[00:00] It does seem like there's so much
optimism stars are aligned, especially
[00:03] with Trump saying, you know what, the
war is ending or, you know, we're done
[00:07] with this.
We've had him say that about 49 times
[00:10] since the war started.
Some say even like five times in the
[00:13] last nine weeks.
Why should we care and do we care?
[00:17] Not really, because I think that, yes,
we care if oil prices were to really go
[00:22] parabolic.
But I think that the big story and
[00:24] that's very clear even from the opening
remarks from your team, is that this is
[00:28] all about A.I., Right?
That's what's really driving markets
[00:32] around the world.
If you look at even relative
[00:34] performance, it's all about A.I..
So just stepping back a bit that
[00:41] something similar happened last year,
which is that we were all obsessed with
[00:45] that it's on the news front and yet that
it did go up.
[00:49] But people forgot about that story
because it was superseded by the
[00:54] amount of CapEx which is happening as
far as air is concerned.
[00:57] Something similar is going on this year,
which is that, yes, oil prices have gone
[01:01] up.
They have settled at a much higher
[01:04] plateau even after the decline over the
last day or two.
[01:09] But the AI boom is just so much bigger
that it's swamping all other effects.
[01:15] So it's very hard to look as to what
happened with the tariffs, which were
[01:18] the negative, that
the average tariff rate in America today
[01:23] is much higher than what it was.
Even though people talk about Trump
[01:27] having walked back and stuff, which is
true, but it was two and a half percent.
[01:30] The average tariff rate before Trump
started the escalation on the trade war.
[01:36] And even after he pulled back, we
settled at about 10% or so, very
[01:40] significantly higher from where we were.
And yet the markets and the economy
[01:45] withstood all of that, mainly because of
the EIA boom.
[01:48] Same thing is happening this year that
oil prices are higher, but because this
[01:52] boom is so powerful, the companies just
keep increasing CapEx.
[01:57] Everyone's convinced that the world is
moving towards is the future that that's
[02:02] all that markets seem to care about.
Interesting.
[02:04] You talk about parabolic and we have
seen parabolic moves before like gold,
[02:10] silver and even oil to to some extent a
moment in time,
[02:15] but never at this scale.
The question really is how long can this
[02:18] last?
I mean, the momentum, the rally can't go
[02:20] on forever.
What are the catalysts you're looking
[02:23] at?
So like I framed this in like three
[02:25] ways, really.
One, that if you look at history, the
[02:28] last 300 years, every single
technological innovation has been
[02:33] accompanied by a financial bubble, every
single know from the railroads to the
[02:37] Internet, canals, whatever you look at
it, it's all been accompanied always by
[02:43] a financial bubble.
Because when you have a great
[02:45] technological breakthrough, it's
fantastic for the world.
[02:48] That's what the world progress is on.
But it leads to a huge amount of over
[02:52] excitement.
Companies invest and then they
[02:56] overinvest.
And so that's how it goes on.
[03:00] But there are two lessons to this.
One, that very rarely do these
[03:04] companies, which are investing and are
making money on their investment because
[03:08] they typically overinvest, it's the
consumer that ends up making money.
[03:12] And the second most important thing is
this and we learned this in 300 years of
[03:15] looking at bubbles, that the consistent
factor which pricks the bubbles is that
[03:21] when you have higher interest rates
until you have high interest rates or
[03:25] some sort of a liquidity event which
tightens
[03:30] money in the market place, bubbles don't
just burst under their own weight.
[03:35] So I think that's what that's the zone
we're currently in, that interest rates
[03:39] are pretty stable across much of the
world.
[03:41] I'm watching the ten year in the US
obsessively.
[03:45] It's not, you know, in a any sort of a
major breakout, it's stuck between four
[03:51] and four and a half percent.
Now.
[03:53] The tenure in the US to get to 5% or
more, that's when I think that you would
[03:58] begin to get people asking questions,
What's my return on investment?
[04:01] How much are going to make out of all
this massive CapEx I'm spending?
[04:05] Until then, this arms race goes on.
So, yes, this is a bubble.
[04:10] When I look at the like, I have four
criteria to try and map out if we have a
[04:15] bubble or not.
It deals with overvaluation over
[04:19] investment, over leverage and over
ownership.
[04:23] The falls that I call them
on most of these, for us, this is quite
[04:28] advanced.
Now you can argue that we not that
[04:30] leverage the balance sheet of these
companies which are in overinvesting
[04:35] now.
They are still doing it out of the cash
[04:37] flows.
The debt they're taking is still
[04:39] relatively small, but apart from that,
we are overvalued.
[04:44] On most metrics, we are overawed.
I mean, 60% of American households today
[04:50] have exposure to the equity market for
the highest in the world.
[04:54] Actually, it's the highest in the world.
And in fact, America is the only country
[04:58] where people.
Have more of their wealth in the stock
[05:03] market than it did even in the property
market, which includes their own homes,
[05:07] typically in China or other places.
The it's the other way around.
[05:10] People are five times more wealth in the
property market, in the stock market.
[05:14] So this is a very extended bull market.
But having said that, as I said, that as
[05:19] long as interest rates are low and
interest rates I see are low because
[05:23] there are about three and a half
percent, 4%, what do we think of the
[05:26] short interest rates?
But nominal GDP growth is much higher,
[05:30] you know, like it's running at four or
5%.
[05:32] Concentration risk.
You take a look at Korea and Taiwan, all
[05:37] the massive rally has been pretty much
down to three stocks.
[05:40] Exactly.
I mean, the risk has become structural.
[05:43] No, absolutely.
I think that this is why looking at
[05:45] indices has become very misleading now,
because, you know, the same few
[05:50] companies are driving the index.
So you spoke about the emerging market
[05:53] index.
In fact, the emerging market index today
[05:56] is even more concentrated the than the
US index.
[05:58] Remember, for years we have spoken about
how in the US, the S&P 500 is very
[06:02] concentrated, dominated by these big
tech companies, almost like never
[06:07] before.
In emerging markets, something very
[06:09] similar has happened.
So you have this massive dislocation
[06:12] take place that for this year, markets
like China, India, these are actually
[06:17] down in dollar terms or, you know, like
India still down ten or per cent in
[06:22] dollar terms.
And yet these Korea, Taiwan markets,
[06:25] these are up anywhere between 70% for
Korea, 40% for Taiwan on a one year
[06:30] basis, they've all doubled.
So so getting massive dispersion.
[06:34] So as I said, the world has now become
about a monomaniacal focus on which
[06:40] countries have which countries don't
have a place.
[06:43] India doesn't have AI in India has been
tumbling.
[06:47] And, you know, foreign investors,
foreign funds have been making exit.
[06:51] What would change that?
Would it take an air bubble baths for
[06:55] foreign investors to start pouring money
into India?
[06:57] Yes, I think so.
I think that India has been perceived
[06:59] that way, that it's become an anti I
play because the current phase of air we
[07:04] are in is all about infrastructure build
out who's got the compute, who's got the
[07:09] infrastructure to build all of that and
India never invested that much on that
[07:14] front.
I mean, India, if you look at the amount
[07:16] they spend on research and development
as a share of the economy, it's point 6%
[07:22] or so.
There is this Korea, Taiwan type people.
[07:25] They do, you know, four or 5%
of the GDP in in R&D.
[07:33] Even China, the US is closer to 3%.
Right.
[07:36] And those are very large economies.
So I think that that's been India's
[07:41] so-called fault line.
Now, of course at a later stage when it
[07:45] moves much more to adoption, then maybe
India has an opportunity of using AI to
[07:51] try and improve its productivity and its
efficiency.
[07:54] But currently the problem is that
countries like India are seen on the
[07:58] wrong side of the trade for two reasons.
One, as you mentioned, that they don't
[08:01] have this kind of, you know,
semiconductors or compute which the
[08:05] entire world is chasing just now.
And the second and this may be a bit of
[08:11] a myth, but at least that's the
perception, is that a lot of jobs seem
[08:15] to be at risk because of the disruption
that India has in the software sector,
[08:20] software, even the GCC sector.
So these kind of sectors, you know,
[08:24] there's a job risk and there were 10 to
15 million people Indians employed in
[08:27] this, and some of them tend to be
well-paying jobs in India.
[08:30] And jobs has been a structural issue in
India.
[08:33] So on both those fronts, India is seen
as a bit of a risk.
[08:37] Now, at some point in time, valuations
will get attractive.
[08:41] And the fact that India, you know, that
the nominal GDP is growing at 10% will
[08:46] offer an attractive entry point.
But for now sentiment has become yeah,
[08:51] that we and it's true not just of India,
it's true of some of the Southeast Asian
[08:55] countries as well.
Like I was having a look at Philippines
[08:57] the other day, you know, like no one
even talks about it.
[09:00] But the Philippines market today on some
metrics is trading at the lowest
[09:05] valuation since the East Asian financial
crisis.
[09:08] Would you buy it then?
But I think that, you know, like the way
[09:11] I'm thinking of the portfolio today is
this, if I can say so, that you think
[09:15] about how much air you want in your
portfolio and then what are the cheap
[09:19] hedges that you can have in the
portfolio, which is that these are
[09:23] cheap.
They will not work just now, but let's
[09:25] say this reverses that for some reason
interest rates go up or the bubble
[09:29] bursts, you know, like what are the
things that could benefit?
[09:33] So yeah, I think that the India
Philippines, you know, could be the kind
[09:36] of places.
But in general, what I find is that the
[09:39] best hedge to this currently is not even
gold at all, because what's happened to
[09:43] gold is that gold used to be a good
hedge, but because it had such a peer we
[09:47] rally, it's no longer become a risk free
asset.
[09:51] There's a risk that embedded in that
price.
[09:53] So yeah, gold will do okay.
But I think that the best quality stocks
[09:56] in the world today are the best.
I do this because quality as a factor
[10:02] has done quite poorly, particularly in
international markets, and the quality
[10:07] would be good.
Companies with an artery of more than
[10:09] 15% some earnings growth, but they have
all done poorly because there's been
[10:14] such a focus on just having a I and many
of the I please.
[10:18] I mean, we speak about the Magnificent
Seven apart from that are in fact
[10:21] unprofitable.
You talk about air place they used to
[10:25] say is still the place to be.
And yet back in 2024, you called peak US
[10:30] exceptionalism.
Yeah, that's not the case.
[10:33] We're seeing record after record after
record.
[10:35] Yeah, and we'll continue to test record.
I mean, so I'd written back in, as
[10:40] you're seeing like in December of 2024
that US exceptionalism is peaking.
[10:46] And what did I mean by that?
What I meant was that America had had a
[10:49] 50 year great run of stock market
performance.
[10:53] But I was talking about relative the
fact that the American stock market
[10:57] relative to the rest of the world was
likely to peak.
[11:00] And when I look back at it, that has
happened that even though the American
[11:03] market has continued to climb higher
since December 2024, in fact, when I
[11:08] wrote that piece that you're talking
about, I think since then international
[11:12] markets have outperformed the US.
You know, like despite all this money
[11:16] flooding into America and there's
massive amount of money, flooding in the
[11:20] dollar has, in fact in the margin
weakened,
[11:23] it hasn't strengthened against most
currencies.
[11:25] Now there are some
currencies like the rupee and the peso,
[11:29] etc., which have clearly weakened
against the dollar.
[11:33] Crumbled.
Fine, you can use the word somebody, but
[11:36] generally currencies have done okay.
So international markets have
[11:41] significantly outperformed the US since
December 2024.
[11:45] And that's very interesting despite the
boom happening.
[11:49] So now to the counterfactual that if I
boom and for some reason I think America
[11:54] would be very vulnerable.
So the other follow up piece that I'd
[11:57] written last year for my column was that
America has become now one big bet on
[12:02] high that that and that's why even Trump
and is able to get away with so much you
[12:08] know, like a lot of people here in
Singapore in other places are befuddled
[12:11] that how does America get away with all
these, you know, actions that it takes?
[12:17] And my point is, because America keeps
bailing out Trump or other policies
[12:23] simply because of its preexisting
strengths and because of the AI boom
[12:26] continuing.
That's why the other actions of America
[12:30] are superseded by the AI boom.
You talked earlier about how you're
[12:34] keeping a very close eye on ten year
yields, which you say it's not at 5%,
[12:38] but when you take a look at 30 year
yields at 5% and expect it possibly to
[12:43] go higher, isn't that sending alarm
bells?
[12:47] Well, I wouldn't say alarm bells, but
it's sending like an orange signal.
[12:51] It's telling you that this is what you
should be looking at.
[12:53] As I said, 300 year history of bubbles,
higher interest rates is what kills
[12:57] them.
So if you get higher interest rates, the
[13:00] entire equation changes.
But, you know, this is still broadly, if
[13:05] you look at it, it's been stuck in a
range for a while now.
[13:08] Right.
So in terms of that, but I think that
[13:10] the if interest rates go up, that's when
it tells you, hey, this boom is coming
[13:15] to an end.
Now you can see that it's already very
[13:18] advanced.
I don't want to be around these, you
[13:20] know, like it like in this bubbly phase.
But there's a lot of performance
[13:24] pressure that people are facing just
now, because if you look at even bubbles
[13:27] historically, they typically you get the
best returns.
[13:30] Typically at the end, even in 99 2000,
you know that a lot of people speak
[13:35] about how Alan Greenspan in 1996 had
said this was irrational exuberance and
[13:40] it took more than three years after that
for that to really manifest itself.
[13:43] But we know from that statement the
Nasdaq went up multiple times.
[13:48] But I think that a
detail which is often overlooked here is
[13:53] that even in October of 1999, from then
to the peak, the Nasdaq doubled.
[13:59] So, you know, the the the end when it
happens, the last phase of this, when
[14:03] there's a scramble going on, the price
action tends to be the most parabolic.
[14:08] And that's what we're seeing in some
markets like in Korea and these places,
[14:12] you know, like now all of a sudden these
chip stocks, they they going up 10% a
[14:16] day.
I'm talking about and we're talking
[14:18] about really large caps chip stocks here
like Samsung High Index.
[14:22] And still, you know, that's not normal
price action.
[14:25] That tells you that this isn't a
parabolic stage.
[14:28] But they said that until interest rates
come in, undercut this, it's very hot.
[14:34] There's no science to see that it should
stop right here because these things
[14:38] just tend to carry on with a momentum of
their own.
[14:41] There's so much retail speculation going
on, not just in the US, even in Korea.
[14:46] And then now you have, you know, like
pro-cyclical things going on that
[14:50] American individual investors are now
being allowed access to buy Korean
[14:56] equities as well.
So it just.
[14:59] Fuse this further, We're sure.
I'm just wondering again, the current
[15:03] geopolitical landscape, how are you
pricing that into your investment
[15:07] theory?
Because if you take a look at what's
[15:09] happened, you know, amid this Iran war,
the U.S.
[15:12] has had to move all its weaponry from
Asia to the Middle East.
[15:16] And now we're talking about a shortage
of weaponry.
[15:19] In fact, the U.S.
has told the E.U.
[15:21] that perhaps, you know, all the
transfers of weaponry may have to be
[15:25] delayed.
Inventories are really low.
[15:29] That's a huge risk for the world, isn't
it?
[15:31] Yeah, but, you know, like
markets are very bad at pricing these
[15:35] kind of risks.
And that's because of the fact that, in
[15:40] all fairness, because 99% of the time
these risks never materialize.
[15:44] There are always geopolitical risks out
there in the 1% probability that they
[15:49] materialized, like, you know, like the
First World War or something as grave as
[15:54] that.
The markets are blindsided by that.
[15:57] So that's the problem that, as I said,
more than 90% of the time you have
[16:01] geopolitical risks and they don't quite
materialize.
[16:04] And you know, like there's a line with I
always repeat that history is better
[16:09] remembered than it's lived, that we now
look back and think that this is a very
[16:13] geopolitically fraught time.
But at any point in time,
[16:18] geopolitics always seems that way
because there's always some risk there,
[16:22] even in the best of times.
Know the people.
[16:25] Year before, I think we were born in the
1960s speak about, you know, like the
[16:29] fact that there were all sorts of fears
that us and Russia, the Soviet Union at
[16:35] that point in time would have a nuclear
war.
[16:37] And you had all these exercises of
people hiding under desks and stuff in
[16:41] like America.
Similarly, in the best of times of the
[16:44] early 1990s, the peace dividend coming
through, there was a real fear and
[16:48] Margaret Thatcher and all would speak
about that, that the Soviet Union as a
[16:52] last gasp to stay in in power and to
stay united would launch a nuclear
[16:58] attack you know like to try and assert
its authority.
[17:02] So and that was remember now we look
back at the 1990, there's a golden
[17:06] period about, you know, geopolitical
stability.
[17:08] So my point is that geopolitics is
always volatile.
[17:11] Yes, it seems it's a bit more volatile
now.
[17:14] Could be the last 20 to 30 years, but
the markets are very clear, which is
[17:18] that you do like the fear, geopolitical
risk.
[17:21] And in the 1% chance that something
really disastrous happens, they're
[17:25] always, you know, shocked by it.
How do you think this will play out for
[17:29] the midterms?
I mean, Cam Griffin did say that, you
[17:31] know what, the Democrats are going to
win.
[17:33] Yeah, well, if you look, you know,
here's the problem with the strike,
[17:36] which is that, yes, I think that there's
an overwhelming consensus that the House
[17:40] will flip on that.
You know, you know, like I think that
[17:43] everyone has sort of decided the Senate
is still 5050.
[17:47] And here's the problem in the in the
polling numbers that everyone looks at
[17:51] Trump's polling numbers and they are
relatively low.
[17:53] But the two
points I'll make here, one that every
[17:57] American presidents polling numbers for
the last 50, 60 years have been
[18:02] declining.
So comparing it to history has become
[18:05] fraught because in a more polarized
world, all numbers are declining.
[18:08] And the second point I'll make here is
that the if you look at the generic
[18:13] ballot, the Democrats and their polling
numbers are, in fact, lower than
[18:18] Trump's.
So be it.
[18:21] It's about who you're fighting out.
So that's another reason why Trump is
[18:26] able to get away, because a lot of
people in America are also very
[18:30] disillusioned with what the Democrat
Party is doing.