Steen Jakobsen: The End Of The Debt Cycle
Published on Feb 22, 2016
Full descriptions and comments at: http://www.peakprosperity.com/podcast…
As we’ve been watching closely, something is wrong with the big banks. Their shares have lost 25-33% of their market value since the beginning of the year. What’s going on?
The turmoil seems greatest in Europe, where bank shares have fallen the hardest, and negative interest rates have appeared with increasingly frequency across member countries.
To make sense of it all, we’ve invited Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, who can provide an eyes-on-the-ground perspective on the European banking system from his location in Copenhagen.
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welcome to crash concepts where the economy energy and the environment are
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explored
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up next fresh ideas and insights into the factors that are driving a world of
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shaping our future presenting information you can’t afford to live
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without here’s chris Martenson welcome to this peak prosperity Pakistan your
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host chris Martenson well here in early 2016 volatility has returned to the
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markets with a vengeance perhaps like a beach ball held under water it has only
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inevitably returned because it’s just long suppressed volatility doing what it
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does but perhaps it’s something more serious than that last week markets were
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falling apart but last night and this morning they all shot higher with the
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Japanese Nikkei climbing over a thousand points from its lows on Friday after
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falling 11 percent last week last week bad news was bad news in this week maybe
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bad news is good news because Chinese trade data was horrible and that was
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good news for equity markets at least for now so how do we even begin to make
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sense of all this
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fortunately returning to be with us today is one of my favorite people
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steam yacob’s in chief investment officer of Saxo Bank he has many years
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of deep experience within the fields of proprietary trading alternative
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investment he travels widely reads and writes constantly and thinks very
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broadly about the world where it’s headed teen it’s a real pleasure to have
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you back with us today thank you for having me Crees the negative market
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sentiment hit a fever pitch last week so wasn’t overblown does today’s market
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action suggests that risk on and by the dipper are they back the fuck alone of
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course
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clearly what we’ve seen over the course of the first quarter this year is that
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the ability of central banks to do their magic in terms of talking to the market
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to have to read through tough losses longer and the like is running on empty
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now I can serve a chronicle order of what happened this year’s first we had
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of course the Fed
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with Ellen and finish packing down slightly from the 324 hikes they
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promised in December that was followed very quickly by of course property
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promising to do whatever it takes a day and yet again in March of this year and
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then the UK when negative interest rate and a number of European Central Bank’s
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followed suit in terms of having Darvish talk so much that I actually right now
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if you look at the G-seven government debt about 50 cent of all 27 government
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debt is now training and negative year which seems to be the new solution from
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central banks and I think the market to see right through it because of course
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at the center all this at all times will be the banking system a banking system
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who are getting penalized for the negative interest rate coming from a
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country which have some experience with negative interest rate what is really
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happening to take steps to depart as I get paid zero to have my money in the
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bank I shouldn’t reality pain 30 40 50 basis point so far I’ve been
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commissioned by the banks that cushion discussed in the bank’s money and
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likewise studies which were negative interest rate is not having any bearing
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concerns of improving things so they dramatically lost young made last week
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and a deadline meant that to some extent in a monetary policy history they could
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be the girl involved coming down because we had you know first hand and then we
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had to create sorry the grease penciled in the banking business it’s a youngin
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code for for a number of reasons not because of her to just because time is
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running out so I think that explains the volatility and it also explains the hope
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this week because although slightly higher that tries to market higher
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weather in the day we are still had the last conversation we had it’s still
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about lieutenant expand and the real Christopher and invest in my opinion is
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to ask yourself is this merely the not extend and pretend which is about to
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happen with driving coming full full online in March and then PGA dunno the
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gas production and the same back in town he said in the text cycle there is one
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billion dollars
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maybe a follow-up question of that billion dollar question is is this
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have the central bank’s loss control say they lost control we apply they don’t
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have any ability to to to move the market so these days but they lost lost
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control in the sense that they don’t have a bottle at work and I think 22 a
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large extent people we also have been victims of overdramatize things and and
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focusing on central banks I think it’s kind of morally say the least
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central bankers and Out Burger rock stars and prime ministers and presidents
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of countries and if you think about a central Butte track it is a person who
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should be working behind the line not in the front limelight and it is a person
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who should be basing all the things are not good base ruse instead they all the
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one voice now is saying we don’t really know what’s going on
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we will continue to do what we do if for no other reason it’s better than just
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having an annual basis so I don’t think central bank is a bad economist I just
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don’t think that evolution in the reality of our business and you know as
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well as I do Chris distances about incentives about sex structure but
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having the smartest people around you because there is a direct correlation
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between people’s intelligence to absent himself a company I haven’t killed in
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separate country decreased totally to productivity I think the academically
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the the the art square root there are screened on Thursday December 2 percent
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so you know we we become dividend yield changing investors and non productive
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people what what an important center console you have in there because as a
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businessman I know it’s yes you want the smartest people its intelligence counts
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but so does experience and what you just mentioned as you know I look at the FOMC
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we you know we went from one academic came from princeton to another academic
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currently housed in Berkeley we’ve got a couple of people with the right law
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degrees who are all the right committees coming up through we have nobody on the
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phone suit ever run a business as far as I know
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and and so let’s talk about these incentives I have to confess I am really
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confused by what is being attempted with negative interest rates because if you
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carry it far enough let’s imagine japan goes even further let’s imagine we get
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2-2 percent let’s imagine I can take a loan out at a negative interest rate
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I’ll do that all day long steamboat take out a ten million dollar loan than
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$400,000 for for not having done anything and I won’t do anything I’ll
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just sit around and collect my four hundred grand I don’t understand what
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the central bankers think they’re doing in my concern in the question is what do
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we have people who are playing with something where they don’t actually have
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the experience or the understanding of what the really up to potentially play
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because you never gonna be able to stay got into a negative industry I would
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almost guarantee that Christie ready in the role models behalf of the CPU beauty
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a you shouldn’t matter where the interest rate of positives and negatives
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don’t forget it’s just an equation is put into a spreadsheet and it actually
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has a severe impact on and how it works in reality the reality is that we’ve
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seen in Denmark debt that banks have to cushion the deposit is to keep them by
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not enforcing a negative into space and and I can tell you being one of the
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first country in a good interest there is no one in Denmark page negative
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industry Co which state do and what will also happen to you you ever go to to to
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that sort of lower boundary instead the fees associated with backing goes up so
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if you’re ready I agree with you can probably borrow minus 1% Chris but I
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came to go be also said that ministers priests I will make sure that you actual
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interest rate will be one or two percent after the fees so it’s actually a game
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soon in a model and I think that’s where the divided at least before when they
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have the ability to lower interest rate we could see that that was feasible to
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Chris you cannot go deep negative interest for all the reasons his
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schedule and untroubled that even if the model was right and you are minus 2
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percentage you say it would just be another credit boom
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entire cost of the single biggest credit extension in human mankind’s history i
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mean consumers report and recently where they stay where they stated that they
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spent fifty seven trillion dollars worth of new debt since the Christianization
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crisis started in Oregon I know this just say the number again fifty seven
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trillion dollars of new debt very little fussy today space and productivity
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people being smart is very much based on the fact that we service debt and and
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the system is entirely dictated by a need to to create liquidity when you see
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the Chinese People’s Bank of China selling bonds us’ bonds to finance the
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currency is all to do with the fact that I want to create liquidity to service
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debt so I saw a paper presented the stated that 75% of all liquidity
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creating by central banks is used to service in place existing debt so I
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think about it only $0.25 of all that you created it is created to sexually
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abused to do the tu Crees as a businessperson the risk of being used to
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keep in place the big burden off a company country or region like Europe
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that seems like such an obvious sort of a conclusion can be drawn from that
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which is that there is diminishing marginal returns from credit expansion
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but we don’t know how to do anything else I saw that same mckinsey reports in
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one what caught my eye was they said that in 2002 was eighty seven trillion
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dollars of debt outstanding so in 2008 so all of human history up to 2,000 we
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packed piled up eighty seven trillion but between 2007 and 2014 thats where
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that additional fifty seven trillion went on so that that seven-year span
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accumulated pretty much three quarters of the amount of debt that had been
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accumulated in the prior two thousand years or whatever we want to start
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recording it that’s an astonishing thing so so how much of the pressures that the
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financial markets are feeling is simply a function of too much debt
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but who still a lower interest rate is not really that despite all the
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volatility received and and the other thing you have to remember which least a
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paradigm paralyzed rather than just mentioned if you divide that I couldn’t
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see the amount of acid in the world you figure out there sexy full times more
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crowded than their assets and most people I do well for every dollar I i
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happen to be someone else will have a differing right out of court is not true
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because you have to banking system having a multiplier effect on the world
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economy so we live in a world where for every dollar we need for credit dollars
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and that number actually said indirectly has been rising dramatically by you know
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Friday since the financial crisis started the ability of society to deal
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with a higher interest rate is warning the conclusion we need to take in 2033
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prepaid to rate once and we have a Fender maintains they’re still gonna
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have further in the market is about to collapse
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imagine have raised actually went up for real which by the way they have to see
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other product destroys policy room sprays remains low policy rates as we
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can discuss of course of course is mainly central banks but the actual
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regular business people is confounded businessperson Christmas confronted
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which causes ever look at the Triple C jump on you began at triple-a rated all
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of these rate has been rising dramatically ending come with a higher
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volatility so not only is it more expensive to borrow money but the money
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has also become more volatile and then there’s tax on the ability to do it too
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so we have a sort of a very strange where over policy reason the road and
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Anna promises to watch policy remains relatively low in August but actually
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privately the central bankers and certainly the market is very skeptical
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about the beauty of the local longer to actually feed through into a process and
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one thing that has happened since you and I told us last year is defect in
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academic service certainly among central banks the new page
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which people sort of using heavy anger for the academic status in UK very
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british 910 and that paper argues yes you can have you can have a trickle-down
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impact impact on be economy from rate for longer but if it happens at the same
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time shooting is with a relatively restrictive fiscal environment as you
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have in the USA Europe and vice versa the negative impact from a fiscal
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austerity last year’s budget it’s much bigger than to trickle-down effects so
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you know they do know is both privately and academically but it made it is a
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totally different situation for Central Bank this will if they admit that it
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feels a little like they’re giving themselves an out which is like look we
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did our part but the fiscal side those guys just forgot to spend deficit spend
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as much as they needed to is that true
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many interesting because what is the first thing that you have when and
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fishermen drug dealer says a press conference
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it is expected that they say money church policy cannot stand it only has
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to be supported by fiscal policy
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yea well but I thought well perhaps I need to study the paper but my
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impression of Japan is they’ve tried everything they owned Urabe have they
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not also had the fiscal policy there and did not japan just recently turned in
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very dismal readings on their economic crisis in Japan looks to me like if we
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wanted to be honest about it there are a large floating retirement Colin either
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losing population is rapidly aging they don’t have the fuel demographically for
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robust expansion but they still need to create it not because the people of
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Japan YouTube but the banking system needs constant credit expansion or gets
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very unhappy as I had a possible way to look at this didn’t mean to you to some
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extent is ending up with the balance sheet recession which is of course
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Richard Kuhn over every economist is arguing I’m just a pragmatic economist
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this you know creates a defect is that money doesn’t know did Center structures
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wrong and policies tools that hole
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do all sorts of obstacles will always be to extend and pretend i buying more time
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and service that and this monkey continued games you will have massive
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rallies who have massive sell-offs but we will not have a resolution that that
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set of keys for a better more productive future but I think we should be
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unproductive today with the least productive with the most stupid
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generation in history according to academics papers from the USA so you
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know we can’t get much worse than it is right now in terms of our nonproductive
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minutes and I think technology I think if we do we’ll take care of it I think
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wonder computer will come online pretty soon in the next two to three year so so
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it’s right around the corner but I also think we have to face the reality of
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things to come see you and I A Christmas Story hope being very critical of work
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on some but for every two of us crucial find ninety people who thinks that
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monetary policy should be lower for longer and it actually works and and
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putting praising the central bankers everyday on CNBC so you know we are real
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ninety still will ultimately be right but we may have to wait for a very long
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time before the to clean out the clinton comes to fortify the clinton he did a
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campaign through well certainly because unfortunately changed with information
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so I think we’ve got a very faith-based belief based system here and that’s why
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I was really asking that the central banks lost control and really asking to
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what extent is it starting to seep into the wider consciousness that there are
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actual real limits to what central banks can and cannot do leaving aside their
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own human frailty weakness lack of experience stuff like that but that
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ultimately you know a small committee appointed people is insufficient to
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really run a giant multifactorial complex system like an economy I mean
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c’mon so so we look at that
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you know what I’m coming up on here is this idea that there is a change in the
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wind in the tenor of all of this obviously I think there’s a central
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banks are not out of bullets by any stretch they’ve done things that are
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pretty amazing but I think they could do more but it sounds like you’re saying
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under all of this that there’s a crisis coming in the end it might be good for
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us yeah very good I believe enforced by reason to do sycamore trees this he get
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out there was about to be the extent that and that’s the reason why they did
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you in the USA morning baby do you have to fire service that stopped all day
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here for spires sycamore tree a good analogy to the market research forest
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fire we need to yell to to create new like and cleaning up the mess in the in
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the under force and they make some very teasing me some very soon peter is but
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the fact of the matter is if you don’t want to be suicidal sarong you would
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have artificial non-performing loans as we just came from he will have a
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steering grade a policy raid officially low valuations which is based on Excel
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spreadsheet where when you multiply with a number of very close to Syria getting
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some easy and that’s not reality reality is you if you have to pay higher wages
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to employees yet to be based on productivity you’re not against think
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I’m sorry she’s just against Islamist then nonproductive all the basic rules
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of economics doesn’t apply anymore its cereal bound at very close to zero on
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top of that you know ninety percent of what happens in the media reporting my
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very esteemed fellow economist not ninety percent of what the safe tonight
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should I mean there’s so little fact-based analysis going on because so
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little scientific approach to analyzing things do you think you you can’t some
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changes in monetary policy let the steam you know had never done that will be the
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worst situation I go like okay how first of all how do we know that I mean I
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can’t prove it
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negative rate so it’s it’s I think the whole science and marketable signs of
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politics I think that is dramatically changed not only is a forest fire I
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think it’s it’s it’s a true in Coon sort of traditional sense of the paradigm
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shift is a paradigm shift we stand in front of us because I i’m saying we
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gotta go back too far more practicality having central bank is a beautiful
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people come partly funded business cycle party from academia so you have that in
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common ground of trying to do and do the least amount of damage to the economy i
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mean instead they’re trying to have people highest impact on the economy
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turns this rating you wouldn’t think so fine they should have the opposite goal
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which is to do as little as possible to unsettle the market days into street to
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market-based incentive rule but of course they’re being sale mister ed by
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the worst cough the politician and just look at Des election for the american
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president and if that’s not the worst election ever in history I don’t know
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what is sometimes you get the leadership you deserve so there’s a little you can
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engage in some schadenfreude from across the sea view on Flickr missing Chris
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this is not just the USA phenomenon this is the global phenomenon so I could I
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could do the same in front lip and I could do the same then my grief what is
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called the Danish folks but I i do this we do in the UK their version of tromble
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standards in every single country right now and end and then I think the fact
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that we could find the similar characters in every economy also shoot
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him sociology Weiss the social fabric he’s about to give up I mean don’t
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forget about you and i talked about this like it’s it’s like the most important
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thing in life
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mean one less than five percent of Americans care about what we talked
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about this and free to send understand what we talked about i mean numbers it
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also one of the USA today
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in a number of key to economic electricity per cent also why is it
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important to me I also think when you turn to understand that any economy is a
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good thing and just the finer points 44 total posts but you talk about the team
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moved to factor model and you have been doing this for close to 30 years when
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you finish this but I realized after all these years is a non nothing about the
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black box called economy or the markets where i can assume however it’s what we
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put into the black box and what comes out of the black box or goes into the
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black box of course is to cut the capital which i think is the fourth most
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important factor in any way you do in life
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cost of you can leave a caustic assume everything being equal he would be a
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part of the process in a lot of members and now put its profit and productivity
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and if you were served those four factors which i think is most important
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customer count is going on to unit labor costs US Army growing up in Aus number
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of jobs is relative to population unchanged and the possibility that
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reflects a free kestler terms and has been negative for the last eighteen
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month that’s not a recipe for a higher valuation of stock markets yes the
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people want to believe the lowest you can guarantee but recent economic
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gravity so instead of trying to understand black cops called economy to
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market I think we can help protect both of data actually supporting that we have
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a correction in the market place
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well absolutely in part of what happened inside that black box with all those
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incentives that you mentioned on the input side was CFO’s came to the very
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rational conclusion that if they could borrow at 1% and retire 2% increase
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their share price in the in the internment buybacks at all made perfect
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sense but in the meantime you know where you’ve been productive that the pieces
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are going to lay the fertilizer for the next stage of growth in in that forest
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so if we go back to the forest fire analogy I gotta ask you particularly
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about the European banks banking system we’ve all seen the drubbing that
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Deutsche Bank’s shares of taken but there’s much more widespread weakness in
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a lot of bank shares
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across Europe at this point I’m my concern is that a little forest fire
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which would have been great I think they’ve had a number of years ago media
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crowds fire at this point in my reading too much into what’s going on I really
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don’t have any insight into what’s happening it or why but I’m hoping you
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can shed some light there are no curtain dirty bank but I think if you look too
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big to fail European banks and that universities recruit their behalf the
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capital structure capital structure is much stronger than he was in a new way
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of 94 stroller but there’s a number of on address the issues which is of course
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legacy costs from the increase came to life and candle than to likes and then
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of course tus
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department is losing these guys that’s number one and I think a member of this
23:24
organization has been very slow to adapt to a new world and and i think that the
23:30
next phase will be that a number of making things you’ve been used to seeing
23:33
the USDA will close down totally ambiguous partly because of regulation
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partly because it defines a partly because they never have action make man
23:40
in North America and I think the risk in and the people I hang up your
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convenience it happened throughout the whole issue is the fact that people
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being protected and the output vector surfing about a creature you run a bank
23:53
and cut the capital he’s right you could be probably for banks to deliver cost is
23:58
rising he’s also partly because it increases the disposable income but
24:03
lower profit expectations means lower bonuses and probably average and lower
24:09
growth also lower top-line growth with the two Growth Group International
24:15
well-being China and USA both of them operating a two-thirds of what he stand
24:20
maximum capacity USA steadily making to descend especially making 6% these days
24:26
so the comfort China and come from 910 us’ country 33 and change so top lines
24:32
lower costs a cover for a reduced to profitability companies
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hi unit labor costs reduce the corporation’s earnings this text
24:41
received list txt people that’s why the banks are insecure because we come from
24:46
a lower the rate of growth since then I think the gap between USA and Europe
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with will almost closed entirely over the next 12 to 24 months
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number one because Europe is having the single biggest impact from lower energy
25:02
prices over time
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energy in porous singing because the refugee situation where you but whatever
25:09
you believe political about that right or wrong you have to remember this is
25:13
the same as the fiscal impulse we talked about before which was impossible to
25:17
institute under normal rules but now you have your recipes who’s getting
25:22
sarah is getting money to spend to buy a career in education infrastructure
25:28
investment will increase of nearly in germany has 2 1,000,000 people more now
25:33
trying on the bombing on the freeways in the life so your pubes gonna close to
25:39
cap on the Eurasian that mistake see you tonight that into the day the Banger
25:44
Sisters you say it’s entirely dependent on whether we get a force unless it
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happens nothing European banks are just as bad i was just curious investment is
25:54
american banks will be for now the market seems in my opinion artificially
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the banks are stronger but having said that who has the biggest mountain in the
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world with consumers will absolutely so specifically about Italian banks you as
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a bit Florida reading and financial times that 18% non-performing loans may
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be another 15 16 percent of marginally performing loans but the 18% alone isn’t
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isn’t a banking system insolvent when it gets to a level of non-performing loans
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that are 90 over over the the reserve
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ratio + capital I mean isn’t is there any way to look at the Italian banks
26:36
besides systemically and saw that at this point yet interesting it’s it’s two
26:41
different business model
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bien and of course your completion from a balance sheet if everything has to be
26:46
liquidated wouldn’t be wrong but you have to remember bank is a growing
26:50
concern as long as they have more deposits than they have out slow
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strength and that’s when making bank very different than any other companies
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if you ran a company according to the Italian banks rules you were being
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European long time ago Christmas the respective state as you have to Central
27:07
Bank ECB supporting them they will have access to liquidity and banks and died
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from a liquidity they don’t buy from bad loans restructured he gets his own
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pillow indicates you know sold off in balance of risk whatever so the issues
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in town he might think he’s not even the non-performing loan it is this Act debt
27:28
about eighty percent of all government bonds immediately zone by consciousness
27:33
and he’s using with corporate paper indirectly through the banks and banks
27:37
the other way around thanks to you have an independent seed by virtue of this
27:42
into dependency we have more risk to the sovereign risk of absolute than we have
27:48
before the crash because what they’ve never seen since that Italian bank has
27:52
been buying anything telling the bond market and they’ve been sending it to
27:58
the pensioners and savers eventually so they all independent on battalion
28:02
commander surviving into a world as you say which i think is about four hundred
28:07
billion dollars lower so
28:10
non-performing loans because the economy of course is much much bigger but they
28:15
are like everyone else coming back to the Ottoman we keep having here while
28:19
the conclusion we keep having to search them while you do that
28:23
treanor pretty easy because the inventor negative and we aren’t another game
28:28
mechanics will last year when you’re with us he said the 2015 would turn out
28:36
to be a lost year I think you nailed that one what do you say about 2016
28:40
I think the 2015 16 will be slightly different I think you’ll be a two hops I
28:49
think the first half is only going to be very not what we discussed discussed but
28:54
I think he’s there we go that deep and get the correction and and the current
28:57
downforce we we we do some some desperate policy fiscal to groups plan
29:08
for infrastructure investments don’t forget we run a deficit of three
29:12
trillion dollars worth of infrastructure investment every year which means that
29:16
if we don’t invest that feature in Dallas we actually getting a capital
29:20
stocks which dispiriting which can be seen and by the way your mentor as 200
29:28
years so I do believe there is i think by the EU and I’ll be laughing at this
29:35
year in there because he’s coming out of this year unlike last year but right now
29:39
the market these very very very focused on the part of it restores the market
29:44
can we focus on one thing at a time first it was tiny I never believed to
29:48
China will be a real issue is China having problems absolutely you see the
29:52
magnitude of upsetting the rule the world like most american economies
29:56
Department you think I don’t think so Chinese not slow snow is not a hard
30:01
landing is not stopped lending I think it’s a long lingering takes a long time
30:05
and we don’t really understand good balance sheet approaches to workers on
30:08
to this China its oil and it’s fair you know he’ll probably wouldn’t trade 30
30:15
2020 22 before this drought is over in and get desperate enough to have a real
30:20
solution from ok in terms of the global growth engine both China and USA will be
30:27
slow into the half year and and certainly China will know they accompany
30:33
lowering the cost of capital that’s trying to get things to rebalance and
30:38
maybe China can be the surprise of the end of the year so we need two things
30:41
this year to make it OK you that we could
30:44
and China to be doing better than most fund managers it seems to think they can
30:50
do you know that’s a big open question I wish I had more insight into China
30:54
appearing from the outside just looking at their growth in bank assets from 2007
31:00
to current it’s certainly one of the more aggressive if not frightening sort
31:04
of accumulations it’s hard for me to imagine that they got 20 trillion
31:07
dollars of new new loans out the window and they were all good loans to make I
31:12
think that’s hard to do given the magnitude of that compared to their
31:15
economy so obvious open question we’ll see how they play that but they’ve got
31:19
different tools I guess then as a command-and-control economy than than we
31:24
would have so yeah we’ll see how that plays out but so much shorter hinges on
31:29
this idea of global growth recession indicators they’re all over the map
31:34
where do you stand on the chance of a global recession this year I think
31:38
mathematically that whatever seeking twenty percent likelihood which means to
31:42
15 percent probability won’t happen but you know recession she’s the technical
31:47
term loan growth deflation is is reality and the great financial crisis had not
31:57
managed to have a single year off two and a quarter percent so we are in a
32:01
little growth environment
32:03
respectively and that feels like a recession to rate your nearest to two
32:07
main streets to small business people and central banks because they continue
32:13
to be desperate that only to seeing a man is really going to reception on Sega
32:17
so we are not moving away from from a low interest rate deflationary
32:20
environment and that’s that’s a different most likely second half of
32:25
this year we will have a reversal of many of these trends I think the loan is
32:29
coming in as we speak because there are you know ColdFusion remains relatively
32:35
integrated certainly relatives to fly beautiful
32:37
45 your floors in the likes of inflation in this thing called the crusader
32:44
there’s no reason to be desperate here or going panic mode but we we just moved
32:49
from a stream you’ll value stock markets too expensive stock market with it stops
32:55
here and then reverses course don’t know good but I do expect that we will go to
32:59
sort of you to slightly I teach you that having said that you know where would
33:04
you want to put your money for next 20 years to make profit or with the use
33:09
government or druggie interest rate I don’t think it’s something that works is
33:17
only spent literally believe it or not doesn’t this negative interest rate
33:21
environment we need to be investing in equity and equity we need to investing
33:25
in my opinion and I think you agree with that
33:28
in stocks which are productive so I think this very question you need to ask
33:32
yourself right now in terms of technology and where to be in the market
33:35
in stock if I sell the product ID by the site have a contact group is composed of
33:41
the two recent number one because studies the survival of the product long
33:46
term which is at play and if you opted ocupada way you cannot be you’re not you
33:50
cannot be applauded by another business market as long as you could occupy the
33:54
concept of course is that you have a modest return on your capital just
33:57
positive so i think is it the same but I think the rules have changed
34:03
dramatically and the only people investing productivity in every single
34:07
shape and form they can find will be rewarded or the next two to three years
34:11
but I do think there are huge amount of algae needs to be away from from
34:17
supporting governments and their pants how do you go about finding a company
34:21
with good productivity are you are you are scouring the financial statements
34:25
are some other process here both bottom-up and top-down of course you you
34:31
look for innovative and not necessarily the best to get Apple announcing a
34:36
facility in anything but design technology but they still maintain June
34:41
25 margin if in history but the butt 432 terms I look at companies which are you
34:48
know
34:48
truly entrenched in in the whole sort of business model trying to save money for
34:54
refers to the use of synthetic Honeywell we still whilst controlling company in
34:58
terms of during housing so is your houses and it’s more of a small houses
35:03
whether I think all these things we need to do more work on until now we just
35:07
buying Apple because he liked the products that we sort of had to deal
35:10
with a hot if I can say so now you need to be doing with your mind but for me
35:15
standout sort of sickness and remains mining and to some extent the energy
35:21
sector because I think they’ve intestinal last year I think that’s
35:25
where the fundamental values you know all this company in our price 22 failure
35:29
and I do believe the dollar and the weekend I will these two stabilization
35:34
of the commodity market and ultimately eating or would move back to have a
35:38
range of 1350 this thirty forty fifty dollars on average for the next ten
35:42
years so I think the world is about anything because the world is being
35:46
forced into a new recalibration and re-setting up two fundamental value in
35:51
that process not named seen your unicorn saliva getting overpriced and
35:57
manufacturing production companies
35:59
any other indicia is being this price so for me that that’s where I’m looking
36:03
blonde DAX index while I go for the first time in a long time and are you
36:09
you like always crisp but I doubt with you for once and had but rather by the
36:17
minds right now and then anything else because of low energy comes to selling
36:21
mine productivity they they Reese
36:24
reducing capex which is going to suck created the Ministry supply and death
36:32
threats I’m looking for tangible assets to be unscrewed and companies that
36:36
delivers to the tangible asset infrastructure investment and I think
36:40
infrastructure business going to be huge
36:42
any company involved in infrastructure over the next ten years gonna make a lot
36:45
of money make sense is that that fiscal mean gets picked up we talked about so
36:51
last question you mentioned you think oil maybe goes lower I’m of the oil at
36:55
this price is destroying capital for everybody in the shelf space I don’t
37:00
believe for a minute
37:01
any of these so-called analyses it say they make money at thirty that’s true
37:04
only a few cherry pick wells but across the average of the entire plays it’s a
37:08
very simple calculation to run you only have so much oil coming out of these
37:12
wells they cost so much to drill your capital costs this it’s easy by my
37:17
calculations you need 50 to $60 oil to make money
37:21
anything under that you’re burning money I know that there’s a bottom coming in
37:25
oil at some point but my argument here is that oil has to go to the marginal
37:28
cost of production and shale is a marginal cost of producing area so I
37:33
think we have to get to at least the break even for those plays so I’m really
37:38
looking for oil to rebound I just don’t know when yet because the supply
37:40
overhang is is really quite severe at this point but we’re only one OPEC
37:44
decision away from from that being reversed so is it too early in your mind
37:49
to to begin nibbling at this time which increase existing when I say that to go
37:54
to a new treaty saying look just technically having 2022 will be first
37:58
but as you know for a for the profitability of the industry and for
38:02
the input to the economy transplanted you cut the dispute average price for
38:06
the year and like you I’m actually very very very confident that we will move to
38:11
the marginal cost of production inside this year and probably dead at an
38:14
average price for the year of course the big can can one offset the price is high
38:21
but being someone who lived through the nineteen seventies and then opened
38:26
really was enforce it doesn’t work long time as long as the best buddy defect is
38:31
here and supply is overstated
38:35
be dramatic
38:36
priced correctly so I’m reaching Chris me to meet you may be surprised at $50
38:44
for the next ten years and probably going slow because last time I checked
38:47
around and we don’t get anything you sort of land land territory so I mean
38:59
you can actually one of our region called the she is tall are very good so
39:04
yeah I’m with you also the earth is round I checked yesterday it was still
39:07
wrote so thank you thank you so much
39:12
telescope satellites go around its amazing thank you so much for your time
39:21
today steam i following you at trading floor dot com is there anywhere else
39:25
people can and should find and follow your work now that’s a perfect place
39:29
they put out most of my research and if anyone should listen if you want to be
39:34
beyond our email list if it’s not too much inconvenience to write to you guys
39:39
are done to me you’re doing on the trading floor where people can try my my
39:43
name I’m very willing to to serious presence tough fantastical thank you I
39:48
receive those they’re just wonderful updates I really appreciate the way you
39:52
look at the world and also for taking your time to talk with me today it is
39:56
always a place to talk to you and thanks very much for you and your team for
40:00
having me on
