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“Uncertainty is Winning”
00:33:44
What happens when you combine an uncertain macro environment with an incredibly certain investor base? You get a whole lot of volatility, according to Richard Bernstein.
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- [00:01]
Richard Bernstein
What I'm trying to say to people is it really has been mag7 or tech or whatever you want to describe this versus everything else that has been what we've seen. And people always say diversification is a risk reduction tool. But right now, diversification gives you an opportunity set right. It gives you something other than these seven companies. And I think people are finally starting to understand that those seven companies, number one, aren't the only growth stocks in the world. And, and number two, many of them aren't even superior growers. There are better growth opportunities in other markets.
- [00:46]
Mary Long
I'm Mary Long and that's Richard Bernstein. He's a CEO and Chief Investment Officer at Richard Bernstein Advisors. My colleague Ricky Moldy caught up with Bernstein for a conversation about trade wars, deglobalization, the crypto industry, and how investors ought to make sense of the news. We played a segment of this conversation on last Friday's show. So if you've already listened to that, you can just Skip to the 9 minute mark on today's show. We wanted to get that part of the discussion out to you right away as it helps to make sense of the current news cycle. And as a topical timely reminder that as investors, what we need is clear information. If the news is unclear, it's probably best to ignore for your investment purposes and your sanity. We think that that message bears repeating, which is why we're playing that piece again today. But we also wanted to share the whole conversation with you because Richard and Ricky talk about a lot of other topics too, including what Bernstein calls the greatest untold investment story of today.
- [01:48]
Ricky Moldy
Richard Bernstein is the CEO and Chief Investment Officer of Richard Bernstein Advisors. He joins us now on Motley Fool Money, A macro focused investor. What a time to have you on the show. Thanks for being here, Rich.
- [01:59]
Richard Bernstein
Yeah, my pleasure. Thanks for the invitation.
- [02:01]
Ricky Moldy
We got a trade war brewing. We got a trade war, game of chicken. Maybe a full out war, maybe a negotiation. How is this brewing? Trade spat changed your process, if at all, at Richard Bernstein Advisors.
- [02:16]
Richard Bernstein
Yeah. So, you know, I think, Ricky, the first thing we have to kind of understand is that the news flow is totally out of control right now. I mean, 25 years ago legit. 25 years ago I wrote a book that was called Navigate the Noise Investing in the New Age of Media and hype. That was 25 years ago. It's clearly more applicable today than it was 25 years ago. But the point of the book was that there's always going to be this news flow and a true investor is going to Try to ignore that, that we know that there are certain rules of investing ways to build wealth and trying to react to the day to day, you know, minute by minute gyrations is really a loser's game. And I think that it's very important. I think if somebody tries to keep up with the news flow today, you're going to be ready for a rubber padded room. I just think it's insane. So that's number one. Number two is that I think what's happening in this news flow right now is not that it's good news or bad news. Right. The politics tends to overwhelm everything. Everybody has to remember we're investors, we're not politicians. And so what we want is we want clear information. Whether the policy we agree with or don't agree with is really immaterial. Nobody's calling us up and asking us. But we need clear and consistent information so we can make investment decisions. I think that's the big issue that's going on right now is that whether it's the trade war, whether it's employment policies, you know, you name it, it's changing every 10 minutes. And I think that's very hurtful for the markets overall.
- [03:51]
Ricky Moldy
And I understand the fast news flow, but at the same time you've also had a tremendous rise in algorithmic trading. So in a lot of cases, I would think it's not just human traders making decisions off these news items, it's algorithmic traders causing huge spikes, good and bad. You're saying volatility only happens when it goes down, otherwise everything's good when it's going up. Right. How much of this is also just algorithmic trading driving the market based on headlines, not just human reaction?
- [04:17]
Richard Bernstein
Oh, I think that's true. I think that's to some extent always been true though, right. I mean, earlier in my career it was the evil program traders that were causing things to happen. Now it's the algorithmic traders. They're always around. Right. I think the thing that we all have to remember is that the fundamentals are the fundamentals. And if you take a step back and you look at the fundamentals and you assess them properly, what happens in 10 or 15 or 20 minutes is really pretty immaterial.
- [04:44]
Ricky Moldy
So then what are the, what are the story lines you're paying attention to? Because I, I understand the news is changing extraordinarily fast right now, but it seems we are entering a period of de globalization. If tax cuts continue to pass, that's going to affect corporate profits. And at the same Time you're starting to see companies including Delta Airlines saying this macro uncertainty is going to, is, is leading us to, to cut basically our, our revenue and profit forecasts. So I, I understand the headlines create a lot of noise, but there is meaning there. How are you separating that?
- [05:13]
Richard Bernstein
Absolutely. So I think take what you just said, Ricky, and kind of put it into a little longer term lens. Right. So you mentioned Delta. I'm not saying anything positive or negative about that particular company, but many companies now are having a lot of trouble forecasting their fundamentals. More uncertainty. Right. I mean, what you forecasted yesterday may be completely different today. That's uncertainty. Number two, if you think about trade and everything else that's going on there, I mean, trade regulations changing within the day. Right. So how, if you're an importer or an exporter or you have a supply chain, how you're keeping up with that, I have no idea. So what you have to do is you have to say, look, there is these four. There are forces out there. Like you mentioned, deglobalization. One of our main macroeconomic themes is deglobalization. And the combination right now of the fact that we're going through a period of deglobalization at a point in time where the United States has a massive and ever growing trade deficit that is a terrible combination for the US Economy. And what we're trying to do is we're trying to look for ways to invest to take advantage of that. In other words, we do think the capital markets are going to be smart enough to allocate capital to where it's actually needed within the economy. So you got to look at these themes. You have to kind of work out what's the symptom, maybe trade, you know, a tweet on trade versus what's the actual issue, which is de globalization.
- [06:43]
Ricky Moldy
So let's, let's stay on deglobalization because you may, your, your take is that it is disastrous for US Companies. The other side of that argument would say what we're actually doing is we're encouraging these great big companies to set up shop and create jobs in the United States. And this is actually going to be wonderful for the US Economy. And at the same time, these tariffs, these bills we're placing, this is like charging foreign countries a premium to access a premium market the same way that you would pay for box seats at a New York Rangers game. In order to get access to those better seats, we're going to do a similar thing for access to this market. And there's going to be a period of transition, but really it's going to, it's going to shake out. And over the long term, the US Stock market will be fine. That may not be my personal opinion, but I'm trying to steel, man. The other side of your.
- [07:32]
Richard Bernstein
Absolutely. And. And as I can tell by what you just said, you can probably tell I have a Rangers jersey behind me, that I am a Ranger season ticket holder. So you could argue that tariffs can be an effective way to change the economy. If, and this is the big if, if there is underutilized domestic production. The problem is in the United States and the reason we have this monster trade deficit is we don't have production. We have bragged for decades now how we are a service oriented economy and not a production oriented economy. We're now feeling the other side of that, right? If you want to build a steel plant, if you want to build an aluminum plant, if you want to build a refinery, anything like that, this takes years to do. You put a tariff in. Everybody has this notion, oh, well, that'll affect deployment next quarter or two quarters from now. No, it doesn't work that quickly. In the meantime, what happens when you have this massive trade deficit is that you stick it to the consumer. Here's a way to think about it, right? Is anything you are wearing right now, Ricky, is anything you are wearing made in the United States?
- [08:43]
Ricky Moldy
My jeans say American Eagle on them, but I'm not entirely sure.
- [08:46]
Richard Bernstein
I guarantee you they're not made in the United States. And if they are manufactured in the United States and kind of sewn in the United States, the material is not from the United States.
- [08:54]
Ricky Moldy
So.
- [08:55]
Richard Bernstein
And that makes sense because in the last 30 years or 40 years, the United States has lost between Two thirds and 90% of our textile manufacturing capacity, depending on how you measure it, how you define textiles and all that kind of stuff. That's why I gave you the range. So if there's a 15% tariff put on clothes, we have a pretty simple choice. We can run around naked or we can pay 15% more for clothes. We have no choice. There is no domestic substitution to take that place. Will there be in five years? Will there be in 10 years? Maybe. But in the meantime, there is no domestic substitution, so tariffs immediately stick it to the consumer.
- [09:31]
Ricky Moldy
So when, when you talk about this trend of deep globalization, I wonder if parts of the trend of globalization are almost too big to fail. So we'll stick on the close metaphor. If I'm making American Eagle jeans, I don't Know, if they make these jeans and let's say Vietnam.
- [09:46]
Richard Bernstein
Right.
- [09:47]
Ricky Moldy
Even if there's a 15% tariff, it's still going to be significantly less expensive to outsource that production. And some of these things cannot be solved by policy. So where are you seeing the evidence of widespread globalization and that it's enough of a phenomenon that you're reacting to it as an investor?
- [10:03]
Richard Bernstein
Right. So I think turn that around a little bit. It'd be, if you're a US Investor, you want to look for sort of the reshoring theme. That's really what you want. And you want to see the United States economy attempting to regain some element, no matter how small, that might be some element of economic independence. Really. That's really the whole thing you're kind of investing for here. Not necessarily. We're going back to 1950s and 1960s, manufacturing dominating, you know, everything. That's highly unlikely because of some of the things you just mentioned. But it's a pretty good guess we're going to regain some element of economic independence. There are many different industries that are involved in that that people aren't talking about. And so here's the way I like to describe this. If I could show you a strategy that has outperformed the market for 10 years, for five years, for three years, for one year, and has zero technology stocks in it, would that capture your fancy?
- [11:02]
Ricky Moldy
I think I know where you're going.
- [11:04]
Richard Bernstein
Yeah. This is mid and small cap industrial stocks here in the United States. Right. This is what we call the American Industrial renaissance, which, truth be told, we have an etf. You have full disclosure. I'm not trying to pull the wool over anybody's eyes here. We have an ETF. It's been around for 10 years. This is a real theme. But people don't think about it. And so think about how people drool over the magnificent seven stocks. And I bet not one person who's going to watch this can name one ball bearing stock, right? And people are probably laughing. Ball bearings. What is there in ball bearings? But yet they've actually done pretty well over the past 10 years.
- [11:43]
Ricky Moldy
Yeah. Companies that make things can do well. You said on CNBC that mid cap small cap industrial stocks are the greatest untold story out there.
- [11:51]
Richard Bernstein
Exactly.
- [11:52]
Ricky Moldy
We got as much time as you want to tell that story.
- [11:54]
Richard Bernstein
I think this is a very, very simple and straightforward story. It is literally that globalization is contracting. We see this, right? We see it in the Middle East. We see it in Eastern Europe. We're seeing it now with our relationship with Canada and Mexico, if you're really paying attention, this is going on in Africa, it's going on in Latin America. Globalization is contracting. The problem for the United States is that we have this massive and ever growing trade deficit. Now people have whined about the trade deficit for a long time and realistically it didn't matter to a hill of beans. And the reason why is because we were getting, as long as globalization was expanding, we were getting better and better quality goods for cheaper and cheaper, cheaper prices. Who cares? Who wants to stand in the way of that? But when globalization starts contracting and you're dependent on the rest of the world for everything, that's what our trade deficit basically says. You're dependent on the rest of the world for everything. That is a terrible combination. Right? In other words, you are at the mercy of everybody else around the world and you don't have the productive capabilities to make up for it. So I use clothes as my fun example before, but you know, even President Trump has talked about shipbuilding. You know, if you think about refineries, you think about the grid infrastructure. I mean, these are all things that desperately need to be improved. I mean, we do not have a state of the art infrastructure in the United States. How can we possibly compete as an economy when we don't have a world class infrastructure? Right. You can say what you want about the Chinese and I get all those arguments, but one thing that they did that was very, very smart was they started this whole competition by building the best infrastructure in the world. We're sitting here with many industries in 1950s technology or infrastructure rather. That is ridiculous. We should all be embarrassed by that. That's the investment story, that even if we just improve it a little bit, these small and mid cap industrial companies are going to do fabulously well. Now what's the caveat behind this, Ricky? The caveat is that small and mid cap industrial companies are really cyclical. I mean, you can't turn an industrial company into a food stock, let alone small and mid cap industrial companies. No, Their earning streams are very volatile. And so this is the type of theme that you have to think about, that you're going to put it in your portfolio, you're going to let it germinate and come back in five to 10 years. You're going to be really, really happy. You almost have to think of it as an alternative investment where you can't get your money back. Right? That's the way you want to treat this. You try and trade it, you're going to again, you're ready for the rubber lined wall room. I mean it's just, it's crazy because they are so volatile and what do people do? They buy high and sell low. Buy high and sell low. Buy high and sell low and they, they don't get the returns they thought they were going to get. This is a great and I would argue the best long term story out there. I think it makes AI look like nothing and but yet most people on this probably think I'm nuts for saying that.
- [15:02]
Ricky Moldy
I don't know whether or not you are nuts. I guess we will see in the next five to 10 years. I guess I'm trying to sum this up in basically okay, so there's a trend towards deglobalization. More things being made in the United States as now a deficit is a bad thing. You know, it could be a good thing. It means that you're able to go buy cheap things or I'm able to go buy cheap things at Costco. And I bought socks on Amazon that arrived just before this recording and I think it was like 12 bucks for 14 pairs of socks. I'm not mad about it. But as you see this trend, especially for this advanced manufacturing stuff, we need greater infrastructure investment in the United States and that will end up flowing down to these small and midcap hyperspecific industrial.
- [15:41]
Richard Bernstein
Stocks or as they build that infrastructure. A lot of these small and mid cap companies are involved in the building out of that infrastructure. It's not necessarily that they're going to make socks using your example from two seconds ago, but they may help build the factory that's going to make the socks here.
- [15:57]
Ricky Moldy
So if you're playing a highly cyclical game as an individual investor, and I know you're in more, the more of the ETF landscape, the people listening, we're able to buy those individual companies if we're looking to play that cyclical game generally what are the metrics that we should be watching for and maybe what are some of the areas that we.
- [16:14]
Richard Bernstein
Should be paying attention to in terms of areas? There are any number of different places you can look at. Right? You can think of companies that contribute to the electric grid. Right. I think one of the things that people don't realize is the electric grid is in fact 1950s technology. Even doing simple replacement of the wires and updating the wires which are now predominantly copper and aluminum. And when copper and aluminum gets warm or hot, those wires sag. And as they sag they lose conductivity. That can be changed very easily through carbon wire. Carbon wire does not sag, is not affected by the heat. Let's change from 1950 to 2025 technology. All of a sudden you increase the capacity grid by 25 or 30%. So maybe there's something in carbon wire, transportation, inland barges, electricity. Everybody's gaga over data centers. How about the companies that are going to do the electrical for data centers and things like that? Those are, these are the type of companies that people should be thinking about. A lot of them are doing really, really well.
- [17:16]
Ricky Moldy
Places to look. So in your beginning of the year video, one of the places you mentioned was emerging markets. And when you're on the show on Motley Fool Money a few years ago, you talked actually about, about China and how the profit cycle was heating up in China. And, you know, it made it sound like maybe this is a place for individual investors to take a look.
- [17:34]
Richard Bernstein
Right.
- [17:34]
Ricky Moldy
This year it's, it's emerging markets with one exception, and that is China.
- [17:39]
Richard Bernstein
Yeah.
- [17:39]
Ricky Moldy
What's happened in the last few years and what, what data has maybe caused you to change your mind a little bit?
- [17:46]
Richard Bernstein
Well, you know, Ricky, I'm sure everybody who comes onto your show gets every call, right? And, you know, I wish we could have such an ego to claim that that was true. Certain things would get wrong and China was, was clearly one of them. And what we saw was that China's profit cycle was starting to accelerate, fundamentals were starting to improve a couple of years ago, and the stocks were actually doing well. And then we started getting political whiffs of what was going on, and the stocks started underperforming despite the fact that fundamentals were doing well. Then the fundamentals in China began to erode and we simply said, hey, you know, if the stocks aren't outperforming when the fundamentals are good, what's going to happen when the fundamentals get worse? And of course, the fundamentals did get worse and the stocks did underperform. So we went through a whole period where we tried to avoid China as well. Right now we may be honestly a tiny bit cute in trying to say EMX China versus EM itself. I don't know. I think the notion, the takeaway from what we're trying to say and the takeaway of the way our portfolios are positioned right now is not so much China versus non China, but it's the broadening of global opportunities, whether it's in Europe, whether it's in emerging markets, regardless of where it is. I think people have to. People spend too much time worrying about the economy and forgetting we're investors, we're not economists, right. And so the economy is an interesting discussion, but ultimately what you care about is the stock market, the valuations and everything else. And so I've said to people, just taking Europe as an example here and running with the earlier portion is what do the European stock markets not have that the US Stock market had that caused every believe the US is the place to be and that's the only place to be. Why? Why would they think that? What in the stock market is making them do that? And the answer is that the United States stock market has a big tech sector. You don't find that in most other markets around the world. You know, multi companies, not just like one company in one market in one country, but we have a very well developed tech sector. And what we saw through this narrow leadership was tech dominating everything. So if you look around the world and you look at US small caps, let's say small and mid caps, you look at Europe, you look at emerging markets, what you will find is they've all performed very similarly during this Mag 7 period. And they're all valued very similarly too, within a range. Not perfectly, but within a range. And so what I'm trying to say to people is it really has been mag7 or tech or however you want to describe this versus everything else that has been what we've seen. And people always say diversification is a risk reduction tool. But right now, diversification gives you an opportunity set, right? It gives you something other than these seven companies. And I think people are finally starting to understand that those seven companies, number one, aren't the only growth stocks in the world. And number two, many of them aren't even superior growers. There are better growth opportunities in other markets. It's just momentum was carrying the day and nobody was looking. And I think people are finally starting to look at it. So the message in our portfolios, Ricky, is really not so much China versus not China, but the opportunity sets, whether it's small, mid cap, you know, developed markets, emerging markets, whatever. There are plenty of investment opportunities out there right now, many more than I think most people think.
- [21:18]
Ricky Moldy
Okay, I wasn't trying to catch you on the China stuff. I was trying to figure out it's fine, what happened there. I've made plenty of bad calls on this show myself. I got the scars on my hand from juggling some falling knives. Shout out big lots. Let's dig into a little bit of this here. I. One of the fundamental problems I've seen with investing in Chinese stocks as well is One is not actually purchasing the stock. It's like some odd profit sharing agreement that goes to a different bank. You're not necessarily buying an ownership position when you're buying something like Alibaba. Is that, you know, is that a problem for anyone who is interested in, in buying Chinese stocks? You think so?
- [21:55]
Richard Bernstein
So, Ricky, I, you know, many years ago I used to, I used to teach in the grad school at nyu, in the business school and, and one of the things they used to try to point out to the MBA students was that Chinese capitalism is not the same as Western capitalism. Right. Western capitalism, as we're all taught, is based on the notion of profit maximization. That's what companies try to do. Right. Chinese capitalism is based on employment maximization. That's the goal. And so if you understand that difference in the goal, you can understand a lot more about what goes on, why the government intervenes the way they do and all the different things. And so what you found, you know, five, seven, eight years ago, was that Chinese capitalism began to mimic Western capitalism. It began to talk about profit maximization and wealthy individuals and all these different. And what did the Chinese government do? They smacked that down in two seconds. So they like capitalism, but not our version of capitalism. That's very difficult for people to understand now. You know the propaganda stuff. All of a sudden you hear about the Chinese Communist Party and all this. Yeah, yeah, yeah. But no party stays in power unless ultimately people's lives are getting better, right? Unless it's going to be a really, you know, difficult, you know, power hungry type type economy. That's probably not going to happen. But normally you'll see that happen. I think the Chinese Communist Party wants to stay in power. They don't want a cultural revolution.
- [23:33]
Ricky Moldy
And then we talk the big caps, mega cap stocks. There is a rush of capital there. But I want to give the opposing viewpoint on this and that is that it is deserved. Let's start from a place of why is all of the capital flowing there? And it's because these are the companies that are dominating the world. Billions of people go on meta every day. Nvidia is driving the AI revolution. Google owns the Internet in many ways. And for all of these mega cap companies, while there's been a tremendous amount of inflow into those stocks, the forward PE multiples are not in outer space. They're all below 30 for the ones I just mentioned, which is relatively high. But that to me does not scream that there's a huge level of excitement and belief in like future earnings, power for these companies.
- [24:19]
Richard Bernstein
Right. So let me respond to that. I think, first of all, let me say something that I'm going to bet nobody who's watching this knows that right now about 25%, maybe 30% of the S&P 500 companies are forecasted to grow their earnings 25% or more. So the opportunity for growth right now in the S and P is pretty broad, right? 30% of the index is supposed to grow 25% or more. Here's the better part. Only One of the magnificent seven makes that group. Only one of the mag seven is forecasted to grow earnings 25% or more.
- [24:59]
Ricky Moldy
Is that Nvidia?
- [25:01]
Richard Bernstein
I think it is. I think it is. And that's probably coming under a little pressure right now, too. Now, the second thing that I was going to say on this is that narrow markets are the exception, not the rule. Right? By our reckoning, 2324 was the narrowest market since 98, 99, which was the tech bubble, giving credit where credit's due. Fidelity has pointed out that before that it was the nifty 50 period of the early 1970s. And again, credit where credit's due. Goldman Sachs has pointed out that before that you have to go back to the Depression. Now, during a depression, one can understand narrow markets. I think that's pretty. That economically that makes a lot of sense because during a depression, companies are trying to stay alive. Forget growth. Who can stay alive? And so you get very narrow leadership because everybody's going bankrupt. That seems to make perfect sense. Now, we could argue all day long about how strong or weak the US economy has been over the last couple of years, but unless I missed it, we didn't have a depression. So I think this is more like the early 70s, nifty 50, the tech bubble of 98, 99, because you don't have this economic justification of why we had such narrow markets. So narrow markets are the exception, not the rule. Why are they the exception? They're the exception because of capitalism. Capitalism is all about competition, right? If you're a big guy sitting there, somebody's going to try and compete with you, Right? We got a whiff of that with Deepseek. And what did everybody say? It's just deep seek and then let's go buy Nvidia on the dip, right? No, the message was that these big companies are sitting there and they're starting to be competition. That was the message. And that's what should happen. Now, if you believe that their moats, to use the word that everybody likes to use Their moats are so big that nobody can possibly compete with them. I would suggest that you file a complaint with the Federal Trade Commission about antitrust and unfair competition and things like that, because never in history do these big companies never have competition. This has happened over and over and over again. This is not the first time we've had big dominant companies and either they get competition or they're broken up because of antitrust. I don't know what's going to happen here, but I will suggest to you the growth prospects for the next wave of whatever's the next big theme are probably very, very cheap relative to people hanging on to these big companies right now.
- [27:35]
Ricky Moldy
Always love getting a contrarian perspective on the show. As we start to wrap up here, one thing I want to make sure we talk about is, is crypto, because you've said that this is the first truly global financial bubble. We can get to the crypto reserve in a sec. But what is it about crypto that makes it a truly global financial bubble versus ones we've seen in the past? Shout out mortgages.
- [27:57]
Richard Bernstein
The reason I say this is the first true global financial bubble is that most financial bubbles have been reasonably local. Right. You mentioned US mortgages. The tech bubble 98, 99 was largely US effect. If you think back to Japan, that was the Japan market in the late 80s. Even tulips was really just Holland. It wasn't all over the place. But this is now a global effect that's going on. And that's partly because of the technology, of course. Now what people say is the technology associated with Bitcoin in particular is fantastic technology. Honestly, I don't know if that's true or not. I really don't know. I don't think anybody really knows. I think people just parrot this notion that it's a great technology. But let's assume it is a great technology. I don't think that has anything to do with whether Bitcoin is at 10,000, 20,000 or $100,000. I think that's the speculative nature of, of. Of what's going on. Part of the notion for cryptocurrencies is their scarcity. Bitcoin in particular. People talk about the scarcity. There's only a limited amount. I think that's wrong for two reasons. Number one, every financial bubble in history has talked about scarcity. Every single one has talked about scarcity. This is nothing new. Even in the tulip days, they started trading other flowers, believe it or not, because there was a scarcity and everybody wanted to get in look how many cryptocurrencies there are. There's no scarcity of cryptocurrencies. Number two, let's say Bitcoin does replace the dollar. Let's go down that rabbit hole and let's assume fiat currency is dead. Bitcoin is the only that's that becomes the currency of the world. Let's assume that's right for a second. I think what people are missing is a history and an understanding of money and banking. Let's assume that Bitcoin's at $100,000 and there's no more dollars. Okay? So I don't know how we're valuing. It's just 100,000 Bitcoin, whatever. I would suggest we have a crushing global depression because most people won't be able to buy it. Right? And so we just have this massive depression. Or what's more likely is that people start lending bitcoin. You can do this already. Right? And so what happens is that people confuse the money supply with the monetary base. The money supply is always bigger than the monetary base. So in the United States right now, the monetary base, basically the amount of stuff, amount of currency that ratio the money supply to monetary basis about is roughly. I'm going to round here a little bit. Let's say it's three to four, somewhere in that range. Okay. So that's in a normal functioning economy, the money multipliers about 3 to 4, implying that's how much lending is involved. Right. That would argue that if there really is a limited supply of Bitcoin and it comes and becomes a normal process, there will be three to four times the amount of Bitcoin available than there is in this kind of monetary base, Bitcoin base, if you will. That would argue to me the way people are valuing Bitcoin right now. Let's just say it's four times. To make the math very easy, it shouldn't be 100,000, it should be 25,000, because it's going to be four times the amount of currency. Well, that's in a. Well, some people would argue over regulated financial sector right now. Prior to 2008, during. Prior to the global financial crisis, the money multiplier in the United states was about 10. Actually a little more. But for the sake of Math, let's do 10. That would argue it's not $100,000. It should be $10,000. Right. But the whole beauty of bitcoin supposedly is it's completely deregulated. And if it's completely deregulated, why would the money multiplier stop at 10? Why wouldn't it go to 20 to 30 to 40? Whatever it takes to make sure that there's adequate bitcoin availability. In other words, forget the scarcity. Adequate bitcoin availability in the overall economy or the overall global economy. So the economy functions. So if it's 20 or 30 or 40, that would argue it shouldn't be 100,000. It should be. Figure out the math, what it should be. It should be like, you know, a tenth or whatever of the. Of what it is right now or 5% of what it is right now or something like that. So I don't think people have actually thought this through, and I don't think you mentioned the bitcoin reserve. I don't think anybody would be interested in a bitcoin reserve if cryptocurrencies were cascading down. Right. One of the big things of financial bubbles is the difference between a bubble and speculation, is that bubbles pervade society. They go outside the financial markets. I can't think of a better symptom of a bubble than our government talking about a bitcoin reserve. It's gone outside the financial markets and is now invading government.
- [32:50]
Ricky Moldy
Numbers going up, and there might be some conflicts of interest, but that's a whole other topic. I know we got to end it there. Rich Bernstein, really appreciate your time, your insight, and thanks for joining us on Motley fool money.
- [32:59]
Richard Bernstein
Yeah, thanks, Ricky.
- [33:08]
Mary Long
As always. People on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. The Motley fool only picks products that it would personally recommend to friends like you. For the Motley Fool Money team, I'm Mary Long. Thanks for listening. We'll be back on Monday.
- [33:33]
Richard Bernstein
Fools.