Transcription
The debt has been a concern for me for the last 40 years, and it's still ticking. You understand?
With money printing, you can postpone problems for a long time. And you ask me how it will end. I want to tell you something. The politicians will never say that. But the reality is, personally, I cannot imagine a situation where it would end well. I think it will end badly. That's why I'm telling my investors and clients and so forth and myself that I want to own some assets that would be affected the least if this whatever happens. Say, I think it makes sense to own some precious metals and some precious metals shares, and I suppose it makes sense to own resources like oil and rare earth materials and so forth and so on. But I'm not sure. That's why I diversify in my mind. I don't know, but it could be war. World War II is a possibility.
And Russia and China, I have to say, have been remarkably patient with the clowns in the western world who run their countries. Just consider your Modi in India. Your country has 1.3 billion people, and then you have a trade minister of England coming to your country and giving you lectures about democracy. I think it's a wonderful thing. And of all people, a British version, because if there is one nation the Indians blame for their relative decline in the 19th century, it's obviously the British Empire, because they ruled India in the 19th century until essentially 1947. And have you ever seen Mountbatten, the viceroy of India? That is the best joke for an Indian to show British politicians who lecture them. And DTO, you know, you have some people like M. He has no power, and he has an incredible mess in France, and he goes and lectures Xi Jinping in China. I mean, as an international observer, you shake your head.
The western world has to wake up, because I know exactly what happened is when China opened up in '78, everybody laughed and said it's never going to work and so forth. And then by the 1990s, they saw that it's actually working. But they said, well, the Chinese will continue to manufacture, you know, calculators and toys and garments and shoes and so forth. And we, the western world, we have the platform companies, they're called Nike, Apple, what not. We just put the label on it, we sell it, and we make huge profit. But now the Chinese have brands, and they have in technology companies that are way ahead of western technology. So the competition has shifted and so forth. And the next one will be, you know, you have countries like Indonesia, more than 200 million people and so forth. So the markets are gigantic. 88% of the world lives in the countries Trump wants to impose tariffs on. You can imagine how popular the American policies are. I mean, in the present situation, if you're the western world, you would want to impose economic policies that are desirable, but they alienate. They actually push Russia, China, Iran, and so was. And India, even India and China have never been able to see eye to eye, but now they're in the same boat.
You know, I have different portfolios, and some are valued in euros, and some are valued in dollars, and some are valued in Swiss Franks, and some Asian petroleum, which I value essentially in US dollars. And obviously, the currency movement has a big impact on the valuation. But I don't know how to value a portfolio anymore, because in dollar terms, they will tend to go up, but they may go down if I convert it into say, gold or silver. They may go down in value, or if I convert it into wheat and corn. So you're sitting there and you have assets, but you don't know really how to value them.
Can you call Mr. Jon Powell and Mr. Trump? How much money do they want to print? Trump, in a perfect world, he would like to cut short-term rates to 1%. I mean, we have already now an increase in interest rates, but as I pointed out to you, in the US, there are $9 trillion sitting in money market funds. There's plenty of liquidity. If liquidity was tight, the bond spreads, lower quality against high quality, would be much wider. If money was tight, precious metals would be down 50%. If money was tight, the stock markets around the world would not be all going up and booming, and you would not have the excessive speculation you have. We have record speculation. I mean, I didn't even know that it existed. Day options, their expiry is at the end of the day. So I think these are all signs of plenty of liquidity. As long as this plenty of liquidity is there, in my view, money has not become tight, but the cost of money has gone up, but it's not tight. And that leads to this situation where the 50 richest people in the world, they've become immensely rich. You know, like before '29, the rich people became immensely rich, but the poor people are struggling. This is the current state of affairs, and I think it will end badly. But exactly how badly it will end and when badly, I wouldn't know. But I would keep this in mind as someone with assets, I would think maybe I have to reverse my thinking from how do I make the most money in the bull market of assets to how do I preserve my capital and lose the least money if something goes wrong, because as Mark said, something will go wrong. There's no question about it. The question is only when.
I had friends at Merrill Lynch. They were the strategists in the early 80s at Merrill Lynch. They predicted already then that there would be a debt collapse, but it hasn't happened yet, but it will happen for sure, inevitably. It can happen in a nice way, I tell you, by the government tightening the belt and taking difficult measures. Like Milei in Argentina, he took difficult decisions. But in a functioning democracy like the US, I think it would be very difficult. And the worst part of the US is that both parties like to spend money. None of them wants to tighten monetary policies and reduce the deficits. They all want to spend. The Democrats more on this, and the Republicans more on wars that don't make any sense at all. But they are more associated with the defense industry, industries that benefit from wars, and people that benefit from wars. Never forget, a lot of people benefit from wars.
The question is, are rate cuts appropriate? In my view, no. They shouldn't cut rates now because money is not tight. And to my being ashamed, for the first time in my life, I actually agree with the Fed chairman not to cut rates. I could never agree with anyone about their monetary policies because they were all inflationary. But now I'm supportive of Powell. Equally for the household that is struggling, because he bought a house at the high price, he borrowed money say at 1, 2% interest and so forth, and suddenly now it's 5%, he's struggling. So you have a lot of people who are not in a good financial condition, but the money printing is kind of keeping them alive. And the rich people, the money printing is enriching them. The system continues, but the statistics show very clearly, and nobody can tell me that the economy is booming. It's just not the fact. It's an illusion. You walk around the street and you see all the people on the street, and they go into shops and so forth and so on, but they all have no money. They have no savings. But for the rich people, money printing is of course very desirable. That's why we're going to have it for sure.
You can look at commercial real estate, how it collapsed. Five years ago, nobody thought that some buildings that were selling for $100 million would then change hands for $20 million. I mean, my view is that the residential real estate reached the peak in 2007, 2008, and then we had a big setback. My view was that this was the peak, 2007-2008. No, the Fed, in their wisdom, superimposed a gigantic bubble onto the bubble that they already created then. That's the problem with the Fed. They never learn anything. They keep on printing money, and when things go bad, they print even more. And so that will one day lead to a complete disaster and the breakdown of society.
But if I were you, I would probably wait, because the condo prices, I mean, maybe you want to buy a house and so on, but the condo prices are coming down now in most American cities. And in my view, the residential property is a very vulnerable asset because it is excessively priced. The demand is not there, and the supply has increased partly. This is important. You see, I'm a boomer. We and your parents and so forth, they all own assets. They don't want the asset prices to go down. But you, the Generation Z, want the prices to go down because they want to be able to buy them. And I think they will come down, in my view, massively. But it may not happen in dollar terms, because if they print money in the US, they can maybe support the home prices and support the stock market in dollar terms, but the dollar goes down. So then when the dollar is down in real terms, your house will have lost value. But the American policymaker will tell you a dollar is a dollar and so forth. Oh, the dollar has a value, and its value has its purchasing power has tended to go down since the formation of the Federal Reserve by 98%, by the way.
I mean, for me, the biggest risk is I get punished very badly because I'm not bearish enough, in my opinion. I should be more bearish. And I have assets, you know, in stocks and in bonds and in commodities and so forth. In my basic view, we had this asset inflation after 1980, 1981, where all asset prices went up. Everybody became rich who had assets, whether you had paintings or whether you had buildings or whatever. And now I think that everything will go down eventually. And I'm sort of thinking what will go down the least. But even if I buy the things that go down the least, they may still go down by 50%, when everything else goes down by 95%. You understand? This is a concern. And I see it with myself. Let's say I'm in a better mood when my assets increase in price. And that's why I think that economists in the US, they underestimate how negative the wealth effect will be on consumption. When people have less money, when the illusion of wealth is deflated, they will reduce their spending meaningfully. They will increase the savings rate. As you know, the savings rate is practically non-existent in the US. It is existent because the rich people have an endless savings rate. Say you earn a year a billion dollars. Your Jeff Bezos and so forth, you earn a billion. How much you going to spend on your steaks in the evening? You may spend on politicians and what not, but even to spend more than say you earn $500 million or a billion and you spend $5 million is difficult to spend more than $5 million a year. I never tried it, but I'm just thinking. I know wealthy people, they live very modestly. They have no interest to spend on anything.