Transcription
Well, as you know, we had a very long-term secular bull market in equities and in bonds until 2020. [music] And since then, bonds have been declining. But, in general, asset prices have tended to go up because of continuous money printing and monetary ease. I mean, they increased interest rates since 2020 [music] to 2024. But, basically, after it's they cut rates, but they didn't cut rates from a very high level when you compare the bond yield to the rate of inflation, to the rate of cost of living increases. So, we had essentially [music] interest rates that couldn't go down all that much. They went down somewhat on the short end, but on the long end, they didn't go that much down.
I'm reasonably positive for bonds because I think that in bonds this year, you will lose less money than in stocks. That's not an endorsement to be long bonds, but to essentially own bonds as a substitute for something that may go down much more. And I feel that the bull market in assets, notably stocks, may have come to an end last year or in December a major top in 2025 from where we may go down for a while. And [music] my sense is that possibly bonds and high-yielding stocks, high dividend stocks, [music] may be a substitute for the Fang Seven stocks and the Magnificent Seven stocks that were the leaders of the market in the last few years.
Many people bought gold as a substitute for the US dollar, but it looks as if the US dollar is now stable or even appreciating against other currencies. So, I think that gold may be in a correction phase. I don't think that the bull market is necessarily over because I don't believe that central banks around the world, given the very high level of government debt that exists in most countries, that central banks around the world can actually tighten monetary policies. The damage would be very considerable. So, my sense is that they will continue to print money and that this will continue to diminish the purchasing power of money. In other words, your money depreciates in value as it has over the last 40 years. I mean, 40 years ago, you had a dollar, you went out, you could buy a much larger basket of goods and services than you can do now. And if I look at the leadership in the Western world, mostly in Europe and especially now in the US with Mr. Trump, I think that under him, the purchasing power of paper money will diminish even at a more rapid pace than until now. And that means that people will opt for something that has throughout history been a stable currency, and that is gold and silver.
A billion dollars a day for the US government is very common. I mean, the budget in the US is something like 7, 8 trillion dollars a year. And [music] the war expenditures, that is true that it's a billion dollars a day or more. But, the Pentagon's budget is more than 700 billion dollars or they're talking now about a trillion dollars for 1 year. So, I don't think that it's all that disruptive, but for sure, the war is contributing to prices not going down as they should. The price level or the rate of cost of living increases will go up at a faster clip, and that will lead to higher interest rate. The problem is that the government debts interest payments are now over a trillion dollars a year, and that they will increase much more if interest rates don't go So, in the end, the government in the US and elsewhere, they will be forced to print money. Otherwise, the money is not even there to pay the interest on the debts.
I think we in the Western world are in a huge problematic phase in the sense that whatever we do, the result is painful. Either the prices will go up more and interest rates go up more, or you can maybe lower prices, but at the expense of huge discomfort because the whole country is based on appreciating assets, appreciating stocks, and appreciating residential real estate. And if that doesn't happen anymore, then people will be hard-pressed financially and will not be able to spend much more money, and that will then affect negatively the economy and the employment conditions. In a war during which stocks go up, and there wars during which stocks go down. If before the war, stocks were very low, a war can actually be positive for stock prices. Then, when the war starts and stocks are in the sky as they were in the US at the end of 2024 and in 2025, then the war as we have now may not be very favorable for stocks.
Well, the higher the price of oil goes, the more people have to pay for energy. And we know that people pay more for electricity already and so forth. I mean, my sense is that rising oil prices lead in general to a rising price level. Having said that, I want to stress that if oil prices go up strongly and the central bank doesn't print any money, it doesn't need to be inflationary because people have to spend more on oil, and then they have less money to spend on ice creams and toys. It all depends on the central bank's action and also on the treasury because you can essentially increase the deficit of a country meaningfully. But again, it will depend on the central bank that they finance the deficit. If they don't finance the deficit, the government spending will obstruct or reduce private spending. So, it doesn't need to be inflationary. But if the central bank prints money, it is inflationary. And every government in history, whenever they needed money, they printed money. It's the easiest way to postpone the problems to the next king, the next pope, the next leader of the country, and the next government. And in democracies, since nobody is ever responsible for anything, nobody ever goes to jail in a democracy except someone who behaves very badly, then they put him to jail for a while. That is the pattern. And in my view, under Trump, I would prepare myself for very high inflation rates.
I want to stress here, the public is of course misled by the government. The government will say, "Well, we have inflation. Why? Because of Putin, because of the late Khomeini, because of Xi Jinping in China." And that were all kinds of excuses are only used by lunatics, but that the government is serving it to the public because they will never admit it to the public that money is losing its purchasing power at an alarming rate. Every inflation has not been noticed by people vividly. People go to work, then they get a salary increase, say 5%, and then they're happy. They get more salary. They don't realize that the prices on the shelves in the supermarkets have gone up 10%, but they get a 5% increase in the salary. They think, "Oh, I earn much more. I'm so clever." No, prices in the supermarkets go up by 10%. This is something the government will never tell anyone. Of course, they have for social security. If they adjusted according to cost of living or to true cost of living, would be much higher. They cheat the public. The truth is so ugly.
The impact of the war, combined with the impact of having a leader in the free world being very erratic and extremely emotional, the consequence of that is very high volatility. You can have gold go up a few hundred dollars in, say, a week, and the next week is down a few hundred dollars, and you could have oil moving up now, and then they announce that there are negotiations about a cease-fire, and oil tumbles $10 a barrel. You understand, it's very volatile, and that's why I'm reluctant to make any precise projections. But, in general, financial institutions are still way overweight the Magnificent Seven stocks, the Nvidias of this world, the semiconductors, and so forth. And these stocks are highly priced. They're underweight still emerging markets, they're underweight foreign markets, European markets, and they're underweight the oil and energy stocks. If you look at the size of ETFs and you compare them to the market capitalization, the money that is in energy ETFs is very small relative to what it's been in the past. And so, I think from a longer-term perspective to own some energy stocks is desirable. I also think that bonds and utilities are pretty much the most hated stocks. I would own some bonds because if the economy turns out to be as weak as I think it is already, Wall Street looks at the economy of Manhattan. And Manhattan is thriving because the asset values of bonds went up and so forth, and people have made a lot of money, and the rents in Manhattan go up, and people have money in the pockets through bonuses, and they are in the financial sector, and so forth. But, 70% of Americans are struggling. They pay their debts months by months when they get paycheck. They have no cash. The savings rate is at a very low level at the present time, and people go deeper into debts to maintain the standard of living. But, if interest rates don't go down, they'll be in trouble.