Transcription
I believe that liquidity has tightened for a simple reason that so many asset prices have declined. I mean, if you look at say real estate, people have less liquidity because prices went down and at the same time interest rates since 2020 have been increasing. So, people who borrowed money against their homes at variable rates, they are being squeezed.
And then you have the Generation Z. They're being squeezed because they are big players or speculators in the crypto markets. And most cryptocurrencies have been hit very hard. I mean, down 50% or more. So, I [music] think that there is some liquidity there that has occurred.
And more recently, if you look at stock prices, okay, the Magnificent Seven and semiconductor stocks have sort of held up, but also among them there has been some damage. And many other stocks are down significantly. The stocks that have recently performed are value stocks, oil shares, and the mining companies until just recently, but recently they also got hit and so forth.
And then there we have the Middle Eastern war, the sovereign funds of Middle Eastern countries. Let's look at the Emirates. The Emirates have less cash flow. There's no question about this because their oil exports are down and one of their main components of income is Dubai and Dubai has gone into hibernation [music] at the present time.
I don't believe that we are in a stagflationary environment. We have been for years in a recessionary environment where the typical household's standard of living is going down. In other words, in nominal terms, the government can show GDP growth rate, but GDP is a bad measurement of standards of living. And if we really measure how much people have at the end of the months, we can see that actually it's diminishing because roughly 70% of US households, they live months by months, paycheck by paycheck. They have no reserves. So, nobody can tell me that the prosperity is to be found among the typical household. Yes, people who have assets and are involved in the financial field like myself, we benefit from rising asset prices and we become wealthier, but people that don't have these assets, they become poorer.
In an environment where liquidity shrinks, the liquidity in the past, I'm saying not always, but usually has gone into cash and it's gone into bonds. But the problem is that we're entering this period of illiquidity without that much bond prices being low. In other words, the bonds, say the 10 years yields now slightly over 4%. If I look at Mr. Trump, if I look at the US deficit, the budget deficit, the fiscal deficit, and I look at the trajectory of debts in the US, [music] which cannot do anything else but going up because they need money for social security and for all kinds of benefits and for the army. And increasingly, the government needs money to pay the interest on the existing debt. And if interest rates are already low now and all this happens at the same time, it's difficult to see how interest rates will go down.
Now, the reason I own 30-year bonds, I think the Fed, if the world gets appointed under Trump's pressure, in theory, they could slash interest rates to zero. Now, the bond market, well, they can do it. They can control short-term rates, but the long-term rates, they don't control. And since September 2024, the Fed has reduced interest rate. They cut the Fed funds rate repeatedly. And what happened to the bond market? It didn't rally, but bonds went down. In other words, interest rates on the long end went up. So, this tells me the Fed, to a large extent, has lost its power. But they can still cut short-term rates and in theory, the government could reduce or stop altogether the issuance of long-term bonds and issue all short-term. So, if they issue everything short-term, we'll have interest rates on the debt that are much lower than at the present time. But since a lot of the debt is owned by foreigners, specifically Middle Eastern institutions and Chinese and Japanese and so forth, when the interest on the debt that they can buy is very low, they may choose not to do it. And then the dollar collapses. So, there's really no possibility of a favorable outcome. In each instance, they're going to have to print money just to pay the interest on the existing debts and so forth. And in my view, this will lead to inflation.
But since the beginning of the year, the long bond in America everybody looks at the TLT ETF to determine the strengths and the weakness of the bond market. The TLT is down 1.6%. The Nasdaq is down like 9% and many stocks are down 20% in the first 3 months of the year. So, my view is I rather have bonds. I lose some money, but this is my view after 40 years of asset price inflation. I think that asset prices will go down for everything, including gold and silver and stocks and bonds and everything down, collectibles. But some things will go to zero. All Trump-related companies will go to zero. But anyway, let's talk about the ones that will go down less. I think gold and silver and platinum, they also go down. But if the Trump companies all go to zero and you and I own gold and it goes down 20%, then relatively speaking, we are doing well.
The price of cocoa has gone up. That was 2 years ago and then cocoa came down, but then the price of coffee went up. And the companies that make these things, they use the price increases to increase the product prices. But when the price of the commodity comes down, they don't reduce the price anymore. But the price can go down when the demand shrinks. And if we look at rich people from around the world, everywhere invested in commercial properties. And what has happened to commercial properties? Many have gone down by 80% in price since 2018. And the reason is that life has changed. You know, a lot of people, they stay home. They don't go to restaurants anymore and they don't go shopping to department stores.
Of course, people will say oil is expensive, but it depends how you measure it. If you measure it in gold, then oil is not terribly expensive. Say we start with an energy price of $10 in early 1970s, it was artificially kept low by the international oil companies until 1973 and then we had increase by OPEC. It's up less than gold. It's up less than silver. It's up less than your insurance premiums, that I guarantee you. So, I think actually oil has just embarked on another upward leg in prices. I wouldn't be surprised to see the current oil price being the next normal.
But if I look at the per capita consumption of oil, if I look at it at the US and I look at it at China 20 years ago and at China today and at India now and India is 1.3 billion people. Mr. Trump, he doesn't know that. But anyway, the structural demand for energy will go up and it is true that some alternate forms of energy are gaining market share. But I'm sorry to say to make a blade of a windmill, you also need energy. And to transport the bloody wing of a windmill, you need a truck. That is a huge thing, you know. I mean, people have a kind of the impression that you can get rid of oil and diesel and gasoline. This is simply not the case. It won't happen. And then people talk up, I have a energy saving car, an electric vehicle. Okay, the electricity also has to be generated from somewhere.
I'm sorry to say, I don't think this conflict will be over in like 3 weeks. I think it can last forever because the Israelis want a solution and their solution is actually to get rid of an Iran that could be hostile to them. That means the complete destruction of the country or the domination of the country. It's like a Bismarck, the German Chancellor at the end of the 19th century. He said that preventing war is like committing suicide because you're afraid to die. So, I think this war is a complete disaster and the last thing anyone would want is an Iran that is dominated and ruled by the duo Netanyahu-Trump. Do you think the Russians would like it? Do you think the Chinese would like it? Do you think the Arabs would like it? Nobody would like it. That is a clear and that's why I don't think there will be a peace anytime soon. How is Trump going to tell the Israelis stop bombing Iran? And I tell you for sure, already today, Iran has strong support from other countries. Maybe not yet manpower, but a land force in Iran is going to find very strong resistance. That I assure you. Like in Vietnam.