Why Investors Should Expect Lower Returns From Here

Summary

Podcast Summary: Merryn Talks Money

Episode: Why Investors Should Expect Lower Returns From Here
Host: Merryn Somerset Webb (Bloomberg)
Guest: Luca Paolini (Chief Strategist, Pictet Asset Management)
Date: May 18, 2026

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Overview

In this engaging and insight-rich episode, Merryn Somerset Webb sits down with Luca Paolini to dissect the paradox of relentless market resilience in a period swirling with geopolitical, economic, and technological uncertainty. The discussion covers the surprising stability of global growth, the sustainability of current market earnings, the effects of the AI and capex booms, valuation challenges, and forward-looking returns across regions and asset classes. The core message: after two decades of robust market returns, investors should brace for a future of more moderate, evenly spread returns—and a world where US market dominance slowly fades.

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Key Discussion Points & Insights

1. Market Resilience Amidst Global Turmoil

[02:42–05:04]

• Resilience Despite Crises:
  Paolini highlights the persistent resilience of the US and global markets, with growth holding above 2% in the US and decent—if not spectacular—growth in Europe, Japan, and China.
• Why Are Markets Unshaken?
  • Massive investment, particularly the real (not just speculative) AI-driven capex boom, is buoying data and activity.
  • Wealth creation in the last years allows consumers to keep spending despite negative sentiment.
  • “The global economy has proved to be incredibly resilient. It's a surprise to all of us...” (Paolini, [02:55])
• Surprising Disconnect:
  Consumer confidence is low, yet hard data—like GDP—is still solid.

2. Valuations and the Role of AI and Capex

[05:04–07:23]

• Are Markets Overvalued?
  • Paolini: US P/E ratios are a concern, but record profitability, strong buybacks, and low taxation blunt some of the risk.
  • Exorbitant valuations show up more outside tech, in some consumer sectors.
• Capex Sustainability:
  • The immense capex around AI and data centers can’t continue forever, but commitments from top companies will keep it going for the next year or so.
  • “If you assume this capex story, the AI story, will continue, the valuation is not that extreme.” (Paolini, [06:06])

3. Earnings, Margins, and Political Risk

[07:23–09:48]

• Will High Margins Last?
  • US corporate margins remain at historical highs, not so elsewhere.
  • Real pricing power and weak wage growth sustain margins.
  • Paolini warns that at some point political backlash against large corporate profits is likely.
  • Not yet seeing anti-business policies, but eventually expect taxes or redistribution pressures.
• Earnings Growth Expectations:
  • This year is exceptional—tech up 50%, others strong.
  • Further 20% growth expectations for next year are “probably too high”, and a deceleration is expected.

4. The Next Decade: Lower, Converging Returns

[09:48–11:38]

• Diminished Prospects:
  • “When we got used to see equity returns between 10 and 20%...you cannot expect significant returns in the next five or 10 years.” (Paolini, [09:58])
  • Lower risk premium means lower returns unless AI leads to a true economic paradigm shift.
  • Valuation and monetary cycles across US, Europe, and Japan are converging—regional dispersion and US exceptionalism will wane.
  • “The time where the US was the only place to be invested is probably over.” (Paolini, [11:36])

5. Practical Implications for Investors

[14:30–16:42]

• The Case for Diversification:
  • Overweight in US equities—especially in foreign currency—exposes investors to multiple risks (currency, style, sector, political).
  • “Having a more equal weight approach...maybe even on bias, I think it would help.” (Paolini, [15:06])
• Fixed Income Looks Attractive Again:
  • First time in a decade that bond yields in UK and US are “quite attractive”; prudent to shift some equity profits into debt products.
  • UK bonds, despite political risk, offer “real yields like India” ([15:54]) and are better value than their reputation suggests.

6. Regional Opportunities and Challenges

[17:00–18:31]

• US & Emerging Markets:
  • US still attractive for now (growth, rate cuts, earnings), but EMs (especially beyond Korea/Taiwan) look promising with improving valuations and currencies.
• Europe’s Slow Revival:
  • “If you extend your analysis...everything seems to be going very slowly in Europe in the right direction.” (Paolini, [17:56])
  • European and UK equities trade at too much of a discount—this should narrow as reforms, integration, and energy independence progress.
• Energy Costs as a Growth Drag:
  • High energy prices remain a handicap for Europe/UK, but growing renewables integration could eventually transform energy dependence.

7. Commodities Outlook

[18:31–20:29]

• Supercycle? Not Quite:
  • No belief in a broad-based commodity supercycle—today’s capex is less commodity-intensive than China’s past boom.
  • Industrial metals (critical for the green transition) stand out for limited supply and momentum.
  • Gold: still room to run, but not at previous pace; remains valuable as portfolio protection against shocks.
  • “Gold is the winner here.” (Paolini, [27:02])

8. Fiscal Risks and Long-Term Threats

[22:12–25:48]

• Fiscal Risks Shift to the US:
  • Contrary to popular opinion, Europe’s debt/GDP is stable, US’s is surging.
  • If foreign investors diversify from US assets, both bond yields and equities could take a hit; the “peak of US exceptionalism” has likely passed.
  • “This is where the risks are more in the US than in Europe from a fiscal perspective.” (Paolini, [22:16])
• Black Swans and Systemic Shocks:
  • The rising interconnectedness means that future market shocks could ripple into the real economy faster and more disruptively.
  • “We are not prepared for COVID, for example. These are the kind of things...when honestly when I look at the fundamental(s), it's one risk that I see.” (Paolini, [24:56])

9. Final Thoughts on Return Expectations

[26:02–26:44]

• The End of Exceptional Returns:
  • Ten, even twenty years of strong market returns were anomalous; going forward, 7% equity returns with 3% inflation is more realistic.
  • High equity growth leads to wealth inequality and potential social tension—moderate returns are healthier for society.

10. Gold vs. Bitcoin—The Classic Question

[27:02]

• Paolini reiterates gold’s supremacy:
  “I still believe that bitcoin is a lottery ticket... But I still, still think that gold is the winner here.” (Paolini, [27:02])

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Notable Quotes

• On Resilience:
  “The global economy has proved to be incredibly resilient. It's a surprise to all of us.” — Luca Paolini ([02:55])

• On Capex and Valuation:
  “If you assume that this kind of capex story, the AI story will continue, the valuation is not that extreme.” — Luca Paolini ([06:06])

• On Profit Margins:
  “A lot of industries are effectively not very competitive... There are just a few major players that actually can effectively dictate prices.” — Luca Paolini ([07:43])

• On Future Returns:
  “When we got used to see equity returns between 10 and 20%... you cannot expect significant returns in the next five or 10 years.” — Luca Paolini ([09:58])

• On Diversification:
  “I don't think it's worth taking this kind of risk... having a more equal weight approach... would help.” — Luca Paolini ([15:06])

• On Commodities:
  “I don’t believe in a commodity super cycle... industrial metals trade at an all time high... I think commodities fit this kind of description [of portfolio protection].” — Luca Paolini ([18:48], [20:13])

• On US Fiscal Risk:
  “The real risk, fiscal risk is more in the US... the debt to GDP ratio [there] is 20% higher [than a decade ago]...” — Luca Paolini ([22:12])

• On Market Shocks:
  “We are kind of prepared for a spike in inflation... but prepared for Covid, for example?... These are the kind of things...” — Luca Paolini ([24:56])

• On Expected Returns:
  “If you have 7% return on equities and inflation is 3, it’s not bad. We shouldn’t get used to 20%...” — Luca Paolini ([26:12])

• On Gold vs. Bitcoin:
  “I still believe that bitcoin is a lottery ticket... but I still, still think that gold is the winner here.” — Luca Paolini ([27:02])

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Important Timestamps

• Macro Resilience Discussion: [02:42–05:04]
• Valuations & Capex: [05:04–07:23]
• Margin Sustainability: [07:23–09:48]
• Forecasting Next Decade: [09:48–11:38]
• Diversification Takeaways: [14:30–16:42]
• Regional Analysis: [17:00–18:31]
• Commodities Deep Dive: [18:31–20:29]
• European/UK Energy & Fiscal Risks: [20:29–24:29]
• Market Shocks & Return Prospects: [24:29–26:44]
• Gold vs. Bitcoin: [27:02]

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Conclusion

This episode provides a nuanced, pragmatic outlook: While current economic data remain strong and markets have withstood the seemingly endless waves of risk, investors should temper expectations. Broad regional convergence, slower returns, and higher risks mean diversification and flexible asset allocation are more important than ever. Gold trumps Bitcoin, industrial metals are a bright spot, and—despite everything—there’s still value in bonds. As Paolini quips, “We shouldn’t get used to 20% [returns]... that’s not sustainable.”

Transcript

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[Maren Somerset Webb]

Bloomberg Audio Studios Podcasts Radio News. Welcome to Marin Talks Money, the podcast in which people who know the markets explain the markets. I am Maren Somerset Webb. This week I'm speaking with Luca Paolin, chief strategist at Pictay Asset Management. Now, before we start, I have to tell you that we are recording on Wednesday, May 13, late afternoon, British Summertime. And I'm being this precise because there is so much going on, so much influx, that by the time you listen to this, everything could have changed. So the UK Prime Minister, Keir Starmer could have resigned. Donald Trump will have been to China, probably have been to China. The US Iran standoff may have made progress, may not have made progress. Who knows? So there's a lot of possible changes between right now and publication. That said, I still think there's a lot we can get from LUCA today. There's an awful lot we can talk about that ignores those changing issues. So luca, welcome to American Talks Money.

[Luca Paolini]

Nice to be here again, right?

[Maren Somerset Webb]

As I say, there is quite a lot going on. So let's talk first about the macro environment and how extraordinary it is, really how little markets are reacting to the sort of rolling crisis in the Middle east in particular.

[Luca Paolini]

Well, I think the main story here really is that when you look also the experience of the last few years, every Shock that we are seeing globally, especially the tariffs day and last year especially US economy has been incredibly resilient. Everybody was expecting a big impact on inflation, on the labor market. The reality is that US growth is above 2%. Even Europe is growing in a decent, decent, decent rate. Japan is recovering, China is fine. So the global economy has proved to be incredibly resilient. It's a surprise to all of us. But obviously the resilience, resilience of the global economy also implies that earnings are doing very well. And so looking at the past, investors draw a simple conclusion. It doesn't really pay off to be too bearish too soon. And that's why I think the market continues to be very, very, very strong.

[Maren Somerset Webb]

But what do you think of driving that resilience? I mean, if you watch the news, you hear relentless drive of negativity, for example, and you look at employment numbers and all that kind of thing, you begin to worry that AI is eating into employment, which is going to be a long term problem. There's an inflationary impulse. Globe rates are more likely to go up than down. All these things should be negative for the global economy. But nonetheless, as you say, it just, it's relentlessly resilient. Why?

[Luca Paolini]

I think partly because, let's not forget the AI boom is not just market prices going up is a real increase in investment spending that obviously drives all the economic data higher. Not only in the US Then there is another element which I think is important is an incredible creation of wealth that's been achieved the last few years that basically implies that people have more money to spend even if the global economy or some indicators are not looking good. But I have to tell you that there are some strange indicators. In a way, if you look at the consumer confidence in the US is an all time low. It's even worse than in the 70s and the 80s, lower than 2020. So people are clearly worried, inflation is picking up. But again, when you look at gdp, the normal indicator will look is still very solid. And I think that's what drives market and I think for us this kind of positive macro outlook is set to continue.

[Maren Somerset Webb]

Okay, so even with that resilience of the economy, and we know of course, by the way, don't we historically that it's not necessarily the case that economic growth and market returns are correlated. That's not true. It's all about where valuations begin. But even with that economic growth, looking at stock markets, and let's look particularly at the us, there's definitely a valuation problem there.

[Luca Paolini]

Yes and no. So it is true that when you look at the, for example, the price to earning ratio of 21, well, the long term average is 17:18. But let's not forget that we have a private sector or a corporate sector is incredibly profitable. You have earnings growth of 25%, record margins, buybacks, taxation effectively going down more than up. So the fundamental story is very, very solid. I wouldn't say that US market is cheap, but it's not incredibly expensive. And where I think we see some area of excessive valuation, not in the tech sectors, is in stocks, in some consumer stocks that trade well above the market. And I think this is where I think it becomes interesting. Tech looks expensive, but again, if you assume that this kind of capex story, the AI story will continue, the valuation is not that extreme. And that's why we think that the valuation element is kind of a negative, but not negative enough to offset all the other positive that we mentioned already.

[Maren Somerset Webb]

Okay, and do we assume that this CapEx boom can continue? And we can assume the CapEx boom will continue, but can we assume that returns on it will be what everyone expects? And we've done some podcasts recently on AI and on the huge build out and on the limitations of LLMs and the possibility that the CapEx build out may be something of a false start.

[Luca Paolini]

I think one, if you look over the next five years probably I think these numbers cannot be sustained. You know, we're talking about, you know, investment in AI, in data center, close to 1 trillion this year, the US this cannot go on forever. Can we though expect a significant slowdown in the next six to 12 months when you already had pretty much clear commitment by the top tech companies? That will probably not. So I think that the capex story is solid and I think the question will be will other sector benefit from that, some industrials. And our view is that this capex story will get a little bit broader and that will support growth for the next, at least for the next year.

[Maren Somerset Webb]

Okay. And then earnings across the board, you said earlier, you know, we have these extraordinary earnings numbers, extraordinary margins, they're all at historical highs. And I know that we've all been looking at profit margins in the US for years and going, look at that, they're, you know, totally out of whack, this has to revert to the mean, et cetera, and they never do. But at some point feels like there should be a turning point.

[Luca Paolini]

Yeah, I think what is interesting about margins is that they're not everywhere, even in Europe, uk, Switzerland, China, Japan, at the lower level in the US but an all time high. So there must be something else. And you know, something else could be real pricing powers. A lot of industries are effectively not very competitive. There are just a few major players that actually can effectively dictate prices. I think they have huge margins. There is a decline, I think in the, in wage costs in a way, in real terms at least there are buybacks that help. So it's, it's a more fundamental story. I don't think that again this is sustainable. At some point there would be a political backlash probably because I think people voted will not accept these companies to generate a huge amount of profits when actually a lot of people are struggling.

[Maren Somerset Webb]

But it feels like that political backlash is kind of underway.

[Luca Paolini]

Yes, but you don't see this translating into, let's say, anti business kind of policies. Right. And I think that's probably what can change. One could be that global growth will get weaker and profit margin will, or there will be a change in taxation, in the redistribution of wealth. But so far it seems a very solid trend, which is very difficult to expect to stop. And that's why I think the market is well supported.

[Maren Somerset Webb]

Yeah. And do you believe that those earnings numbers that we've seen, extraordinary earning numbers we've seen in the US so far this year, that they are sustainable? I mean, because you could argue that the bubble is not in the P bit of the valuation, but in the E bit of the valuation?

[Luca Paolini]

Well, I think, look, when you look at the earnings that we have seen, tech is up almost 50%, but all sectors are up. So is it sustainable at this rate? No, in fact, we think that the expectation for next year, another 20% increase is probably too high. But again, this year has been in a way exceptional. We expect some deceleration in earnings, but we still earnings that are well above the historical norm. So you need to see more for markets to decline and probably to see more, you need to see a significant slowdown in the global economy.

[Maren Somerset Webb]

Okay, let's look out over the next decade. We were talking before we started, before we started the podcast, we were talking about forecasts over the next ten years or so. And you were saying that that doesn' look completely comfortable.

[Luca Paolini]

Well, yes, and in the sense that, you know, when we got used to see equity returns between 10 and 20%, historical average between 5 and 10 and historically when you see very low risk premium as it is now, you cannot expect significant returns in the next five or 10 years. So unless we are in a new kind of world with low inflation, AI pushing growth to 3,4% per annum level. I think you need to see at some point some deceleration in the returns. What is interesting is that when we look at our indicators in terms of valuation, expected growth, monetary policy, there is a significant convergence across different regions. So we talk a lot about this multipolar and this kind of fragmentation in the geopolitical order. The reality is that from a macro point of view, there is actually quite a significant convergence. US is probably going to get a little bit worse, Europe a little bit better. Valuation has kind of converged. So evaluation is similar in a way as converged. And the global or the macroeconomic cycles are converging. You should expect returns to be pretty much converging too, but below the historical norm. So it's going to be in a way difficult because return will be lower, but I think will be more kind of spread out than now, which is basically driven by the us. So the time where the US was the only place to be invested is probably over. And I think that's the key message for investors in the next in the next decade.

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[Maren Somerset Webb]

Okay, so what does that tell us as ordinary investors? It tells us we should be diversifying away from the us. Does it tell us there are any particular markets we should be heading for?

[Luca Paolini]

Yeah, you have to diversify away from the US not only because not because we expect US stocks to do particularly badly, but because of risk consideration. So if you are passively invest, say you're based in the UK, you're passively invested, you end up having 70% almost of your asset in a market that is not even denominating your own currency. So there is a risk market risk, currency risk, political risk, sector risk because

[Maren Somerset Webb]

so much of that is in the tech sector dominated.

[Luca Paolini]

Exactly. So I don't think it's worth taking this kind of risk. So I think having a more equal weight approach reconsider your allocation and to have maybe even on bias, I think it would help. And also let's not forget that when you look at the as an investor we tend to focus on equities because that's where they tend to get the best returns. But now if you look at where bond yields are in UK but also in the us, you start thinking that you can probably also maybe take some profit out of equity and put it into fixed income. Because I think now for the first time, I would say in a decade, the expected returns on fixed income products are actually quite attractive not only in the uk also in the us. So I think maybe it's time also to put some money back into the fixed income space.

[Maren Somerset Webb]

I was going to say quite brave to get into the UK bond market right now.

[Luca Paolini]

You know, it's always. That's a difficult part of our job.

[Maren Somerset Webb]

Right.

[Luca Paolini]

I think when you look though at the UK you look at yield yields between 5 and 6 in real terms it's like India. So effectively it's the same real yield that you have in India. And if you look at the, you know, even the. Everybody's talking about, you know, the problem of debt, you know, the fiscal situation and I'm not taking my number, I take the number of the imf. The UK is in a much better position, definitely the us, even Europe, according to the imf, not myself, the UK will have a primary budget surplus in two years time. Maybe it's not going to happen. The point is the fiscal situation in the UK is not fantastic, but it's not as bad as everybody think it is. So I think there is some good value in yields. The timing is always the most difficult.

[Maren Somerset Webb]

One is perceived as bad because no one quite believes that that fiscal surplus

[Luca Paolini]

will exist based on current policy because of political instability. You don't know who's going to be in charge. Obviously deaths, you paid the price for that. But the point is that when you look over the next 10 years, there are a lot political cycles. I think there is still good value in UK bonds.

[Maren Somerset Webb]

Okay. And in equities. Is there any market that stands out to you?

[Luca Paolini]

Well, when we look at now, I think the US is still the best bet. Again, you have a good economy, you have probably potentially some rate cuts, earnings growth at 25%. I think everything seems to be going well for the US emerging markets too. And this is not just Korea and Taiwan. I think we see a decent improvement in emerging markets. Some emerging markets already cutting rates, good valuation, cheap currencies. So I think it's EM and US are now the place to be. If you extend your analysis over the next five to 10 years. There is also a case for Europe. Europe is kind of, especially Germany is going to spend more cheap valuation. I think we also feel more optimistic than others on the integration story. Refor. It's difficult to invest in Europe, we know, but I think if you extend your analysis, I think everything seems to be going very slowly in Europe in the right direction and I think the market is not kind of priced for that improvement.

[Maren Somerset Webb]

We're all just too depressed about Europe and the uk.

[Luca Paolini]

Yeah. Because actually the history tells you that it's not worth investing in Europe. But at some point things will change. And in fact when you look at the performance of Euro versus the US believe the UK you look at the past five years, it's not a big difference difference. So I think it's important to highlight that, you know, not everything is bad in Europe but obviously, you know, there is a reason why Europe and the UK trade a significant discount to the US we just think that this kind of discount is a little bit too

[Maren Somerset Webb]

wide and things should change for the best. What about commodities? I mean obviously the energy market is of great interest to everybody at the moment, but across the board there's renewed interest in the commodity sector and talk of a new super cycle in commodities, et cetera. And a lot of our listeners are particularly interested in gold.

[Luca Paolini]

I don't believe in a commodity super cycle. If you look the last one was driven by a huge increase in investment in China, especially in the real estate which is very commodity intensive. The current capex cycle is less kind of commodity intensive. You still need especially industrial metals. Not by chance, industrial metals trade at an all time high. So you have to differentiate. I think the gold price is set to increase not at the same pace. The dollar has already depreciated a lot. There is limited downside on rates. If the geopolitical situation improves. I think gold still has the potential to do well, but not at the same pace of the last few years. The old price thing is trending down unless something goes horribly wrong. Obviously in the Middle east where I think the most interesting bit on the commodity side is industrial metals because I think you can claim that industrial metals are critical in the green transition. There is limited supply, strong momentum. That's probably the area of the market which I think is more interesting. But betting on a commodity super cycle when growth is okay, man are booming. I find it difficult but at the same time with a lower kind that a position in commodities is required, especially in gold. Because if there is a spike in inflation you still want to have a lot of it.

[Maren Somerset Webb]

Yeah, yeah.

[Luca Paolini]

I mean it's something that sometimes when you look at your portfolio you don't want to just pick the asset class that will do necessarily be the best, but the one that can give you some protection, something goes wrong. And I think commodities I think fit this kind of description.

[Maren Somerset Webb]

Yeah, I suppose when we were talking earlier about Europe and the UK and reasons people don't feel particularly comfortable investing in them. One of the reasons that people often give on POD is because of the extremely expensive Energy prices in Europe and in the uk. And that makes it very difficult to think, well, these are the places that are going to grow incredibly fast in the future if economic activity is energy transformed, et cetera. Is Germany really the place to be? Is UK really the place to be? Because it's hard to see great growth on the back of that kind of price.

[Luca Paolini]

Well, I mean Europe roughly imports 3% of GDP, so that's the cost of the import bill in terms of energy. So 3% of GDP is significant. The US is an exporter. There is one positive element element to all this, first of all, is that we expect first of all oil prices to decline, but also the fact that renewables are playing a much bigger role. That means that Europe slowly, with time, potentially by 2040, will be energy independent,

[Maren Somerset Webb]

assuming battery technology develops in the way everyone, etc.

[Luca Paolini]

I mean it's 2020, 6004 is a long time. But I think Europe is going the right direction. My worried about Europe is that this process of there are also real reforms. Another example you look at the periphery today looks even more solid than the core. So we tend to forget that Europe has done a lot in the last decade, but it's still too slow. The risk that I see for Europe, partly even the uk that you need another existential crisis for the actual reform to be implemented. And hopefully it's not going to happen. But that's my worry, that we are still too comfortable in Europe and the UK to make the decision that we have to make. Again, I hope that Europe will go in the right direction without a crisis. But I feel maybe more that might

[Maren Somerset Webb]

drive this existential crisis. A fiscal crisis presumably of some kind

[Luca Paolini]

in the uk I don't know because again, the UK of course is all about the political environment. Because UK we are very dependent on foreign capital, something that Europe is not, for example. But at the same time I feel that the real risk, fiscal risk is more in the US when you have. People tend to forget that especially in the euro area. The debt to GDP ratio is the same of 10 years ago in the US is 20% higher. The US is where you see an exponential increase in public debt. Not in Europe. In Europe the problem is that we don't spend well what we have in the US There is an exponential trend and there is no sign of this being changed. So I think of the US because you have the dollar, there is a currency, there's still a lot of capital inputs into the US but. But this is where I think the risks are more in the US than in Europe from a fiscal perspective.

[Maren Somerset Webb]

Interesting bit. You and I have had this conversation before. We've been worrying about this in the US for decades, decades. And it just keeps going. It's fine. So why would we worry now?

[Luca Paolini]

Because the US Is less. You can't trust the US in the same way you trust the US a few years ago. And when you're very dependent on foreign income, that's true also for the uk you cannot treat foreign investors in the wrong way. And that's the perception. The perception the US is not the safest place. It's still the safest, the best place, but not as good as it was before. And so I think if you just again, we talk about diversification, even if a small portion of foreign investors are diversified away from the U.S. this is a huge implication in terms of bond yields, valuation of equities. We don't expect anything crazy, but we think that the. We already seen the peak of US exceptionalism and the US will I think, already lose the dominant position in a lot of areas. Right. And so I think that that's what can trigger potentially, and we don't expect a fiscal crisis in the US Is investors getting worried about a dollar depreciation, the Fed to lose independence. This could be a significant trigger for potentially a fiscal crisis. We don't see this happening, but you know, that's one of the risks that we have for our secular outcome.

[Maren Somerset Webb]

Okay, I was going to ask you biggest risk was out there and I suspect that that's the one.

[Luca Paolini]

Yes, sorry. Yeah.

[Maren Somerset Webb]

So leaving that, what is the thing that you think might happen that might make everything absolutely fine, justify valuations across the board, make these fiscal problems go away? I mean, we often hear from people, but we don't need to worry about anything anymore because the arrival of AI and robotics are going to bump up productivity so much. All the problems that you thought we had are going to vanish?

[Luca Paolini]

Well, I mean, there will always be problems, right? I think to me as an investor, the worry that I there is always something happening that we can predict. These are the real problems, the one that we are not prepared. We are kind of prepared for a spike in inflation. We are prepared for some kind of fiscal crisis. We are prepared for an escalation in the Middle East. We are not prepared for. Covid, for example, this is the kind of things where when, honestly when I look at the fundamental is one risk that I see for global market is that we are in a way too dependent in terms of wealth creation of what the stock market is doing. So it's for whatever reason. And we see actually with AI there is a disruptive force that can potentially create a big shock in the market. It will have a huge implication also for growth. So in a way the correlation has changed.

[Maren Somerset Webb]

Is the wrong way around now the

[Luca Paolini]

moment that's to me. And this can happen on a daily basis and we kind of predict that. That's what I want. Some really worried about some more a market shock affecting the global economy the other way around.

[Maren Somerset Webb]

Okay. All right. But generally speaking, you're relatively optimistic that everything will hold together, but we'll see just lower returns over the next 10 years than we have over the previous 10 years.

[Luca Paolini]

Yeah, we had basically 10 of 20 years of superior returns. I think this is not going to happen again. And you go, if you have 7% return on equities and inflation is 3, it's not bad. It's just that it's not. We shouldn't get used to 20% because that's not sustainable. If it happens, what happens is the inequality will rise and the risk of economic population will grow. So I don't think it's actually good for us as a society to have a long period of superior kind of return from equity because this would generate political, political tensions. Yeah.

[Maren Somerset Webb]

We want better GDP growth per head and maybe less growth in the stock market. Yeah. Luca, thank you. Can I ask you just before we go, I previously I used to always ask people whether if they were given the choice between gold or bitcoin, they would which one they would take. But I've slightly given up on that one now because everyone always chooses gold. But I just want to check. Would you choose gold?

[Luca Paolini]

Would you choose bitcoin? I still believe that bitcoin is a lottery ticket. You can win a lottery, but I think on average you don't. But I can blame anyone if they want to put some of their kind of safety in bitcoin. But I still, still think that gold is the winner here.

[Maren Somerset Webb]

Thank you very much.

[Luca Paolini]

Thank you.

[Maren Somerset Webb]

Thanks for listening to this week's Marind Talks Money. If you like our show rate, review and subscribe wherever you listen to podcasts and keep sending questions or comments to marinmoneyloomburg.net you can also follow me and John on Twitter or x. I'm Marioness W and John is John Underscore Stepek. This episode was hosted by me, Marion Somerset Webb. It's produced by Sam Asadi and Moses Andam with help from Jessica Beck. Sound designed by Blake Naples and Aaron Casper. Special thanks to Luca Paolini.

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