- 2 months ago
Despite wars and global tensions, major stock indices keep rising. Is a new bubble forming - and when will it burst? Our guests: Christian W. Röhl (Chief Economist, Scalable Capital); Kate Ferguson (DW Business)
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00:01Still playing the markets? Or are you already feeling the fear?
00:05Global stock markets continue their seemingly unstoppable rise.
00:09Tech giants like Nvidia, Microsoft and Apple are driving the rally,
00:13with billions pouring into artificial intelligence.
00:16AI is hailed as the next big thing, and investors are chasing record-breaking returns.
00:22But behind the shine, concerns are growing.
00:25Are we heading toward another dot-com-style bubble?
00:28The real economy is lagging.
00:31Trump's tariff policies are stirring tensions,
00:34and Europe is falling behind both US and China.
00:37Meanwhile, Germany faces the threat of a third consecutive year of recession.
00:42So today on to the point we ask,
00:44stock market hype, investors dream, or nightmare on Wall Street?
00:58Hello and welcome to To The Point. I'm Isha Bhatia-Sanen here in Berlin.
01:05And these are my distinguished guests.
01:08Klaus Song, he is analyst at German think tank Merix,
01:13that is Mercator Institute for China Studies.
01:16Next, we have Christian W. Reul.
01:19He is financial market expert with around 30 years of experience,
01:22and chief economist at investment platform Scalable Capital.
01:27And from DW Business, we have Kate Ferguson.
01:31Thank you so much for joining.
01:33Kate, what's going on?
01:36Now, for the last six months, the graphs have been going up,
01:40but now there are speculations.
01:41I mean, the speculations have been going on for quite some time.
01:44But what is the basis?
01:45Let's start with just the basics.
01:47What's really going on?
01:48Okay, well, I think fundamentally two things can be true at once.
01:51So for the first thing, AI is the defining technology of our time.
01:55It has the potential to transform healthcare, finance, warfare even.
02:00The problem is we don't know how exactly.
02:03And that big chasm between theory and application
02:06is the reason that we're talking about a bubble.
02:08Because at the moment, AI is just not making money.
02:11So we're seeing this huge difference between how much is being invested
02:14and how much is actually being earned.
02:16So ChatGPT, for example, is still making a loss out of nearly every query that we make.
02:22There was a study by MIT recently that found that 95% of workplaces
02:27that had actually implemented generative AI weren't making any money from it at all.
02:31So that's the problem.
02:32There's this massive difference between how we feel about AI
02:35and what is actually happening concretely.
02:38Right.
02:39Klaus, to think logically, geopolitically it has not been a great time.
02:43There's war in Ukraine, Trump's tariffs,
02:45China's been acting tough on raw materials, and yet the market is going up.
02:51How does one explain that?
02:53I think, yes, we're seeing there's a tough time in geopolitics and more turbulent.
02:57But also we are seeing the economy still growing in some part of the world.
03:02And the AI booming is actually contributing that.
03:06If you're looking on the stock market, when we're seeing on which stock is going up,
03:11TechStop.
03:12TechStop is the major forces to push up the index.
03:15But the real economy, maybe there's a question.
03:18Like how much it really grows and contributes to the stock market.
03:21So, of course, despite the turbulence in geopolitics, but economic-wise, yes, it's still going.
03:27But how does it correlate it?
03:29I think it doesn't reflect that much about the tension in the stock price.
03:34And one reason why everybody is investing so much is because things have become easy with apps,
03:40with new brokers, with companies like yours.
03:43How much do new brokers and companies like yours, like Scalable Capital,
03:47are responsible for this kind of a boom where youngsters are very much into investing into the market?
03:54We are not responsible for the boom.
03:56We are responsible and proud that we can give people access to markets at a very, very low cost level.
04:06And it is, of course, digital investment platforms.
04:10And on the other hand, it is products like ETFs, exchange-traded funds,
04:16that make it possible to invest into an index like the S&P 500 or globally the MSCI All Country World at maybe 0.1% per year.
04:29You have 2,000 stocks at your fingertips with only one click.
04:35And it's a great way to participate in this industrial revolution that are we seeing now.
04:41And moreover, in general, in the creation of wealth.
04:46And over long decades, the stock market has always been a wealth machine.
04:52So what is a typical user on your platform like? Could you give us a brief profile?
04:56We have customers starting with a very, very first savings plan in the app.
05:04Maybe even students with 10 euro and it's great.
05:08And we're proud that they address the scalable capital to host their money
05:13because that's the start for building wealth up to people that have larger fortunes
05:19and either decide on it themselves or have our experts letting manage and rebalance their allocation.
05:28And I don't like the wording typical customer because every customer is individual.
05:34But if you want to have an average, it's about 30 years old.
05:38It's a growing number of females, which we are very proud of, which is a very important point to us, female empowerment.
05:46And of course, ETFs, easy access to global diversified markets is the main focus.
05:54But of course, people can also trade stocks over 8000 precious metals, crypto and collect interest.
06:04So a lot of youngsters. I ask this because Gen Z and millennials are showing a lot of trust in Bitcoins and AI.
06:11And you can't blame them because as of now, it almost feels as if the stock market is living a life of its own,
06:18completely detached from political and economic realities.
06:23From Nikkei to NASDAQ.
06:26Since the beginning of the year, the most important stock indexes have risen up to a fifth in value.
06:32Why? All the hype surrounding artificial intelligence.
06:36Shares in large US tech companies in particular are skyrocketing,
06:41fueled by hopes that AI will revolutionize the world.
06:44NVIDIA, the leading chip manufacturer for the AI boom,
06:48is the first company in the world to reach a market value of $5 trillion,
06:52making it more valuable than Apple and Microsoft.
06:59Mark Zuckerberg's meta is also reporting record revenues.
07:03However, profits for the parent company of Facebook and Instagram recently plummeted by 83%.
07:09And its stock price temporarily crashed.
07:12One reason? High investments in AI.
07:16Investors are increasingly wondering whether the billions are really worth it.
07:21Experts are already cautious about a bubble like the one at the turn of the millennium,
07:25when the internet took the markets by storm.
07:28And once again, prices are rising faster than the real economy can keep up.
07:32Fears of a stock market crash are growing.
07:35The great stock market frenzy.
07:37Is this still growth or madness?
07:41Growth or madness, Kate? How do you see it?
07:44I wish I could say definitively it was one or the other.
07:47But I think there are a couple of interesting points that were mentioned in that report.
07:51I agree with Christiane that the democratization of investing is a really good thing.
07:55And if you are a young person in particular who's facing a precarious job market,
08:00you're not sure if you're ever going to be able to afford a home.
08:03It gives you a sense of agency to be able to say, well, I have an app and I can invest what I do have,
08:08whatever disposable income I do have, and see how it goes.
08:12Of course, though, there's a massive distortion between reality, what these big companies are doing and how they're performing,
08:19and the economic situation.
08:20That is precisely why we're seeing so much investment, I think, from young people in these apps.
08:24If we look at Nvidia, even $5 trillion, that's more than Germany's entire economic output for a year.
08:31It's no wonder that so many people want to get in on the game.
08:34But $5 trillion, some analysts are calling it a scam because of the circular movement of money that's going on.
08:42How do you see that?
08:43Yeah, the circular movement is something that scares me a bit because if Nvidia starts to pay one of its largest customers,
08:54like OpenAI with an investment of $100 billion, so that OpenAI will still be able, despite the losses, to buy more chips.
09:07Yeah, it sounds like you're buying your own revenue of the future.
09:11This is something that scares me after I have been in the market at the dot-com boom, too,
09:18and we had those cross-deals, too, and it didn't turn out well.
09:22But there is, of course, another interpretation that you see,
09:27that Nvidia, OpenAI and some other big tech companies are building kind of a revolutionary ecosystem for AI
09:36because it is such a big challenge, especially for getting the money in there,
09:42because it will cost trillions to fund.
09:47And that the truth will be in the middle.
09:50And the stock market, long time, always saw the big potential, now is discussing about the risk.
09:59But we have to face it, there has never been really a test of the artificial intelligence narrative since ChatGPT went public three years ago.
10:11We had some drawdowns, but they were not caused by anything related to AI.
10:17It was Trump's liberation day, it was interest, it was Japan's currency.
10:22Maybe we sooner or later see some test of the narrative.
10:27But OpenAI has not been making any profits.
10:29How long do you think it will take for OpenAI to reach that position where it also starts?
10:34They said they will be profitable in 2029.
10:38And to me it doesn't matter if it's 29 or if it's 30 or 31.
10:44The question is, will they be one of the dominant forces in the artificial intelligence race?
10:51And at the moment they seem to have the power.
10:54We will see which other companies will join.
10:57But of course it is very important in the short term to say they are not profitable and they are dangerous.
11:03But we should draw a line to other successful companies and other investment booms.
11:12The first railways back at the start of the industrialization haven't been profitable at first too.
11:19And of course the first internet companies haven't been profitable either.
11:24And we saw lots of companies disappearing 25 years ago.
11:29The hotspots were AOL and Yahoo.
11:32And they are still existing somewhere under the radar.
11:36And of course some companies will disappear.
11:39But there has also been an Amazon.
11:41They were selling books back that time.
11:44And now they are one of the dominating forces.
11:46And this is why young people make so many things right.
11:51When they say we want to invest broadly.
11:54And of course some bet on unprofitable companies like Oklo or Fermi.
12:01Fine, that's a part of the deal.
12:03But many, many people just invest broad with a savings plan and cost average.
12:10That doesn't mean that we can't see a crash.
12:12Of course we can.
12:14But there is a long time perspective.
12:15Especially for young people to see the stock market as a participating element.
12:20Participating in birth creation is much more important than this short term view.
12:26So how bad is this crash going to be?
12:28And this question is to all of you.
12:29Some are saying it's going to be one in a century like the one in 1929.
12:33Some are saying it's like the 2000, the way we saw in dot com.
12:38How bad could it be?
12:40I think it's funny that we are always making the link between crash on the one hand and artificial intelligence on the other hand.
12:50I think there are other threats in the market we could talk about like the private credit bubble.
12:57A lot of credit that has been paid out not by banks but by non-depository funnel institutions where you don't have the granularity to see where has the money gone.
13:11We have seen some cases like First Brands or Tricolor.
13:16Now they have been in the middle of intransparency and fraud and maybe there is more.
13:21Or we look at sovereign debt in the USA, in Japan, in France now.
13:31And this could also be a bubble.
13:33So we are surrounded by threats.
13:35But we have always been surrounded by risk factors.
13:39We have seen crashes over the years.
13:42We have seen some disasters.
13:45But in the long run the stock market has been a wealth creator.
13:50So there would be a crash.
13:52We don't know how bad.
13:53We just have to be prepared.
13:55We need to define crash.
13:57What is crash?
13:58Back in 1987 the crash at Wall Street was a horrible disaster.
14:06But if you see it now on a long term chart you see after two years it's been over and it's been a great chance.
14:15But of course for your mindset it's a big challenge to stay in the market then and not to leave exactly at the point when everyone is saying,
14:25Oh wow, the world is going down.
14:27Or remember Liberation Day.
14:29There was a minus of 20% in the S&P 500 during days.
14:33And you needed to be in the market and not going out on the 8th of April.
14:39Right now the rally is being driven by the Magnificent Seven.
14:42Now there are a lot of Chinese companies too.
14:45Why are investors not really putting in as much money in the Chinese companies as in the Magnificent Seven that you're seeing?
14:53I think we do see some investment flowing into the Chinese companies.
14:59But these Chinese companies are not that, I don't think they are internationally opposed to the investor.
15:06And the least companies are somehow they are still mainly focused within the Chinese market.
15:13In the Chinese market, the Chinese economy is not doing that well.
15:17So I think that investment is in my opinion somehow is a kind of projection about future profitability.
15:25If the market doesn't go well in the current stage, why would we put money in?
15:32To put into even a big company, why?
15:35But people are putting in money, right?
15:37Yeah, they're still putting money.
15:38But I think compared to the giant seven in the US market, they're much smaller in a share.
15:46And the sentiment is very bad in the Chinese stock market, I think, in the current stage.
15:52And this is also about the confidence about how the economy will be doing in the future.
15:57And it seems to be a question mark about how we are seeing Chinese economy.
16:02We're going to, no matter if it's rebounds or recover or maybe in a simple term, back your track.
16:09So the trend that we see is that as long as there is the AI tag, people are willing to invest.
16:15Now, AI, of course, we're seeing this new kind of an industrial revolution because of AI.
16:21And investors are putting in money.
16:24But at the same time, AI is also going to take away jobs.
16:27Now, look at Amazon, for instance.
16:29So are investors financing their own demise, their own doom?
16:34Well, maybe because I think technology has generally proven to be more effective at investing than any individual.
16:39But to be maybe a little less facetious, I think what's really key is to find a niche.
16:46Because at the moment, we've just got all of this money flowing around and we don't know where exactly it's going.
16:51And I think companies would be best advice to find, well, where can we apply this?
16:55And I think if I look at Europe, for example, we talk so much about Europe being behind the AI rest.
17:00It's not going to catch up on private capital.
17:02It's not going to catch up on innovation.
17:04But where I think it could do well is to actually find those kind of unglamorous, boring niches.
17:10The way German companies, for example, the classic Mittelstand, the small and medium enterprises, have always been able to do.
17:16You know, traditionally, they've been really good at developing specialized screws and mechanical tools.
17:22The same principle needs to be applied to AI.
17:25People need to find uses for it.
17:26And you don't necessarily need the most money for that.
17:29You need the most focus.
17:30I'd like to come back to Europe in a bit.
17:32But at the moment, the thing is that the stock market boom has been great for investors worldwide, but especially for the US and President Trump.
17:40It has boosted government revenue and added about $3 billion to Trump's own wealth.
17:45A rosy picture, but one shadowed by China.
17:49An impulsive dealmaker meets a cool calculator.
17:54Agreements between Trump and Xi have global consequences.
17:58The world's two most powerful rivals are flexing their trade muscles through tariffs and export bans.
18:04In their hands? Key technologies for the future.
18:08The US leads in AI.
18:10China in e-mobility in raw materials.
18:13They have resolved their trade conflict.
18:16For now.
18:17Xi is suspending export bans on rare earth metals for one year.
18:21And Trump is easing tariffs.
18:23The stock markets continue to celebrate.
18:25But Europe is turning into more of a spectator.
18:28German Foreign Minister Wadepul cancelled his visit to China at short notice, because hardly any meetings were confirmed.
18:35The next Peria case also shows how dependent Europe is.
18:39Following a court ruling, the Dutch government seized control of the Chinese-run chip manufacturer.
18:45Beijing then stopped supplying finished chips.
18:50Which threatens German car manufacturers.
18:53Trump and Xi are calling the shots.
18:56Are the Europeans just bystanders?
19:00You were talking about Europe.
19:02Now, China has been very strategic about making other countries dependent on China.
19:07The US had recognised that long ago.
19:09Where is Europe in this whole picture?
19:12Yeah, I think fundamentally this narrative about the AI race being between China and the United States.
19:19It's very compelling.
19:20But I often don't quite know what we mean.
19:22I mean, are we talking about which country is going to have more AI prowess in military terms?
19:28Are we talking about which country will make more money?
19:30Which country will have more innovation?
19:32So I think at the end of the day, it's unclear when this race will be over and how we will determine.
19:37The reality is that AI supply chains are deeply internationally entwined.
19:42So chips tend to be designed in the United States.
19:45They are manufactured in Taiwan.
19:47The raw materials come from China.
19:49And it's really impossible at this point to detach ourselves from that.
19:53And that was reflected in Xi and Trump's meeting where there was a concession made in tariffs in exchange for these rare earth commitments.
20:01So I think fundamentally, this race narrative, I'm not sure how helpful it is, to be honest.
20:07When it comes to Europe's position, yeah, as I mentioned, I think inevitably they are behind.
20:12There's no denying that.
20:13And I think it's a little bit naive to, you know, talk about, you know, Europe having the aim of technological independence.
20:19That's not going to happen.
20:20But it does need to be smart and strategic because it doesn't have the infrastructure.
20:24It doesn't have the private capital.
20:25It doesn't have the history and the structure.
20:28Of course, much can be done to improve that, you know, but that's not going to happen overnight.
20:32You know the EU, it's just not.
20:34But I mean, hasn't it become easier now with Trump's tariffs and everything that Trump's been doing?
20:40A lot of IT people from India, for instance, or the rest of Asia who would go to US.
20:46Now they're not, it's not that easy.
20:48I wouldn't say they're not allowed, but it's not as easy to go to US the way it was.
20:52And then the second stop would be Europe.
20:54It would be Germany, for instance.
20:55Hasn't it become easier for Europe to deal with this problem, at least, that IT people would be coming in here?
21:01I'm not sure if necessarily Europe will win in, you know, against the United States in terms of attracting talent.
21:08I would hope so.
21:09I think a lot of professionals are, you know, kind of a little bit put off by the bureaucracy, the visa requirements.
21:18Yes, lots can be done to improve that.
21:20And we talk about that all the time.
21:22But concretely, I think a lot of people are not necessarily choosing to come to Europe.
21:26And we do need to change that.
21:27Absolutely.
21:28But I just don't see it happening that quickly, to be honest.
21:31I think you've been wanting to pitch in.
21:32Yeah.
21:33Of course, bureaucracy is one.
21:35Real estate is another point.
21:38Yeah.
21:39Imagine you're a startup.
21:41You're in Berlin.
21:42You're attracting talent from India.
21:44And those are experts.
21:46They need to have space to live, a nice flat.
21:50It's an issue here in Berlin.
21:52So we have practical problems that aren't solved.
21:57And we really want to make this serious and attract talent.
22:01We have to get over bureaucracy.
22:03We have to get over regulation.
22:05We have to talk about tax benefits.
22:08We have to make ourselves really attractive.
22:12And this is also a question of mindset to welcome people from all over the world.
22:18We have seen this in Berlin, especially as a spirit.
22:22But we need some more political effort put in this.
22:27And of course, some political tendencies in this country are not helpful when it comes to the point of attracting talent from foreign countries.
22:36Yes, we could have another show on how startups need a lot of support from the government.
22:42Because I know a lot of people are actually leaving Germany now because of the bureaucracy and the red tape.
22:47And it's not only startups.
22:49We have a great industrial basis in Europe and especially in Germany.
22:54Just remember the chips that NVIDIA designs that are produced by Taiwan semiconductor manufacturing would be impossible if there wasn't an ASML of the Netherlands and card size and Trump from Germany that are creating the basic technologies for the machines.
23:20So we could be a bit more self-confident.
23:25And of course, we have great bases in electrification and smart grids.
23:30Also in applications around artificial intelligence.
23:35SAP is showing this.
23:37Siemens, our old industrial giant that has really evolved itself into a great company.
23:46But all those companies need more environment that helps them to keep the business in Germany.
23:55Or they will make the business somewhere else.
23:58And they are still German based, but we won't benefit from it.
24:02And how would China see that strategically?
24:04I think China see on its relation with Europe in a competition as well, for sure, but also a possibility for cooperation.
24:15However, I think Europe is not on a top ranking about China's foreign policy agenda.
24:21Obviously for reasons like overcapacity for China's alignment with Russia in Ukraine.
24:28So that is the two major obstacles we are seeing between Europe and China for their relation to proceed further.
24:34And for the Beijing decision maker, their focus is actually on the US, right?
24:39For the competition with the US, the US-China competition actually leaves like Beijing's expectation to Europe is it does not go further deteriorated.
24:48And that's good, right?
24:50It doesn't have to be like both sides don't have incentive to give in.
24:54Beijing is not giving up its industrial capacity to accommodate the European need, right?
25:00Because the European need, the industrial basis is so important because that is the foundation about how we see no matter the soft power or the hot power for Europe.
25:11So I think in that sense, we see is a competition more, but no one wants to give in.
25:17That's all the time we have.
25:1910 seconds.
25:20What would be your advice to youngsters who are still investing?
25:22Invest globally on a monthly basis with a saving plan.
25:27MSCI, all country world is the starting point and then see where you go from there.
25:31So you don't have to be scared.
25:33If you're also into stocks and market, do let us know how you're preparing for the next big market crash.
25:38Leave a comment below and thanks for watching.
25:40Goodbye.
25:57Bye.
25:58Bye.
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