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If you can lock up money, I would. If you can build a bit of conservatism in other ways, do it. Just brace yourself for impending problems, which is a pretty good principle anytime, but it is a better principle than normal today. Stock market hinges on career risk, and Keynes was the great champ, and he wrote a famous book called the general theory.
Unlike the idea that the market's efficient, he knew it wasn't. He knew it was a behavioral jungle and that it would be given to bubbles. The efficient market idea is that every company, every stock, the underlying company represents a long stream of future earnings and dividends, and that the ones in the distant future are given less value, process they call discounting it back to the present, and the sum of all of that stream of earnings into the future is the stock price.
And that, of course, is complete nonsense. The stock price is what you think the other guy will pay. If the stock is going up, it tends to suck in buyers, and that's called momentum. It's moving up, it attracts buyers, and every now and then, when the economy is favorable and money is obtainable, you tend to get these bubbles.
And they play on themselves. The bigger and better they are, the more people get sucked in. I've seen many times where the super experts and the academics think one thing and the players on the ground think another. But this is a situation where the Nobel Prize winners at the top disagree violently.
The experts at the corporate level disagree violently. The people in the company disagree violently. There is absolutely no agreement on whether AI is going to make us all so rich we can sit on the beach and never do another day's work, or it will wipe us out accidentally or on purpose because it's a much higher level intelligence one day.
And when was there ever a case where a higher intelligence was benevolent in a sustainable way to a lower intelligence? The Mag 7 and associated AI companies, looking forward versus looking backwards. And if you look backwards, what you find is that these seven each dominated a nice piece of business.
They had close to monopolies, and they had it on a global basis. Tesla had a jump start on the electric vehicles, Apple, of course, on the smartphone, Microsoft on the original great coup of how to run your software on a computer. And then you look forward, and you could not imagine a more different world.
They're all girding for battle in the same marketplace, AI. They're beating their chests and saying, "My 200 billion capex this year in a single year is bigger than your 105." Everybody is pouring enormous cash flows, and they're now beginning to borrow on top of that into the AI battle. SpaceX, 90% of its theoretical value is AI, even though their particular AI model is, it would seem, having its bottom kicked by two or three of the others.
But looking forward, it looks like seven people in the ring, right? There'll only be one survivor, they think. Everything goes to the one who gets there first. What a difference this was to seven well-behaved separate monopolies. Could it possibly be more different? They made bundles of money on their monopolies.
Now they have no monopoly. There are seven potentially sharp-elbowed, ruthless players determined to fight out with each other until they win. Very likely that there will be significant job disruption. One of the scary things about SpaceX is you should wish that it not work out, because if it became a bargain, rather like Tesla long ago became a bargain, it will mean that we have done senders from space beaming down power for chips and so on.
The population of chip uses has expanded, the robots are everywhere, their energy demand is massive beyond belief, and the world is a very, very dangerous place. I had much prefer them to fail. The idea is to move much more slowly, to buy time for humans to work these things out. And And that's much more likely.
I think there's quite a good chance that the level of complexity of our civilization will start to unravel. I'll tell you a good sign. How long does it take to get your ambulance? In the UK it was 12 and a half minutes. It's now an hour and a half. It's exactly what you would expect as people begin to lose the plot a bit.
People can't buy houses. People don't feel they can do as well as their parents. [clears throat] People basically disgruntled. They want to vote against the party in power. The recent move to Trump was less than the average move of the last seven European elections. It didn't matter whether they were right-wing conservatives.
Kick the rascals out. And why do you want to kick them out? Because you don't think things are going well. You're not feeling really happy. It may be that it's not the government doing anything wrong. It's just that the environment is becoming tougher. I think that's the biggest economic problem. I mean, the US now has a Gini ratio like which is a measure of how unequal your society is, which is up there with Brazil and Mexico that used to be a joke.
And now the US is up there. Since about 1975, all of the wealth we're talking about has gone to the top 10% and a lot of that to the top 0.01. Before that, by the way, from 1935 from FDR to 1975, so that's 40 years, we had a wonderful period of growth. We had gains of over 3 and 1/2% a year, but the nice thing was that the poorest quarter made a little bit more than average.
Let's say 4% and the richest quarter made a little less. Let's say 3% and everybody got richer. Everyone was happy. And then from '75 onwards, basically the average hour worked in America has barely gotten more adjusted for inflation than it did in 1975. And when your average guy is unhappy because he's not doing very well, you know you have a problem.
We had a similarly unequal society back in the so-called Gilded Age of the 1880s and '90s and so on. We got lucky in a in an ugly way. We ran into World War I, which was catastrophically expensive, killed off a huge fraction of the officer class, and then we went into the Great Depression. Then we went into World War II.
We came out as a very equal society by historical standards. Obviously, in the wartime, you pull together, and the social contract, the feeling that you owe something to the rest of society, was much stronger than it is today. And that's why number two was lucky. In the end, it's better to have a war and have everyone pull their weight and work together.
The civil wars are the worst of all kinds. It needs a government that is prepared to pull a Bernie Sanders, to say, "Yeah, we're going to have to, at least in a gentle and long-term way, shift the tax structure in favor of a slightly steeper curve." And you have a kind of steepness in every society.
That's what they do. Every developed country in the world taxes the rich and helps poor, don't they? It's a question of degree. We did much more helping the poor and taxing the rich in the 1950s and '60s and '40s than we do today. And somewhere between that level and the current level might be more than enough.
If we just started to adopt the policy of 1935 to '75, where the bottom quarter get a half percent a year richer than the average, and the top dogs get half a percent less each year than the average, that sounds pretty unthreatening. I think we would ease our way over several decades into a better place.
How did one get a net worth? By work and luck and creativity, all those good things. I think the simple appeal would be to get your tail into AI and try and be a leader. Try and know more about everything in that area than the next guy. Join a leading firm and go for broke. And take lots of risk. Don't be conservative, and work hard, and think outside the box.
I mean, I think the biggest deficiency most people is that they feel constrained to play the game by the regular rules, and to believe that experts and authorities know what they're doing. It's just ain't so. Buy a broad-based index of non-US equities, like 60% of your money, and then 5 or 10% in precious metals.
And if it's convenient and sensible, hold a bit of real estate. And the rest I'd put in bonds. And then in the last 12 months, emerging markets is up 65%. Now, the S&P has done much better than I would have guessed, but it's only 25. That's a lot less than 65. And try and look at where the cycle has been.
And I can tell you there has been an enormous cycle in favor of the S&P, in favor of the American market over the rest of the world. And do you think America is going to keep on gaining on the rest of the world? And of course you're going to say yes now because that's the flavor of this market. We think that what is good today will continue being good indefinitely, even though history tells you that it's absolutely not the case.
We live in a world that tends to rotate from one to the other. We believe in a world that extrapolates today's conditions. And you can easily prove that. The stock market is not efficient. The stock market extrapolates today's conditions. If they are terrible in 1982, they will take crushed earnings and multiply it by seven times earnings.
And then in 2000, peak profit margins times woo, 35 times earnings. They double count in the worst way. When times are good, you multiply it by a lot. That's another way of saying you extrapolate it into the distant future. And Keynes, of course my hero, says, of course that's extrapolation is the convention you adopt even though you know from personal experience that the world is not that way.
I think it's an unnecessary piece of nonsense. It facilitates nothing except criminals moving money so they can't be seen. It's not a store of value since it bounces around all over the place, just down from 120 to 60 because it felt like it. So it's not stable. It's volatile as hell. It's not used conveniently as a medium of exchange.
You can't go into a shop and use it easily. It does one thing very, very well. It's a means of speculating beautifully. In the distant future, yes, it will certainly go to zero, but it may take a long time. And, you know, in the distant future, everything goes to zero. It's hard to imagine how it could be a good decision when there's such an increasing fraction of people who can't afford it.
And there is a political resistance, you know. If people can't afford it, there's no one bidding. And by the way, the population is going to decline. Young family formations are already declining in many of the richer countries. And if you have family formations declining, and you have super expensive houses, what do you think is going to happen?
Now, you could say, "Well, perhaps there will be a mysterious increase in family formations, and that the chronic baby bust that will stop."
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