One day there will be a credit collapse, but I think we aren’t yet there. Before it happens they’re going to print. And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.
Click here if the above video does not play Many people have been bearish on Canadian Real Estate and for many years. They have also been bearish on Canadian Banks. And so far they haven't been proven to be right. One day they will be right, the markets will go down. As you've seen in Vancouver, the markets went down over the last two years and the last six months later it picked up again. So there is still a lot of money sloshing around in the world and in general international investors view Canada more favorably than the US.
What I maintained more than a year ago that over the next 5-10 years, India would outperform the US and other western markets. I think it is still a valid story. In general, you have a new government, Mr Modi who is trying hard to implement some reforms and he has actually a far better chance to implement these reforms than Mr Trump.
Secondly, this is something that is very interesting for me as an observer of economic history. I think central banks in emerging economies such as India, as an example, are much more responsible and much better educated about the perils of money printing. Mr Rajan and Mr Patel have done a very good job so far in stabilizing the rupee. In local currency, the Indian market is up something like 13 percent this year. But in dollar terms, the market is up close to 18 percent because first the stock market went up then the rupee went up. The stock market is not that important for the majority of Indians because it is only a minority that owns Indian shares. But, the currency is very important for the majority of Indians and for foreign investors. If you have a steady currency, a strong currency, you have money coming from overseas, looking for investments in India and so, I remain actually quite constructive about India. And over the next 10-20 years, India has the potential, I am not saying it will realize it, but it has the potential at least to grow at 5-7 percent per annum each year which is huge compared to the growth that we have in the US and in Europe.
In the US we are now eight years into an economic expansion. This is a very old expansion. We are more than eight years into a bull market which is a very old bull market. If the market goes down substantially, we have a recession again and we expect that in the next 1-2 years, then the Fed, in my opinion, they will launch qualitative easing -QE 4. They may not call it QE-4, they may call it helicopter money or Trump money or whatever it is. But I think they will print money as they have in Europe and Japan up to this very date. Deutsche Bank has recently produced a statistic or it was Bank of America whereby in the first three months of this year, the balance sheet of the ECB and the Bank of Japan (BoJ) increased by more than USD 1 trillion. So, annually, by close to USD 4 trillion, we still have money printing and we do not know where it will end. I think it will continue because that is all they can do.
A correction in commodity markets, 10-20 percent is a huge move because, as an investor, you have the roll over costs and you do not have dividends on commodities basically. So, I would be a little bit careful about economic sensitive commodities such as steel, iron ore, copper, aluminium and so forth, but I still like precious metals because if you look around the world and you see all these academics and central banks.
In a money printing environment such as we had in Japan, in Europe with the European Central Bank (ECB), Bank of England and the Federal Reserve, you can have a bull market even if the economy is actually going down or not recovering much simply because of money printing. But, I agree with you. In principle, it is predicated on nominal gross domestic product (GDP) growth in the long run and on corporate earnings growth. And in my view, in the long run, if you take say, the US, what is the future growth rate of the US? Maybe 1-2 percent per annum. So, corporate earnings in my view, will grow at 1 - 2 percent per annum in the long run, otherwise eventually, if they grow much faster than nominal GDP, corporate earnings will be nominal GDP which is not possible.
Simon Black, the founder of Sovereign Man, made some comments which truly astounded me. In his April 24, 2017 missive he wrote that, “In a poll conducted a few days ago by NBC News / Wall Street Journal, a record 57% of Americans responded that they want MORE government in their lives, and that the government should be doing more to solve people’s problems. That’s the highest percentage since they started asking this question in 1995. In fact, 57% is nearly double what people responded in the mid-90's. Furthermore, the number of Americans who feel the opposite, i.e. responded that the government is doing too many things that should be left to private businesses and individuals, fell to a near record-low 39%. Bottom line: people want more government.” I find these poll results hard to believe given that over the last hundred years, as Western governments expanded as a percentage of GDP economic growth rates slowed down. I studied fiscal and monetary policies and learned that taxation is an extremely tricky issue because, as the economist Gunmar Myrdal pointed out, “Taxation is a most flexible and effective but also dangerous instrument of social reform. One has to know precisely what one is doing lest the results diverge greatly from one’s intentions.” I seriously doubt that Mr. Trump and his ex-Goldman Sachs Treasury Secretary would know what they are precisely doing. I also remember from my studies Sir Thomas White’s (British Minister of Finance 1911 - 1916) words:
“In such experience as I have had with taxation – and it has been considerable – there is only one tax that is popular, and that is the tax that is on the other fellow.”
I tell you when all is over people will love me for having warned them to have all their money in stocks. I'm used to people like you who always attack me. In 2007 and 2012, I was relatively positive about bonds and I argued that emerging markets would go up strongly. Some emerging markets have gone up vertically and bonds have actually performed quite well. You're accusing me of being wrong? I laugh at it.
The consensus was, at the beginning of the year that the only game in town are U.S. stocks and the U.S. dollar. I don’t believe that the U.S. dollar is structurally a strong currency. Now can it stay high as it’s rallied a lot against the euro but at this level, I don’t think that the U.S. is very competitive. So, my sense would be the U.S. dollar is vulnerable as well as asset prices in the U.S. both.
