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00:00It does seem like there's so much optimism, stars are aligned, especially with Trump saying,
00:04you know what, the war is ending, or, you know, we're done with this. We've had him say that
00:09about 49 times since the war started. Some say even like five times in the last nine weeks.
00:14Why should we care? And do we care? Not really, because I think that, yes,
00:19we care if oil prices were to really go parabolic. But I think that the big story,
00:24and that's very clear even from the opening remarks from your team, is that this is all about AI.
00:30Right. That's what's really driving markets around the world. If you look at even relative
00:34performance, it's all about AI. So just stepping back a bit, that something similar happened last
00:42year, which is that we were all obsessed with tariffs on the news front. And yet tariffs did go
00:48up. But people forgot about that story because it was superseded by the AI boom, the amount of
00:55capex which is happening as far as AI is concerned. Something similar is going on this year, which
00:59is that yes, oil prices have gone up. They have settled at a much higher plateau, even after
01:06the decline over the last day or two. But the AI boom is just so much bigger that it's swamping
01:14all other effects. So it's very analogous to what happened with the tariffs, which was a negative
01:18that the average tariff rate in America today is much higher than what it was, even though people
01:26talk about Trump having walked back and stuff, which is true. But it was two and a half percent,
01:31the average tariff rate before Trump started the escalation on the trade war. And even after
01:37he pulled back, we settled at about 10 percent or so, very significantly higher from where we
01:42were. And yet the markets and the economy withstood all of that, mainly because of the AI boom.
01:48Same thing is happening this year, that oil prices are higher. But because this AI boom is so powerful,
01:53the companies just keep increasing CapEx. Everyone's convinced that the world is moving
02:00towards AI as the future, that that's all that markets seem to care about.
02:04Interesting. You talk about parabolic and we have seen parabolic moves before, right? Gold,
02:10silver, even oil to some extent, a moment in time. But never at this scale. The question really is,
02:18how long can this last? I mean, the momentum, the rally can't go on forever.
02:21Yeah. What are the catalysts you're looking at? So like I framed this in like three ways,
02:26really. One that if you look at history, the last 300 years, every single technological
02:32innovation has been accompanied by a financial bubble. Every single, you know, from the railroads
02:37to the Internet, canals, whatever you look at it, it's all been accompanied always by a financial
02:43bubble. Because when you have a great technological breakthrough, it's fantastic for the world.
02:48That's what the world progresses on. But it leads to a huge amount of overexcitement.
02:54Companies invest and then they overinvest. And so that's how it goes on. But there are two
03:01lessons to this. One, that very rarely do these companies which are investing end up making money
03:07on their investment. Because they typically overinvest. It's the consumer that ends up making
03:11money. And the second most important thing is this. And we learned this in 300 years of looking
03:16at bubbles that the consistent factor which pricks the bubble is that when you have higher interest
03:22rates, until you have high interest rates or some sort of a liquidity event which tightens
03:30money in the marketplace, bubbles don't just burst under their own weight. So I think that's what
03:36that's the zone we are currently in, that interest rates are pretty stable across much of the world.
03:41I'm watching the 10-year in the US obsessively. It's not in any sort of a major breakout. It's
03:50stuck between 4% and 4.5%. Now if the 10-year in the US were to get to 5
03:55% or more, that's when I
03:57think that you'll begin to get people asking questions. What's my return on investment? How
04:01much are you going to make out of all this massive capex I'm spending? Until then, this arms race goes
04:07on.
04:07So yes, this is a bubble. When I look at the, you know, like I have four criteria to try
04:14and map out
04:15if we have a bubble or not. It deals with overvaluation, overinvestment, overleverage and
04:22overownership. The four O's that I call them. On most of these four O's, this is quite advanced.
04:29Now you can argue that we're not that leveraged. The balance sheet of these companies which are
04:35overinvesting now, they are still doing it out of the cash flows. The debt they're taking is still
04:39relatively small. But apart from that, we are overvalued on most metrics. We are over-owned.
04:47I mean, 60% of American households today have exposure to the equity market.
04:53Which is the highest in the world, actually.
04:55It's the highest in the world. In fact, America is the only country where people have more of their
05:00wealth in the stock market than even in the property market, which includes their own homes.
05:07Typically in China or other places, it's the other way around. People have five times more
05:11wealth in the property market than in the stock market. So this is a very extended bull market.
05:16But having said that, as I said that as long as interest rates are low, and interest rates,
05:21I say, are low because they're about 3.5%, 4%, whatever, like you're taking the short interest
05:26rates. But nominal GDP growth is much higher. You know, like it's running at 4%, 5%.
05:32Uruj, your concentration risk. You take a look at Korea, at Taiwan. All the massive rally has been
05:39pretty much down to three stocks. I mean, the risk has become structural, no?
05:43Absolutely. I think that this is why looking at indices has become very misleading now. Because,
05:48you know, like the same few companies are driving the index. So you spoke about the emerging market
05:53index. In fact, the emerging market index today is even more concentrated than the US index. Remember,
05:59for years, we have spoken about how in the US, the S&P 500 is very concentrated, dominated by these
06:04big tech companies, almost like never before. In emerging markets, something very similar has
06:09happened. So you're getting this massive dislocation take place that for this year, markets like China,
06:16India, these are actually down in dollar terms. Or, you know, like India is still down 10% in dollar
06:23terms. And yet, these Korea-Taiwan markets, these are up anywhere between 70% for Korea,
06:2840% for Taiwan. On a one-year basis, they've all doubled or so. So you're getting massive dispersion.
06:34So, as I said, the world has now become about a monomaniacal focus on AI. Which countries have AI,
06:41which countries don't have AI, please.
06:43India doesn't have AI. And India has been tumbling. And, you know, foreign investors,
06:49foreign funds have been making an exit. What would change that? Would it take an AR bubble bus for
06:55foreign investors to start pouring money into India? Yes, I think so. I think that India has
06:59been perceived that way, that it's become an anti-AI play because the current phase of AI we are in
07:05is
07:05all about infrastructure build out, who's got the compute, who's got the infrastructure to build all
07:10of that. And India never invested that much on that front. I mean, India, if you look at the amount
07:16they spend on research and development as a share of the economy, it's 0.6% or so. Whereas these
07:24Korea-Taiwan type people, they do, you know, 4-5% of their GDP in R&D. Even China, US
07:35is closer to 3%,
07:36right? And those are very large economies. So I think that that's been India's so-called fault
07:42line. Now, of course, at a later stage, when it moves much more to AI adoption, then maybe India
07:48has an opportunity of using AI to try and improve its productivity and its efficiency. But currently,
07:55the problem is that countries like India are seen on the wrong side of the AI trade for two reasons.
08:00One, as you mentioned, that they don't have this kind of, you know, semiconductors or compute,
08:05which the entire world is chasing just now. And the second, and this may be a bit of a myth,
08:11but at least that's the perception, is that a lot of jobs are seen to be at risk because of
08:17the AI
08:17disruption that India has... Especially in the software sector.
08:20Software, even the GCC sector. So these kind of sectors, you know, there's a job risk. And there are
08:29well-paying jobs in India. And jobs has been a structural issue in India. So on both those fronts,
08:34India is seen as a bit of a risk. Now, at some point in time, valuations will get attractive.
08:41And the fact that India, you know, that the nominal GDP is growing at 10% will offer an attractive
08:47entry point. But for now, sentiment has become that way. And it's true, not just of India,
08:53it's true of some of the Southeast Asian countries as well. Like, I was having a look at Philippines the
08:57other day. You know, like, no one even talks about it. But the Philippines market today,
09:02on some metrics, is trading at the lowest valuation since the East Asian financial crisis.
09:09Would you buy it then?
09:09Well, I think that, you know, like, the way I'm thinking about the portfolio today is this,
09:13if I can say so, that you think about how much AI you want in your portfolio. And then what
09:18are the
09:19cheap hedges that you can have in the portfolio? You know, which is that these are cheap. They will not
09:24work just now. But let's say this reverses, that for some reason, interest rates go up or the bubble
09:30burst. You know, like, what are the things that could benefit? So yeah, I think that the India,
09:35Philippines, you know, could be the kind of places. But in general, what I find is that the best hedge
09:40to this currently is not even gold and all. Because what's happened to gold is that gold used to be
09:45a
09:45good hedge. But because it had such a tear-away rally, it's no longer become a risk-free asset.
09:51There's a lot of risk now embedded in that price. So yeah, gold will do okay. But I think that
09:55the
09:55best quality stocks in the world today are the best hedge to this. Because quality as a factor
10:01has done quite poorly, particularly like in international markets. And by quality, you know,
10:06like good companies with an ROE of more than 15%, some earnings growth, but they have all done poorly
10:13because there's been such a focus on just having AI. And many of the AI plays, I mean, we speak
10:19about
10:19the Magnificent Seven, apart from that, are in fact, unprofitable. You talk about AI plays. The U.S.,
10:25they say, is still the place to be. And yet back in 2024, you called peak U.S. exceptionalism. Yeah.
10:31That's not the case. We're seeing record after record after record. Yeah. And we'll continue to
10:36test that record. No, yeah. I mean, so I'd written, you know, back in, as you're saying, like in December
10:41of 2024, that U.S. exceptionalism is peaking. And what did I mean by that? What I meant was that
10:48America had had a 15-year great run of stock market performance. But I was talking about relative.
10:55The fact that the American stock market relative to the rest of the world was likely to peak.
11:00And when I look back at it, that has happened. That even though the American market has continued
11:04to climb higher since December 2024, in fact, when I wrote that piece that you're talking about,
11:10I think since then, international markets have outperformed the U.S. You know, like despite all
11:16this money flooding into America and this massive amount of money flooding in, the dollar has, in
11:21fact, in the margin weakened. It hasn't strengthened against most currencies. Now, there are some
11:27currencies like the rupee and the peso, et cetera, which have clearly weakened against the dollar.
11:33Crumbled. Crumbled. Fine. You can use the word crumbled. But generally, currencies have done okay.
11:38So international markets have significantly outperformed the U.S. since December 2024. And
11:45that's very interesting, despite the AI boom happening. So now to the counterfactual, that if
11:50the AI boom ends for some reason, I think America would be very vulnerable. So the other follow-up piece
11:56that I'd written last year, like for my FT column, was that America has become now one big bet on
12:02AI. And that's why even Trump and, you know, is able to get away with so much. You know, like
12:08a lot
12:09of people here in Singapore and other places are befuddled that how does America get away with all
12:14these, you know, actions that it takes? And my point is because America keeps bailing out Trump
12:21or other policies simply because of its pre-existing strengths. And because of the AI boom continuing,
12:27that's why the other actions of America are superseded by the AI boom.
12:33You talked earlier about how you're keeping a very close eye on 10-year yields, which you say it's
12:38not at 5 percent. But when you take a look at 30-year yields at 5 percent and expect it
12:43possibly to go
12:44higher, isn't that sending alarm bells?
12:47Well, I won't say alarm bells, but it's sending like an orange signal. It's telling you that this is
12:52what you should be looking at. As I said, 300-year history of bubbles, higher interest rates is what
12:57kills them. So if you get higher interest rates, the entire equation changes. But, you know, this is
13:04still broadly, if you look at it, it's been stuck in a range for a while now, right? So in
13:09terms of
13:09that. But I think that if interest rates go up, that's when it tells you, hey, this boom is coming
13:15to an end. Now, you can say that it's already very advanced. I don't want to be around these,
13:20you know, like in this bubbly phase. But there's a lot of performance pressure that people are
13:24facing just now. Because if you look at even bubbles historically, they typically, you get
13:29the best returns typically at the end. Even in 99-2000, you know, that a lot of people speak about
13:35how Alan Greenspan in 1996 had said this is irrational exuberance. And it took more than three
13:40years after that for that to really manifest itself. But, you know, from that statement, the NASDAQ went up
13:47multiple times. But I think that a detail which is often overlooked here is that even in October of
13:551999, from then to the peak, the NASDAQ doubled. So, you know, the end when it happens, the last phase
14:02of this, when there's a scramble going on, the price action tends to be the most parabolic. And
14:08that's what we're seeing in some markets like in Korea and these places, you know, like now all of a
14:13sudden these chip stocks, they're going up 10% a day. I'm talking about, and we're talking about
14:18really large cap chip stocks here like Samsung, Hinex install. You know, that's not normal price
14:25action. That tells you that this is in that parabolic stage. But as I said, that until interest
14:30rates come and undercut this, it's very hard. There's no science to say that it should stop
14:36right here, because these things just tend to carry on with the momentum of their own. There's so much
14:42retail speculation going on, not just in U.S., even in Korea. And then now you have, you know,
14:49like pro-cyclical things going on that American individual investors are now being allowed access
14:54to buy Korean equities as well. So it just fuels this further.
15:00Russia, I'm just wondering, against the current geopolitical landscape, how are you pricing that
15:05into your investment theory? Because if you take a look at what's happened, you know, amid this Iran
15:11war, the U.S. has had to move all its weaponry from Asia to the Middle East. And now we're
15:17talking
15:17about a shortage of weaponry. In fact, the U.S. has told the EU that perhaps, you know, all the
15:23transfers of weaponry may have to be delayed. Inventories are really low. That's a huge risk
15:30for the world, isn't it? Yeah. But, you know, like markets are very bad at pricing these kind
15:36of risks. And that's because of the fact that, in all fairness, because 99 percent of the time,
15:42these risks never materialize. There are always geopolitical risks out there. In the 1 percent,
15:48probably that they materialize, like, you know, the First World War or something as grave as that,
15:54the markets are blindsided by that. So that's the problem that, as I said, more than 90 percent of
16:00the time, you have geopolitical risks and they don't quite materialize. And, you know, like there's a
16:06line which I always repeat, that history is better remembered than it's lived. That we now look back
16:12and think that this is a very geopolitically fraught time. But at any point in time, geopolitics always
16:19seems that way because there's always some risk there, even in the best of times. People, you know,
16:25before I think we were born, in the 1960s speak about, you know, like the fact that there were all
16:31sorts of fears that U.S. and Russia, Soviet Union, at that point in time would have a nuclear war.
16:37And
16:37you had, you know, all these exercises of people hiding under desks and stuff in, like, America.
16:42Similarly, in the best of times of the early 1990s, the peace dividends coming through, there was a
16:47real fear, and Margaret Thatcher and all would speak about that, that the Soviet Union, as a last gasp
16:54to stay in power and to stay united, would launch a nuclear attack, you know, like to try and assert
17:01its authority. So that was, remember, now we look back at the 1990s as a golden period about,
17:07you know, geopolitical stability. So my point is that geopolitics is always volatile. Yes,
17:12it seems it's a bit more volatile now compared to the last 20 to 30 years. But the markets are
17:17very clear, which is that usually like they fade geopolitical risk. And in the 1% chance that
17:23something really disastrous happens, they're always, you know, shocked by it.
17:27How do you think this will play out for the mid-times? I mean, Ken Griffin did say that,
17:31you know what, the Democrats are going to win.
17:33Yeah. Well, if you look, you know, here's the problem with this, right, which is that, yes,
17:37I think that there's an overwhelming consensus that the House will flip on that, you know,
17:43like I think that everyone has sort of decided. The Senate is still 50-50. And here's the problem
17:48in the polling numbers, that everyone looks at Trump's polling numbers and they're relatively low.
17:53But there are two points I'll make here. One, that every American president's polling numbers
18:00for the last 50-60 years have been declining. So comparing it to history has become fraught
18:05because in a more polarized world, all numbers are declining. And the second point I'll make here
18:10is that if you look at the generic ballot, the Democrats and their polling numbers are in fact
18:18lower than Trump's. So, you know, it's about who you're fighting out here. So that's another reason
18:25why Trump is able to get away, because a lot of people in America are also very disillusioned
18:31with what the Democrat Party is doing.
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