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in your 2022 memo C change your main argument is the time of easy money is over and I don't think we're going to see that again uh that calls for changes in investor Behavior so what will be that the main thing is that debt Holdings carefully selected should be returned to portfolios another area that maybe also have a sea change is the tech area the artificial intelligence maybe the expectation for the adoption is a little too fast but I think the power uh is going to be very substantial when people in the bubble they don't know they are in the bubble there is an expectation that AI will change the world there's every likelihood that it will but there's also a good likelihood that we don't know today which companies will be the winners this time when we try to re revive the economy we choose a more patient way and you know China is transitioning from uh monetary bazooka to something more measured but the thing is maybe we'll have several difficult years ahead in my view doing the right thing means accepting reality and in reality there are ups and downs fore bu Howard thank you very much for your time to do this and very happy to see you again thank you Ivan it's great to be back together with you in person thank you you know in your 2022 memo C change and the 2023 memo further thoughts on C change your main argument is the time of easy money is over and it is not a usual cyclical fluctuation but a sweeping alteration of the investment environment so now it's the middle of 2024 yes any new further thoughts I believe that uh the decline of Interest interest rates from uh 1980 to 2020 by 20 percentage points was the most important event in the financial world in the last half century it made economies grow faster companies more profitable Investments more valuable leverage worked in other words it made it easy times human nature uh when it lives through one set of circumstances for a few years starts to think that's normal and you know the point of the memos is that experience of declining interest rates and then the extremely low interest rates that the world experienced from uh 2009 to 2021 that's not normal and I believe we're not going to see it again in the coming decade if not that's a fundamental change in the environment and it should call for fun Al changes in investor Behavior so I still think it's the case one of these days the FED will conclude that inflation is under control it will cut the FED funds rate which is the base rate uh in our economy uh from the current level of 5 and a quarter or 5 a half% uh down into the threes maybe let's say 3 and a half% but it will not come to zero it will not come to zero not come to a half I believe that in that 13-year period from 09 to 21 I believe the FED funds rate averaged half a percent which is abnormally low and and I don't think we're going to see that again so the effects of declining and ultra low interest rates will not be the rule going forward MH and that causes uh that calls for changes in investor Behavior so what will be that you know historically investors portfolios have Diversified between uh stocks and debt but in this period most people excluded debt because the returns were so low um well today those high yield bonds are not yielding in the fours they're yielding close to eight yes and eight is a very attractive return if we cross over into private debt we can get 10 11 12 and higher so today's yields on debt are competive with equities high in the absolute and uh I think less risky the main thing is that debt Holdings carefully selected should be returned to portfolios another area that maybe also have a c change is the tech area yes the artificial intelligence first of all Ivan I am I'm not an investor in stocks I'm an investor in debt secondly I'm not an expert in technology I know more about the traditional Industries uh so uh nobody should listen very much to what I say but you amazingly predicted Doom bubble yes well I I was able to sense that look what were people were saying in 1998 and 1999 is that the internet will change the world yes today we we say the same AI will change the word exactly well I I didn't know much about the internet at the time uh I would not an expert in technology I wasn't able to assess that I merely thought that no matter how good it would turn out to be that that that it was being overdone and over amped and overhyped in the market guess what the internet changed the world yes and the vast majority of the stocks that were introduced in the 99 Tech bubble ended up being worthless one of the aspects of bull markets is that people act as if everything will succeed and the truth is that the that the that the successful companies are usually few and uh rare there's no question in my opinion as a Layman that the AI will change the world uh I don't know exactly how I absolutely don't know when I don't know which companies will be successful and and you know that's a good part of the reason why oak tree and I uh don't invest in those areas there are some people people think they know how to do it they invest there some are right some are wrong I know I don't know but uh um you know I heard uh Elon Musk speak at the Milan Forum two months ago in Los Angeles and he said that uh Tesla and SpaceX are not using AI yet mhm so I think it's like most new new things it maybe it's a little overhyped maybe the expectation for the adoption is a little too fast um but I think the power uh is going to be very substantial do you agree with the theory that when people in the bubble they don't know they are in the bubble they have a lot of theories right stories vocabularies to justify the Sky High valuations so any similarities that we saw today well look I I think that one of the things that I've been able to do over the years based on attaining substantial age and experience um is detect when there are excesses in the markets today I don't know enough to know whether the expectations with regard to AI are excessive but of course we do know there's great enthusiasm uh there is an expectation that AI will change the world there's every likelihood that it will but there's also a good likelihood that we don't know today which companies will be the winners final thing let's talk something about China this time when we try to re revive the economy we do not use the Bazooka things right to stimulate the economy uh but we choose a more patient way right uh what's your take on that well look I like your terminology bazooka in the first 20 years of this Century the Chinese financial institutions fired money at the economy like a bazooka yes huge amounts broadly and It produced great growth yes but a lot of the growth was the result of the monetary stimulus the Bazooka yeah I'm going to use that phrase the trouble with bazooka is that it has unintended consequences and in fact you look at the real estate development industry yes if you give them money they'll build buildings uh the question is will the buildings be needed and useful and maybe you get the wrong buildings in the wrong place of the or the wrong type of building uh now I think China has is trying to transition from bazooka to um more uh moderate uh monetary support of the economy and balancing the desire for growth with the desire to let the market uh express its demand for products space real estate Etc and that's a healthy development but it's a transition and transitions can be difficult and you know China um is is transitioning from uh monetary bazooka to something more measured yes from 10% growth to 5% growth you think that that is the right thing to do oh it is the right thing and what I said in one of my memos I guess it was sea change yes is that adrenaline yes is a good thing they give adrenaline to people having heart attacks and it saves them but you can't take a shot of adrenaline every morning for 20 years yes it's not healthy if you can produce five that'll still be the fastest growing major country in the world so the transition is appropriate so maybe we are doing the right thing but the thing is maybe we'll have several difficult years ahead yes doing the right thing doesn't mean that everything is going to work every year and in fact in my view doing the right thing means uh accepting reality and in reality things don't go well all the time there are ups and downs
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