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- [00:00]
Tony Yale
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business IBM,
- [00:33]
George Noble
Bloomberg Audio Studios Podcasts, Radio news Joining us in
- [00:39]
Paul Sweeney
studio, George Noble, who changed investment. There's no other way to put it. This oddity came out years ago. Fidelity Overseas Fund and was a juggernaut for a decade. Working with Mr. Lynch at Fidelity. He is with Noble Capital Advisors. I got eight ways to go. I'm going to ask one look back question and then we got to look at the present tense right now because you're fired up. Out on LinkedIn and Twitter. Everybody needs to read 128 pages. John Kenneth Galbraith lived almost to a Greenspan 100 A Short History of Financial Euphoria. It's an exquisite jewel. I put it out on Twitter and LinkedIn. What's the character of our financial euphoria right now? Allah. JK Gilbraith
- [01:24]
George Noble
Tom Great to be here. There's really nothing new under the sun. And that's because human nature doesn't change. The characters change, the names change. But it's fear and greed. We can go back to the South Sea bubble. Dutch Tulip Bowl Mania. History repeats itself over and over again.
- [01:40]
Tom
Put AI into that context here because people have been positioning AI other than electricity. There's been nothing more important than AI. How do you think about just this whole concept writ large?
- [01:53]
George Noble
I'm not bearish on AI per se. I'm sure we're all going to use it. Many of us are using it already. The question is, what's the ROI on the AI? It starts out the way these bubbles all start. There's a. There's a kernel of truth that captures the imagination of the individual. Whether it's the South Sea bubble or it's Dutch tulip bulbs or it's dot com, which I've lived through. And it starts out as a good idea. But what happens is it the price changes immeasurably. And the best definition I've actually heard of a bubble. There are many definitions. The best one I've heard is something that changes human behavior, that people do things that they wouldn't do otherwise. Whether it's because of fomo, fear of missing out or otherwise. And I think that's kind of where we are with AI. I mean I'm happy to change my mind but show me the money. Where's, where's the roi? And I don't see it and I don't see it coming either.
- [02:44]
Tom
It doesn't seem to be deterring capital from flowing to that business. We've seen extraordinary amounts of equity raised now we're seeing tech companies and everything thought about the bond market raising tens of billions of dollars in investment grade bond market. We've got a Korean company listing its ADRs today here in the U.S. i mean that I've been on global Wall street for 30 years. I've never seen this amount of money flow.
- [03:06]
George Noble
The things you I read the same sources you do. I file that under my category on X this things you don't see at the bottom. We've seen this movie before with Japanese subtitles Housing subtitles tech subtitles Go back to dot com I actually think this is much worse than dot com simply because the sums involved that much greater.
- [03:26]
Paul Sweeney
This is really important because you know the fossil sitting around the table. You know we talked about Will Danoff a couple of days ago. Remember being in meetings@60statestreet.com and all that. What's the distinction right now from versus 9899 and then what we enjoyed in a one
- [03:44]
George Noble
again I want to elaborate on the sheer magnitude of this. Julian Garrett of Micro Macro Strategy Partners in the UK erudite economists have known many years has made a calculation that this bubble, this, this mal investment is 17 times, 17 times what we saw in the arif.com and what's allied to that? What's really important is the sums involved are so much larger relative to the root to the real economy. The fallout from this could really be much more significant for global Wall Street.
- [04:16]
Paul Sweeney
On this Friday a real treat. George Noble with us of course definitive infidelity with Mr. Lynch a few years ago at his Nobel Capital Advisors. He's been on fire out on LinkedIn and Twitter with his criticism of the moment at hand. Paul Sweeney with George Noble again.
- [04:32]
Tom
Another definitive part in this market was the IPO of a company called Space X. Oh my.
- [04:39]
George Noble
What do you thought you'd never ask.
- [04:41]
Tom
What do you make of that? I mean I can't imagine sitting in a Fidelity office conference room and you know the bankers bring Elon Musk in to make this pitch. I would have loved to been a fly on the wall. What do you make of that history
- [04:54]
George Noble
shows that buying companies at over 10 times revenues usually ends very badly. We all recall Scott McNeely famously in some microsystems what happens, what do you have to what your return is going to be by some 10x. This is 120 times revenues. And you know, it's. Even if you look at the company's projection, I mean they're already borrowing money. Look at the company's projection, they'll be cash flow negative for years to come. And here's the worst part of SpaceX which I don't want to engage in the captain obvious thinking but the thing everyone should consider, and that is the staggered lockup that we're now the unlock that we're looking at, okay, Starting from next month when the quarterly earnings come out, you're 20% of the shares come unlocked shortly thereafter and then there's a whole series of unlocks, 7% every 20 or 30 days. By December, 100% of the shares will be freely floating. The point of the important point that investors should understand is even without any change in the fundamentals, when you go from a 5% float, 100% float.
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Paul Sweeney
George, in the old days when you would take a two hour lunch at lockovers and you used to hold court there off the bar, but in the old days when a company went public it like took its shares public and maybe they had a little stub that kept private. Now we're unloading 5% of the public. To me it's manipulative. Should regulators step in and get the initial public offering market back to a normal segmentation 100%.
- [06:18]
George Noble
It's not a question of what's legal or illegal. It's just not right. Society is not well served by allowing this. Grandma's 401k is the exit liquidity for this manipulation. And I think the regulators are asleep at the wheel. They only usually jump into action after the car crashes occur.
- [06:35]
Paul Sweeney
Gensler sat in this chair recently and I said to Gary Gensler, I said okay, you let Bitcoin in, I get it, it's a free market and all that but what do you say to retail that enjoyed bit dog at 110 and it's now down at 60. SpaceX, okay, it's back to 150. I'm watching the debt of Space X. To be blunt, it can't find a bid.
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George Noble
And allied to that, Tom, I promise you that once it goes under the offering price and the unlock shares come to market, the insiders who are in a tenth of the current price, they're Going to hit the bid so fast, it's going to make.
- [07:09]
Paul Sweeney
Well, I got to make some news here, to be honest. Fidelity was way out front. Mr. Musk, on this. Would you recommend that Abby Johnson and the team sell their space X?
- [07:19]
George Noble
They know the company better than I do. Let's just say if I was handed a portfolio, Philly were to rehire me, I would sell it right away.
- [07:26]
Tom
Elon Musk, you have to. I'm not sure we've seen anything like this in terms of the value that gets ascribed to Mr. Musk relative to the earnings, relative to the cash flow. We've seen it year for years in Tesla. And you look at the Tesla analysts, the auto analysts all have holds or sells on it and they've been wrong. And the tech council have all been saying, just buy it. It's Elon, it's Elon. It's, it's autonomous robots and all that kind of stuff. Have you seen that in the past? Where one individual can have such an influence on valuation?
- [07:58]
George Noble
No. I think Tesla is probably the biggest misallocation of capital at scale in the history of stock markets, perhaps only surpassed by SpaceX. I'm. I was one of those wrong analysts. I'm a fossil. I happen to be the auto analyst for Peter Lynch. In 1981 we went to Detroit to visit Chrysler, Ford and GM. So I know of what I speak. Fundamental work does not, has not guided one. In the case of Tesla. I think, however, though, he's bitten off more than he can chew. Now everyone's speculating Whether or not SpaceX may merge, take over Tesla. I have no special insight on that, but if I had to gamble, if I had to speculate, nothing ever speculate, I would say it's a reasonable speculation.
- [08:40]
Paul Sweeney
Let me reintroduce here worldwide, including overseas and across America. George Noble with us for years, definitive in the business of overseas investment. Fidelity thrilled. He's in our studio today. Controversial to say the least, on the euphoria at hand. Paul Sweeney.
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Tom
So, George, where do you see opportunity these days? I'm sure you look various markets, various geographies. Where do you see value these days?
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George Noble
You know, it's a market of stocks. As Peter Joe used to say, don't try to call the market. I think there are outstanding opportunities right now in energy. I'm actually quite concerned about the energy picture. I think we're sleepwalking into the biggest energy dislocation in history. You look at the disparity between the divergence between the financial market for oil and the physical market for oil, we're between Iraq and a hard place. The energy stocks. Crude is sold off significantly the last few weeks, as have the energy stocks. You know, I think the risk reward is very appealing. There's very little downside and potentially a lot of upside. I like reflation. Generally speaking. Gold stocks I think are a huge buy right here. SSRM as an example, seven times earnings, not cash flow. Seven times earnings. All right, so gold stocks, energy stocks, other commodity names, like some of the copper names, they're all very interesting to me.
- [09:59]
Tom
Part of this AI story, to the extent people are looking for other ways to buy it other than the chips, has been some of the picks and shovels. One of them has been energy. How are we going to power all these data centers that are being built in everybody's backyard? I mean they stick little nuclear reactors next to each one. How are we going to do that?
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Paul Sweeney
Took thermodynamics.
- [10:17]
George Noble
Well, the one, the one thing you shouldn't do is buy oklo, which is one of the biggest frauds out there on the market right now. But that's a whole nother story. Oklo, we've been short that for a year. The problem with some of the names you mentioned, some of the utility stocks with the AI trade comes unstuck and I believe it will. I think a lot of those derivative plays are going to take on water. Crude's a little different, so in a slightly different orbit. But a lot of the derivative power plays I think are going to have a big problem. One last joke. It was a great line someone used a few weeks ago on me. Talk about, you know, you got to buy the picks and shovels. I said, yeah, but what happens, you buy the picks and shovels and there's no gold in them hills, Georgia.
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Paul Sweeney
I got to get two things in here that I think our audience is really interested in. And overseas, in the huge ups and some of the challenges you had at Teton as well. Are you correlated on overseas to what the dollar does? Like, do you have to have a weak dollar to make overseas work?
- [11:16]
George Noble
No, you don't. They. But it's a very good question. You don't need a weaker dollar. What you, what you need to keep in economic cycles across different geographies varies enormously. And that's what you're trying to anticipate. You need to have somewhat of a top down perspective, not just bottom up when investing internationally. However, one thing I will say, the dirty secret they don't tell you anymore. Way back when, when I was a young and in the early 80s at Fidelity it was much less correlation between the markets. Now given the increasing interlinkage between markets the correlation is much higher. I like to joke, why do I need to be up at 10 o' clock at night trading the Japanese market get up at 5am to watch the London market. I can lose money just as well between 9:30am and 4:00pm Eastern Time. And I can get and I can get on that.
- [11:57]
Paul Sweeney
And of course on private credit. I know you've been in the dump known as the St. Regis. The old St. Regis in Beijing was an absolute dumb folks. I'm sitting there in the 90s listening to CDO Squared stuff in bankers giddy and the whole thing. Are we doing the redux there on private credit and private equity where there's some shadows to say the least.
- [12:18]
George Noble
You couldn't have said it better. My father always used to like to say there's two ways of learning things either by precept or by experience. Experience, it's much more economical to it by precept. We're all human. We all think this is brand new deja vu all over again as Yogi would say.
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Tom
So how about just real quick us versus non us how do you think about that these days? Because there was a flight out of the U.S. when this tariff story started happening.
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George Noble
Sure, the U.S. we had more than a decade of outperformance largely on the back of the fact that US had much superior earnings growth that was justified, largely led by tech. Okay. But now that we're in this global reflation growth is not as scarce as it was. So the rest of the world relatively speaking starts to do the gap closes and in fact the earnings growth in a lot of the foreign markets exceeds what you see in the US right now in particular. But not all. It's rather heterogeneous group. So I think Japan's interesting. I think selected emerging markets like Brazil and China, but you can't color them all with the same brush.
- [13:15]
Paul Sweeney
I got to ask one final question and I'm doing this for 92. 9. Good Morning up in Boston. Thrilled that you're with us from Mount Katahdin down to the National Hotel on Block Island. George Noble. There was a girl that was just sort of at Fidelity. She came out of Hobart. William Smith had a name named Johnson. And Fidelity was there when you were there and after you were there. What Abby Johnson has done at Fidelity is a miracle. I mean, are you surprised or shocked at what her leadership has done there? After the turmoil of going from dad
- [13:51]
George Noble
to daughter, it really has been outstanding. You know it. Fidelity is a wonderful company. I think it was Garrett Morrison, Saturday Night Live used to say, fidelity very good. To me, it's extremely well run company. Ned was fantastic. She's done a fantastic job as well. When I joined Fidelity. You're going to laugh. Last thing I'll say, they had 8 billion under management. I think only 3 billion in equities. Fidelity, believe it or not, only hired two people a year back in 1981. They came through the 70s, they lost money. Some years they had layoffs and now they're 18 trillion. This is the final line. I think it comes from Ned Johnson himself or something like Never confuse brains with a bull market. So we'll do that.
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Paul Sweeney
You can leave right now. George Noble, thank you much so, so much. Definitive at Fidelity Overseas. Can't say enough about. Look for him out on LinkedIn alone and on Twitter. His caution of the disease. Times of euphoria.
- [14:48]
Tony Yale
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