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if you go back to before the covet what you see is we have lost considerable strength in the economy we have fewer people working and we have a A reduced stream of goods and services and yet the price is much higher so if you believe in market efficiency which is wrong was it wrong before or is it wrong now but is it really Justified that we have delivered a serious wound to the global economy and the global stock market has gone way up it doesn't feel right I think we all know that this is a monetary gain and you can keep these little monetary bubbles going for just so long as long as you keep confidence Rising but when confidence has reached these levels the history books are pretty clear it's very difficult to increase your enthusiasm from a state of mild hysteria wherever we are today you know I've been around to see a 16 30-year Bond and I now see it whatever it is two and a half and and we've seen real rates in 2000 real rates on the tips was 4.1 4.2 real guaranteed forever and now they're nothing of course they're negative and the negative all over the world and and what you're doing there for is you're saying we've got an artificial interest rate structure clearly artificial that has been driven down all over the world into negative territory uh 20 of government bonds have a negative real return and we're going to use that as a yardstick we're going to say stocks are cheap because they are less utterly ludicrous than a 30-year Bond or cash which is deeply negative uh this is not typically the way you measure things by taking a ludicrously mispriced comparison and that's what we're doing makes people feel happy it doesn't make me feel happy I suspect selling everything would work out just fine however having said that there are major discrepancies as there were in 2000 between the U.S tech which is overpriced the same as it was in 2000 and everything else so the value stocks the low growth stocks if you prefer it are about as cheap relative to the high growth stocks as they ever get so they will not have the same pain uh but there's still at risk to some degree I suspect the good news is that overseas they have not had this same huge bull market and the same overpricing that we have had and that and that of course is a heaven-sent opportunity because you can go out into the Emerging Markets and they are absolutely not that expensive despite the ridiculous argument of comparisons with a overpriced bond market they're simply not that bad anyway and compared to the s p they're as cheap as they have ever been about they've been this cheap two or three times and each time it's worked out very well so you can buy emerging markets and you can look at the intersection of those two ideas which is the low growth stocks or the value stocks within emerging and they are handsomely priced you should be able to make a really decent 10 20 year return there you will not make a handsome 10 or 20 year return from U.S growth stocks there is in the air a simple arithmetic the higher you big bid up the price of an asset the lower the long-term return you will get there's nothing you can do to change that equation every day the market goes higher you know only one thing with certainty that the long-term return will be less than it was the day before what happens if that happens then there'll be a lot of sad value managers now the question is will it happen and it would be historically unprecedented where that to happen I'm I'm pretty certain it will not however having said that let me say one thing about value um I have no confidence and have not had any for over 20 years in price the book and PE and price cash flow price of sales even as a measure of True Value a measure of True Value is the long-term discounted value of a future stream of dividends a growth stock is of course worth a higher ratio of this that and the other and then the low growth stock but that doesn't mean they can't be overpriced so value should be cheap for what you are you should build in the growth you should build in the quality and if it's overpriced it's overpriced but to use a simple-minded measure of book is a crazy idea a cheap book is the Market's vote on the worst assets out there in the marketplace the lowest PE is the Market's vote on the worst earnings most likely to be overstated or downgraded and the same with yield it's the Market's vote of the most likely to be cut these have no business being a good indicator of future performance I'm also worried by the way about inflation it if you think you live in a world where output doesn't matter and you can just create paper sooner or later you're going to do the impossible and that is Bring Back inflation you know that we haven't seen for 20 years and and you keep it up on a global basis you will you will have inflation and and I can't help but notice that around the world the commodity prices of all of all kinds really but particularly critical uh food and and critical metals are going up and if you have that happening and you have a rapidly declining growth rate in in the workforce um towards zero and negative you were really set up for this time is different so we are not just in in a bubble Market but we're looking at a global economy that has had an inflection point to turn down in in long-term growth rate so this is this is a bad time to be caught uh over speculating yeah first of all very difficult and secondly of course diversify it's always a huge advantage and thirdly amazingly um the low growth starts in in the Emerging Market world are are perfectly reasonable if you if you need to earn stocks and and most people do that would be a perfectly a good way to go and I also think shares the benefit from The Greening of the economy um will do much better than the rest anything to do with the renewable energy the electrification of the system electric cars Etc these are all going to have top-line revenues that dwarf the declining growth rate of the rest of the of the global economy it will take trillions of dollars to to decarbonize the global system it will dominate everyone's portfolio and if you have to owe a U.S stocks they're the ones to own and look around for for a good climate change fund happy to say GMO has one and and they're doing very well now that the focus is clearly uh finally took 20 years to wake up but in the last year people really are beginning to understand the size of the problem and the need to move money uh in in into Greening the economy what is the future value of of the dividend stream of Bitcoin I can tell you that that doesn't take um a prize-winning mathematician it is nil it will never pay you a dividend if you're desperate can you eat it no you can't its entire value is on the greater full is it not so Bitcoin could be worth a million dollars a unit if you can find someone to pay it that should give you a measure of restraint in your enthusiasm for gold granted but gold has had the odd 12 000 year test which is has passed pretty well and Bitcoin has got a few years to go yet to catch up and secondly a gold does have some fallback qualities um it doesn't tarnish it's Unique in that sense everything that was ever made of gold is still around and that's a pretty handy characteristic that Bitcoin also lacks so I would say yes I'm nervous about gold because I can't eat it and because it pays no dividend but it has two Wicked advantages over Bitcoin Bitcoin is 100 faith and come the next Market phase where faith is at a minimum what do we think will happen to a stock whose entire reason for existence is Faith and nothing but faith it makes no commercial sense at all for them to attempt to warn the clients of impending do ever it is terrible business to blow the whistle on a major bull market if you're a commercial Enterprise you make your money by having the bubble keep going if you have the market double three or four percent of that gets spent and helps the economy now he was right and he bragged about and then following him the Bernanke bragged about that he they had contributed to the health of the economy and they had and now the FED also brags that it has done its part and it's helped encourage the economy through through high assay prices all of it's true the bad news however is we live in a world that is in the end a real world of people and production and in the end therefore despite Alan Greenspan's enormous willingness to create a new permanent Golden Era of productivity etc etc the the s p still came down 50 and the NASDAQ still burst and went down 82 despite his fanatical uh interest in in moral hazards and helping out stock market prices the point is they did not brag of the negative effect of the market mean reverting back to normal it comes in at just the time you don't need it and it sucks out of the economy a negative wealth effect and as it will this time spikes are completely should be a completely illegitimate instrument they're just an excuse for people with reputation and marginal ethics to to raise a lot of money take 20 of it for themselves for a quick Dash around the country for six months and a complete rip-off in the sense that the professional hedge funds then always liquidate before taking any real risk and take the premium that they can get and a few warrants leaving the half of the marketplace that retains it who put their money up on aggregate with a very bad return of course they'll make some money in in the late stages of a bubble but if you look at the first six years they have a handsomely sub-average return for taking all the risk no they they don't have enough legal requirements enough restraints enough checking there there are thoroughly reprehensible instrument in my opinion and should be disallowed foreign
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