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Look on uh on the Fed. Yes. Um, you know, I think the you had a bit of a sell-off in November on the uh fear that the Fed actually was going to stay tighter. Um, the reality is whether the Fed cuts in December or whether the Fed cuts more in 2026. I think by now the writing's on the wall that, you know, by all intents and purposes, we're witnessing a merging of the Fed and the US Treasury.
Um, now, you know, what long-term impact uh this will have on the dollar, what long-term impact this will have on the bond market, what long-term impact this will have on the equity markets. Um, I think it's slowly being played out.
Um, when it comes to the bond market, uh, I think we have a sort of precursor with what's happening in Japan right now. Uh, you know, in Japan, you have a BOJ that is keeping rates much lower than they should be and a long end of the bond market that is starting to sell off even though the Japanese government really isn't issuing at the long end. Um, and you have a long end of the JGB market that's looking, you know, starting to look pretty ugly, which, you know, perhaps is fairly ominous for the US Treasury market itself. So, to your point, you know, what will break first? Will it be equities? Will it be the dollar? Will it be the bond markets? Uh, I think the odds are it will be the bond market.
>> So, what can the Fed do? I mean, the Treasury put, the Fed put, the Trump put all played out somehow at somehow different point time points in 2025. What happens in 2026 that the bond market starts waking up and that could actually spook the rest of the uh global markets and other assets as well?
No. Uh, at some point, yes. But look, look at the JGB market again as an indication. It's been selling off all year. The sell-off is accelerating and the equity markets are sort of, you know, brushing it off. Uh, the yen has been weakening, but, you know, by and large, the Japanese economy is doing fine. Um, it's what we've called in our research actually a Turkish scenario where, you know, it's basically the monetary policy that Turkey followed where you sacrifice bondholders uh and you sacrifice the value of your currency for decent nominal GDP growth uh so that you, you know, keep money coming in and and turning the wheels. And, you know, and savers in that environment look for for real assets. And those real assets can either be, you know, precious metals, it can be real estate, or it can be equities because, you know, equities do generate cash flows. So, to your question, you know, if the bonds sell off, you know, does it crush equities? I'm not sure that it does. Uh, I mean, within measure, but, you know, you highlighted earlier, bond yields, 4, 4.10. If we go to 450, 475, does that, you know, does that crush equities? Um, probably not because that increase in the cost of funding is, I mean, it's never great, but how much is it going to really penalize most most companies? Probably not that much.
H, and do you think this um dynamic that we saw in 2025 and this is actually a market commentator in South Korea, how he described what's going on with investors' psyche that they just cannot stand having cash in their portfolio and that was really the right strategy, right risk worked in 2025? Is it going to be different next year?
>> Uh, so it depends what kind of risk. Um, you know, one of the best performing assets this year have been all the precious metals. All right, your silver, your gold. I think silver's up 100% for the year. Gold is up whatever it is, 55%. Um, and that goes back to a long-standing theme of ours, which actually most people look at gold and silver as inflation hedges. They're actually hedges against 0% interest rates. Um, and to your point about the your Korean savers, uh, what's fascinating is when you look at where the gold purchases have occurred in the world, they've occurred in Japan, in China, and in Korea, i.e. the places where you have zero interest rates. They have not occurred. You haven't seen big gold purchases in the US, you haven't seen it in Europe. Uh, because you have positive interest rates there. Um, so yes, I think, you know, when people do look at their account, bank accounts and interest rates are zero, and especially if at the same time inflation like in Japan is 3%. Uh, or like in the US, it's 3%. If you're earning zero at the bank, that eats away at you like you can see the value of your capital being destroyed. And so yes, you have to do something about it. And then then it becomes, okay, what do I do about my capital being destroyed in front of me? Do I push it into equities? Do I push it into precious metals? Do I push this and push it into cryptos? And here, you know, different people will have different risk tolerances. Um, and, you know, I I do think that's been a big driver of the equity markets everywhere around the world.
>> Yeah. Do do you think that that continues though? Um, with gold, are you recommending gold right now? And you mentioned crypto, but there is a bloodbath out there in the crypto space. Do you see that coming back up?
>> No, I think crypto is is actually pretty well wounded now. I think that the structure of the market was damaged by all the launch of the treasury companies that could borrow a lot of money uh and essentially gear up on on crypto, which it was a trade that were great uh while these guys were trading above NAV. As these guys, as all these treasury companies, the Micro Strategies of this world, the Micro Sailors, etc. As these guys start to approach their NAV and perhaps move below, they essentially the math works in reverse. Um, and then the question becomes, do these guys become forced sellers? And who wants to stand in front of a forced seller uh when, you know, there are no natural buyers? So I think the structure of the crypto market may have been damaged in this big latest upswing. Too much leverage put onto position leverage that now needs to be to be taken out. So I think that that part is actually dangerous.
When you look at, to answer your question on gold, um, you know, the big buyers of gold in recent years have been the the world central banks, and those guys are essentially price insensitive. And then it's been Japanese, Korean, and Chinese uh retail uh investors. Like these guys have been huge buyers, and again, the western world has not really participated. Um, now, so what the risk is that these guys stop buying now? Why would they stop buying? I think the only reason they'd stop buying is if their if their currencies start to go up. Um, now, when you look at the world today and you think and you take a step back and you think, what's the biggest anomaly out there? Uh, to answer your question on bare markets, what's the price that's just completely wrong? The price that's the most wrong in the world right now are all the Asian currencies. Like the renminbi is so stupidly cheap. I mean, there's a reason everybody probably everybody in your office goes to Shenzhen every weekend. Uh, you know, it is so stupidly cheap. Like you go to China now, you can't spend money if you try. Um, and if they're not going to Shenzhen during their holiday, they're probably going to Japan because Japan is also stupidly cheap with the yen at 155. So, we live in a world where Asian currencies are a massive, massive outlier. They're they're so stupidly cheap. So, you know, I think in 2026, for me, the big question is, do Asian currencies go up? And if they do, probably a lot of the trades that have worked in recent years don't really work anymore because the Japanese, the Korean, the Chinese all start repatriating capital. Um, buying local assets, buying yields in local currencies. If the yen starts to go up, you know, Japanese REITs. If the renminbi starts to go up, things like all the SOEs that give dividend yields of 6%, all these things will fly. Um, if the yen, the renminbi. So I'm making it a little bit like a Jesuit priest and answering your question with another question, but to to answer on gold, I think you have to have a view on Asian currencies because the buyers are Asians today. If if like me, you think 2026 is a year of Asian currency appreciation, then you probably want to start pulling back a little bit on your gold bits.
>> Okay, and do those markets, those those stock markets that you just mentioned in China, Japan, and South Korea, do they run higher in the next year?
>> Well, I think they do. Look, let's start with China. Um, China today is running a trade surplus of 100, 110 billion a month. No country in the world has ever run trade surpluses this big. I mean, this is just gargantuan. 100 billion a month is a ton of money. So, that's money that, you know, is coming in every month, should be pushing the renminbi higher. It's not happening. And it's not happening partly because the big theme of the past five years has been China's uninvestable. So while China's trade surplus moved from 20 billion a month to 100 billion a month, all the foreigners were leaving China, but the foreigners are now essentially done from leaving China. Like if if you were going to sell China by now, you've sold. Like it's, it's, you know, and the Chinese markets are now outperforming, etc. So people are done selling China. So now next year, you've got 100 billion a month coming in. So now the central bank in China has a very simple choice. It's, I let my currency go up. As all this money comes in, it pushes the currency up. Option one. Or I print a bunch of renminbi to prevent my currency from going up. And if I print a bunch of renminbi, that means these renminbi have to go somewhere. Now, growth in China remains weak. Real estate is in the doldrums. So all this money printing ends up going into the equity markets.
>> Um, which is what we've seen already in the past year. And so I think when you look at China, essentially what you want is a barbell portfolio. Is you think, okay, if you think China is and at the end of it'll be a political decision. China is not going to let its currency go up. They're going to print a bunch of money. Then all your aggressive growth stocks, the Kwebs, the Alibabas, the Tencent, you know, that stuff is going to go bananas. Option one. Option two, they let their currency go up. Um, and then everybody will be chasing yield in China. So things like PetroChina, China Mobile, ICBC, all the stocks that have 6% dividend yields and plus will get bid up. Um, and so, you know, I I think next year it'll be a battle between these two baskets. Baskets of high dividend yield payers, basket of high growth, and depending on whether the currency moves up or not, the currencies will move from one to the next.
>> So that's a good sort of amazing answer and good teaser for our next block because I do want to go deeper on China in the next block with you. But this whole AI thing, so the latest that we are seeing is Anthropic, a major AI company going well, getting ready for an IPO potentially next year. Is that a sign of AI bubble? Because it's sort of how it works, right? Sort of the OG investors locking in their profits, cashing out.
>> Or am I too cynical?
>> Um, I don't think you can be too cynical when it comes to uh to financial markets. Um, and especially when you're a journalist covering financial markets. Um, so look, uh, when you look at bull markets, and especially capital intensive bull markets, because let's not kid ourselves, AI is extremely capital intensive. Um, the history of capital intensive bull markets is first you go through a phase where the markets reward you for spending money. You know, remember Chesapeake Energy during the shale boom in the US, or or Lucent during the the the fiber boom in 1999, or or closer to home, China Evergrande. It's like the more money they spent, the more shares would be repriced. And then at some point, for whatever reason, the markets shift. It's like you're no longer rewarded for spending money. All of a sudden, you're you're actually rewarded for getting rid of the assets you overpaid for in the boom. Um, and I wonder if we're not going through that shift right now, and essentially whether Anthropic missed the window for their IPO. Uh, let me explain. What you remember Oracle a few weeks ago? Oracle came out and said, "Hey, look, we're going to spend $300 billion on data centers." And the market loved it. Immediately, the market cap of Oracle went up $300 billion. It was happy days. And then the market started to say, "Hold on, how are they going to pay for this?" You know, and the CDS spreads, the credit default swaps on on Oracle blew out, and everybody realized that they can't fund this, and the share price in two weeks, you know, went back down lower to when they announced all this capital spending. Another example of this is SoftBank. You know, SoftBank has lost 40% in two weeks. Um, essentially, as SoftBank said, look, I'm getting rid of my Nvidia to put all my money in OpenAI. The market started to say, hold on, this makes no sense. So I wonder if we're moving right now, as we speak, from the phase where the market rewards people for spending money, >> to the market starting to reward people for shedding assets. And if that's the case, the Anthropic, the Entropic, or the OpenAI IPOs will be very hard to pull out because these things are already trading at 100 billion of valuations on the PE markets. So for for the last rounds of guys to make money, you're going to have to IPO these things at really, really high valuations. Uh, you know, and whether the appetite is there for it, I think is is an open question mark.
>> Yeah. I mean, it's been very confusing. So if you really zoom out and look at the whole AI narrative, at one point the market didn't really like it when companies said, oh, we, you know, the capex number didn't really impress the markets as much, and then if they are spending too much, then they worry, and then the circular thing worries them. But then many of them are saying the sell-side is saying, no, we're still getting started, we're in the early innings of this AI cycle. So what is going to be the narrative around AI in 2026? Do you think that we are still in the early innings, but the financial markets just ran a little too fast?
>> Um, look, the fact that the sell-side says we're in the early innings, etc. Let's not forget the sell-side makes money by placing paper. Uh, so of course they're going to say, "No, no, you guys love this paper. Like, take take more of it, please." Uh, that that's their whole business model. So, perhaps we shouldn't be so too surprised there. Um, look, I think when when you look at the numbers uh surrounding AI, the numbers are are already eye-watering. Um, you know, Bain Capital came out with a study recently highlighting that for the capex, the current capex numbers to make sense, AI needs to quickly ramp up to $2 trillion a year of annual revenue. Now, to put things in perspective, the entire global advertising uh business, i.e. the people that you know, pay for all of this um the the uh, you know, that but also pay for the shirt on Manchester United, that pay for the online ads, that's one trillion a year. Like, total advertising sales globally is 1 trillion a year. For AI to make sense, they need to make twice the advertising revenue very quickly. Um, so the numbers are extremely, extremely challenging. You could say, well, that's going to happen because they're going to replace 10, 20, 30% of the global workforce. Um, okay, fine. But if we go there, then we have a whole bunch of other issues. Like our welfare states are not built to have 20% unemployment rates. I mean, uh, you know, mo and our societies aren't built for this. So I think there's an internal contradiction in AI that's like, at this point, the numbers are so big that essentially for the numbers to make sense, you have to think that we're going through a massive societal transformation.