openpolitics.com

27:32
we see that in GDP each dollar of debt
added to GDP produces less or less GDP
over time so I think that’s part of the
productivity issue also obviously
companies because of the tax issues in
the US and low interest rates the US
corporations are choosing to buy back
their own shares as opposed to invest so
that drives down productivity over time
as well and that’s not going to go away
until it gets changed and I think that
would be one of the changes that comes
with a swing in populism because I think
it’s something that has to happen but
the other thing is it’s crucial it’s
related to the same thing which is
access to capital so what you were
hearing from Warren Buffett and Peter
Thiel and all of these guys is only
certain people can get the capital so
you can try as hard as you want to go
and open a cafe which was the old style
of setting up a business you can’t get
any money nobody will lend you money
banks do not lend money for small
businesses right so how do you get money
well you now have to have that gazillion
dollar idea that has a moat around it
in the industry after no the players are
to access the capital so what we’re
seeing is a narrowing of capital
availability to more people and I think
so we’re seeing capital going into
buying back shares and
less capital being allocated to a
broader range of opportunities which
means it’s harder for most people to get
it makes the economy less productive
over time because everybody’s looking at
the same opportunity I agree I mean you
can’t even break into politics without a
few billion dollars isn’t that right I
think that’s what we’re now beginning to
29:13
see I mean that’s true though right even
29:17
within the hedge fund industry industry
29:18
I was in when I was first in that
29:21
industry so I’ve been around in about
29:22
industry since 1990 but but um I was
29:25
running a hedge fund you could still get
29:27
capital and so the insurance companies
29:31
and pension funds and endowments would
29:32
allocate to a broad range of managers
29:34
some of which may have had a hundred
29:36
million under management which was
29:37
deemed to be relatively small at the
29:39
time then a huge explosion came from the
29:43
pensions industry again as ever driven
29:45
by the same demographics which was they
29:47
wanted hedge funds to look like bonds
29:48
they wanted a low volatility but
29:52
slightly high return they wants it
29:53
looked like a junk bond but with less
29:56
catastrophe risk in it so they forced
29:59
all the returns down and everyone became
30:00
an asset gatherer so all the asset
30:03
gatherers grew in size so people had
30:06
bridgewater and a bunch of others
30:07
accumulated huge amounts of assets and
30:09
it meant that nobody else got capital
30:11
and it’s getting worse and worse to this
30:13
day so even people who are fantastic
30:16
traders and great investors can’t get
30:17
any capital because they’re not big so
30:20
investors will only follow where other
30:22
capital is just becoming even though we
30:24
talk about this massive washing around
30:27
of liquidity from the Federal Reserve
30:28
but we we have to talk about the same
30:31
issue of the elites versus the non
30:34
elites within access to capital as well
30:36
as it is for all the other I agree but I
30:39
think I think a regulatory capture I
30:42
think the the increasing is of what I
30:44
talked about patent law which I think
30:46
increasingly hinders rather than helps
30:49
competition I think these the growth of
30:52
the so-called natural monopolies you
30:54
know that’s kind of your Facebook Google
30:56
phenomenon I think all of this is just
30:59
accentuating there
31:01
don’t thing you’re talking about so
31:03
here’s a thought that I’ve been toying
31:05
with and a few people have talked about
31:06
look I think Facebook and Google should
31:08
be broken up and will be broken up and I
31:11
think that much like breaking up AT&T or
31:15
Marbella at the time what you did was
31:18
unleash a whole bunch of smaller
31:20
companies break apart monopolies and
31:22
allow more people access to that locked
31:26
in capital from the larger corporation
31:29
and it tends to offer great
31:31
opportunities I mean out of the split up
31:33
of the of the big phone company came all
31:35
the mobile phones yeah huge business I
31:39
totally agree well you know you kind of
31:42
mentioned debt and particularly
31:44
corporate debt and the rise of you know
31:46
leverage the lending and all of that and
31:49
the you know covenant light loans and
31:52
and the and the huge run-up basically of
31:54
corporate debt and the lowering of
31:57
quality of debt over this over this
31:59
entire business cycle so that’s a good
32:02
segue to talk now about the the business
32:05
cycle right where are we in the business
32:08
cycle and what are you looking for i I
32:11
did a piece this was probably about two
32:14
months ago on recession indicators and I
32:17
went down I don’t know I must have done
32:19
120 of them you know but I had my 15
32:22
favorites but I’d like to I’d like to
32:26
start that a little bit and and get you
32:28
to talk about favorite recession
32:31
indicators Adam I can go down through
32:33
some of mine that give us a good place
32:36
of where I think we are in the business
32:38
cycle but I maybe I could you know yeah
32:41
I mean I spend most of my time looking
32:43
at this because the secular framework
32:45
doesn’t change almost from decade to
32:46
decade so when you look at the business
32:49
cycle it’s the key driver of asset
32:52
prices so if I look at the year-on-year
32:54
rate of change of oil copper equities
32:58
bond yields the Korean stock markets
33:02
emerging markets in general anything
33:04
they’re all basically driven by the
33:06
business cycle so where are we in the
33:08
business cycle now well this is the
33:09
longest business cycle in all recorded
33:11
US history we’ve seen a couple of
33:13
outliers in the last
33:14
twenty twenty or thirty years what one
33:16
in the UK one in Australia which both
33:18
skipped a recession at some point I
33:21
think if I look at the indicators that I
33:23
look at i used the basic one it’s the is
33:25
m you can use that and the is M is
33:28
around fifty which says we should be
33:30
growing at about one percent GDP growth
33:32
but when I look at forward-looking
33:33
indicators of many things stuff like the
33:36
jolt survey the yield curve is the
33:39
classic example of the business cycle
33:40
there are so many indicators that
33:43
suggest we are at the point of recession
33:46
or very close to it and my point has
33:49
always been about this is that
33:51
recessions come from a slowdown in the
33:53
business cycle but they actually
33:54
crystallized by a larger event now I
33:57
think the tariffs were the thing that
33:59
actually did it we broke supply chains
34:01
around the world and we’re still
34:02
recovering but now there’s a corona
34:04
virus on top really doesn’t help so any
34:06
chance we have of of some sort of
34:10
midterm bounces is about zero now I
34:13
think so my view is we’re going into
34:16
recession now I think it’s this year and
34:20
next year they’ll probably be some sort
34:23
of euphoria around the election because
34:25
both parties whoever gets in is gonna
34:27
spend a lot of money on fiscal stimulus
34:29
and I think the Europeans will too so
34:31
and the Chinese probably will as well so
34:33
there’s going to be some euphoria in the
34:35
middle of the cycle much like there was
34:36
in the 2000 cycle and so that’s what I
34:39
think is happening now what it means is
34:42
we can really see it playing out in bond
34:43
yields bond yields are falling almost on
34:45
a day daily basis and I’ve been part of
34:47
that trade for a long time with the
34:49
ethos of buy bonds where Dan’s I spoke
34:51
to Keith about it many times I’ve also
34:53
been very interested in the dollar
34:58
because as the world slows down and
35:00
world trade slows down what you find is
35:03
the dollar there was a global shortage
35:05
of dollars I think the the BIS put it
35:09
thirteen trillion dollars the world is
35:11
short of so if the oil price Falls has
35:14
less dollars in circulation if world
35:15
trade which is currently negative Falls
35:18
there’s less dollars in circulation
35:19
keeps driving the dollar higher and even
35:21
today when the dollar almost breaking
35:23
back over a hundred so we’ve got on the
35:25
DXY so we have this issue that the
35:28
is driving up because of the debt
35:31
dynamics and some of the regulatory
35:33
issues that was caused by the banking
35:34
system that in itself flows global
35:37
growth that in itself is lowering bond
35:39
yields it’s inverting the yield curves
35:41
and the Fed have had to start cutting
35:43
already
35:43
everybody else has start to think about
35:45
stimulating more and the reality is is
35:48
at some point the equity markets
35:49
probably the final leg of this and this
35:52
unfortunately dovetails exactly when the
35:55
bulk of the baby boomers hits retirement
35:56
age you know that the issue that we
35:58
talked about is if you want to white 50%
36:00
or for retirees savings this is the time
36:03
you’re gonna do it yeah I agree and and
36:05
the the frightening thing that you
36:07
pointed out in your your kind of
36:10
retirement crisis video which I liked
36:12
very much is reminding people that the
36:15
equity markets don’t always back bounce
36:18
back right look at Tokyo look at look at
36:22
Germany in France now the United States
36:25
is the only one that’s always bounce
36:27
back bounce back strongly but that’s you
36:31
look around the world that doesn’t
36:33
always hurt so so Neil this is a key
36:35
thing so why did the u.s. bounce and
36:37
others didn’t
36:38
when 2008 should have killed off the
36:40
cult of equity
36:41
well the cultivate quilty is dead
36:43
because if you look at individual
36:45
households they don’t own equities yes
36:48
there have it in their pension plans but
36:49
as you said the super-rich do the
36:51
reality of the situation is the entirety
36:54
of all the equity purchases that have
36:57
gone on have gone on by the corporates
36:59
themselves but chairs right everything
37:03
else a net negative yeah your switch
37:05
between yeah and there’s the switch
37:08
between active to passive so indexation
37:11
has created a forced you know because
37:14
you’re corralling more assets into a
37:15
smaller number of companies so that’s
37:17
created those two things alone everybody
37:19
else has been a net seller in credit
37:20
including foreigners so you’re killing
37:23
the cult of equity off if you change the
37:25
so what is it that allows corporates to
37:28
buy their debt it’s pretty simple its
37:30
cash flow cash flows are also correlated
37:33
to the business cycle so when the
37:35
business cycle goes negative cash flow
37:36
goes negative and we’re seeing that in
37:38
many companies already so that means
37:40
they stop buying back their show
37:41
the other side of the equation is who’s
37:43
the buyer of all that debt well guess
37:45
what it’s the same baby boomer pension
37:47
and the issue is is they’re being driven
37:49
at state level by corporate tax receipts
37:51
and they are also driven by the business
37:54
cycle so as tag receipt tax receipts go
37:56
negative
37:57
the buying of corporate bonds stops by
38:01
the pension system and also corporations
38:04
stop buying back their shares so you end
38:06
up with a situation where the two most
38:08
widely held assets by the entire pension
38:11
system come to a halt as soon as the
38:13
business cycle goes negative that’s
38:15
really really key I totally agree
38:19
the buybacks and the borrowing for the
38:21
buybacks is really generating you know
38:24
the the the push up in equities and
38:27
people don’t understand that and it’s
38:30
not it’s not the growth in borrowing
38:33
that you have to worry about it’s when
38:35
the growth stops and that’s actually
38:39
happening now I mean if you look now you
38:41
find that it’s kind of peaked out it’s
38:43
kind of plateauing right now and that’s
38:45
when you really have to worry I I
38:47
totally agree to that it’s a very
38:50
dangerous sign when you have a high end
38:51
rising dollar falling commodity prices a
38:55
slowing global economy aside from the
38:59
United States and a Fed which keeps
39:01
talking about we’re fine for now
39:04
right so yeah you’re not going to get a
39:07
mid-term bounce again
39:09
Jerome Powell claims we’re kind of a
39:12
midterm correction you know so that’s
39:14
the word he would use let me let me just
39:17
give a couple of slides here and show
39:21
some of my favorite light cycle
39:23
indicators does Ben you might show at
39:26
chart 22 this is this is basically
39:31
showing how what happens when an economy
39:35
runs out of workers this is our age
39:39
adjusted employment to population ratio
39:42
we are now above where we were in 2007
39:45
and we’re about either at or above where
39:48
we were at every any previous business
39:51
cycle peak people don’t realize that
39:54
because you
39:55
have to adjust the employment population
39:57
ratio to account for the fact that this
39:59
huge group of baby boomers are now
40:02
mostly or increasingly past age 65 and
40:05
only a very small generation is now in
40:08
midlife when you correct for the change
40:11
in the distribution of the population
40:14
and look at each individual age bracket
40:17
we’re now above where we were in 2007 so
40:21
I don’t think we have a lot of a lot of
40:24
workers left if you want to go ahead
40:26
another one of my favorites Rowell and
40:29
this is just your point about the the
40:31
term spreads this is chart 26 and this
40:36
simply makes the point that if you want
40:38
to look at a long-term recession
40:39
indicator it’s been correct in 10 out of
40:42
the 11 recessions right that’s the term
40:46
spread we went into a inverted yield
40:51
curve back in April and I look at this
40:56
rule and I basically say six to 16
41:00
months after an initial inversion it
41:03
usually goes into and out of inversion
41:05
several times and as you can see if you
41:07
want to look ahead one chart here you
41:09
can see that it’s kind of going into and
41:12
out of it so we’re gonna see it skip
41:13
into and out and typically what happens
41:15
is it’ll go into inversion the Fed will
41:18
cut it will come out an inversion until
41:21
the long end slowly sinks again and then
41:23
the Fed will cut again so I think that
41:25
were avoiding is for the Fed to cut it’s
41:28
going to go out of inversion that will
41:29
come back it it’s like a stone that
41:31
skipped several times on the water
41:33
before the recession hits and and maybe
41:37
well my my favorite one to look at this
41:40
in the next chart this is a 28 you’re
41:43
talking about all-time favorites this is
41:46
the fundamental disjunction between what
41:49
the economy looks like near term versus
41:52
long term and so you see an eerie
41:55
parallel between the consumer confidence
41:58
spread then that’s basically the
42:01
consumers of view of what the economy
42:03
looks like near term versus long term
42:05
and the actual ten years
42:08
– three month term spread they actually
42:11
track eerily and incredibly closely over
42:14
a business cycle and they basically show
42:17
you where you are in the business cycle
42:19
I would add and this unequivocally would
42:22
indicate that we are indeed late cycle
42:26
yeah I agree and I think the yield curve
42:29
is telling you the Fed needs to cut
42:31
rights totally yeah and so I you know I
42:35
think this coronavirus I think will
42:37
force their hand I think they can use is
42:38
an excuse to do it as well because they
42:40
need to steep in the curve because this
42:41
is terrible for the banking system as
42:43
well so the chances are I think that
42:45
they may well cut 50 and 50 again over
42:48
the next six months as they try and deal
42:50
at the global slowdown and I think that
42:52
is what steepens the yield curve and
42:54
obviously it goes along with the
42:56
recession because that’s why the Fed of
42:57
cutting rates so I think you’re dead
42:59
right this is all to play for and this
43:00
is what’s going on right well you know
43:03
it’s Jerome Powell I think as kind of
43:07
ease the way on that you know he’s
43:10
talked about how he’s he doesn’t even
43:12
consider raising and you know inflation
43:14
is so subdued and he’s made remarks I
43:17
think he’s pretty savvy and I think that
43:19
both both Powell and and John Williams
43:22
have sort of you know that I think
43:24
they’re waiting for a chance actually to
43:26
do this I’m gonna move if you don’t mind
43:28
to some Q&A I want to get some okay some
43:32
let’s see if I can I can read this here
43:35
I’m going to just start from the top
43:37
we got wow we got a lot of questions I’m
43:41
just I’m just gonna start from the top
43:43
here and you can you know we can both
43:47
comment on this row so I’m going to I
43:48
just start from the top here is the is
43:52
the corona virus pandemic the Black Swan
43:55
event that will put the u.s. into
43:57
recession and how might it impact the
43:59
u.s. fall elections you actually
44:01
actually commented on that briefly when
44:03
you when you talk to yes it’s coming
44:05
after the terrorism the thing about
44:06
Black Swan events we don’t know what the
44:08
actual outcomes are that’s what’s
44:11
happening we don’t know what the outcome
44:13
is we don’t know the magnitude right if
44:15
we knew the magnitude we
44:18
I think it falls into the category of
44:20
the potential I think the economic
44:22
impact is enormous much bigger than the
44:25
markets yet understanding and I think
44:28
the you know without going into you know
44:30
how the virus is spreading of which none
44:32
of us know anything in reality but the
44:35
probability is this sticks around for
44:36
another two or three months globally at
44:38
best so at best we’ve got another three
44:41
months of this that makes it a five or
44:43
six month economic event well that’s a
44:45
global recession I mean it’s almost
44:47
impossible for it not to be so I think
44:49
it is very real hence why I think the
44:51
Fed will cut maybe 50 and 50 again to
44:54
get rates back down to essentially zero
44:56
yeah I totally agree I I i did a note
44:59
recently on the corona virus and what’s
45:02
behind it I think it’s actually
45:03
extremely transmissible it’s very
45:06
different from SARS in that respect I
45:08
don’t think quarantine is good do
45:11
anything to spread to to thwart its
45:13
spread
45:14
it’s it’s not all that deadly but if
45:17
it’s only 1/2 or 1% and half of China
45:20
gets it and ultimately half of much of
45:22
the world gets it that’s still an
45:24
enormous death toll well you know so
45:26
Neil I looked at just a simple thing is
45:28
the current growth rate of the virus
45:30
outside of China is roughly what it was
45:33
in the beginning of the Wuhan an
45:35
incident when it first started it’s
45:37
basically doubling every seven days
45:38
right now the numbers are small now but
45:41
in eight weeks time that would be a
45:43
million people affected worldwide right
45:46
so you know people have to understand
45:48
compounding and how fast that that works
45:50
so the point I’ve always raised with
45:53
this is I don’t know the answer but I
45:55
know how to trade it and you have to
45:56
trade the panic you trade ahead of the
45:59
fear because nobody knows anything and
46:00
though he’s gonna know anything probably
46:02
until April May so in which case the
46:05
market is gonna have to trade on blind
46:07
panic and headlines so that makes it a
46:09
very and I think the Fed will have to do
46:11
the same and so that makes it a
46:13
relatively easy trade for fixed income
46:16
because it’s has to price in the
46:18
potentials for something bad for the
46:20
time being and so that’s how I’ve looked
46:21
at it also as well trade drops further
46:24
and simple things like for example China
46:28
under the trade agreements was post buy
46:31
more
46:32
u.s. goods it needs the dollars its
46:33
buying less goods from let’s say a
46:35
country like Brazil where ports oi beans
46:37
from Brazil needs dollars it’s now
46:39
dollar starve because China’s taking the
46:41
dollars from elsewhere and world trade
46:42
has fallen so the whole thing is
46:44
creating a setup that I think is a
46:47
little more toxic than people understand
46:49
I think the dollar may be the thing that
46:50
breaks it all sell on the rumor and buy
46:54
on the news right so and you’re right
46:57
it’s all rumor I often remind people
46:59
that if it’s it if it’s only killing 100
47:04
people a day just to keep you know I’m a
47:06
demographer right so I have to keep
47:08
things in perspective in China they’re
47:11
approximately 50,000 or 60,000 people
47:14
who die every day anyway right I mean
47:16
you’ve got a population that large so if
47:20
it were only a hundred a day this
47:21
wouldn’t even be noise you wouldn’t even
47:24
be able to see it it would be a no
47:26
invisible stochastic pattern I actually
47:29
don’t think it’s just a hundred a day
47:31
I’ll just tell you I don’t think it’s
47:33
that and I think it’s spread much more
47:36
widely but yeah and I think the other
47:40
key thing here is I think the point
47:43
you’ve raised right and I keep telling
47:46
people forget that’s what you’re saying
47:48
is dead right this is why people talk
47:50
about the flu and all this other stuff
47:51
the reality is is China’s outsized
47:56
response shows how scared they are of
47:59
something like this exactly so that’s
48:01
doing well it prompts an outside
48:04
response from every other country
48:06
because the political fallout from not
48:10
doing this is even worse yes
48:12
so behaviorally none of us are going to
48:15
get them as planes as much at the
48:16
marty-mar all gonna change our behavior
48:18
even though the death rates are super
48:21
low for people who aren’t old and aren’t
48:24
male so the reality is it doesn’t really
48:28
affect anybody and unless it turns into
48:30
the Spanish flu and it’s still possible
48:32
we don’t know but the but the behavioral
48:35
outcome is everybody is going to be
48:37
affected by it because nations are I I
48:40
agree with that
48:41
and I don’t think I will turn into this
48:44
Spanish flu but but anyway I agree this
48:48
last question last part of the question
48:50
was how is going to influence the
48:51
elections we haven’t talked much about
48:53
the elections what you see coming up but
48:56
the timing is interesting right I mean
48:58
if something if we are reaching a
49:00
turning point in the business cycle
49:02
you go ahead another six months right
49:04
and and and people are look so I think
49:07
what very much resonated about your work
49:10
is is here we go and I realize it was
49:12
after 2007 that I thought well the next
49:16
cycle may well be it because we’ve
49:19
talked about in this conversation that
49:22
the debt cycle is probably the last bit
49:24
the corporate debt is the big issue here
49:27
central bank bubble well that’s about to
49:29
finish as well and you’ve got the
49:31
business cycle finishing and you’ve got
49:33
this shift of a population from
49:35
productive workers to net dive esters so
49:40
you’ve got this enormous structural
49:41
shift with a new population coming in I
49:43
mean you couldn’t ask for a better Niel
49:46
how tick list of opportunities to create
49:49
a fourth turning yeah so and you’ve had
49:51
exactly as I think you talked about
49:53
several other people have talked about
49:54
as a great guide Dee Smith is a good
49:56
friend of mine his DS always talked
49:58
about well first what they do is look
50:00
backwards so look at the the Trump
50:03
strategy and the Boris Johnson strategy
50:06
they’re basically looking back to the
50:08
past we can go back to that and that’s
50:10
appealing to the older voter is there’s
50:13
a rate of change going on of which you
50:15
don’t understand you’re not comfortable
50:16
with but we can turn back the clock of
50:18
which obviously we can’t so we can’t
50:21
throw all the immigrants we can’t go
50:24
back to 1950s England and watch the
50:26
crickets on the green and drink pints of
50:27
warm beer it’s gone forever
50:29
and the whole world is up for change so
50:32
when you have an election you now have a
50:35
mighty polarized country especially in
50:38
the US and you have a potential for an
50:42
upset again I think and I think the
50:44
upset within your framework could be
50:47
Sanders and Sanders and teaming up with
50:50
somebody like Elizabeth Warren and AOC
50:53
and the whole progressive movement
50:54
together
50:55
well that would change almost everything
50:57
that we know
50:58
today as creating some of the big
51:00
structural problems that we have today
51:02
as well or at least it’s a solution I
51:04
don’t know what the outcomes are yeah I
51:06
remind Republicans of how delighted
51:09
Hillary Clinton and the top Democratic
51:13
leaders were back in 2016 when Trump was
51:16
nominated do you remember that oh my god
51:19
they’re gonna win in a cakewalk do you
51:21
remember that hey man here’s a guy who
51:22
believes in protectionism and
51:24
isolationism in these words that
51:27
couldn’t possibly win in a modern day
51:29
and age and ID all these Republicans
51:33
saying Oh socialist no one’s gonna vote
51:35
for it so he’s beating Trump and a lot
51:38
of these head-to-head polls I don’t know
51:40
if you’d go on a real politics take a
51:42
look at head-to-head polls and I think
51:44
he’s a lock up for the election I think
51:46
he’s a lock up for the nomination I
51:47
should say well and I think I think it’s
51:50
gonna be a fascinating contest and I’ll
51:53
tell you something from everything that
51:55
I monitor I Trump himself he’s the one
51:58
he want most the does not want to run
52:01
against he would much rather run against
52:04
Bloomberg and he says it all the time
52:05
says Bloomberg just bought himself into
52:07
the election Bernie Sanders has real
52:10
supporters and that’s the world Trump
52:14
knows right a polarized nation with real
52:17
supporters it’s a problem is the problem
52:21
is is for him to attack Bloomberg is
52:25
relatively straightforward cuz
52:27
Bloomberg’s are centrist run an East
52:29
Coast billionaire and all of the things
52:30
that the design Christ is against
52:33
Sanders looks more like Trump in many
52:36
respects yes exactly he is the
52:38
postmodern candidate for the left
52:41
Trump is already the postmodern
52:43
candidate for the right let me get to a
52:45
couple of other these questions because
52:47
I you know yeah my gosh okay we have
52:51
another one for younger investors in
52:53
their in their 20s and 30s who are
52:56
worried about the potential crisis
52:58
looming on the horizon demographics in
53:00
pension shortfall assets at all-time
53:02
highs coronavirus etc how would you
53:05
recommend approaching asset allocation
53:07
for a long term growth okay here we’re
53:10
asking you I will
53:11
an asset strategist right what do you
53:14
say about asset allocation for someone
53:16
in their 20s and 30s okay so I’m have a
53:19
different view to many my first view is
53:23
you are your best asset how you leverage
53:26
that in an entrepreneurial world can
53:29
make or break everything for you so if
53:32
you have abilities to leverage your own
53:34
abilities for income that can last your
53:38
lifetime whether it’s because you happen
53:40
to be a good chef or whether it’s
53:41
because you have the brain that allows
53:43
you to create a business and run it use
53:46
that first the biggest investment you
53:47
can make is that then secondly okay at
53:52
some point this dollar is not going to
53:54
keep going up it may in fact be broken
53:56
up in some way shape or form
53:58
with some sort of a chord or the rising
54:00
of digital currencies and a number of
54:01
things that will mean that emerging
54:03
markets at the end of this cycle are
54:05
going to be almost historically cheap
54:07
this is the second largest
54:09
underperformance of emerging markets in
54:11
history and it’s getting very close to
54:12
being the largest by the time the
54:14
dollars finished its move emerging
54:16
markets gonna be cheapest chip so you
54:17
can buy markets with great demographics
54:20
great tailwind high savings all the
54:22
things you’ve ever wanted ever dreamed
54:24
of the same that the Silent Generation
54:26
got you’re gonna get them all over again
54:28
they’re just not in America so that is
54:30
the great alloc allocation for me and
54:32
the other thing so that’s why I talk
54:34
about countries like India or Indonesia
54:35
or Malaysia or there’s a bunch of these
54:37
Philippines all of these I also like
54:40
countries like Iran and Morocco and you
54:42
know there’s so many countries that
54:44
really are interesting to me so you’re
54:47
gonna get your frizz bergen’s a bride
54:49
before you get them here at home yeah
54:50
that’s probably right because you know
54:53
we think I think you will agree that the
54:56
likelihood of develop markets recovering
54:58
until this baby boom generation is
55:00
through the hosepipe it’s not is not
55:04
high so in which case you end up with
55:05
these low markets that trade up and down
55:07
with the business cycle but don’t go
55:08
anywhere and I think that is where would
55:10
you two go for the US but the emerging
55:13
markets do the opposite they’ll just
55:14
take off and then finally I you know I’m
55:16
a big believer in in the future
55:19
financial system being built because I
55:21
also do think it’s built around the both
55:23
turning narrow
55:24
which is that whole digitization of
55:27
assets the tokenization Bitcoin and the
55:30
whole thing that’s going on there I
55:32
think that is a once-in-a-generation
55:34
opportunity to invest in an entirely new
55:37
system not one that we’ve seen since I
55:40
guess the rules-based global order
55:41
system was put together and
55:42
globalization took off allowing people
55:44
to manufacture goods in different
55:45
countries around the world and trade
55:47
easily so I think this this is a really
55:49
big opportunity can I ask you another
55:51
thing where well if if we do ever if we
55:53
do ever in a recession scenario what’s
55:56
likely to happen to the long bond here
56:00
at home so I think bond
56:03
I think bond yields go to zero what so I
56:05
think yeah so that’s an opportunity as
56:07
well in terms of just the business cycle
56:09
yeah for the business like a shorter
56:12
term opportunity I’ve been banging the
56:13
drum about this forever and I’ve come on
56:14
and spoken to Keith about it numerous
56:16
times is you know just buy bonds buy
56:19
bonds because the capital gains
56:20
opportunity is huge
56:21
let alone the protection here’s another
56:24
question just to follow up on that what
56:26
do you think about real estate and
56:28
precious metals gold and silver risk
56:32
metal gold and silver I think if we’re
56:34
moving into a situation where we’re
56:35
gonna have much more monetary largesse
56:38
when we run out of interest rates
56:39
I think gold and silver do well I think
56:41
that’s a known narrative now and think
56:42
people understand it real estate I think
56:44
is a very complicated narrative and I
56:46
think you’ve touched on this a lot I
56:47
think it’s a bifurcated market for a
56:49
long time I think the stuff that the
56:51
baby boomers want to sell nobody wants
56:53
to buy because they want to live there
56:54
and the stuff that Millennials want to
56:56
buy just keeps going up in price and
56:58
they can’t get hold of it so it makes it
56:59
a very very difficult mark okay and
57:01
there’s no market clear for six paper
57:05
houses in rural New Jersey because
57:08
Millennials don’t live there so what
57:10
you’ve got is this holding out of the
57:12
baby boom places and we saw this in
57:14
Japan all over Japan is the whole town’s
57:17
we sit in Spain we’ve seen Italy
57:19
sit in Greece this whole town’s just
57:23
completely devoid of anybody under the
57:25
age of 70 or 80 right well poverty so
57:29
you got a bifurcated property market I
57:31
guess yeah the only exception of course
57:33
are all the millenials living at home
57:35
because you know that’s the that’s the
57:37
co housing and the
57:38
shirring narrative you see that
57:40
particularly in southern Europe I mean
57:41
you just look at Italy in Spain where
57:44
you’ve got just incredible ratios of
57:46
homes with adult children living in them
57:49
the reason they do that there is that
57:51
you know 15 16 17 % of the budgets of
57:55
those countries are going into pensions
57:57
which are going into these households
57:59
with older workers or retirees the kids
58:02
have to go home to get a piece of that
58:04
you know sort of like pilots just come
58:06
you know not from that angle it’s just
58:09
look if you look at the combined issues
58:11
that the family faced the kids can’t buy
58:14
the houses they both have to work they
58:17
can’t afford the babysitter or the nanny
58:19
it’s difficult to afford the cleaner and
58:21
they’re working 24 hours a day
58:23
their parents have an asset which is a
58:25
big house or a bigger house they have
58:28
some retirement savings and they have an
58:30
ability to a alleviate the workloads
58:33
which cost money to hire third people
58:35
230 people to do and additionally they
58:38
have the ability to work part-time which
58:40
is what we’ve seen of that of the older
58:42
cohort so net net it’s a huge
58:44
beneficiary for everybody if people
58:46
would move into multi-generational
58:48
households particularly people with
58:49
young kids it’s a game changer it
58:51
changes the entire retirement
58:53
demographics of the parents and the
58:55
entire future opportunity set of the of
58:57
the millennial kids it and it’s a
58:59
no-brainer
58:59
hey I’ve told everyone that you know
59:03
don’t be disappointed or don’t be
59:06
disgruntled by this this is probably the
59:08
best news for the long term political
59:11
economy the United States because it
59:13
allows us to maybe pare back on all
59:15
these third party transfer payments
59:17
between young and old if they just
59:20
simply live together this there is there
59:23
is nothing could be better news for our
59:25
long-term you know just just liability
59:29
situation in our economy I have one
59:32
other I’ll just answer it I have another
59:33
question here someone said what book
59:36
would you recommend is a follow-up to
59:37
the fourth turning I say I get calls
59:41
every couple of weeks from my agent he
59:44
wants me to come out with a new book and
59:46
I will just say it’s it’s questions like
59:48
that that will speed me up
59:51
right now I’m very busy at it hedge I
59:53
but I absolutely do want to write this
59:56
next book where I go ahead another you
59:59
know ten or another ten or twenty years
60:01
kind of into the into demography and
60:04
into the generational cycle Raul this
60:09
has been great I don’t know if there’s
60:10
any last message you want to add about
60:12
you know what you’re doing or how you’re
60:16
feeling up yeah just just a quick thing
60:19
it’s a shameless plug for real vision I
60:21
think many had joy people know about it
60:23
but we’ve got currently a two-week
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special and very passionate about as you
60:26
can tell which is about the retirement
60:28
crisis and what people can do about it
60:30
but real vision you know has some of the
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well it has the world’s best financial
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extraordinary roster of great people and
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signing up for real vision now is the
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60:56
just go to real vision com will find us
60:57
on Twitter and get hold of that
60:59
yeah and AJ we we love real vision so I
61:03
visited often so thank you so much Raul
61:08
it was it was a pleasure speaking with
61:10
you after all this time reading about
61:12
your work and listening to you so I’m
61:14
glad we finally have the time to do this
61:17
yeah I’m be pleased as well I’ve been
61:19
desperate and sit down with you so at
61:21
least over Skype but one day we’ll have
61:22
a glass of wine and chat properly
61:24
alright roll thanks so much
61:26
okay
61:34
you
61:46
you