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LISA: -- THE OUTLOOK FOR CREDIT INVESTING MORE BROADLY. YOU TALKED ABOUT HOW THE U.S. IS GOING TO GO BANKRUPT AND IS ON AN UNSUSTAINABLE FISCAL PATH. DO WE SEE THAT PRICED IN, OR IS THERE STILL A RECKONING TO COME?
JEFFREY: IT'S CERTAINLY BEHAVING DIFFERENTLY THAN IT WAS FOR THE LAST FOUR DECADES. WHAT WE'VE SEEN IS IN THE LAST 15 YEARS THERE'S BEEN A NUMBER OF CORRECTIONS ON THE S&P 500, AND EVERY ONE OF THEM, THE S&P WAS DOWN MORE THAN 10%, THE DOLLAR INDEX, THE TRADE-WEIGHTED DOLLAR INDEX GOES UP. THIS TIME, THE DOLLAR WENT DOWN WHEN THE S&P 500 WENT DOWN MOST 20%, AND THAT IS STRANGE. THINGS ARE BEHAVING DIFFERENT. USUALLY WHEN THE FED STARTS CUTTING INTEREST RATES, RATES ACROSS THE YIELD CURVE GO DOWN. THE 10-YEAR TREASURY ALMOST ALWAYS GOES UP IMMEDIATELY FOLLOWING THE FIRST FED RATE CUT, AND IT KEEPS RALLYING FOR A WHILE. THIS TIME THE 10-YEAR YIELD WENT UP, AND THE YIELD CURVE IS STEEPENING. I THINK WHAT WE HAVE IS A RECOGNITION THAT THE INTEREST EXPENSE FOR THE UNITED STATES IS UNTENABLE IF WE CONTINUE RUNNING THIS BUDGET DEFICIT AND CONTINUE TO HAVE STICKY INTEREST RATES. WHAT PEOPLE FAIL TO APPRECIATE IS HOW MUCH THE AVERAGE TREASURY PAYMENT HAS GONE UP. THE AVERAGE YIELD, THE AVERAGE COUPON ON TREASURIES WAS BELOW 2%. THE ENTIRE TREASURY MARKET. SOME OF THEM ARE OLD, ISSUED WITH HIGHER INTEREST RATES, BUT IT IS BELOW 2%. NOW IT IS PUSHING 4%. AS LONG AS BONDS ARE MATURING, AND THERE ARE TRILLIONS AND TRILLIONS OF MATURING, A LOT WERE ISSUED BACK IN 2009, OTHER TIME PERIODS, EVEN 2019, SOME ARE COMING DUE. THEY WERE ISSUED WITH COUPONS OF A QUARTER PERCENT, AND NOW IT IS FOUR AND A QUARTER PERCENT. 400 BASIS POINTS HIGHER. THIS PROBLEM CONTINUES TO BUILD, AND THERE IS AN AWARENESS THAT THE LONG-TERM TREASURY BOND IS NOT A LEGITIMATE FLIGHT TO QUALITY ASSET. IT'S NOT RESPONDING TO LOWER INTEREST RATES, IT'S NOT REALLY RESPONDING TO AN INFLATION RATE THAT IS 2.5%. PROBABLY WILL GO HIGHER ON THE INFLATION RATE. THE ONES ROLLING OFF FROM A YEAR AGO -- THE CUMULATIVE HEADLINE CPI CAME OUT TODAY WAS .18, BUT THE ONE ROLLING OFF I THINK WAS .1, AND IF YOU DO THE NEXT TWO MONTHS, THOSE THREE MONTHS TOGETHER, THE CUMULATIVE RISE IS .1. WE ARE LIKELY SEEING THE LOW POINT IN NEAR-TERM INFLATION. I THINK THE RECKONING COMING IS WE HAVE TO SOMEHOW FIGURE OUT HOW WE ARE GOING TO DEAL WITH $37 TRILLION. WE ARE GOING TO HIT THE $37 TRILLION NUMBER FOR REAL -- IT'S STILL $36.95 TRILLION, BUT IT'S GOING UP QUICKLY. THERE'S GOING TO HAVE TO BE SOME CREATIVE THINKING, AND THE MARKETS ARE STARTING TO BELIEVE THAT. THE PREVIOUS GROUP TALKED ABOUT CAPITAL FLOWS, AND ONE OF THE REASONS THE U.S. IS UNDERPERFORMING AT THIS POINT IS SO MUCH MONEY CAME INTO THE UNITED STATES SINCE 2015 OR SO, OR 2005. THERE WAS A NET INVESTMENT POSITION -- FOREIGNERS WERE INVESTING MORE IN THE U.S. THAN THE U.S. WAS INVESTING OUT OF THE COUNTRY TO THE TUNE OF $3 TRILLION. THAT WAS ABOUT 15, 17 YEARS AGO. IT'S NOW OVER $25 TRILLION IS THE NET INVESTMENT POSITION. THE DOLLAR IS FALLING. IT'S NOT INCONCEIVABLE THAT SOME OF THE $25 TRILLION THAT CAME IN OVER NOT EVEN TWO DECADES, COULD GO OUT. THIS IS A MOMENT WHERE FINALLY YOU HAVE A SET UP WHERE NON-U.S. INVESTMENT -- EVEN IF YOU ARE A DOLLAR-BASED INVESTOR, YOU SHOULD BE THINKING ABOUT INCREASING YOUR ALLOCATIONS TO NON-DOLLAR INVESTMENTS. AND IT'S ALREADY WORKING.
LISA: THERE IS SO MUCH TO UNPACK THERE. I WANT TO TALK ABOUT THE IDEA THAT TRILLIONS ARE MOVING OUT OF U.S. ASSETS. WHAT KIND OF BEHAVIOR DO YOU HAVE TO SEE IN THE 30-YEAR BOND TO LIKE IT AGAIN?
JEFFREY: I'VE COME TO THE IDEA THAT AS THE FED EASES AND WHEN THE ECONOMY REALLY DOES WEAKEN, TREASURY CONTINUES TO GO UP AT THE LONG END. FOR NOW, WE ARE VERY INVOLVED IN THE LONG-TERM TREASURY BOND. THERE WILL COME A MOMENT WHERE YOU HAVE TO PIVOT BECAUSE THERE WILL BE A RESPONSE. I'VE GOT MANY IDEAS OF WHAT THAT MIGHT BE. IT ONE OF THE LEADING CANDIDATES WOULD BE QUANTITATIVE EASING. YOU GET TO A POINT WHERE THE RATE IS SO UNCOMFORTABLY HIGH -- WHAT IS THAT NUMBER? I'M GONNA GUESS ABOUT 6%. THEY SAY THIS SOMETHING, WE WILL BE RUNNING A $5 TRILLION BUDGET DEFICIT. WITH ALL THIS BOND ISSUANCE. THEY WILL PIVOT, AND I BELIEVE IT'S A SENSIBLE IDEA. THE LEADING CANDIDATE AS THEY WILL ANNOUNCE QUANTITATIVE EASING ON BUYING LONG-TERM TREASURIES. WHEN THEY DO, YOU HAVE TO VERY QUICKLY -- AND HOPEFULLY YOU DO IT THE DAY BEFORE THEY ANNOUNCED IT, BUT WE DON'T HAVE ACCESS TO THE DAY BEFORE STUFF, THAT'S THE PRIMARY BROKER-DEALERS. YOU WOULD HAVE TO BUY LONG-TERM TREASURIES AS MUCH AS YOU COULD BECAUSE WHEN IT GETS ANNOUNCED IT WILL BE JUST LIKE CORPORATE BONDS IN COVID WERE ALL OF A SUDDEN THE MARKET WENT FROM DOWN 20 POINTS TO RIGHT BACK TO WHERE IT STARTED IN A MATTER OF A FEW DAYS. YOU COULD GET A 20-POINT RALLY ON THE LONG BOND. THAT WOULD BE A 100 BASIS POINT DROP.
LISA: YOU SAID IF THE FED WERE TO CUT RATES, IT MIGHT CAUSE A SELLOFF IN 30-YEAR TREASURIES.
JEFFREY: IT'S ALREADY HAPPENING. THEY STARTED CUTTING RATES IN SEPTEMBER OF 2023, AND THE LONG BOND HAS GONE UP IN YIELD SIGNIFICANTLY SINCE THEN, 100 BASIS POINTS.
LISA: YOU THINK THAT WILL HAPPEN AGAIN?
JEFFREY: WHY NOT? IT'S A PARADIGM SHIFT. WE HAVE A TREMENDOUS PARADIGM SHIFT GOING ON WHERE MONEY IS NOT COMING TO THE UNITED STATES, WHERE THE LONG BOND IS NOT A FLIGHT TO QUALITY ASSET. GOLD IS SUDDENLY THE FLIGHT TO QUALITY ASSET. I THINK COSTCO IS SELLING GOLD RETAIL, AND THEY CAN'T KEEP IT IN STOCK. IT WAS LIVING AT $1800 AN OUNCE NOT LONG AGO, AND ONCE IT BROKE ABOVE 2000, IT WAS STRAIGHT UP. BASICALLY ONE THIRD OF 10,000. I THINK GOLD IS A REAL ASSET CLASS. IT'S NO LONGER FOR LUNATIC SURVIVALISTS AND WILD SPECULATORS. IT'S FEW AS AN ASSET CLASS. CENTRAL BANKS HAVE BEEN ACCUMULATING GOLD. IT WAS STUCK IN THE MUD BECAUSE FOR A DECADE OR MORE, CENTRAL BANKS WERE SELLING IT DOWN, THEY BOUGHT IT BACK. I'VE OWNED SINCE IT WAS $300. THEY BOUGHT IT ALL BACK. IT'S AMAZING, THEY SOLD IT AT LIKE $300, $400, AND THEY ARE BUYING IT BACK AT $3000. CENTRAL BANKS ARE NOT VERY GOOD LONG-TERM INVESTORS.
LISA: MAYBE THEY COULD USE A DEVICE FROM YOU. ONE OF THE THINGS WE'VE BEEN HEARING ABOUT THIS MORNING IS THE CORPORATE DEBT MARKET. ONE THING I'VE GATHERED FROM TALKING TO PEOPLE AT DOUBLELINE AND READING YOUR OUTLOOKS IS YOU'VE REDUCED YOUR ALLOCATION TO BELOW INVESTMENT GRADE CREDIT.
JEFFREY: SYSTEMATICALLY OVER A TWO-YEAR PERIOD.
LISA: THAT'S THE LOWEST SINCE THE INCEPTION OF DOUBLELINE.
JEFFREY: RIGHT. WE HAVE HIGHER QUALITY PORTFOLIOS TODAY THAN AT ANY TIME. WE RUN CLOSED-END FUNDS THAT ARE LEVERAGED. WE HAVE THE LOWEST LEVERAGE OF ALL TIME. WE HAVE 45% LEVERAGE VERSUS NET ASSETS, AND IN ONE OF OUR FUNDS WE ARE AT SEVEN. WE ARE THERE BECAUSE WE WANT TO BE A LIQUIDITY PROVIDER WHEN WE ARE PAID TO BE A LIQUIDITY DIVIDER -- PROVIDER. THE STATS ARE VERY UNINTERESTING IN THE CREDIT MARKET, JUST AS THE VALUATION OF THE S&P 500 IS INCREDIBLY UNINTERESTING. WHEN WE HAD THE BIG SELLOFF IN APRIL, WE WERE KIND OF ASLEEP AT THE SWITCH. THE MARKET WAS OVERVALUED. WE SHOULD HAVE BEEN THINKING MORE CAUTIOUSLY. WELL, IT'S MORE OVERVALUED TODAY BECAUSE THE S&P 500 IS DOWN ONE OR 2%, AND EARNINGS ESTIMATES HAVE BEEN CUT SIGNIFICANTLY. IF YOU LOOK AT THE FORWARD PE, IT'S HIGHER THAN THE ALL-TIME HIGH BACK IN FEBRUARY OR EARLY MARCH.
LISA: WHAT ARE YOU ANTICIPATING?
JEFFREY: I ANTICIPATE A GREAT BUYING OPPORTUNITY. I DON'T KNOW WHEN IT WILL HAPPEN, BUT IT'S GETTING CLOSE. I FEEL THE ENVIRONMENT FEELS A LOT LIKE 1999. AI, JUST MAP OVER DOT-COM. IT ALSO FEELS A LOT LIKE 2006 AND 2007. ONE OF THE HARDEST THINGS TO DO IN THE INVESTMENT BUSINESS IS TO LEARN AND FULLY APPRECIATE HOW LONG EVERYTHING TAKES TO HAPPEN. IT TAKES FOREVER FOR THE PROBLEMS TO SHOW UP. IT TAKES FOREVER FOR THE DEFAULTS TO FINALLY ARRIVE. PEOPLE ANTICIPATE CHANGES WITH GREAT ENTHUSIASM. AI WAS EMBRACED WITH GREAT ENTHUSIASM. ELECTRICITY WAS ALL THE RAGE IN 1900 BECAUSE PEOPLE REALIZED IT COULD CHANGE THE WORLD. I THINK WE CAN ALL AGREE IT DID CHANGE THE WORLD IN WAYS THAT ARE BIGGER THAN AI WILL, IN MY OPINION. BUT THERE WAS A HUGE BOOM IN ELECTRICITY STOCKS IN THE FIRST DECADE OF THE 20TH CENTURY. BUT ELECTRICITY STOCKS BOOMED SO MUCH THAT THE RELATIVE PERFORMANCE PEAKED VERSUS THE STOCK MARKET IN 1911. THEY'VE BEEN OUTPERFORMING ELECTRICITY STOCKS SINCE 1911, AND THAT'S A LONG TIME. THAT HAPPENED WITH DOT-COMS. SOME OF THOSE WERE GREAT INVESTMENTS, BUT THE ENTHUSIASM BECOMES VERY EXCESSIVE. THEY SEE THE POSSIBILITIES, BUT IT TAKES A LONG TIME FOR THEM TO ARRIVE. IT'S TAKING A LONG TIME FOR THE TARIFFS TO ARRIVE.
LISA: DO YOU THINK THE TECH STOCKS THAT HAVE BEEN OUTPERFORMING WILL LAG BEHIND IN TERMS OF THE '99 PERFORMANCE AND THE COROLLARY OF THE CREDIT INVESTMENTS TIED TO THE AI BUILDUP?
JEFFREY: IT'S A MOMENTUM TRADE. IT ALWAYS SHOOTS OVER THE UPSIDE, AND WHEN THE MOMENTUM IS BROKEN, THEY DECIDE THE FIRST LOSS IS THE BEST LOSS, AND IT TURNS INTO A SELLERS MARKET.
LISA: YOU TALKED ABOUT 2006, 2007, A CREDIT EVENT. WE TOOK THE POLE MY COLLEAGUE WAS POINTED TO -- POINTING TO COME UP PRIVATE CREDIT SEEMED TO BE THE PLACE WHERE PEOPLE THOUGHT IT WOULD PICK UP. DO YOU AGREE?
JEFFREY: SURE. PRIVATE CREDIT TODAY IS ANALOGOUS TO THE CMO MARKET IN THE MID PART OF THE '00S. THERE IS TREMENDOUS ISSUANCE AND ACCEPTANCE. I WAS LISTENING BRIEFLY TO THE PRIVATE CREDIT PANEL HERE, AND THERE IS A LOT OF PHRASEOLOGY THAT REMINDED ME OF CMO PANELS IN 2006, 2007. LARGE TENSIONS BETWEEN INVESTOR CLASSES. PRIVATE CREDIT IS EXTREMELY HEAVILY INVESTED IN. HARVARD UNIVERSITY HAS THE $53 BILLION ENDOWMENT SUPPOSEDLY, BUT THEY HAD TO COME TO THE BOND MARKET TWICE BECAUSE THEY DIDN'T HAVE ENOUGH MONEY. THEY HAVE $53 BILLION IN THE CAMPAIGN FOR REPAIRS AND OPERATING EXPENSES. THEY CAME TO THE BOND MARKET LOOKING FOR A COUPLE BILLION DOLLARS AND THEN CAME BACK AGAIN. LAST WEEK, I THINK IT WAS ANNOUNCED AT HARVARD IS THINKING ABOUT SELLING SOME OF THEIR PRIVATE EQUITY INTEREST AT A DISCOUNT. WHEN I SPEAK TO RIAS, HIGHER NET WORTH RETAIL MONEY, FOR THE PAST THREE OR FOUR YEARS, ONE OF THE FIRST QUESTIONS WITHOUT EXCEPTION, WHAT ABOUT PRIVATE CREDIT? I SAY, ARE YOU HEAVILY INVESTED IN PRIVATE CREDIT? YES. EVERYBODY IS. WHAT'S THE ARGUMENT? I WAS GIVING A SPEECH IN TEXAS, AND THE WOMAN BEFORE ME WAS FROM A FUND THAT'S VERY HEAVILY INVOLVED IN PRIVATE CREDIT, AND SHE BASICALLY GAVE A SALES PITCH FOR PRIVATE CREDIT, AND ITS A SICKLY A THREE-POINTED SALES PITCH, AND NONE OF THE -- BASICALLY A THREE-POINTED SALES PITCH, AND NONE OF IT SOLD ME. FIRST, IT'S VOLATILE, IT'S JUST PRIVATE EQUITY, THEY MARKET DOWN 20 POINTS AND THEY RECOVER OVER TIME. THEY HAVE THE SAME RETURN, BUT THE S&P HAD DOUBLED THE VOLATILITY AND THEN SOME. THAT ARGUMENT IS NOT VALID. THE NEXT ARGUMENT IS SOMEWHAT VALID, HISTORICAL PERFORMANCE. PRIVATE CREDIT HAS SOME GOOD YEARS AND WAS QUITE CHEAP. FIVE OR SEVEN YEARS AGO. YOU USE THE HISTORICAL ARGUMENT. AS WE ALL KNOW, AS THEY SAY IN THE DISCLAIMERS IN THE COMMERCIALS, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PUBLIC CREDIT I THINK HAS OUTPERFORMED PRIVATE CREDIT FOR A FEW QUARTERS AT LEAST NOW. IT'S ALREADY CHANGING. I THINK THERE'S A LOT OF OVERINVESTMENT IN PRIVATE CREDIT, AND THE LIQUIDITY IS NOT VERY GOOD. I JUST DON'T THINK THE EXCESS REWARD IS CLOSE TO WHAT IT USED TO BE. I WOULD VIEW THAT AS A PLACE FOR THERE TO BE FORCED SELLING. HARVARD COULD TURN INTO A FORCED SELLING. HARVARD USED TO HAVE THE BEST REPUTATION. YOU'LL HAVE A GREAT REPUTATION FOR INVESTING IN PRIVATE MARKETS. THAT LURED IN A LOT OF ME TO BEHAVIOR BECAUSE THEY WERE EMULATING YALE. ONCE UNIVERSITY IS PUBLICLY ACKNOWLEDGING THEY HAVE LIQUIDITY PROBLEMS, I HAVE NEWS FOR YOU -- IF YOU HAVE A COCKROACH IN THE KITCHEN, IT'S NEVER ONE COCKROACH. IT'S ALWAYS A SYSTEMIC. IT DOESN'T MEAN EVERYBODY IS OVERINVESTED AND LOCKED UP. IN 2008, I WAS RAISING LOTS OF MONEY FOR DISTRESSED MORTGAGES -- THE STUFF DEFAULTING LIKE CRAZY. IT GOT TO SUCH A PRICE THAT IT WAS TRULY UNBELIEVABLE. THERE WERE SECURITIES TRADED THAT STARTED LIFE AT ONE HUNDRED AND HAD NEVER HAD MUCH VOLATILITY AND BEING LIQUIDATED AT $.30 ON THE DOLLAR. YOU COULD USE ASSUMPTIONS THAT NOBODY BELIEVED WHAT HAPPENED. YOU COULD SAY 70% OF THE MORTGAGES DEFAULT, RECOVER $.30 ON THE DOLLAR, AND IT IS 24 IRR. I SAID THAT TO THE STANFORD UNIVERSITY ENDOWMENT HEAD GUY. I SAID I CAN PROVE THAT'S THE WORST CASE. YOU TELL ME WHAT ASSUMPTIONS YOU THINK ARE ABSURDLY PUNISHING, AND I WILL USE THEM. YOU HAVE 24 IRR. HE SAYS I CAN'T ARGUE WITH YOU, YOU MAKE A COMPELLING POINT. BUT I CAN'T INVEST WITH YOU. I SAID WHY? HE SAID I HAVE NO MONEY, WE ARE ALL LOCKED UP, EVERYTHING IS CHEAP, AND EVERYBODY IS CALLING THEIR MONEY. HE SAID I CAN EVEN MAKE CAPITAL CALLS. I SAID COME ON. STANFORD ENDOWMENT, WHAT A GREAT NAME FOR THE CLIENT LIST. GIVE ME $10 MILLION. I DON'T HAVE $10 MILLION, I HAVE NO MONEY. THESE ARE LARGE ENDOWMENTS, AND IF THEY NEED MONEY, THEY HAVE TO SELL. EVERYONE KNOWS MARKETS HAVE FEAR AND GREED. FEAR IS STRONGER THAN GREED WHEN PUSH COMES TO SHOVE. THE ACTUAL STRONGEST DRIVER OF INVESTMENT BEHAVIOR IS NEED. SOMETIMES PEOPLE NEED. IN 1993, INTEREST RATES WERE PERCEIVED TO BE LOW, AND I WENT TO -- IT WAS THE TREASURER, THE OPERATING MONEY, AND HE SAID I JUST MET WITH THE PRESIDENT OF THE UNIVERSITY, AND HE SAYS I HAVE TO MAKE 6% FOR OPERATING MONEY, AND I TOLD HIM IT'S IMPOSSIBLE TO GET 6% WITHOUT TREMENDOUS RISK BECAUSE OF TREASURY INTEREST RATES ARE AT THREE. AND HE SAID WRONG ANSWER. YOU'RE GOING TO GET 6%, JUST FIND OUT HOW YOU'RE GOING TO GET IT. IN 1994, INTEREST RATES WENT WAY UP, AND ANYBODY THAT HAD DONE THAT SORT OF THING, LIKE ORANGE COUNTY, CALIFORNIA -- THERE WAS A VERY FAMOUS DEFAULT. NEED IS VERY POWERFUL, BUT IT'S BAD ENOUGH, AND YOU MAKE THE DETERMINATION, YOU SAY I HAVE THIS 6% GOAL AND I NEED TO MAKE IT, I WILL GIVE IT A SHOT. COULD THE OTHER SIDE IS MORE POWERFUL WHEN YOU ARE FORCED TO SELL. IT DOESN'T MATTER WHAT THE PRICE IS, YOU DON'T HAVE AN OPTION. IF YOU HAVE TO SELL TO PAY THE BILLS, WHAT WILL YOU DO?
LISA: IF YOU'RE PREPARING FOR THAT MOMENT, ARE YOU SITTING MOSTLY IN CASH, A LITTLE GOLD?
JEFFREY: NO, WE MANAGE A LOT OF OTHER PEOPLE'S MONEY, AND A LOT OF IT IS IN THE FIXED INCOME MARKET. WE ARE JUST PROTECTING AND WAITING FOR BETTER OPPORTUNITIES. MARKETS TAKE THE STAIRS UP AND THE ELEVATOR DOWN. THEY GO DOWN FASTER THAN THEY GO UP. WHEN IT REALLY BREAKS, IT'S NOT DOWN A COUPLE OF POINTS. EVEN WHAT WE SAW IN APRIL IS NOT A REAL BREAK OF THE CREDIT MARKET. A REAL BREAK IS BONDS DROP 30 POINTS, EVERYONE THINKS THEY ARE CHEAP, BUT THEY HAVE TO SELL. YOU HAVE AN OPPORTUNITY TO BUY BONDS DOWN, LET'S SAY 25 POINTS. HIGH-YIELD BONDS YIELD ABOUT 2.5% MORE THAN TREASURY BONDS. IF IT TAKES 10 YEARS FOR THAT 25-POINT OPPORTUNITY, YOU WILL BREAK EVEN. IT WILL NOT TAKE 10 YEARS. IT WON'T TAKE FIVE YEARS. THE PANEL BEFORE ME SAID, AND I THINK IT'S TRUE, '27 AND '28 ARE LIKELY TO BE A WINDOW OF TREMENDOUS OPPORTUNITY. I THINK BY THEN, THE TREASURY PROBLEM WILL BE EVEN MORE IN FOCUS THAN TODAY, AND IT WILL WEIGH UPON MARKET BEHAVIOR. WE NEED TO RESTRUCTURE A LOT OF THINGS IN OUR SYSTEM. WE NEED TO RESTRUCTURE INSTITUTIONS, WE NEED TO RESTRUCTURE POLITICAL PARTIES, WE NEED TO RESTRUCTURE OUR FINANCES. ALL OF THESE THINGS HAVE BEEN IN PLACE -- IT'S THE WAVES OF HISTORY. NEIL HOUCK CALLS IT THE FOURTH TURNING. HE WROTE THE BOOK PREDICTING THE CREDIT CRISIS AROUND 2006. PRETTY GOOD. I KNOW HIM PRETTY WELL, AND WE TALK ABOUT THE SAME CONCEPTS, AND THAT IS SOCIETIES START WITH A PACT. -- PACT. THEY HAVE THE MEANS OF PRODUCTION, AND THEN THEY HAVE THE PROPERTY THAT SPLIT UP FOR REWARDS. RIGHT AFTER WORLD WAR II OR THE CIVIL WAR, IT STARTS OUT THAT EVERYBODY BUYS INTO HOW THE SYSTEM WORKS. BUT THERE'S A FUNDAMENTAL PROBLEM WITH THIS DUALITY OF PROPERTY RELATIONS AND THE MEANS OF PRODUCTION. MEANS OF PRODUCTION CHANGE IN REVOLUTIONARY WAYS. STEAM ENGINE, RADIO, TELEVISION, TELEPHONE, INTERNET, AI. THEY ARE EXPLOSIONS OF INNOVATION. BUT PROPERTY RELATIONS DON'T CHANGE VERY QUICKLY. THEY ARE BARELY EVOLUTIONARY IN THE WAY THEY CHANGE BECAUSE OVER TIME THERE BECOMES WEALTH INEQUALITY, WHICH WE ARE IN EXTREME, WHERE THE PEOPLE THAT BENEFIT FROM THE PROPERTY RELATIONS DON'T WANT THEM TO CHANGE BECAUSE THEY ARE WINNING. WE HAVE A TREMENDOUS CONCENTRATION OF WEALTH AND POWER. PROPERTY RELATIONS BECOME CALCIFIED, AND THE MEANS OF PRODUCTION ARE CAUSING ALL KINDS OF DISRUPTION. INTENSIFYING THE WEALTH INEQUALITY. SUDDENLY THE WHOLE THING SAYS THIS DOESN'T WORK. WE HAVE TO GET PROPERTY RELATIONS TO A RIGHT PLACE WHERE THIS ISN'T A FUTILE -- FEUDAL SYSTEM WHERE WE HAVE LORDS AND SERFS. THAT'S WHAT WE HAVE, AND WE NEED TO REJIGGER THIS STUFF. THE INTEREST EXPENSE AND AFFORDABILITY IS ANOTHER OFFSHOOT OF THIS. IT'S ALL THE SAME THING. WE NEED INSTITUTIONS PEOPLE BELIEVE IN.
LISA: WE'RE ALMOST OUT OF TIME, AND I COULD SPEAK WITH YOU FOR AN HOUR, BUT I WANT TO FINISH WITH THE IDEA THAT IS THIS A U.S. PROBLEM OR A GLOBAL PROBLEM? CAN YOU HIDE BY GOING TO INVEST IN PLACES LIKE EUROPE OR JAPAN?
JEFFREY: YOU CAN HIDE TO AN EXTENT. I DON'T THINK YOU CAN BECOME IMMUNE COULD -- IMMUNE. AN INVESTMENT. LIKE THIS, YOU GO WITH -- INVESTMENT PERIODS LIKE THIS, YOU GO WITH A LONG-TERM THEME. IN 30 YEARS, THIS WILL BE A SUCCESS. YOU SHOULD INVEST IN INDIA BECAUSE IT HAS A SIMILAR PROFILE TO WHERE CHINA WAS 35 YEARS AGO WHEN THEY HAD TREMENDOUS POPULATION, VISIBILITY OF LABOR FORCE GROWTH, TREMENDOUS PROBLEMS, GUMMED-UP LEGAL SYSTEM AND CORRUPTION. BUT THOSE THINGS CAN BE FIXED. CHINA WENT FROM 1/12 OF THE U.S. GDP TO 70%, 80% OF U.S. GDP, AND THEY CERTAINLY PRODUCE MORE GOODS. INDIA HAS THE SAME DEMOGRAPHIC OUTLOOK THAT CHINA DID THEN. INDIA BENEFITS FROM THE SUPPLY CHAIN BEING MOVED AROUND AND TECHNOLOGY. THEY HAVE A LONG HISTORY OF BEING A SIGNIFICANT SOCIETY. I DON'T KNOW HOW LONG IT WILL TAKE, BUT THAT'S ONE YOU BUY -- DO YOURSELF A FAVOR AND DON'T OPEN THE STATEMENT. BECAUSE IF YOU DO WHEN THERE IS TROUBLE, YOU WILL SELL AT. JUST HOLD IT FOR YOUR GRANDCHILDREN'S COLLEGE FUND. THERE ARE PLACES TO HIDE. I THINK GOLD HAS PROVEN TO BE A SOURCE OF GROWTH. IF YOU ARE A BITCOIN PERSON, I WOULD RECOMMEND INSTEAD OF BEING A BITCOIN PERSON, YOU WOULD TAKE THE SAME VOLATILITY AND GET GOLD AND LEVERAGE IT TWICE. GOLD HAS OUTPERFORMED BITCOIN YEAR TO DATE EVEN THOUGH BIT COLD -- EVEN THOUGH BITCOIN HAS DONE WELL. THEY ARE BOTH UP 40-PLUS PERCENT. THAT'S THE PLACE TO BE. DOLLAR INVESTORS SHOULD INVEST IN FOREIGN CURRENCIES. THE S&P 500 HAS STARTED OUTPERFORMING THE MSCI EUROPE. IT'S UNDERPERFORMING IN A MAJOR WAY YEAR TO DATE. THAT TOOK A WHILE TO HAPPEN. THINGS ALWAYS TAKE LONGER THAN PEOPLE THINK, BUT IT'S HAPPENING IN REAL-TIME. AND THE NEXT ONE WILL BE SELECTIVE EMERGING MARKET EQUITIES AS OPPOSED TO THE U.S. BECAUSE EMERGING MARKETS WILL HAVE THE SAME BENEFIT BROADLY AS INDIA DOES SPECIFICALLY. BUT YOU ALSO WIN ON CURRENCY TRANSLATION IF YOU ARE DOLLAR-BASED INVESTOR. WE ARE, FOR THE FIRST TIME IN A LONG TIME, STARTING TO INTRODUCE FOREIGN CURRENCIES INTO OUR FUNDS, EVEN ONCE OWNED BY DOLLAR-BASED INVESTORS. WE ARE NOT ALL IN. WE WANT TO SEE THE DOLLAR BREAK THROUGH CERTAIN TREND LINES AND RESISTANCE LINES, BUT WE ARE CLOSE.