00:00The basis of your argument, as I understand it, is that you take a look at the investor base in U.S. markets, and it's very over concentrated at this moment in time.
00:12What I point out, Katie, and it's a pleasure to join you, which is that if you look at the amount of wealth that is now invested in U.S. equity, this is U.S. stock markets, these are at record levels.
00:26It's not just U.S. households that have very high levels of exposure, but if you look at foreign investors, they've never been more exposed to U.S. equity.
00:37And so we are seeing a very sharp increase in the stock market.
00:41Of course, you'll be seeing these bumps day in and day out, but the levels are at record highs.
00:46And I'm not saying that we're now on the verge of a bubble bursting.
00:51That's just impossible to say.
00:53But I think there are reasons we might expect a correction.
00:55And so the big question is what happens if we do have a correction like the dot-com bust?
01:01And the consequences of that could be much more severe and much more global than it was in 2000 and 2001.
01:07I mean, that's the point I was trying to make in that piece.
01:11And it's interesting, of course, to read this argument and hear you explain it, because this year you think about what's happened.
01:17You've had a lot of outperformance when it comes to Europe.
01:21Europe's still outperforming its stock market versus the U.S.
01:25And still, at least in your view, that hasn't necessarily changed this overconcentration problem.
01:30When you think about European investors choosing to go and invest heavily in U.S. markets versus staying at home, so to speak.
01:38We are certainly seeing signs of some diversification, but I think overwhelmingly it remains the case that the U.S. stock market is where you have the most dynamic tech stocks.
01:50AI-driven growth is most promising.
01:54And so it's hard to miss out on that.
01:56I think the fear of missing out keeps a lot of global money in U.S. equity markets.
02:01So there's a good reason why they're in there.
02:03This is not necessarily all a bubble.
02:05But the point is that we've never had that high a level of exposure to U.S. equities, which means unlike 2000 and the dot-com crash, this time the effects of any correction in the markets would be more severe.
02:20Many more countries would be impacted.
02:21Consumption would be more harder hit.
02:24And we are already at levels of growth of about 2 percent.
02:27I mean, before the dot-com, U.S. growth was over 4 percent.
02:31So we are not exactly at very high levels of growth at this moment.
02:34So any of these shocks could generate a big turn in markets and in the economy.
02:40Gita, do you actually see any potential, though, that we might actually see a bit more broadening, geographically speaking, of these investments?
02:47The idea that I think everyone recognizes the asymmetry that you're talking about.
02:50But at least earlier this year, there was a lot of talk, primarily because of some of the policy positions and uncertainty here in the United States.
02:58People were looking for viable alternatives or at least complements to U.S.-based investment.
03:03In April this year, I think that was the moment when you had the Liberation Day tariffs that were announced and stock markets adjusted by a lot because there was so much uncertainty about where things would go.
03:17And there were indeed many investors that looked around and said, OK, can we have this level of exposure to U.S. markets?
03:23Can we rely on the dollar always strengthening as it has over the last 15 years?
03:28And you absolutely see adjustments now.
03:31There is a lot more hedging against dollar risk.
03:34You see more capital going to emerging markets, I think, to a great extent because the dollar has been weakening relative to those currencies.
03:42But if you step back and ask yourself, where is growth going to be better in which parts of the world?
03:48We just had the recent IMF World Economic Outlook report come out.
03:52And again, in the G7, the U.S. has the strongest growth projections.
03:57And for many emerging and developing countries, if you look at China, growth does not look that promising.
04:01So I think there needs to be more balanced growth around the world than what we've seen over the last decade.
04:06With regards to the growth in the U.S., as you know, Geitha, there's been a lot of disruptions in sort of our institutions here in the United States,
04:15maybe for the better, maybe for the worse.
04:18But there's no doubt about it that whatever growth we have, it's also being accompanied by a growth in debt, a growth in deficit,
04:25a growth in share of GDP that is now bordering on the unprecedented.
04:29And I am curious if this is just a problem for the United States to deal with on its own, or is this a problem for the world as a whole?
04:37As we know over and over again, anything that's a problem for the U.S. to deal with is a problem for the world.
04:43Because whenever you have any correction in the U.S., be it in bond markets, be it in the stock market, it spills over to the rest of the world.
04:50So the U.S. is never alone in this.
04:53I do believe that bond markets are also in a situation, not in the U.S., but if you see in the U.K., you see in France, where you're seeing much more volatility in bond yields than we've seen in many years.
05:06So there are big question marks around government's ability to continue to borrow the levels that they've been doing.
05:12The U.S. yields are not bad, I mean, given the high levels of debt that exists.
05:16But what you have to look out on the horizon is this ever-increasing levels of debt to GDP.
05:22And we are in a very different environment compared to the late 1990s.
05:27We have tariff shocks, we have tariff uncertainty, we have questions on central bank independence.
05:32I think if any of this plays out, it could trigger multiple markets, you know, going into risky territory.
05:39I think if any of this plays out, it could trigger multiple markets, you know, going into risky territory.
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