Transcription
Hello and welcome to the Institute of Liberties this very hot, very sunny week that we have wished for. So now, we cannot complain. No. There you go.
So today, we are going to undertake to give you a little lesson which is less in vogue, than it is a global reflection on both portfolio construction. And when we talk about portfolio construction here, we talk about it from the perspective of building long-term savings, that is to say, some people think of the stock market as a way to make money quickly, to to to take positions on stocks. Here at the Savings University and in our broadcasts that we make to the wider public that you are. It's a bit of a global macroeconomic reflection that then leads us to reflections on portfolio construction.
And among these, there is always a reflection from Charles which is a monetarist reflection, that is to say, to ask the question upstream about the functions of money that we always find, which are three.
You have a unit of measure of value, that is to say, at a given moment, you say to yourself, very well, rather than saying this book is worth four loaves of bread, we will use a unit of value which is to say, this book will cost 8 euros, which is worth 4 loaves of bread at 2 euros. It is still simpler to have this unit of value. That avoids bartering. That avoids bartering which used to take place but which still uh relies on the fact that if you want to buy this book, you must have four loaves of bread, which is not necessarily practical for everyone.
Yes. And then the writer, he might not be very happy to receive four loaves of bread. Four loaves of bread, moreover. So after that, it will make loaves of bread. There you go, that makes four, you need a big family.
So you then have the other value of money, the other function of money which is uh a medium of exchange, again, which we have just seen, and the store of value over time. You say to yourself, I'm going to put it aside so that it allows me, rather than having loaves of bread accumulating, to be able to buy a car eventually with this money that I will store, full of loaves of bread as I need them, because otherwise I would only have stale bread, you know. It's still, there you go, it's still more practical to spread it out over time.
And in the same way, next to this monetary system, you then have uh another another system another function which is uh production systems, financial systems and monetary systems. That is to say, you have your money and jointly you have these three systems. These three systems.
So there, I would like to say something that people may have realized while listening to us, is that research never stops. No, well, it's at the same time, it's pleasant because it means we learn all our lives. We learn all our lives, which is logical since the world changes, the world changes and also because we penetrate better, we understand better and so on. So research never stops.
And so some time ago, I met a man named Mr. Crob whom I interviewed there, it has about twenty thousand views, which is not nearly enough, by the way, because he is a very eminent man. Is it and he is a specialist in complicated systems, you see, things that move in short and so he explained to me that I was thinking in terms of systems. So what I didn't know, I was like Monsieur Jourdain, you know, I was doing Yes. verses without realizing it. Yes, I didn't know. I am I was very happy to know that, but anyway, he finally explained that, I was very, very flattered. But he also explained something to me that I found, that I found absolutely striking. Is that in nature, in life and so on, there are stable systems and unstable systems.
And so I said to myself, well then, maybe we need to think in terms of measurement, in terms of function in portfolio construction. You'll tell me I've been on it for 40 years, I might have found it before. Is the system stable or unstable? And it's an extraordinarily important question because you don't invest money in a stable system the same way you do in an unstable system. There you go.
And so the idea is that when the money we just saw is stable, that gives you a stable system, stable, a stable investment system, the economic system is stable and so on. And when money becomes unstable, at that moment uh a whole series of things happen that no one, not even a cat, would find its kittens. You see, it becomes very and at that moment, you have to invest in a completely different way.
So, I've been looking into this for some time and I continue to reflect and it interests me a lot because well, it's not a reflection that most people make, you know. There you go. And so it's a bit what you had tried to see in this book which is The General Theory of Portfolio Construction which itself was a spin-off of that one. To do but this one is much hairier. So this one, we are currently undertaking to translate it, so you will have it and it's a bit the juice of the brain juice of portfolio construction, of a portfolio with this logic of thinking about external elements such as macroeconomics, such as uh money and then what is very interesting is what what is a stable system? Well, according to the work I've done and the reflections and everything, it's a system at its core in which the store of value is ensured by money. You see what I mean? You don't you say to yourself well you take I see if you are French bonds in the 90s which gave 9 or 10% well that was a good store of value. You see it was stable.
In fact, when you started your career in the 60s, we were in an unstable system. So, you started your career in 1971 and at the time, the financial system was stable. Most major currencies were indexed to the US dollar which was itself indexed to gold. So, it was stable. So in reality, gold, once again, a bit like today for different reasons, we'll get there, uh served as anchor value standards, that is to say, they say, there you go, we say value standards, it served as an anchor and above all it said, well, since there is a limited quantity of gold, the American central bank which controlled the other currencies since all the other currencies were stable against the dollar and gold and the dollar was stable against gold. That you said, that gives me a kind of double lock, you see. I was happy and then it breaks and at that moment, you enter an unstable system.
So, let's recall what happened on August 15, 1971. So, the president decided to say "I repay, I I no longer repay the United States debt in gold if you ask for it. I I I keep my gold and then figure it out yourselves." And so, they tried for a while to make some kind of agreement called the Smith Sonian agreements, but it didn't hold. It didn't hold to say "Well, we're going to try to maintain." But yes, it affected me because it meant that the United States no longer wanted to follow a discipline. When they no longer wanted to follow a discipline, nothing could work. And so from 1973, currencies found themselves without anchor points at that moment in history and there it went wild.
Oh, but completely, that is to say, for those who know, that going from a stable system to an unstable system, well, stock markets, for example, from early 1973 to late 1974, fell between 75 and 90% in terms of what. It was a blow what.
And uh before '71, investors therefore largely agreed to consider that the risk-free asset par excellence was the government bond and that American one. And suddenly, in reality, from the moment there was no longer this anchor to gold, people started to think a little differently about government bonds. Well, there you go. But they said, "But wait a second. If the State is in deficit and if the State prints money like in Gorée, if I put my savings into a thing that is freely printed, it's like having diplomas. You know when 95% of people have diplomas, the value of the diploma drops as it is happening right now in France." And so, it's quite interesting because if we look uh if you want to look on uh in the ah in the information sources that allow it, the indexing of American uh long and English government bonds, there was a correlation of plus or minus 6%, that is to say, there was a kind of return to the mean. That is to say that a stable monetary system is from the moment you have something that is a certain store of value, you can tell yourself that all assets will move against this certain value but around a horizontal line. There you go. So it will be like a kind of snake. There is a snake, it moves at one point you have to buy British bonds, from time to time, you have to sell them then you have to buy them then you have to sell them. And so at plus or minus it's your median, it's fine. You you you if if the British bond was too expensive, you bought it, you sold it, you bought the American bond and then after some time you did the opposite. 1973 arrives, the graph breaks and there suddenly wow absolutely total correlations absolutely total and at that moment what happens is that the guy who bought a British bond who sold a British bond to buy an American bond or the opposite he finds himself short he loses everything he wants because all of a sudden and so the system fracture from a stable system passes into an unstable system and there the investor that you are that we are must also ask the question if you find yourself in 1973 and you played by the rules of old times, you are cooked, you are cooked, you are fried like a banana and there you go because you did not anticipate the present time, you did not understand that we were moving from a stable system to an unstable system.
And that's a that's and so uh that's where I started to think about the markets because and I continue I continue to learn as I just said and what's very interesting today is is what I'm trying to develop on that. You know what we try to do at the Institute of Liberties, is that fundamentally, we have a kind of we have a research company called Gafcal, right. And uh there are lots of people who do who are very intelligent in there, who work a lot and and there is information that comes up but it is still uh easy to use for people who have been in this profession forever. We, I consider that our role at the Savings University and at the Institute of Liberties, is to take the part of this information that can be explained to those who listen to us without them having needed to go to Polytechnique, you see, or they are not And so precisely, it's funny what you say because indeed the fact that the system had become unhinged and had lost its stability, it had happened in the past between 1918 and 1945. But once again, we never learn from our father's mistakes, but from our grandfather's mistakes. Absolutely. And the investors in the market had forgotten, as they often do. And why is it interesting to keep it in mind? Because perhaps today the bubble on the Ale on semiconductors, is also an error that we have forgotten from the past. But we will come back to that.
So there, this moment of uncoupling from a stable system, an unstable system, people had forgotten that it had happened in the past with the gilts. Yes. And that we had also arrived at a moment where we had moved from one system to another.
So, let's go back to the moment we move to '73. We move from this American system which was a system therefore anchored on gold government bonds and suddenly, it's the Bundes (Bund) that becomes the Teutonic knight with your hero. Karl Otto Pöhl who uh who was the head of the Bundesbank and who says to me the Americans tell him now the interest rates it's us who determine them because we are the we are the champions and he says nothing at all. At least the Bundesbank will act as if uh it was then that is to say, if you look at that moment, the Bund the German bond starts to have a better performance than gold. There you go. It replaces gold, it gives 3%. So from the moment 3% real between 3 and 5%. Yes. There you go. From the moment Karl Otto Pöhl confronts Jim Baker of the American Treasury to say not at all, we are going to continue to do what we want. At that moment uh we have a stability that returns through the Bund of that is to say that the Bundesbank and gold replaces gold and gold at that moment drops we go from 800 to 200. So if you had not understood, once again, let's go back to it, what was happening by analyzing the trends, you would have kept gold. You would have kept gold and for 20 years, you would have lost 75%. For 20 years, gold does nothing. You can look, it drops. It drops. It drops from 800 to 200 while bonds go from 10 to 100. That is to say, it was the moment, you had to sell gold and buy bonds and that worked for almost 40 years, you know.
And so there, we return to bonds with a return to the mean. Gold falls and uh interest rates uh drop slowly but remain positive in real terms. That is to say that inflation crashes.
What happens if you want, if we try to summarize what seems a bit complicated what we say but I will try to explain is that in '73 the Americans decide that they will proceed with what is called the euthanasia of the rentier, which is always what central bankers try to do in their ideal Panglossian world, it is to say, well, if the Germans because yes not the Germans as long as we let them do it as long as we let them do it so at that moment as soon as you proceed with the euthanasia of the rentier you must no longer have contracts to use you must only have assets you must only have gold and stocks, you know. That's all. So that worked from about '70 to '80 and then from '80 to almost 2020, that is almost 40 years. There it was the Bund that was there that enforced discipline. But what happened in 2012 is that the euro jumps. You see it it jumps because it's not something that could have. So to make the euro survive, Mr. Draghi says "I'm going to put interest rates at zero." That is to say he Bundesbank. And so Mr. Draghi in '72, I mean in 2012, he says what Mr. Nixon said against gold. You see, he announces the end of a store of value that was that was sure, that was stable and that people liked. So at that moment, well, what did I do? But at the time it was more intuitive than I had I hadn't yet thought to reason. You see, I wasn't right I say well you shouldn't have bonds anymore, you see. You must only have gold.
So let's go back to this period which will go uh from the years 80 to 2012. We find ourselves in a world where the American dollar remains the standard of value. Why? because despite everything, it sets the price of the petrodollar and major transactions are based, we know, in American dollars. So despite everything, it remains the reserve currency, which still allowed the United States to continue to enjoy the imperial privilege which is that of the dollar and which allowed them for a time to maintain trade surpluses, even if eventually they find themselves today with a much larger debt. So all that allowed them but what happened was a curious phenomenon that there too people didn't quite understand at the time is that the United States remained the the modern transaction you used the dollar to do international trade because you were obliged also because you were obliged particularly for oil it was the it was also the standard of value because all oil was in dollars it was obligatory otherwise you had a rather shortened life experience like Mr. Gaddafi had quite It depends. Yes, Mr. Saddam Hussein. But the store of value function was ensured by the Bundesbank. It was it was a bit like a two-sun world like in Star Wars. You had two suns. The sun somewhere a bit like the trading sardines and the eating sardines. Trading sardine was the dollar and eating sardines was the so that remains but it was important in Europe because despite everything before we entered this common monetary zone the Bundesbank it ensured the profitability with its 3% it was credible it was credible me when I didn't know what to do as a manager in my steps I bought Bunds telling myself obviously it was never we were never worse off but indeed comes the entry into this monetary Europe with the transition to the euro.
It was certain and you had written it at the time in "Lions Led by Donkeys" that countries like Italy, Greece, Spain could not France could not function on with real rates at 3 or 4% with real rates at 3 or 4%. It was obvious since the growth rate was lower than 3 or 4% and uh they had perhaps all anticipated it or not, we don't know if Mr. Trichet had truly had his there you go so Draghi who was still a central banker arrives and says "Well then what we're going to do is we're going to break the the somewhere the measuring element, the thermometer which was uh we're going to break there will be we're going to since France, Italy, Spain, Portugal cannot live with 4% real rates and so we're going to bring real rates to zero. There you go." And well so at that moment, there is no longer a store of value and the system becomes unstable.
And so we return to an unstable system at that moment and uh and the stock market suddenly becomes in reality the only place where you can have a store of value. But we arrive at self-fulfilling prophecies. That is to say that today we find ourselves in a world where truly the stock market is the one that gives the the so-called store of value as much because it gives a store of value as much. You knew, you know that if you buy Air Liquide again, it will always be worth something. So, you accept to pay for it perhaps too much because you fear that on the alternative over time, you would have bought German bonds, but these German bonds, they might go to zero while Air Liquide will never go to zero. So, you find yourself in an extraordinarily brutal and simplified world where there are no more instruments to diversify your portfolio, except gold.
There you go. So gold becomes on one side uh by the last nail in Mr. Draghi's coffin uh the only possible store of value with the assets you can have on the stock market. And the second the the second stake somewhere in this coffin was the confiscation of Russian assets which definitively also called into question the right to property. Absolutely. And uh made it so that in reality we also told ourselves that the West truly no longer respected anything. Which also somehow calls into question what for some was ABC, Anything But China, which is to say but finally China arrived galloping at that moment saying tell guys if you want a store of value that works and if you want serious people to manage money and so Chinese long bonds God knows we talked about Chinese bonds and we criticized them but Chinese bonds have done better for 1 year, 2 years, 3 years, 5 years, 20 years than all other bonds. That is to say that China said to itself "I'm going to take the place of the Bundesbank." We wrote it, I wrote it with your brother, we wrote it I don't know how many times and people told us "You are completely crazy, it's not a democracy, it has nothing to do with it. If a democracy messes up its currency, it might be better to have the currency of a country that is not democratic but that doesn't mess up its currency." You see, if you are a giant, you know. Because someone who messes up their currency is no longer a democracy. H That's what I'm trying to tell people. That is to say that you explain to me that we are a democracy and that over there, they are very mean. But if democracy is to plunder the the the poor saver, it's not a democracy.
So before before studying what could have become the new anchor point and to answer in that question by question, we are going to make a brief conclusion on this first chapter which was, I hope everyone will have understood, the the emergence, finally the understanding of what a stable world can be, the disruption and the emergence of an unstable world. And the moment we go from one to the other or from the other to one is extraordinarily important because at that moment it completely changes the structure of portfolios.
So what can we see in conclusion of this first part? It is that in recent years, we have insisted on a reappearance of wars significant enough to disrupt global supply chains. We saw it not only with Covid, we saw it with the war in Ukraine and we see it now with the D.
So, it's really important because I often discuss with our friend Xavier RER whom we have often received here. They told me he tells me when a we talked about that, he tells me when a currency disappears like the Lifesterling and so on as a store of value in international trade, there is always something that reappears immediately, it's piracy. Yeah. You see, it's it's that there is no longer the guy the in a way the gendarme the absence of the financial gendarme implies the absence of the gendarme of the real gendarme of the one who enforces order.
Uh the other thing which is bad news for bond markets, is that we have known for a long time that the first victims in a war are civilians and the second, are generally bonds. Bonds. Why? Because well, if you want, we can say what we want but if the State borrows to build nuclear power plants and dams, well productivity will go up but if it borrows if it was borrowing to go bomb guys and so on, that doesn't really increase productivity much. So automatically demand increases because you have to make shells and everything and supply well product supply doesn't increase. So at that moment, you have inflation, you know. Wars are naturally inflationary.
So, another thing to know is that from the moment a monetary system where the price of time is fixed, is is manipulated, the bond market no longer functions as a store of value. So if the dominant currency, the dollar at random, is involved in a war, its bond market necessarily becomes a seller's market. That means that today when you look at the United States which has a large debt, we know that its bond market, the American bond market is weakened. Who will buy bonds? And we know above all that I don't know who will buy them, but I know that there will be more and more to sell. You see what I mean? Deficits will be monstrous. Uh if you have a vision, you say "OK, if I need to buy American bonds, I will have them. There won't be a shortage, you know." So by default, if you analyze globally once again, you say gold can only become once again a store of value since by definition no one finally apart from now the new anchor point that we will see, but gold in any case for now in this period of time can only continue. And that doesn't mean that gold goes up, it means it's the bond market that goes down. People tell me gold has gone up a lot, I tell them that 1 gram of gold is always worth 1 gram of gold. If you want, if you look, it seems curious. I read a rather funny article that said what was the price of a cow? The price of a cow, you take them through time in Europe since almost the Roman Empire, it's always the same weight of gold because there's no productivity gain in a cow, you know.
There you go, what you're saying is important because it means that from the moment we analyzed that we were in an unstable system, the reserves of the notions of store of value that you could have had in the past no longer apply. You are in a world that has gone into disruption and the value price of a cow, it will be a cow and and you will have to pay for it what what is asked of you because we are entering a system of supply and demand where in reality the returns to the mean that you had in the past no longer apply and uh you are going to enter into something that will truly make it so that the stores of value the the value if we you well if you want the price for example normally it is fixed with something that is supposed to keep its value, money. But today, if there is inflation, well the price for what you buy today may have nothing to do with the price of what you lose tomorrow. So you will tend if you need something to buy today. That means that today there starts to be a good reason to make stocks h since if you buy stocks of copper or aluminum, you say as it can comment, well I make stocks and that will always cost me less than keeping money in cash, you know. You see what I mean? All of a sudden, the relationship to time changes. The relationship uh to to unprofitable investments changes, you see. You say to yourself "But it doesn't work anymore, you know. It's there are it's the system no longer functions. So there are lots of additional costs that get into the system. It's idiotic."
So we determine that we are now in a system that is unstable. Let's try to think about what could be the emergence of a new anchor point. So for that, we are going to try to reflect now on what has been in the past. So what happened in finally over time? Until 1914, we had the British gilt that determined somewhere the global anchor. We had the outbreak of the First World War and at that moment the gilt lost its control until a war that ruined it. There you go. And it survived as best it could until the Suez Canal crisis in '56. Yes, we realize that England was no longer the dominant power.
So there, we enter a world at that moment from 1918 to 1945 where gold reigns more or less supreme because the United States is slow to assert itself, they don't really understand, themselves emerging from an economic crisis that had been that had been created by that, that had been created by their refusal to take charge of the world. That is to say they decided for examp Yes, they were isolationist and protectionist because of Hoover at the time and so Roosevelt Roosevelt he, I believe I remember exactly that he devalued the dollar in 1934 that is to say that everyone wanted to have gold. Yes. The Poincaré devaluation, the Roosevelt devaluation. So everyone had gold, they kept it. So that led to impossible deflations in Germany and in all adjacent countries. That made it jump everywhere. It was completely idiotic. So no one took responsibility. To manage global liquidity.
H and uh then, we arrive at the end of the Second World War, the signing of the Bretton Woods agreements and the American treasury bond, which therefore becomes, as we have just seen, a reference asset until '73 as we have also just seen where there it ceases to be. So there, we enter from '72 to '81 into a period of floating unstable world once again where uh gold again reigned supreme and from '82 to 2000, there it's the Bund as we just saw earlier that becomes the reference. It stopped working when this year of Mr. Draghi arrived saying whatever it takes. So there we arrive in another period where gold returns to the forefront by once again incompetence of central policies. Not by an by incompetence, by uh voluntary destruction of money because you either have to wage a war, or win next year's elections. You see what I mean? That's where we still are today, it's been 10 years since 2012, hence the fact that gold performs well too. Performed very well. But on the other hand, there is something else that is emerging, it is precisely the Chinese currency.
So precisely, can you explain to us why it is important in a world of creation to be an industrial superpower? Well, that is to say that because you have to look, the pound sterling was the world currency when British industry was the strongest world industry. Then it passed to the dollar when it was American industry. Then it passed to Germany when it was necessary. You see what I mean? And now it's happening to China. But why? Because if you have the best industry in the world, you automatically have current account surpluses. That is to say that you develop very strong savings and it is you who then by taking your savings that you have earned from others who will bring who will it is by investing in others that you will create growth in others. So in a way the world currency of the moment is always the one that is in a creditor position. There you go. Towards the rest of the world. There you go. Wait.
So uh the other question that is also important uh in uh the qualification of an industrial superpower, it is uh tragically uh Erwin Rommel who spoke about it and uh at the time of the D-Day landing in Normandy who said the problem is that one of our Panzer tanks is worth four of their Sherman tanks, unfortunately the Americans always field five. So and that's what we saw uh in the beginning of the wars in Ukraine and and so on, is that sometimes you have strategic changes and truly the country that will win is the one that can make the most drones. We are arriving today a bit in that and it's a question we ask ourselves with the the United States versus China, it's who today is capable of having the means of production?
We have seen very well the United States, they have made for example, they have 12 aircraft carriers uh they are the only ones and these 12 aircraft carriers cost a few billion dollars to make each of the aircraft carriers. Then around the aircraft carriers, you have to put fires, things, gadgets to protect the aircraft carrier so that it is protected at least within a radius of 300 km around the aircraft carrier. So that gave a considerable advantage to the United States because they were the only ones who could do it. But now, you realize that uh well aircraft carriers, they can be taken down by a drone or by a series of drones. So this loss of power of the United States goes hand in hand with a military loss because they are no longer militarily dominant.
And what we have explained a lot here too, is that we said well since now maritime routes are becoming dangerous again, piracy will return. That's what I just said. Automatically now it will pass by land h and so it's the s the emergence of Asia wants of its we often talked about the Moscow Beijing triangle of liquor and that's where everything will happen and they are networking as we say in all directions so you see clearly that this shift is a shift of currency of military power of ways of transporting and we see clearly that all this is the purpose of my last two is free, it is to explain that everything will now center in what we call the circle of Valérie Pieris. And what is very interesting, is that if you take the currencies of
Valérie Pieris, they are all in the process of stabilizing themselves in a stable system vis-à-vis the Chinese currency. So our European American European system, it is in the process of becoming it has become completely unstable, it no longer works and they are in the process of bringing out a stable system.
So but that I have never witnessed, you see, two systems at the same time what. It's the first time that this is happening.
So uh another thing also which is still an important question, if one lives today in a world that is dominated by technology and that uh the capacity to move, to control data is truly what constitutes the the heart of the system, truly there where there is the gruyere, what. Is it so important that in this new world the capacity to produce production goods? Haven't we changed industrial scale?
You have you have changed certainly, but if you see for example uh uh well our automobile industry uh which employs hundreds of thousands of people in the United States, in Europe and so on, it is in the process of being eaten all raw by the industries. So yes, there is the information that remains important, but also it is necessary to bring to eat to people. H
H and as we have often said here also given what is happening if we have a nasty El Niño plus a a well if you it does you a fine leg to know that you have a you are dominant in the information if you have nothing to eat what. You I mean it's so there is also that aspect of the real economy. There, we have made a kind of virtual economy, but we see very well for example that the standard of living in the United States, in Europe decreases for the most disadvantaged people while it rises very strongly in Asia.
Another thing also that must still be considered, it is if you must analyze what this new system is, it is that it is relatively unstable because one looks for example at the creators of software, there was still a year ago, one explained to us that everything was centered around them. Today, this is no longer the case with the development of AI. So in fact, destructive creation is extremely violent in this environment. Which means that when as a stock market investor, in 6 months, a situation can turn around.
And well completely, look there, I was reading this morning that the Chinese were in the process of flooding the world with chips of medium and good quality, but not of very great. You see what I mean? again the Sherman tanks and the tanks well yes so I don't know at all what the semiconductor will do but if there are only two manufacturers of semiconductors that rise in the world that will leave people a bit that's that's that's important what you say because if China has taught us something in its way of functioning it's that in general as soon as it has bought a market in relatively little time 1 year 2 years, 3 years, it makes production chains that allow it to to that there is no longer scarcity. However today, the fact that the semiconductor has taken 27% in most of the time of the in the portfolios, it is linked on a factor of scarcity. Scarcity, it is that there will not be enough for everyone. And that is obviously the point the most important.
But I wanted to come to something that me that me troubles a lot. Uh it's it's it's the following phenomenon, that is to say uh you must buy a you've lost your cable to put your computer, you do good, you must buy it. Good well in France, you go to Darty, you buy it and then you pay 20 € I don't know. But if you are in China, it's long. Yes. So long so long in China, it's not that at all. If you need a case for your computer, you call Alibaba and uh under the hour that comes, you have the thing that is delivered by a motorcycle to your office and it costs 12 €. Good, why? Because the margin of Darty has disappeared, you see, it's done directly clack clack.
So when you look at the turnover in the you see well that the turnover has decreased and that the prices have decreased so in what one calls a deflation and what is the nature even of the capital even of capitalism but there if you want that means you you had your thing at 12 € instead of having it at 20 and you had it right away and I did not move I did not you did not move you did not get annoyed. So you can be in a place where you will have price decreases uh foreseen quite obligatory. And what disappears is Darty. Well obviously yes. What disappears is Darty and so at that moment the final consumer is winning.
H there are the guys who work at Darty who are losing but so he will have 8 € to spend elsewhere you see. So you can find yourself with people who push awful screams because the prices fall and that the turnovers fall by saying it's horror. But perhaps not.
But I'm going to tell you it's it's also thanks to that that we have not had a social revolution in France, it's that we have benefited despite everything from the from the growth that China has potential that China has allowed us to have because our salaries have not known growth because there has not been structural growth in our countries but I was able we were able collectively to buy more and more with because by going to Decathlon could buy henceforth cheap tennis a jersey at 12 € and so on.
that at your generation to buy a jersey, we had a jersey, only one, we did not have many that for tennis rackets at the time to play, it was wooden reports, wooden rackets and if you want, I hesitated to buy one because it cost the weight of the buttocks. So I had two rackets because I was and still there were manufacturers of rackets who threaded me in the eye but I only had two and whereas today you go to Decathlon a racket it costs almost nothing. You can you can be cite a kid who plays tennis, you can have his rackets arrived from the alley on the court with his rackets. Ask what you care about anyway, you can play only with one at a time.
But uh so if you want, there is there is this aspect of decrease of prices of all industrial, commercial goods and so on without that step is taken. And then you see very well uh Avenue Victor Hugo, well half of the beautiful titles of clothing are closed. Yes.
So, henceforth, I have the impression that people only spend their money in matcha oat milk cafes. There is no more than that which opens. And well there is no more than that which opens. And that's where you spend the 8 € that you have gained on of Darty what. It's so we are in a curious world where in the background the world of merchants has been completely short-circuited.
You see the what that means that for example in France, me I knew families of notary and all, they had uh 50 60 100 boutiques whose walls he rented, you see, that made them a good quiet income. But today, the walls of a boutique, that goes to the canal. So you have also decreases of assets that were based on the inefficiency of the previous system. And there it's going to be it's going to be it's going to be considerable because there is all that is the real estate and all will take full in the head for not round what.
So if one reflects a little on the long term in a perspective of one seeks our new stable system, one has seen that the American government bonds no longer allowed this stability. The Abundance Bank is no more. So if one looks, one realizes that uh the bonds in renminbi, so the Chinese government bonds have uh outperformed the other big bond markets since the beginning of the year. They have outperformed over the last 12 months, the three last years, the 5 last years since the beginning of the decade and over the 10 last years. So one finds oneself in reality if one looks with Chinese bonds that do very well.
So I will I will stop you right away, we are not paid by the Chinese government. We would like to, we don't care completely, we observe huh. Me, you do absolutely what you want and I am completely in agreement that the Chinese system is a system uh political that is perhaps not what one does best in terms of democracy, but I look just at the government bonds. Me, I am not there to judge. I am at the same time, certainly, certainly, there is no but at the same time, an old lady can leave her home and she walk around at her at 6 p.m. in the evening.
My my sister was attacked in front of the Bon Marseille, in front of the Bon Marché. She was beaten up by small thugs. Uh, she is black on all the face because it's a lady who has it's your sister, how old is she? 86 years old. There. So today, we are in a world where my aunt of 86 years old in full day with her dog who in front of the Bon Marché which is still good. We are not Gare du Nord at 11 p.m., we are at Bon Marché one evening at 5 p.m. My aunt of 86 years old gets assaulted in full Paris. So I ask you what is the stable system, what is the unstable system.
Me I don't judge the democratic systems of others. what you mean an unstable system financially tends to become unstable politically because that makes the cretins rise first the cretins on one side and on the other side people you know the the people who say well the pirates it's what that that comes back what Xavier Refer said about piracy systems unstable systems make immediately come back the piracy systems and so one finds oneself today in full Paris with kids who snatch bags uh from ladies, it was not even a 5, it was a necklace. She wore a necklace of her daughter of of creation uh and one snatched her gold necklace with medals in full city. There. There. B and so it's not very normal.
So once again the currency as Christ said, you know render to Caesar what is to Caesar and to God what is to God. So who had on the currency, it was Caesar. The currency, it's Caesar, that is to say it's the State. And when the State no longer renders its role, its roles if I dare say regal of maintaining order, it's curious but that coïc that coincides often at a moment where the currency is worth nothing anymore either because he he gives money to lots of people to try to buy votes or I don't know. So it's it's when the the when the French franc disappears, that means that behind this disappearance of the French franc, there is a political will by a certain number of people in France that France disappears.
The two. All that is linked, it's in a very deep way I think that anyway their big idea the big idea of the of the crooks who govern us of the top 1% it's still to bring us towards a European federalism of which Macron would be the president chief. of I don't know who he will be but we see it very well there now the as it the European Commission is in the process of trying to discuss to see if it would not be necessary to put a tax on capital everywhere in Europe exit taxes everywhere in Europe and so on, but if I may allow myself in the European treaties the question of taxes is in no way of the right of the commission that it does not have the right to levy taxes. It's it's in the texts. I know well that it not the central bank did not have the right to intervene, it did it anyway. So we see well that behind there is a kind of permanent coup d'état to continue to in the air the currencies and to tax those who succeed and prevent order from reigning.
So all that is a bit curious because it's when you look at the objectives of the euro as it had been announced to us by Mr. Attali and all these geniuses, we arrived exactly at the result but inverse of all that we had wished.
So, for its part, China and one has seen it in quite a few of our broadcasts, has tried to organize a stable world around itself by indexing somewhere, by creating a monetary snake with many adjacent countries by telling them there you go, we will no longer refer to the American dollar as being our standard of value. We as China with the Renminbi, we index you somewhere your contracts and that has accelerated with the exit of Russia from Swift since henceforth even Russia says to itself "But after all, why must one pass through the American system?"
For when the United States compensates with Swift or with any system, it is necessary to know that the CIA in the instant is aware. The C but in plus, they can then you fines not possible as they put it to the territoriality to the BNP. Yes, there you go. an extraterritoriality of the American dollar which from the moment where it legislates the contract has a right of regard and so somewhere you have the American gendarme who at any instant can arrive in your transaction what is not necessarily normal and the Asians and all the continent of Valérie Piris more and more say to themselves listen you if that does nothing no one we have nothing but the Chinese who are not stupid it is that they lend money with swap agreements that is to say that China lends, I don't know a billion dollars to Indonesia by giving it the equivalent of a billion dollars in Chinese currency and then Indonesia lends the equivalent of a billion dollars to China to buy coal or I don't know in Indonesia. And so no one passes through the dollar anymore since one passes through the local currencies to do the commerce. What means that in term, if I am right, the big international banks of the style City Corp who played on precisely these transactions who had to pass in dollar, well they have nothing more to do, they are screwed. H
H the local banks, it is necessary to buy the HSBC if I dare say, but it is necessary to sell City Corp. Do you think in this world so one has determined that Europe was uncertain and where the United States had become since no one will buy American government bonds in of countries in war? One knows that the States are sellers that the Chinese government bonds can become the new anchor point of this world and be the only sun.
Yes, that can become so on then what the Chinese say, it is one tells me China cannot be a reserve currency because it does not have its capital account that is open. That is to say that you cannot buy and sell shares of the of societies in China. You know, you you are controlled by the State entirely. And what China says, it is you can make sell exports and so on, but if you have too much yuan, so the Chinese currency, if you have too much renminbi, what you can do if you have too much, it is you bring them back to us to the central bank and I will give you the counter-value in gold. So it turns as good as gold. As good as gold. It turns around OK, you have too much yuan, you don't know what to do with it. Well what was, let us recall it, the system before Nixon in the United States which was and which was the system of the liftering. Yes.
Somewhere to for to create a reserve currency, there was at the start a total indexation on the gold. And today, the Chinese, they tell you and they are in the process of developing also a futures market of oil in Shanghai which is settled. in Chinese currency. That is to say that they tell you if you have too much renminbi, well look if you want you can buy oil which will be sold by Saudi Arabia in in Chinese currency. So you see what I mean? That is to say they are in the process of developing a parallel system but without opening their capital account because they have well realized that since 1945, you see when the Asian countries were attacked in 1998 99 there and well that has allowed still to a whole series a big American business bank to buy assets not expensive at all in these Asian countries that had the crisis what. You see, it's so when you have a country that has its capital account open, if you attack it at a moment where it is where it is, it needs to go to the IMF, so it is you see what I mean? You are It's a while are the Chinese saying "No, no, you will not be able to attack us." No, no. So they are not stupid.
So there is another thing on which I would like to come back and if you have not seen the broadcast with Louis Vincent Gave my brother the son of Charles, I invite you to go watch it. It's this very interesting point where many people say yes but in definitive globalization is finished. One has gone too far. No what is finished is Westernization. Yes. And it's very finished it's the monetary dominance. It's the monetary and financial dominance of our and moral somewhere and intellectual in a certain measure of our Western countries. It's finished. It is necessary perhaps to start to accept, even if that can make us hurt in the heart, to work around the concept that possibly the New Sun of which one of the by which a democracy, in any case a stability will emerge, perhaps not a democracy but in any case a stability uh could to China. And if reader, the listener finds himself ready to accept that today, one can perhaps reflect around the fact that the Chinese bond will constitute the the reserve of value for the long time of times to come. Yes.
And so what has of interesting and it's a fundamental very important, very important. But what is very important, it is to say from the moment where stability returns in the system, there are plenty of things to do in the system that are more interesting than the Chinese bonds. You see what I mean? That is to say that as soon as I have it, I no longer need it. But that implies also to conceive that there will be two coexisting worlds. One stable which would be Asia and the emerging markets and the other unstable, the OECD deeply somewhere inflationary henceforth since and indebted up to the neck. indebted up to the neck there with in plus launches wars what is always deeply inflationary and deeply against the bond so without possibility of reserve of value. So apart from uh once again strong euthanasias of the rentier uh to try to have transfers of wealth from one to the other, one does not see truly from where could emerge in this unstable world a possible creation of value.
So it it will happen but once again by the societies of our home, the Air Liquides, the Schneider Electrics and all and and whose prices will be whose course will be determined by the stable tool over there. If you look for example at the European industrial values and that you compare them to the Chinese bond market in of total profitability, you see very well that now it's around a horizontal. There are moments where they are expensive, moments they are not expensive. So they are in the process of of how one would say in English of pricing themselves of of finding their price, their courses no longer on the French rate, the American rates but on on the on the Chinese currency and the Chinese rates. And that that is seen already. So one sees well that all the part creation of value, stock and so on and drifts already to find its value towards the Chinese world. It is the bond part which in our home is in a will be in an absolutely appalling state because it clings to nothing at all and that one produces nothing more.
And so another thing, it is that for you the listeners, that will be uh a true heartbreak because that makes 50 years that one has explained to you that China was a world deeply unstable and uh deeply inflationary. However today, that will become the inverse since they begin in China in any case to let rise their currency. What means that one will uh one they had exported uh before the It's like that that they made the surplus, it's like that that they became competitive. And us we will become the world deeply unstable and inflationary in our turn. Yes, yes. As has been England from 1945 until the arrival of Mrs. Thatcher, what. That is to say that there England, there was 17% of inflation, there were exchange controls, it was appalling what.
So after in the idea of emerging market, one sees also Latin America which today stands out because also the values proposed are incontestably higher than the other bond markets. That remains still not obvious for the average Joe to to go look for today in any case the bond market of Brazilian. did a study on the the indexed Brazilian bonds that it will be necessary perhaps that you go look for because it's it's perhaps something that it is necessary to have.
And so us how one has two things to do if you want one finally I try what one tries to do I don't know if one arrives there but one it is to warn you of what is happening from a global point of view in the Institute of liberties it's what one has just done by with this broadcast and two it is to try to invest you at the university of Savings. And there, it's extremely difficult because what is feasible for big institutions is not always feasible for the for the average Joe. For the average Joe, for example, to buy Indian bonds, it's the cross and to the banner. To buy bonds in Asia in Latin America, it's the cross the banner, it's not easy. So one tries to find a kind of badly cut rib that will be at the same time there that that allows you that reconciles the two.
But this this meeting of today was important because it was to tell you it is necessary that you concentrate on this notion of stability, of instability. To invest in unstable currencies, it's madness. You can invest in stocks, of unstable countries, but you cannot invest in the in the bonds or in so today and in a certain measure, one asks oneself the question for the S&P 500 also. Is it that to invest in a stock market of an unstable country is so intelligent that? Let us see especially let us see.
But especially if uh the market only shows that because there are three or four values that rise. You see what I mean? Yes. That is to say there the market if you if you decouple the semiconductors from the S&P, it has done nothing huh. And the question it is why then there is a true problem that will pose itself there it's the arrival of the big introduction in stock market of our friend Musk with his thing. That is to say that it's absolutely gigantic and he only puts 5% at the disposition of the market. 5% the 95% he keeps for him and for the others. That means that as it's a thing extraordinarily important and which could work, it's not certain but which could work, that the price of this stock will be right away too high.
H that is to say that it will have a gigantic effect on the indices. Yes. And as everything is managed by computers, there you go and everyone will say so the as well the computers will say I cannot not have any so he your brother who manages his fund there he cannot have more than 5% in a value I believe only one but there you will be able to do 15 or 20% of the Nasdaq for what I know. And so at that moment, all the giants will be absolutely massacred because no one will be able to do that. The clients will call by saying why don't I have any? Why don't I why don't I have any? there is not enough for everyone since he has kept 95% for him.
But so I see arriving a huge value, a huge maneuver where one will inflate us with the the one has done us the trick of the one has done us the trick of the of artificial intelligence of the semiconductors. It will have passed for everyone. There will have been enough for the world. Musk, he is in the process yet I like Musk a lot but he is in the process of preparing us a trick where by definition that will be a huge bubble from its structure because by playing on the German offer everyone will say I want some I want some the markets as they are with indices will say but why don't we have any why don't we have any and the thing will rise will rise and it will do 500 times its price without that there is any structural reason compared to the valuation of of he introduces at 100 times the turnover. There. So already, we have a massive decorrelation. The thing, if that rises to 500 times the turnover, there is a moment where the guys, it is necessary still a little to reflect on what you buy.
But yes, but but there the more everyone buys from the moment where that rises uh you know, it's it's the self-fulfilling prophecies, huh. The market rises because it rises. Ah good? It rises and well it rises. So then yes, so to buy uh so all that means that once again in an unstable world, the only way to buy it is what I call the momentum. If that rises, I buy. If I sell if that sells if that falls, I sell in a stable world, this kind of thing that does not happen. It's it's it's corrected. So the unstable world leads to bubbles.
That comes back also to a reflection that Louis Vincent had in a paper and that I submit to you because he listened to Didier who is an engineer speak uh of the creation of the AI and he said it's very interesting and Louis Vincent said by laughing it's funny because when I had spoken to Didier 6 years ago uh of the Bitcoin and of the creation of alternative currencies, he said "Ah also it's interesting somewhere the engineers are parameterized to think Schumpeter there you go whereas structurally the literary people who no longer exist so much whereas at the origin it was a little bit what composed in England in any case, one went to read the history uh uh there you go and so study and so one had a thought that was perhaps more focused on the structural valuations. One had a thought perhaps more Ricardian. And so today the the engineers who compose the first derivatives of in London and so on who do all the calculations and in the United States tend to always think the world in terms of disruption and no longer think the world in terms of structural valuation. And that this is perhaps also what brings that one finds oneself you find lots if you are a man of structural value and all you have plenty of things to buy in China that are not expensive at all. Of course. And it's what happens. It's what happens. And so your brother he is not he is over there and he not he will hit in the c.
So in effect one one sees well this since as one earns money since 20 years on Schumpeter, the Schumpeterians are the kings of the world. Until the moment one will take a fall and at that moment that will become. Me I have known that all my career. That's it. That's it the thing it is that when the whale turns over and that you are in the same bed, finally the elephant you find yourself still relatively crushed. And there, it's what is a little what is in the process of happening. One asks oneself if the elephant will not turn over and there, you you have no person. And it's what one does in the portfolio. Sometimes the people say "Yes but Charles, why do you have government bonds uh Japanese?" But because it's a position turns over when the the elephant turns over, it's the only thing that will rise. It's the only thing that will rise, it's not so much to have portfolio positions that earn money on the four positions. It's also when the market becomes structurally bearish and that one takes a huge panty to have something that it does not move. So in its where it rises in its time, it was one has seen it the bonds the bounds. The gold somewhere is perhaps volatile also in these situations in moments terribly disruptive because at that moment very often the people sell what they can. Yes, it's not one sells not what one what one owes, one sells what one can invest still or on which there is still a market. So there you go.
So somewhere you you find yourself uh in situations in stock market, one says "But why does that lower? Why does that lower whereas it's a beautiful value Well it's because the people liquidate positions because they need well money to settle their coverage especially if they have taken open positions or if suddenly there is a big common fund and that everyone says good well I have earned a lot of money with now I want to exit well the manager him he has he needs to sell things because well the clients the clients leave what. Well yes of course. So all that.
So there you go, one I know that that seems a little difficult but it is necessary that you reflect on this notion of stability of instability and tell yourselves well that financial instability is only one of the one of the signs of the instability of society in its in its whole. So I say when one tells me that me I have much I have lived in China, I interested myself for the Chinese the awful evil it is when a society becomes unstable. H for them it's there where there is all the the civil wars. It's awful. A stable society and which not really democratic, that does not bother masses because they are very afraid of the unstable and democratic society. Today, we are in very unstable societies in our countries. Me, I feel it every day and that me Yes. Well yes, I think that whoever lives in France says to himself potentially, that is to say that tomorrow, if I see a headline by saying there is a civil war that has started in a side of the territory and why Marseille, I would not be surprised more than that. No one will be. No one will be. We are in a state of instability and that one finds in all the domains. So to buy the currency of a furious madman, it's not a good idea. There.
Good listen, I hope that this lesson will have interested you, that you have understood this notion of stable world and of unstable world for your investments. If you want to go further, soon, one will put at your disposition this it's the same as that one, but for those who are already who have already a little more hair on the paws, who have not only that it's still a thing where it's made for institutional investors. There, it's people who are supposed to know but already once one will have translated it into French, that will be a little more and then you know sometimes you can go over, reread and then after a moment you have already I will add things huh. Yes, there you go, I wrote it 2 years ago but already I was adding lots of things huh. And uh and there you go.
And otherwise to start well do not hesitate to refer to the CC of getting yourselves had which is already a good mental structure to learn to manage its small portfolio all alone. 500. There, with small graphics, this kind of things. That allows you, it is very beautiful, I mean, it's my cousin who has put it in page, Pierre de Taillac whom one embraces. And and honestly, that allows to have finally one does not need to sell it, I say it, it's truly for you because once again in this world of instability in which our pensions will no longer be paid, one thinks sincerely that the management of your small savings, whatever your nest egg, is truly a necessity of freedom because it's the only way for in that you will have because I think that they will come to seek our movable, immovable properties and that somewhere to be able to have assets in stock market will be probably the only way to conserve a uh well a small asset on the inflation since the inflation will be galloping, will return. So in real, that will be the only way to conserve an asset huh since one will lose in valuation of almost everything. And uh the only way to constitute yourselves a pension for your old days because my god, such is the life. Me, I am persuaded that I will not have a pension, huh. There, in the system. There.
Listen on these good words. Thank you again for having followed us. One tells you probably see you soon for new adventures and one embraces you. Thank you.