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I do think we're in a bubble but I also think it's unlike any other book The Great bubbles of History whether it's the statistic level or 1929 or the tech bubble you take a very good economic situation and you merely extrapolate it into the future and if you do that and it actually occurred the market would be worth very high multiples of book and earnings and so on it's a very simple game believe in today's perfect conditions and assume unrealistically as it turns out that it will go on forever if you did that today and you extrapolated today's conditions which are miserable you would of course have the very opposite of the bottom so that makes it unique we're in the highest five percent of PES and we're in the lowest five percent of economic conditions so there's never been anything and why has it happened we know the trouble is of course covered and we know the push on stock prices is a combination of central banks Federal Reserve and fiscal spending and it's Global so we have never had such a global agreement that every government has looking to spend and every government is looking for their Central Bank to accommodate this is an enormous push and what we discovered long ago is how effective that is of moving stock prices it's as if every dollar that is not absorbed by the real world flows through line of least resistance flows through into asset pricing that is what has happened it's a very impressive struggle between the real world of productivity and employment and GDP and the paper world of PE ratios and house prices pushed by easy credit low interest rates plus the key and just plentiful supplies of money flapping around to those people who are likely to buy houses and stocks it is not necessarily the case at the small business level at all so this is not necessarily terrific for the real broad economy but it is clearly terrific for the stock market and the question is does the real world eventually catch up and since this is novel the economy just like the novel virus you can't be quite as certain as you could in Prior bubbles I described our confidence in Prior Bubbles as near sir all of those things of course occurred and you can't be that certain this time because intellectually interesting however my bat would be of course that reality will catch up with the high PES when you buy overpriced assets you get a guarantee of a low return what you don't get is a guarantee of being wiped out next week my belief is that if you're trying to time the breaking of a bubble the value is not that important all of them are overpriced and whether they're overpriced at 25 times earnings of 35 times earnings or in Japan at 65 times earnings it's very difficult to work out in any sort of academic way since you're dealing with craziness where it's going to Peak I much prefer to look for signs of truly crazy behavior because every bubble that really crashed and broke in a spectacular way which most of them did was preceded by craziness by legendary stories this was notably lacking as I wrote and talked about over the years of the 10-year bull market it has not been lacking really in this rally off the coveted low we have seen not only the terrific rate of acceleration in the price rise double the normal bull market which is characteristic that acceleration is characteristic of plate stage bubble but we've also seen wonderful craziness the Sparks which are promised to use your money give me your money and trust me I'll do something useful with it there's a real Echo of the south sea bubble where we have such a spectacular opportunity we can't reveal what the purpose of your money is yet and they got lots of money and ran off with it I'm not saying the spikes will run up with your money but I am saying it's a real testimonial to the speculative nature buying hurts a bankrupt company and having it go out for five six times in a real hurry and so on and so on you read about your own having a Tesla quadruple I own a Tesla It's a Wonderful car I think they're spectacularly interesting company but are they four times the company they were before covered I don't think so these stories are everywhere and then what you need before a bubble breaks and we saw them in early 2000 and late 99 and we saw them in late 1929 before the crash we saw them in Japan and here we are again so I think this is an indicator not a certainty but a strong possibility that we are quite close to the bubble breaking in terms of psychology perhaps a matter of weeks or months not a year and I am sympathetic to the argument what am I supposed to do the yields are so low but the market doesn't care that you don't have easy safe Investments to make and your desperation is your own math what it does is focus on the difference between short-term and long-term on the short term you can say I'm offered Nothing by fixed income I get something out of stocks even though it's half what it seemed to be and the yield is still better than nothing therefore I'll do it and the price is right and that is a logic that you hear one way or the other all over the place and then there's the argument in the long term which is in the end all assets equal replacement costs house prices go up but if you can build one at Half Price you put a ceiling up if you can create a new company at half price I am a great fan of bench capital for this reason I've spent my entire life fighting with pet friendly what I will say is this that typically the FED wins many more rounds than we have but in the end we've had a knocker In the End the Fed has not been able to keep the tech bubble going indefinitely it sent it over the 20 on times earnings of 1929 and send it up to 35 but it couldn't go on indefinitely even Japan that went to 65 the price they paid when you finally knocked it out because here we are 31 years later not even faintly close to the high of 1989.
if you go into their real estate market which was an even bigger bubble I think the biggest bubble including the sassy bubble ever tulips they went down for 30 years and now they're bottoming out maybe but they're bottoming out in Central City prices a quarter where they came from Land Under The Emperor's Palace in 1989-19 was indeed worth the state of California to get some idea but we spent a day or two checking it out it really was true and the price you pay for that is you could be 50 years later and still not back to that level again I would say don't fight the FED if you're a short-term player but if you're a long-term player you have to be prepared to fight the FED on occasions as long as inflation is not really Gathering steam when you find yourself facing these slowing global economy you have to kick it and it needs massive government stimulus on a sustained basis a few years ago I debated Jim Grant who called me an apostate amongst Valley imagines or hedging about this time is different I maintain that the almost dangerous words this time is different should be replaced by the five most dangerous Words which is this time is never different that is a very dangerous idea to think that you can never have important permanent changes and I think almost everything has changed since 2000 so the certainties that we used to have no longer exist but that was five years ago that was before the most asset move against value on any way you care to measure it now we are off the scale so I don't think the value is as dependable and useful a weapon as it was for 70 years prior to 2000 but I think it's a very handy weapon when you push the parameters so far that it hits historical lows against growth levels that we may not snap back 120 I would have calculated 20 years ago but we are going to have a very big reversal in favor of value stock sooner or later I think we can be pretty safe about that and one of the things comes down to the nature of the facts I don't recommend necessarily going short but I do recommend owning as few U.S equities as you can face emerging equities merging markets are not only at an unprecedented low relative but they are actually quite cheap absolutely compared to the US on their own and who are they they're China who is going to represent according to the World Bank over 30 percent of the entire world's growth over the next 20 years in India which is going to be an increasingly important player and then you have the Brazil so on collectively they are much the bigger part now of global GDP these things move very fast I think about on Emerging Markets is really betting the future against plants and the only thing that makes life interesting outside emerging are the Fangs intellectually interesting but when they've gone up 10 times in a hurry you have to say it's intellectually more interesting than it is financially interesting and the reason I recommend not going short shorting is a desperately difficult game you can never be certain that they don't with the fangs and the girls start to put in one last push but they will shake you loose you simply will not be able to take the pain government spending done correctly very good for the economy very good for workers which in the US have not had a real increase per hour work since the mid-1970s can you believe where even Dopey Europe has more than doubled in China and Vietnam has more and so on and there's a bit of a pickle my advice really my simple you emphasize Emerging Markets you de-emphasize the us if you have to own the US you go for deep value I did not say that three years ago five years ago but if I had to choose between doing that and avoiding the US entirely I would do the latter you only need one big asset class by the way to get rich Emerging Markets as I said is way over half of the global GDP it is growing far faster and because of the size of China it's guaranteed to do that it's going to have a much better growth rate this year under stressed much better than the GDP growth hello thank you
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