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I must say I'm in my old age reaching a point where I have a little trouble convincing myself that the stock market is that important and that we live in an age where some much more important issues are playing out and I know Ray shares that view to some considerable degree but I I view the stock market now really as a hobby and the one thing that I have kept going is resources and climate change related investing and also For Old Times Sake investment bubbles since I've been doing that for 40 or 50 years and um and since I find myself unexpectedly in in the third great investment bubble of of my career in in basically in the U.S so um I can't avoid it and this is a wonderful day to be having this discussion it's not only victory over Hitler in Russia day but it's it's also a day where the market is showing signs of breaking down through yesterday it's the worst opening of a year for the s p uh since I was one year old in 1939 and of course the NASDAQ is down as we speak 27 and a half percent from its high and uh and the Russell 2000 about 23 s p about 15 and a half so it's getting to be interesting and as we were saying before um Bitcoin from some point in the last 24 hours is down 10 percent to 32 000 and change so that is getting interesting an arc um Kathy Woods wonderful instrument is back to it where it was in 2018 I'm not kidding you uh it is back below this entire event now uh which is quite remarkable down 75 percent uh from from its peak as is AMC down 75 from its peak and and the other meme stops are in ragged disarray so this is The Real McCoy seems to be playing out pretty close to 2000 considered myself a fairly serious amateur historian what I've done in bubble territory is I I don't try and build models to explain every day as you guys do I I focus on the four Great bubbles but which are characterized by nearly hysterical Behavior really seriously weird over optimism which is very rare and which are characterized by accelerated prize moves on the upside um and um and and by a weird uh deviation on the upside between the Blue Chips going up and the risky stocks going down and that that is rare as hence teeth it happened brilliantly in 29 it happened during the year 2000 again in space with the s p x growth continuing to go up through September of 2000 and the growth starts basically going down 50 and the and the internet stops dropping and maybe 60 70 by then so that was spectacular and we saw a very handsome deviation between the s p Rising last year and the Russell 2 and for example dropping quite handsomely so there was a 20 25 point spread on the upside we we have a market today which feels superficially like 2 000 and I think it's going to play out initially like 2000 and then unfortunately it's going to phase As He suggests into the 70s where the deflationary effects on the economy and the stock market will re will result in a world rather like the 70s where all assets are simply much lower price than they are today um a word on on inflation too I completely agree with Ray on on the short-term problems which I I would summarize as monetary and and and general Federal Reserve over stimulus for 30 35 years the war and covid all of those three influences guaranteeing that we have uh relatively intractable problem in the short intermediate term well what what worries me is the longer term Arguments for inflation which is one we are running out of people in China where the 500 million extra farmers precipitated globalization they have now had diminishing cohorts of 20 year olds for 20 years and they are guaranteed since they're alive now we know the baby cohorts are dropping like a stone they are simply going to have a shortage of Labor as is the developed world together that is not a trivial block the developed World Plus China all of them will be squeezed for labor after the Bubonic plague they had a hundred year honeymoon period in which wages went up so much it wasn't reached for another several hundred years in the industrial revolution and we are entering a period where labor is simply scarce which feels to me inflationary and at the same time we have a scarcity beginning in resources and we keep an original unusual index a GMO it's 36 equal weighted important the most important Commodities so it's not dominated by oil and it showed a declining pattern for 102 years from 1900 to 2002 and yes it was interrupted by World War one and World War II and OPEC why wouldn't it be but it wanted to go down it went down 70 it took the index down to 30.
today 120 two years later the index is down 10 percent it has gone to 90. the average important commodity has just spent the last 20 years going from 30 to 90. it has tripled the reason is of course the growth of China but I believe fairly passionately looking at the data that it also represents the intrinsic scarcity the war between deeper wells worse iron ore Etc the best go first the struggle is always between technology which for a hundred years got ahead of scarcity it was two paces down for deeper and three and a half Paces up for technology and now we've reached a phase where we've gone through that stuff and now we have two paces up for technology and three Paces down for scarcity we the data is screaming at us now for 20 years that we're beginning to run out it doesn't and a war of course and covered were so fragile all you have to do is cough now and it ricochets around the world in price spikes and and and and and sure outages and bottlenecks and that is the world we better get used to living in we're going to have a world of increasing number of bottlenecks and shortages and the same applies to food the UN food index is higher today than any time in its history of the last 50 years since it started okay so you you have price pressure on raw materials Metals food you have price pressure long term on labor risks of a debt bubble breaking and the rest of an equity bubble breaking have simply not been understood by our Federal Reserve since Paul bunker they are incredibly naive they haven't even got a clue they're not even interested in the idea the idea bernanke's saying of the U.S housing markets always has never declined it merely reflects a strong U.S economy Alan Greenspan encouraging etc etc um right through until today they don't realize that they're playing with such fire my second point high levels of debt uh are just far too often seriously dangerous and should be in general discouraged actively that should be one of the responsibilities of top management including the FED Etc and let me just give you an example why why do you like low rates because it encourages debt why do you like more debt because it encourages growth that's the ideal so let me give you the ultimate statistical test of that we start in 1985 and we have been modestly increasing the debt to GDP ratio all that together just drifting slightly up due to technology and then the technology I mean the introduction of more and more sophisticated financial instruments but not Rising dramatically and then in 85 it kills to a 45 degree angle and shoots across any page and goes from about 1.1 times GDP to well over three so in that little window of 35 years we triple the debt to GDP ratio Ray made me think that when we're selling our resource portfolio we we have a wonderful exhibit that looks at the correlation between all the major sectors utilities consumption and so on consumer good and there's only one where as the time period lengthens the correlation drops and that is a resource and resources drops to such good effect that based on the last 80 years of data every role in 10-year period that the 10-year correlation is negative so if you believe in inflation you know that resources do very well you also know that in the long run it's strongly negative it's negatively correlated modestly with the rest of the portfolio as we're seeing today when they do well it puts a burden on the rest of the economy and they do badly oh thank you
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