these things are you know, 0:10:30.920 --> 0:10:32.880 part of what you want to see as necessary but 0:10:32.960 --> 0:10:37.080 not sufficient. And I think what's interesting is the deep 0:10:37.120 --> 0:10:41.679 Seek news moment that occurred recently. I think creates a 0:10:41.720 --> 0:10:45.679 crack in the AI narrative to an extent. And you know, 0:10:45.880 --> 0:10:48.840 Soros had this sort of framework of how he would 0:10:48.880 --> 0:10:52.920 look at a bubble, which follows a predictable pattern, you know. 0:10:53.120 --> 0:10:55.920 And you know stage four of a five stage process 0:10:56.080 --> 0:11:00.000 was at twilight period where faith waivers. And I think 0:11:00.080 --> 0:11:02.920 what we're seeing with deep Seek is this idea for 0:11:02.960 --> 0:11:07.280 the first time in this cycle that perhaps we may 0:11:07.880 --> 0:11:11.520 be able to lower the cost per unit of intelligence 0:11:11.760 --> 0:11:15.760 going forward. You know, every bubble, you know, every innovation, 0:11:15.920 --> 0:11:18.680 every technological wave as all a similar pattern of innovation, application, 0:11:18.800 --> 0:11:23.120 eventual democratization driven by competition and constroductions. And it looks 0:11:23.160 --> 0:11:26.040 like that's happening again. So we will be finding more 0:11:26.040 --> 0:11:30.120 efficient approaches to challenge the route for GPU intensive taradine. 0:11:30.640 --> 0:11:33.600 And this is the case with every period of intense 0:11:33.640 --> 0:11:37.280 industrialization or some kind of technological change, you very often 0:11:37.320 --> 0:11:39.520 find and we've seen this again, I mean speed lots 0:11:39.520 --> 0:11:42.520 written about it happening with the railways, happening with the internet, 0:11:42.600 --> 0:11:46.640 having with cables, et cetera, et cetera, that the people 0:11:46.720 --> 0:11:50.080 who put the vast amount of money into the capital 0:11:50.120 --> 0:11:53.640 expenditure in the first wave of the new technology aren't 0:11:53.720 --> 0:11:55.800 necessarily the ones who really benefit from it. 0:11:56.160 --> 0:11:59.800 Absolutely, and I think a core belief underpinning the album 0:11:59.800 --> 0:12:02.960 mark it was that the massive instructure of spending will 0:12:03.000 --> 0:12:06.920 create unastainable boats for the US tech giants. But we're 0:12:06.920 --> 0:12:10.720 still seeing that the returns all those investments remain unclear. 0:12:10.760 --> 0:12:13.400 It's definitely going to impact their return invested capital, and 0:12:13.440 --> 0:12:16.319 I think starting the next earning seasons, at some point 0:12:16.400 --> 0:12:19.120 this year, we will see shareholders begin to question that 0:12:19.200 --> 0:12:23.400 those endless cap ex plans if they future returns right, 0:12:23.440 --> 0:12:25.520 because I think cost of active scaling them matters much 0:12:25.559 --> 0:12:28.400 more than chasing performance breakthrough, which American tech giants are 0:12:28.400 --> 0:12:29.560 sort of focused on right now. 0:12:30.040 --> 0:12:34.040 Might that then challenge the idea of American exceptionalism, And 0:12:34.080 --> 0:12:36.000 we talk about this quite a lot on this podcast, 0:12:36.080 --> 0:12:38.719 because there is a general idea, particularly among the new 0:12:38.760 --> 0:12:42.320 generation of investors investors, that the American market has always 0:12:42.320 --> 0:12:45.960 been exceptional. That is completely natural for the American market 0:12:45.960 --> 0:12:49.600 to be valued significantly more highly than any other global markets. 0:12:49.640 --> 0:12:52.200 That's just no more, Whereas, of course, you know, as 0:12:52.320 --> 0:12:54.280 old these know that that's only a function of the 0:12:54.360 --> 0:12:57.000 last fifteen fifteen or so years, and before that it 0:12:57.040 --> 0:13:02.560 wasn't the case. Does this shift in the AI narrative perhaps, 0:13:02.679 --> 0:13:05.160 is that the first beginning of a challenge to the 0:13:05.200 --> 0:13:06.920 idea of American exceptionalism. 0:13:07.080 --> 0:13:09.920 So let's remind listeners, right, So, if you think about it, 0:13:10.320 --> 0:13:13.440 coming out of GFC, America was not the place you 0:13:13.480 --> 0:13:15.960 wanted to invest. You had the twenty ten flashcress. In 0:13:16.000 --> 0:13:18.640 twenty eleven, you had the credit rating downgrade, the dollars 0:13:18.640 --> 0:13:22.040 at a fifty year low. In twenty twelve, Facebook went 0:13:22.080 --> 0:13:25.200 public and it was a disaster if the IPO flopped. 0:13:25.240 --> 0:13:28.800 It was the world's largest technology ipo. Obama was increasing regulation. 0:13:29.800 --> 0:13:32.120 There was mistrust of the Fed. You know, top investors 0:13:32.120 --> 0:13:34.040 in the colonumists were writing a letter saying, stop qv 0:13:34.120 --> 0:13:35.960 you're going to create hyper inflation, You're going to debase 0:13:35.960 --> 0:13:39.360 the dollar. At that time, Marion, the thinking was emerging 0:13:39.400 --> 0:13:42.400 markets to serve a higher pe because of their superior 0:13:42.400 --> 0:13:46.040 growth prospects. Commodities deserve an allocation in your portfolio. So 0:13:46.080 --> 0:13:47.920 I'm sure a problems would say, you know, there's nothing 0:13:47.960 --> 0:13:50.600 more deceptive than the obvious fact. But that was the 0:13:50.640 --> 0:13:52.840 time you wanted to really be invested in the US. 0:13:52.880 --> 0:13:56.040 And I think what was exceptional about America was last 0:13:56.080 --> 0:14:00.800 decade three specific things. First, America had predicate and plessy leadership, 0:14:01.120 --> 0:14:03.079 the first of which was coming out of GFC, the 0:14:03.160 --> 0:14:06.600 FED the Ganqui cleaned up the banks before any other country. 0:14:06.679 --> 0:14:10.240 Then it followed with Trump's tax cuts and deregulation, so 0:14:10.320 --> 0:14:13.880 yet political and policy leadership. The second was the shale revolution, 0:14:14.120 --> 0:14:18.600 which was totally unexpected, which made America and energy independent nation. 0:14:19.280 --> 0:14:22.320 The third thing was Silicon valley innovation, which eventually led 0:14:22.320 --> 0:14:25.760 to the bubble. Now what's interesting is I don't think 0:14:25.760 --> 0:14:29.960 we're in an American exceptional market anymore. I think which 0:14:30.000 --> 0:14:33.080 we're seeing in the American exuberance where hype has run 0:14:33.080 --> 0:14:35.400 ahead of reality, and we can sort of look into 0:14:35.400 --> 0:14:38.080 that because instead of political and policy leadership, what we 0:14:38.120 --> 0:14:40.960 have now is a country that's running a deficit of 0:14:41.000 --> 0:14:45.840 seven percent without any sort of recession or wartime, which 0:14:46.240 --> 0:14:48.560 is not the best policy prescription. At this point in 0:14:48.600 --> 0:14:53.120 the cycle. The shale companies have gone from prioritizing maximum 0:14:53.160 --> 0:14:57.200 output to maximizing profits now, Silicon Valley seems to be now, 0:14:57.360 --> 0:15:00.440 especially post nine twenty one, with where we are today, 0:15:00.920 --> 0:15:06.880 still struggling in the larger startup landscape and potentially seeding 0:15:06.880 --> 0:15:09.960 its lead in certain other technologies. So I don't think, 0:15:10.320 --> 0:15:13.240 you know, America is as exceptional, and I think specifically, 0:15:13.280 --> 0:15:16.440 if we are in an AI powered bull market, how 0:15:16.560 --> 0:15:20.800 is it that since October twenty twenty two or November thirtieth, 0:15:20.800 --> 0:15:23.720 twenty twenty two, when chat GPT was launched, how come 0:15:24.320 --> 0:15:29.320 the German DAX is upperforming the SABA five hundred Germany, 0:15:29.360 --> 0:15:32.040 which is which has a ward in its continent, It's 0:15:32.240 --> 0:15:37.880 graptical energy crisis, political instability, China a comparatitive threat. How 0:15:37.960 --> 0:15:40.840 is that possible that German equities have now performed US equities? 0:15:40.880 --> 0:15:44.520 If AI is an American story, and you've also had 0:15:44.560 --> 0:15:47.160 the Chips Act, you have the IRA, you had a 0:15:47.200 --> 0:15:49.960 massive graptical capex, and if you're also in an AI 0:15:50.040 --> 0:15:52.960 powered bull market, how is it so that a barberous relic, 0:15:53.400 --> 0:15:56.280 an ancient sort of value like gold is uperforming them 0:15:56.320 --> 0:15:59.200 both up sixty five percent compared to SB five hundred 0:15:59.200 --> 0:16:01.840 and sub fifty close to fifty percent. So there's something 0:16:01.880 --> 0:16:04.680 not right, something not acceptable about what's happening, either where 0:16:05.520 --> 0:16:08.760 two bearers on the prospects of Europe or perhaps overestimating 0:16:08.760 --> 0:16:10.360 America's strength at this point in the cycle. 0:16:11.120 --> 0:16:14.120 Yeah, I mean in terms of Germany, European stocks, even 0:16:14.240 --> 0:16:17.240 UK stocks that they have done fairly well recently. Is 0:16:17.280 --> 0:16:22.160 that really just the function of global fund managers looking 0:16:22.200 --> 0:16:24.720 at their exposure to the US and saying, well, sixty 0:16:24.760 --> 0:16:27.080 seventy percent, this is maybe beginning to push it. Look 0:16:27.120 --> 0:16:29.920 at the relative valuations, or just shift a little bit out, 0:16:30.360 --> 0:16:35.560 and given the underweighting of non US markets, it doesn't 0:16:35.560 --> 0:16:37.800 take that much to start pushing them up a bit. 0:16:38.240 --> 0:16:40.080 I think that's certainly part of it, you know. I 0:16:40.120 --> 0:16:43.000 just think that it's important to ask in a question, 0:16:43.120 --> 0:16:45.600 which is what is happening that shouldn't be, what is 0:16:45.640 --> 0:16:48.720 not happening that should be? And if we are truly, 0:16:49.400 --> 0:16:52.480 you know, in an air powered world market, then this 0:16:52.600 --> 0:16:55.479 should not be happening where the SEP founder is underperforming. 0:16:55.720 --> 0:16:58.880 If we are taking a technological leap forward, then goals 0:16:58.880 --> 0:17:01.560 should not be performing three four hundred. Something else is 0:17:01.600 --> 0:17:03.480 going on. And we may not have all the answers, 0:17:03.960 --> 0:17:06.600 but you know, one way I think about this, Marin 0:17:06.880 --> 0:17:09.080 is again, if I go back in time, you know, 0:17:09.160 --> 0:17:13.240 each decade there's a a powerful event that occurs which 0:17:13.280 --> 0:17:16.760 turns into the zeitgeist and eventually into a mania. So 0:17:16.840 --> 0:17:18.920 back in the seventies, it was the big tann of 0:17:18.920 --> 0:17:20.920 Britton Wlds in nineteen seventy one, which lected the gold 0:17:21.000 --> 0:17:24.040 world market, but in nineteen eighty that stopped working. In 0:17:24.040 --> 0:17:26.959 the nineteen eighties, it was Japan's sticking over the world. 0:17:27.840 --> 0:17:30.280 You're long Japians equity, Japanese real estate, but nineteen eighty 0:17:30.359 --> 0:17:33.440 nine that stopped working. In the nineteen nineties, the zeitgeist 0:17:33.600 --> 0:17:36.360 was the Internet. It only really kicked in nineteen ninety five. 0:17:36.520 --> 0:17:38.760 But you want to be long Nasdaq March two thousand. 0:17:38.920 --> 0:17:42.119 That stopped working in the two thousands. The zeitcast was 0:17:42.119 --> 0:17:44.080 shining as interesting to the World Trade Organization in two 0:17:44.119 --> 0:17:47.160 thousand and one, so you're ready long China em commodities 0:17:47.560 --> 0:17:50.880 that stopped working in twenty ten, twenty eight to eleven. 0:17:50.960 --> 0:17:54.399 Based on whatever asset you pick, the zeitcast of the 0:17:54.480 --> 0:17:57.159 last decade was best articulated by Mark and Resent in 0:17:57.200 --> 0:18:00.000 twenty eleven, and a Wall Street Journal article titled software 0:18:00.080 --> 0:18:02.639 is Eating the World? That zeit guys, in my opinion, 0:18:02.800 --> 0:18:03.920 ended in twenty twenty one. 0:18:04.040 --> 0:18:06.000 What do you think the one for the next decade is? 0:18:06.040 --> 0:18:06.240 Then? 0:18:06.440 --> 0:18:07.520 Where are we going next? 0:18:08.040 --> 0:18:10.720 Yeah, there are a few interesting points here right. So first, 0:18:11.040 --> 0:18:14.119 because these are ten year trends, a lot of careers, reputations, 0:18:14.200 --> 0:18:16.920 businesses are built on that success. It takes a while 0:18:17.040 --> 0:18:19.919 to dethrone dominant beliefs and behaviors that served them. So 0:18:20.000 --> 0:18:22.200 even up until twenty fourteen, twenty fifteen, we still thought 0:18:22.200 --> 0:18:23.960 emerging markets are going to come back. We still thought 0:18:24.000 --> 0:18:26.760 gold and commodities are going to continue to do well. 0:18:26.920 --> 0:18:29.880 It didn't really happen. And up until mid twenty fifteen, 0:18:30.040 --> 0:18:32.720 people still thought, you know, America is not the place 0:18:32.760 --> 0:18:35.359 to be. You know, back in twenty fifteen, Bill Gurly says, 0:18:35.400 --> 0:18:37.960 Silicon vllies in a bubble, So it's very difficult to discern, 0:18:38.200 --> 0:18:41.320 you know, when that shift is happening. There's certain candidates, 0:18:41.800 --> 0:18:44.399 you know, that we can look at. I think that 0:18:44.520 --> 0:18:47.000 are a handful. You know, we've been talking about as 0:18:47.040 --> 0:18:50.200 zodcast portfolio with our clients. The first could certainly be AI, 0:18:50.400 --> 0:18:51.840 in which case you want to be long in VideA. 0:18:52.640 --> 0:18:55.679 This I think is too close to the prior's archives 0:18:55.960 --> 0:19:00.600 to be the one. The second could be health and obesity, 0:19:00.720 --> 0:19:04.320 so in which case you will belong evalily. And the 0:19:04.359 --> 0:19:08.399 third candidate could be defense in a multiplier world, so 0:19:08.440 --> 0:19:11.679 in which case you will belong palenteer and you know 0:19:11.720 --> 0:19:15.000 some certain European defense names. And I think the fourth, 0:19:15.000 --> 0:19:19.800 which is where I leaned most is it could be 0:19:20.000 --> 0:19:22.280 the energy transition, the race to zero emissions and the 0:19:22.320 --> 0:19:26.879 global energy transition. So this idea of electrification in trying 0:19:26.880 --> 0:19:29.560 to serve the climate goals. And I think that's important 0:19:29.840 --> 0:19:34.400 because just like last decade it was America's decade. If 0:19:34.680 --> 0:19:38.480 climate or the sort of energy transition becomes the dominant team, 0:19:38.880 --> 0:19:41.560 then the country most important for this decade is actually China, 0:19:41.920 --> 0:19:44.520 because China is the renewals of a power of the world. 0:19:44.960 --> 0:19:48.280 And so just like ten, twelve, fourteen years ago, it 0:19:48.320 --> 0:19:51.240 wasn't obvious that America was the place to be, it's 0:19:51.320 --> 0:19:53.240 not obvious right now that China is the place to be. 0:19:54.359 --> 0:19:55.800 Who would want to invest in a country that was 0:19:55.800 --> 0:19:58.080 a shrinking in gage population or leader for life, a 0:19:58.080 --> 0:20:01.879 slow march and property crass, civil leverage, you know, potential 0:20:01.960 --> 0:20:06.200 war with Taiwan. And yet and yet, you know, Chinese 0:20:06.240 --> 0:20:08.439 tech stocks have performed the US market last year and 0:20:08.440 --> 0:20:11.760 they're pretty songly this year. So again, something else is 0:20:11.800 --> 0:20:13.760 going on that we may need to pay attention to. 0:20:14.200 --> 0:20:16.840 It's interesting, though, isn't it that you pull that out 0:20:16.880 --> 0:20:19.600 when if you flick through the papers, look at what 0:20:19.600 --> 0:20:21.679 we write, look at what we talk about. It actually 0:20:21.680 --> 0:20:23.680 seems that what we're seeing in most of the world, 0:20:23.760 --> 0:20:25.439 the UK side, we haven't got there yet, but we 0:20:25.520 --> 0:20:28.880 probably will. What you're mostly seeing is a pullback from 0:20:28.880 --> 0:20:32.080 the idea of trying to pursue zero, a pullback from 0:20:32.119 --> 0:20:34.840 the idea of moving away from fossil fuels too quickly, 0:20:34.880 --> 0:20:37.920 because it clearly isn't working at this feed that a 0:20:37.960 --> 0:20:39.840 lot of people would like it to. So we're seeing 0:20:40.280 --> 0:20:43.359 more of a pullback than to push forward in that area. 0:20:43.480 --> 0:20:46.280