B (28:43)
Yeah, so I think that this goes back to the previous decade, right? That in the 2000s, the S&P 500 had done nothing. Emerging markets were the, you know, the glorified asset class of that decade. And then you got the global financial crisis that pricked a lot of hype around the world. And then also the fact that America was able to recover from that crisis relatively quickly, whereas it took Europe a long time to recover from that. And also because that saw a big increase in the importance of Silicon Valley and technology in the 2000 and tens. And whenever you end up getting a big tech cycle, that's, you know, the time when America always does well. Because the reason why America is the most successful large nation in the world today is because it's been, like always at the cutting edge and the leading edge of technology. So I think that the, the tech boom which took place in the 2000 and tens, led by, you know, some of these companies that have become mega cap tech companies now, and the fact that America was able to recover relatively quickly after the global financial crisis, with its banking system appearing and its financial system appearing in much better shape than Europe. And on the other side, you had like all these emerging markets that had partied like crazy in the 2000s, had too much money flowing to them, which corrupted them in a way of running fiscal excesses, current account deficit excesses. So they were in the penalty box trying to clean up their entire balance sheet over the last 10 to 15 years after the global financial crisis pricked that BRIC bubble out there. So I think that there is this combination which is that you have this big tech boom which lifts America because America is seen to, you know, like, have a big competitive advantage on technology. Europe is the big laggard when it comes to adopting new technology, or as someone said to me once, that it's like the Silicon Valley of regulation rather than like innovation. So, so therefore Europe's like the big laggard. Emerging markets were, you know, like in the doghouse recovering or trying to clean up their balance sheet after the excesses of the 2000s. So all this led to really, America being the only game in town. And so you had this incredible concentration of capital coming to America. And then in the pandemic, I think, you know, was something which turbocharged that, because America ended up throwing a lot of money at the problem, Both monetary, fiscal, massive amounts of stimulus that it put to work. And then the technology cycle further extended itself with AI coming on stream so quickly we had barely gotten over the cloud innovation technologies, and before that, the consumer Internet economy. And then you've got the AI stuff which came on stream. So I'd say that all of that has powered the American stock markets, like, to this extent. And of course it's been turbocharged by liquidity, with both monetary and fiscal policy being so easy. And then there is another aspect which is far more troubling for me, which is that, you know, there is this sort of implicit assumption that the government has given people to believe that we are always here. To protect you on the downside when it comes to your investments. And I think that that is a really problematic thing for me because we saw that of late, even with the Silicon Valley bank crisis back in the spring of 2023, that every time there is even the slightest flutter in the financial system, the American government, the treasury, the Fed, they all seem to be very keen to rush to the rescue, fearful that if they don't do that, it'll lead to wider contagion and undermine the economy. But that's the asymmetry, and that's one of the big themes you spoke about. My book, what went wrong with capitalism, that's been one of my dominant themes that I speak about in that book, which is the fact that this asymmetry which exists, which is to socialize all the losses, whereas on the upside, you know, it's, it's, it's a free ride on the upside. And I think that that's another issue which is there, which is really pouring so much money into the American stock market that the American, like I saw this stunning data the other day that the household, their allocation to equities is now above 50%, you know, which is incredible. That's surpassed the peak we saw even back in 2000 at the height of that boom. And the reason, I think so many people feel emboldened to push this amount of money to work in the equity market is partly because they feel that on the downside, the government's always there to protect us. And on the upside, you know, it's free optionality. So I think that that's what's also driving a lot of speculative activity and a lot of flows into the stock market. So some good, so mostly good, but some of it bad. As to what has got us here to this position where, you know, like America has seen this incredible amount of financialization and the stock market doing so well. But the point that I'm trying to make here is that a lot of these trends are now very well understood. They're quite mature, and the rest of the world is beginning to get its act together. At the beginning of this year, we saw that Europe, you know, that they were able to snap out of their funk and said, okay, led by Germany, that we're going to stimulate, we're going to do what it takes to recover out here. A lot of the emerging markets, you know, are learning to trade without the US they're increasing their own intra regional or, you know, signing much more bilateral trade agreements and increasing trade. And America and, you know, sort of Leaving America out, thinking that America, America is a very difficult partner when it comes to trade. So these changes are taking place out there. And so therefore I think that there's a lot more opportunity now in the rest of the world and so definitely own a lot more of the rest of the world. That some of these European banks have done so well over the last few years, and almost until this year they were doing so in a very below the radar way. But now they seem to be breaking out on the upside. And then also the politics is turning for the better in many emerging markets, in particularly places like Latin America, where you're seeing a lot more market friendly, right wing orthodox governments come to power and who treat capital with much greater respect than their left wing predecessors in Latin America. So these changes are taking place. So for me, the rest of the world is looking more exciting. And as far as America is concerned, you know, it's, as I said, is apart from being one big bet on AI, there's a fair amount of complacency. And that complacency is only being further reinforced this year because as I detailed, because of AI, it seemed as if, oh, okay, America can get away with whatever it wants. We can run whatever deficit we want, whatever debt to GDP we want, because at the end of the day, AI is going to come and it's going to boost productivity and save us all. So I suspect that the budget deficit, I mean, you know, like sort of stabilized this year with the Trump administration also making some effort to rein in government spending. But I suspect that next year the deficit is going to start to widen again, you know, with talk. And especially if the consumer, outside of the stock market's gains, the consumer is feeling a bit weak, I think that the government will be more emboldened to give just more stimulus, you know, gives some of the tariff windfall back to the consumer. And so I think that that's really what's going to happen over the coming year and that, and that's why I feel that the risk from here is that you get some overheating of the economy and bond yields go up a bit and the Fed is forced to act and that finally breaks the bubble.
