What makes you so bullish on India?
It’s the people. India and China in the 18th century had 25% of global GDP before they were colonised. When you have been exploited like that and then you are free, it just unleashes a power that you never imagined was there. But it requires good leadership. The government must get out of the way and develop technology in a way that accelerates this trend which is what Prime Minister Modi has done so well. India has the potential to lead the world or at the very least to lead the Global South which is the 88% of the population that will rule the world for the next 100 years. The Europeans and the Americans have had their day in the sun. Now, it’s the Global South. There is a tremendous opportunity for India to be a leader here.
What about Indian equities?
If my assessment is correct, a lot of capital is going to leave the US where it has been concentrated for 14 years. India is going to be a destination. So I see no reason why one would not want to still be very bullish on the Indian stock market. And it’s in our high-conviction themes.What is your assessment of the US economy?The data is very confusing. There are a lot of conflicting data points. The first one is growth. GDI (gross domestic income) gives a much different picture than the GDP. It has been separating for more than two years. The second is employment. Everybody pays attention to the payroll data, but the household survey is much more comprehensive, and there’s a big disparity there. So, the US economy is not as strong as the consensus thinks. What we had after the (US Fed) press conference was that the US dollar started to weaken against many currencies. This is an important development because the US government is dependent on foreign capital to fund its trade deficit and its fiscal deficit. When I travelled around the world, I was interested to see how de-dollarisation was the number one topic for many. So, if the owners of dollars were nervous and were there to be a big decline in the dollar, the Fed would then be faced with its implications. History shows the Fed has never been willing to sacrifice the domestic economy for the US dollar.So, how many interest rate cuts do you see in the US?
Three cuts totalling 100 basis points is a reasonable target. 40% of the time when the Fed eases its cycle, the first cut is 50 basis points. So, it would not be unusual for there to be a 50-basis-point cut in September.
Another big event for the market is the US Presidential elections.
The race will remain very close. Irrespective of who wins, it would be a divided government. It has been very clear what (Donald) Trump would do. He will try to get a tax cut for corporations. He’s going to put tariffs on. It’ll be slow. If the Fed starts cutting rates, his desire to weaken the dollar may already have happened before he comes to office. It is going to be drill, baby, drill. One of the proposals is that he would try to increase US oil production by three million barrels.
Kamala Harris wants to raise taxes and wants more regulation. The real Harris has yet to stand up. We don’t really know what she thinks. She certainly is quite left-wing.
So, one of the things that Trump wants to do is to re-industrialise. And you can’t re-industrialise unless you have a weaker dollar, but you are also going to have to de-emphasise financialisation. Because re-industrialising is not going to be immediately profitable, you’d be less efficient. Profits would be less. So, it’s uncertain how this all plays out.
How will the election outcome impact stocks?
Last time, when Trump won the market went down initially, and then it soared because the market figured out that he was going to be pro-business.
This time, it’s more complicated because you have a market that’s very advanced, and very expensive. There are risks to the big picture. One thing that will become pretty clear is that the dollar will get weak. In either case, gold is going to do very well.
What does Warren Buffett’s selling of his long-term holdings like Apple and Bank of America say about US markets?
He’s telling us very clearly that US markets are overvalued, and cash is a good place to be. He’s not a market-timer, but he understands valuation. The Buffett indicator, which is the market cap of the country to GDP is at historic highs for the US. His record on timing is beautiful.
A lot of people think the Magnificent Seven stocks are overvalued. What about you? Would you be comfortable shorting them?
I personally felt that the tech dominance was over at the end of 2019. But then you had Covid. So it had a whole new lease of life. And then we had artificial intelligence (AI), again, there’s a whole new lease of life. AI is going to cut costs, but is it going to be a source of revenue? That is the unknown question the market is trying to work its way through. So, I would not short, I would just avoid. I’d much rather sell too early than too late. And then you look around for the next big thing. I would be happy that I was there and made so much money.
Is the worst of the yen carry trade unwinding over?
I do not think the carry trade, by any means, is unwound. People look at the futures position on short yen at the CME and say it has now reversed. But then there are the swap markets, which are 100 or 500 times bigger. If central banks around the world are cutting rates, and the Bank of Japan is raising rates, then you really got a problem. All I can say on that is that the worst is not over. There’s more turbulence to come in that area.
You are a big believer in China, while many global investors think it is uninvestable now. What makes you bullish?
I remain bullish on China also because everybody is bearish. I’ve been bullish on China because I saw how the unleashing of the suppressed desire of the people can be unleashed after having been over-regulated and suppressed for 2,000 years. The same thing is happening in India in a slightly different way, which is why I’m so bullish on India.
Two years ago, a think tank in Australia called ASPI analysed where China is leading in critical technologies such as quantum computing, biotechnology, AI, environment, energy, space, defence, cyber computing, etc. They found that China was leading in 54 of 63 critical technologies. Now they’re saying China is leading in 57 out of 63 technologies of the future. While the US spent $20 trillion net of equity issuance since the GFC (Global Financial Crisis) on buybacks, China spent at least that amount on infrastructure. China is the most competitive economy in the world. One of the reasons why there’s so much disinflation is because of competition.
Where are oil prices headed?
Oil prices will go higher over time. Oil consumption is not slowing. Even in places like Scandinavia, where they have huge amounts of electric vehicles, petroleum demand continues to increase. If Trump gets in and allows drilling on federal land, maybe there could be an increase in production, but will the environmentalists allow it? Will Congress allow it? I think oil prices are going higher, particularly if the US dollar gets weaker.
You are a big bull on gold and silver.
I like gold tremendously and I think gold is just getting started. Silver had a double top, it peaked at $50 in December 1979. Then it had a bear market. And then it peaked again in May of 2011 at $50. It’s now $29-30. So, you have gold at a new all-time high, and silver is lagging. Silver is going to catch up. And solar needs silver. By the end of this year, there’ll be 6% of the world will be powered by solar. And by the end of the decade, it would be 10%. So, it is expanding incredibly fast.
Do you foresee governments clamping down on AI?
There’s no way to stop AI at this point. The only person who could possibly stop it is Donald Trump – if he chooses to. And we don’t know his mind on that, but there have been some hints that he might want to do that. There is so much misinformation and so much lacking in truth. With AI, there is going to be a million times more misinformation and disinformation. This is why newspapers are so crucial to our future, to have a trusted source of information.
