Get Long Stocks, Bonds, Gold, Bitcoin | Juliette Declercq and Jimmy Connor
Summary
Inflation Concerns: The podcast discusses the significant inflation in London, attributed to Brexit and reduced immigration, which has increased costs and fueled economic discontent.
AI and Labor Market: AI is highlighted as a major disruptor, leading to labor displacement and increased unemployment, particularly affecting entry-level jobs and youth employment.
Wealth Disparity: The conversation emphasizes the growing wealth gap, with asset owners benefiting disproportionately from economic gains, contributing to global populism and economic inequality.
US Economic Outlook: Despite a seemingly strong GDP, the US economy faces challenges with rising unemployment and a reliance on wealth effects and frontloading for consumption.
Investment Strategy: The speakers recommend a risk parity strategy, suggesting being long on stocks, bonds, gold, and Bitcoin, while emphasizing the importance of adapting strategies frequently.
European Market Potential: European stocks are favored over US stocks due to better valuation opportunities and the potential for AI-driven productivity gains.
Federal Reserve and Interest Rates: The Fed's struggle with inflation and interest rates is discussed, with AI's impact on labor and inequality seen as key factors influencing future monetary policy.
Canadian Economic Challenges: Canada faces high unemployment and economic stagnation, attributed to government policies and external trade tensions, with a focus on commodities as investment opportunities.
Transcript
[Music] Juliet, thank you very much for joining us today. How are things in London? >> Uh, I think it's great. You know, we've had a lovely week. It's a blue sky and um, you know, so far so good with the Indian summer. >> It's a great time of year. So, I was recently in London and I got to tell you, I was shocked by the prices and inflation and I was just there a year ago. So, I saw I noticed the change year-over-year. And I'm going to throw a few prices at you just to get your thoughts. But one of the ways I always measure inflation in various cities is by what it cost to get a cab from the airport to downtown. >> Yeah. >> In whatever city I'm in. So, in London, I was I flew into Heathrow. I got a black cab to downtown London. And it was a hundred pounds, which is 200 Canadian dollars. And it's >> used to be like 50 quid, I think. Yeah. >> Yeah. And a typical ride in Toronto, that would cost me about $80. Okay. Yeah. >> Uh a coffee in Americano, three bucks in Toronto, would cost me six bucks in London. Um fish and chips. I love fish and chips >> for two people. No alcohol, no booze. It was 50 pounds, which is like a hundred Canadian dollars, which is crazy. But what are your thoughts on inflation and just the economy overall in London? >> Well, inflation for sure. You're absolutely right. I mean, I'm I'm shocked like um you know, I do shop in the kind of um what I call in the report um the nice aristocracy retail shops, you know, with like all these nice Italian and and French products. Um but you know, just to go back to like basic, I think these days, even when I do a kebab takeaway for like four, it cost me like north of 100 quid. So yeah, kebab takeaway north of 100 quid. I mean, I think prices probably have doubled like I would say since Brexit. Um, and so you're absolutely right uh on that and that's obviously uh a source of anger. Uh I think there was this kind of um utopia that you know everything was about uh immigrants and uh that you know Brexit would sort out everything and in fact you know as you know most um many microeconomists like warned uh Brexit Brexit only made things much worse right uh you know it costs uh much more to I mean UK is an economy that imports a lot of the food for example and and so you know you you've had to like add uh all those costs and barrier um border frictions uh to the mix and obviously add to that the lack of immigration uh notably from Europe uh which used to be like a a source of cheaper labor uh in the services tourism uh industry and and and and I think that's kind of um missing now uh which is kind of like fueling the inflation bubble that you have like pretty much in in all UK like you can feel uh much more in um in London. Obviously uh as I explained uh in my new report uh you know the anger that you feel uh in UK or in France and and obviously uh in the US as well uh is is not uh so much uh down to immigration as it is to like basically subsequent waves of um of you know we first we had like the industrial revolution then we had the tech revolution And now we've got the AI revolution and um you know like very famously uh Ford uh thought that he was going to deliver uh an El Dorado to to workers that you know productivity would be like directly feeding into higher wages and famously he doubled wages for all his employees saying you know there is no capitalism if you can't uh pay uh employees well. Unfortunately, that's not how uh tech revolution work. Uh first you get the productivity. Uh but then basically the the the the real the the the goal of those uh tech advances is basically to replace uh humans. So you know first you got the productivity and the and and the pay rise and then basically you lose your job. So that's happened in the industrial revolution. we've seen it uh happen uh and and and probably uh increase uh after the tech revolution and today you know this is basically turbocharged by the AI revolution and and I think you know that I quite like to uh introduce the uh saying the English saying is like um uh fool me once uh shame on me uh fool me twice um no fool me once shame on you fool me twice shame on me and I think basically workers are realizing that, you know, they've been fouled. Um and that all those promises of higher productivity, higher prosperity uh is is actually um just triggering um you know asset bubbles uh first and and obviously um you know the fact that um the gains occur more and more at the top end of the earnings uh cohort and and um you know tech owners and and capital uh rather than workers themselves. Now, that's not something that um you know, politic politicians like to talk about. Um and and so I think but but that's definitely what's feeding uh global populism. Uh and whether you look at what's happening in the US, what's happening in in UK, what's happening in France, it sort of like transpires in different ways. Uh but I mean you know Trump to basically get to power promised made those promises to like the middle class, the working class and today what you see is that basically the gains of his um you know the first part of his um of his um mandate uh whether you're looking at like um um fiscal um the fiscal skew is all towards um basically uh equity owners and and all economic uh direction is also going to basically turbocharge those um macroeconomic trends that we've already experienced uh since basically the dotcom bubble and and the tech revolution. So that's the source of anger. Uh and then but but then it's difficult to really pinpoint for the average draw in the street, you know, what's actually happening to them. Why are they losing uh purchasing power? So the first you know the first thing to think about is is basically uh pointing at uh immigration. >> Yes. I I read recently I think the OECD is projecting inflation in the UK to be at 3.7% give or take and that's the highest in the G7 and I was really surprised because I thought it was be higher in Canada but a lot of the issues you touched on it's it's also happening in Canada and these prices are out of control. Um, immigration is a big issue. I guess that's an easy thing to point at, right? But yeah, the governments in the UK, in the US, and Canada, they've all incorporated these idiotic policies infl immigration and a lot of it has to do with immigration. It's just out of control now, and it's resulting in a lot of other issues. We can get into that deeper, but something else I think that's very important too, and you did touch on this, but this wealth disparity that's happening right now in your country, my country, and in the US, you have people that are doing extremely well, and then others that are not doing well at all. If you're long assets, you're doing well. And I read a stat recently that in the last 10 years in the US, between 2015 to 2025, the number of billionaires has gone from 500 to 2500 today. in the town of in the ski town of Aspen, uh there's over a hundred billionaires just in that one ski town. >> I think that might be more than in France, >> but but I think this is a big part of it. This wealth disparity that we're seeing, right? It's like people that are doing extremely well and those that aren't doing well at all. >> Well, it it's it's not um it's not a bug. I mean it's basically hardwired by um basically like promises of productivity gains and um you know the the the three uh revolutions that we've just discussed. I mean the whole point is to displace uh labor and do away um without like the fixed cuts of labor and increase productivity to basically you know make more profits on the back of like uh um lower like final demand because you know there there is a big issue today. I mean probably the biggest macroeconomic issue today is the fact that with weak demographics, you have to find ways to basically like you know capitalism works on like um you know making returns and and growing uh every year but with weak you know with negative demographics in most of the developed world you have to find ways to to grow outside of just like purely uh population and labor force growth and and productivity is like the whole part of it. um except for the fact that you know tech revolution productivity never um benefit uh the workers and and all it does is basically hardwire those inequalities that we've seen you know starting to happen um at the in in the middle of the '9s uh which is really interesting because um you know at the time like uh Paul Krugman uh wrote a book um basically saying that uh you know productivity was everything the source of all prosperity and and I think that actually pinpoints the time where pay started to diverge massively from like productivity and and I think you know there's one of the chart in in my new report which is showing now that we're like about like at a 40% divergence pretty much since the mid '9s. So we we're very far away from like the golden age of um capitalism uh in the post World War II uh era. So let's talk about the US economy now and u do a deeper dive on AI and the impact it's having on the economy and also uh unemployment. But the when you look at the GDP or the US economy is measured by GDP. It looks like it's doing very well. It's growing at 3% give or take as measured by the Atlanta Fed uh GDP estimates. But yet, when you look at the non-farmms or when you look at the unemployment rate in the US, and it doesn't matter if you look at non-farmms, ADP, the Michigan survey, they're all pointing to higher unemployment. And I believe the last number we saw out of the um non-farmms or unemployment rate in the US is 4.3%. So, it's still not really high from a historical point of view, but it has been ticking up um every month. What are your views on the US economy and do you think it's as strong as we're led to believe it is? And maybe you can also touch on unemployment and how you reconcile the two numbers because you have a very what appears to be a very strong economy, but it looks like unemployment is ticking up. >> Yeah, I mean um it's all down to um what I just um uh discussed with you and that's um you know the first uh paragraph in in my new report. Um basically what's happening uh since the beginning of the year pretty much um you know without um you know capex from hyperscalers um you know that's one thing um we would probably already be in a recession but the the main thing is um I would say that consumption itself has actually been quite resilient and that's actually something that pretty much never happened uh in the history of uh of microeconomy that you can have like a a clearly cooling labor market and as you say uh I think there is um you know I think three months ago there was still uh a lot of microeconomists looking for like a pick up into the end of the year and actually some are still um thinking that there will be a reaceleration I think there's absolutely absolutely no chance um of that so what's allowed uh consumption to to stay kind of resilient well there's two things um there's two two pieces to that puzzle. Uh the first one is like wells gains uh and you can see it um very well from like uh uh different uh metrics um that I look at uh more and more um you know it's no secret that the US economy is like um increasingly hyper financialized but actually now you see that um effect feeding directly into consump consumption uh which is you know what what I now what I in the new report I call like the Champagne uh Champagne Republic uh where basically consumption has been uh basically pulled up um thanks to worlds gain uh and much and less and less by um labor gains. I mean real income are actually uh collapsing in the US. So you know that's one thing. The second thing is um a front loing frontloading like pre-tariff uh and I think that's been lingering much longer uh than most of us uh expected for the simple reason that uh for a lot of products you still don't know what is going to be the end tariff. Um I think so far the effective tariff is um is only like just below 10%. And it's supposed to uh to in the end be like 17%. So there is still a kind of like a you know what uh you know frontloading of like cons consumption where you're um you know better off buying buying something today because you think uh prices will be higher next year. So for me that's really the the two key parts uh which are um you know capex AI will be whatever uh it will be uh I think a lot of people are talking about it but not a lot are like actually adding um added value to to to that kind of um uh mystery. I mean there is some uh sort of like um a break uh in in in in the scale at which it's it's it's being powered up. Uh but for sure like consumption um has been driven by wealth gains and um and frontloading. So for for that that's the main thing and I still think that we could be having a bit of front loading and I still think that world's gains have a lot more way to go. So the new title the title of of my report is like um welcome to the champagne republic where real assaet bubble um keep the c the party going into the night. Um so so that that the whole point um is basically describing uh an economy which is uh more and more financialized but um interestingly the fact that it it's more and more financialized makes makes it more and more fragile. So as soon as you will have uh you know a little bit less uh return from um you know capital gains from stocks you know consumption will collapse and and the Fed and and I think my view is that and and that's a chart that I've got in the report as well which shows very clearly that inequalities lead to basically zero to negative real rates. So we're still quite far away from that. uh but we will tend uh towards that. And the beautiful the beautiful thing is that you know that tends to basically uh pump up uh capital gains. So that means uh for me that there's still a way to go uh before that bubble burst. And you know I would even argue that's not a bubble. It's it's basically like a um you know how the new system works. >> I like the title of the report. the Champagne Republic Republic because that goes back to what I said earlier about this wealth disparity, right? You have people that are long assets, whether it be real estate or investments in the stock market, and they're getting extremely rich. And then you have this other end of the spectrum and and people if they're not long assets, they're not doing well at all. But, uh, I want to ask you or dig a little deeper in on, uh, what you said about AI. And you said in your report that AI is really the elephant in the room and it's going to result in massive labor displacement. But uh so if we have unemployment right now at 4.3% if you look at a year two years what does AI do to unemployment? >> I mean you can already see uh what it's doing to like use your employment. So I like to take the example of um of of legal firm. Uh so you've got like at the top you've got uh you know the the skilled and experienced and today they can probably you know before they had like five clients now they they can probably have like 20 and instead of having like all the collaborators um behind below them they they can basically doing it do do it like pretty easily with um with AI tools. So that sort of like cuts all the entry- level uh jobs that are basically based on knowledge and that's basically uh the use coming straight out of university. So you can see that uh in you can see that uh in the UK which is um a heavily service uh driven economy. You can see that and and obviously that's also part of like the ongoing anger right because um you know on one part of the spectrum you've got u the retirees that have the assets and the pensions that is being paid by like uh the youth uh which basically has no uh job prospect. So in the US um you use unemployment has gone up to like 10.5%. And in fact like the the the rise in um in unemployment in the August report because we didn't get the September report was all down to like youth unemployment. The same is true in in UK where you've seen a complete collapse of um job entry uh levels. Um and and and that's for me is like the first premise of um you know what AI actually does uh to the job market. Um yeah I I really have like a no question about that and and you know AI tends to be like implemented um and adopted a lot faster than any other uh tech revolution we've seen. Um there's a flip side uh to that story as well um which which is um which is something that I discovered uh in the new report. It's also that what you can see is that with only a moderation of final demand, the fact that you can actually count on uh AI tools for like productivity to to basically boost productivity and margins even when demand is a little bit lower means that you know you've got a a very low hiring economy but you also have very low firing so far. What would normally happen when you've got uh lower demand is that you know profits get hit straight away and and that sort of like triggers the doom loop of like a labor demand where you start start to have layoffs to protect profits and you we're not seeing that this time thanks in part to the fact that you can basically boost your margins uh with AI tools and again that's um that's the chart a chart that I've got in in a new report and that shows very clearly that uh margins are diverging very strongly from um from from labor um and and that's basically you know that tends to happen before recession um but not to the extent that we are seeing today. So clearly there is a big element of like productivity gains weighing um on labor. you mentioned something and I just had to look this up, but you were just talking about the adoption rate of of uh AI and so I saw this stat recently. The internet took 787 to eight years to get to 100 million users. >> Chat GBT only took two months. >> I know. Yeah. I mean, I'm I'm not surprised. Yeah. >> Yeah. But uh you also touched on the uh youth unemployment in the US at 10.5%. In Canada, it's 14.5%. Okay. And >> I didn't know that. Yeah. >> 15 to 24. So, um, if you're coming out of university right now, things are not looking too good. >> So, >> well, and it's it's the the the kind of like scary bit is that, you know, like five years ago, we were telling the youth, you know, you need to to know all about tech and you need to study tech. And, you know what, tech the tech sectors basically like, you know, disappeared in terms of a hiring uh force. um you know and probably it's been the case at like every level but you know today it's like you know no one needs to be able to code anymore the machines do it for you and yet they might have spent the last three years learning to code in Java um so yeah that's the scary the scary bit and but the other part of that equation um is also the fact that AI the point of AI is to basically massively downgrade knowledge uh you know you don't need knowledge anymore you need creativity, you need a brain. Um, but you know knowledge is is there for you from like GPT to some to you know like at least to a large extent. So you touched on the wealth effect and you're saying one of the reasons why the US economy is so strong is because of the wealth wealth effect and because of what's happening with the S&P and the NASDAQ. Uh so why don't we talk about valuations right now and the S&P is up 15 14 to 15% on the year. NASDAQ's up a little bit more, but all 11 sectors in the S&P are up on the year with uh the technology leading the race. It's up over 30%. The worst performing sector is consumerism or um consumers stocks. It's up less than 1%. But what's your take right now on the S&P? Do you think it's fairly valued, overvalued? Are you concerned about where it is right now? So um I I like to sort of like um split it between um two parts. So I look at like the 10 uh AI stocks uh which have been you know responsible for most of the performance of uh since the the chat GPT announcement. We're currently like valued in those stocks at like 35 uh PE. If you take S&P X those obvious um AI stocks uh we are around like um 21.7 I think uh which is you know quite uh it's quite froy um 21.7 but it's not outrageous. My view is that um AI productivity gains are praised are priced way too much uh in the hyperscalers and way too little in the kind of like traditional industries that are going to be able to harness um the power and of AI and make uh those productivity gains. So you know I mean is um is SNP pricey? Yes. Do I have worries about the way it's priced? for sure. Um but overall um I think the bubble can continue as long as the labor market stays weak. >> We're like in a slower and slower um um you know lending which which totally lends itself to basically the the the perfect um equity bubble. Uh so on one side uh you basically give like all assets to the top which basically don't consume but invest and on the other side um you basically make sure that the Fed has to be super dovish uh because the labor market will falter. >> I read a report recently from a research firm called macro strategy and they said the AI bubble is 17 times larger than the internet bubble and four times larger than the subprime real estate bubble. I mean, I'm I'm I'm a bit like puzzled about I think I've seen it as well, but I'm very puzzled because if you're looking at the equity risk premium, which is the way I like to value uh stocks, I mean, the NASDAQ equity risk premium was like massively negative uh just before the com bubble. And you know, that's not at all the case for the S&P today. So, you know, and I'm I'm not sure you can compare um those two times because um obviously in the com bubble, you were like um basically pricing companies that were not making any profits. Uh today, you've got companies that are making profits. So, you know, you're kind of comparing Apple and pairs uh to start with, but um I disagree that uh the bubble is 17 times better today, greater today than than it was at the com. I mean every you know I've seen the headline I haven't seen the the actual analysis behind it. Um but that's not my view. >> So you touched on the Fed so why don't we go there and the Fed recently cut uh by 25 basis points first cut since December of 2024. Seems like a lifetime ago. But uh I guess Jay Powell also expressed some concern about the the what's happening with the jobs market. but also with inflation. So, he's walking a very fine line here because like this inflation is is being very resilient. It's not going away. I don't think we're ever going to see 2 or 3% inflation again. But, uh what are your views? Do you think he's do you think the Fed is is behind the curve here? Like, should he be cutting now or should be cutting more? >> I think the Fed has u no idea what's happening. Um I think it's quite interesting to um you know they've got this um neutral rate at like 3%. They don't really know why. Um you know you've got this um new Fed member uh Miran that came out with at the New York club uh last week about um reasoning of why um real rates may actually be at zero. And it was a bit of like a mumble uh which um which was called out by um uh I can't remember who called him out. Um anyway, he was just like and and it was a bit of a mumble. I mean, for me, uh the real elephant in the in the room is basically AI. Um if you look at what the tech revolution did to the real equilibrium interest rates uh I mean we basically like um um struggled for pretty much like until the the the pre-COVID we basically struggled uh to get back inflation higher even with like super negative uh real rates and a big part of the reason for that was basically uh inequalities. So when you increase inequalities you get lower inflation because those at the top they they basically um buy uh luxury products and financial products and that's not the basic um inflation basket that the Fed uh is looking at which is actually driven uh by the middle class. So that's one thing. Um and and so for me really the elephant in in the room is AI. The fact that workers are going to lose uh huge amount of uh bargaining power and and therefore purchasing power uh with that you know gross is going to become even more um even less inclusive than it was pre-COVID. And I think we're just like we're basically in the process of um understanding what is like the um the the the new economy uh postcoid and there's still a lot of like uh COVID uh distortions uh and and obviously like frontloading distortions uh political uh disruptions but for me really the the elephant in the room is that we are uh turbocharging the inequal the inequality um trends of the precoid area and that's got huge um that's got huge uh ramification into rates into what the Fed will do not because they anticipate anything but but because they will be forced into it. Um and um and and so I expect the real uh neutral rate to be um you know downgraded to like levels that Mirror now talking about but not for the reason that he expressed uh last week at the New York club. You know what? I actually suspect that he might know what this is all about, but this is like a kind of like politically radioactive, right? To say to tell the middle the middle class actually real rates is much lower because you guys are all going to lose your job and if you don't lose it, you're not going to be uh catching up in in terms of like purchasing power because you've got no bargaining power. But for me, that's really the the crux of the matter. >> So, it sounds like you're really concerned about AI and labor displacement. uh like do you see interest rate or do sorry do you see the unemployment rate going from the current level of 4.3% to 6% or 8% in the next couple of years because of AI? >> Um yeah I mean it's it's a matter of time but yes I think unemployment will rise uh and that again that's not a bug that's the whole point of AI. Uh and then over time what normally happens with this tech revolution is it's not like unemployment unemployment will rise in the short term because you know there's like huge labor frictions and you can't just get a lawyer to basically start doing care work right uh but what normally happens in this revolution and it will take time uh is that the pool of labor that is displaced from like all the services that are now like um u made much more efficient uh by art artificial intelligence actually move to lower part to lower productivity labor intensive part of the economy. So for example the gig economy for example care uh I mean there will be other examples but that's always what happened in the past it's like you know those like um employee at Ford first they got the pay rise and then second they were displaced uh and the same thing in like the tech revolution so I think you know that exactly the same will will happen this time aggregate the the aggregate um working population will necessarily move to lower um to to lower productivity part of the economy and that's kind of like um what will save us in in in in a way right because we have this like um in in the end we do need labor just not where it will get where it will get uh well rewarded I mean labor basically always moves where it's likely to be less rewarded. >> Yeah. So ultimately, you don't want to be the uh village candlestick maker. You got to pivot and do something else. >> Yeah. I mean, I don't know. Candlestick might might be like not such a bad idea, but you know, I mean, plumbing, electricity, that's the kind of jobs that won't be replaced and they get paid really well in UK. So Jay Powell has expressed concern about uh inflation and just how resilient it's been and it's been above the 2% target now for 54 months. And um I guess big part of that has to do with what you were saying just about uh higher wages but also immigration. Maybe the crackdown on immigration is also driving prices higher. But where do you see inflation going? And and I I got to bring up another fact here. So I'm based in Toronto. There's a very well-known uh coffee shop here. It's called Tim Hortons. Uh pervasive through Canada. Have you ever gone? >> No, I've been once to Canada. >> It would be like a Dunkin Donuts in the US. Okay. But uh so it's good coffee and it's really >> which I don't know either. >> Oh, okay. Yeah. Massive change. >> I know Starbucks and Costa. >> Yeah. So, anyhow, Tim Hortons came out and said they're putting their coffee prices up uh very moderate at 1.5%. And in the same article, they said they're doing so because the price of coffee has gone up 100% in the last three years. >> Yeah. >> And so therefore, they got to, you know, pass on some of the higher prices to consumers. But >> what are your thoughts on inflation and why is it being so resilient and where do you see it going and are we ever going to see two or 3% inflation again? >> Yeah, I mean I'm not worried about inflation not in the US and I'm not worried about it in Europe. I think uh UK has like very specific um macro uh backdrop. Uh you know it's a small island that basically imports pretty much everything um with like a lack of um immigration, lack of um labor force and also like a population that is quite wealthy and and doesn't fancy uh working anymore as well. uh especially not in the services uh like tourism like all the like services industry used to be basically um all down to like uh Europeans. I mean you don't see an English like uh being a waiter in London. So that there's like a but in in the US and and Europe I think um you know demand will come down and I'm not worried about inflation and and I think the Fed won't be uh worried about inflation for much longer. Uh rents will collapse. um you know if if you the only reason we got uh inflation uh postcoid really the only reason is that we started to uh send out checks to the middle class this it's only the middle class that can really uh you know basically propel uh demand on the basket uh that the Fed uh is targeting but if you if you basically suppress um purchasing power at the medium level uh I don't think you will get inflation in the long term. So I'm actually I'm I'm actually short uh inflation and actually it's been working you know five year break evens have been coming down quite a bit uh in the last months and I think it's a brilliant hedge for like uh long equities. Well, you touched on the newest uh Fed member, Steven Moran, and as you mentioned, he wants to cut uh interest rates significantly and uh 200 basis points. But if they were to do that, let's just say that the president gets his way here in the next few months, gets a new u governor in there, uh and they start cutting rates drastically, like don't you think that's going to push inflation up? >> No, because I think it will be on the back of a failing labor market. So lower demand um you know I can already see lower demand so I don't think it will be a mistake. I think the Fed's already behind the curve. So I I agree with Miran but in you know in a different way and I think you know the whole fact that uh consumption this year was basically driven by wealth effects and and frontloading you might actually have like a gap of consumption uh into next year. uh and and the fiscal boost uh next year is basically targeting the higher earners as well which is madness. But you can see that politically they know that you know the economy is basically going to be driven uh by the west by the wealthiest. >> So let's talk about what investors should do here uh in the last few minutes. Um, you you said you you think the US economy is is growing pretty good, but you're concerned when you look further out because you because of AI and I guess the efficiencies of AI, that's going to result in higher unemployment. That's going to result in lower consumption by the consumer and that's going to result in a slower economy. But if you look out six or 12 months, how do you feel about the economy and where are you suggesting investors should be allocating their investment dollars? So firstly I think uh doing strategy at the moment uh thinking over the next 12 months is um you know is is not possible. Um I think you need to revalue um you know every day, every week, every month. Um which is what I do. Uh I mean that's basically my job. Um you know I think we will uh continue to grow the sort of like respirity bubble. I've been recommending um respirity uh strategies since pretty much the aftermath of the liberation day. I think this will be like uh accelerating uh into the end of the year. Uh the main risk is basically a start of layoff but as long as we are in the kind of like low higher low fire this can go on. Um you know my answer to to your question is like uh you know I I can see what will happen but I will be able to tell you when you know the party has ended and you have to go the other way. It will happen in the next 12 months. Uh but you know when I I can't tell you today I mean I look at I look at the data every day. Um you know for now I'm full on respirity. It could easily last into the end of the year but I'm not promising it. Um, and you know, you you'll have to like basically reassess constantly uh because things are moving really quickly and um and you can't you can't just sleep on your uh on your savings. I think you have to be like super proactive um and and you know if you want to be the winner in the next uh 12 months but yeah Julals >> can you just expand on that? When you say risk parody what exactly do you mean? uh like basically long stocks uh and long bonds. So, you know, one is actually feeding the other and I see this dynamic basically accelerating into the end of the year. >> And in the past, you've been bullish on gold and bitcoin. Where do you stand now? >> Yeah. So, I'm still like um long gold, long bitcoin. I like bitcoin. I haven't been recommending long uh long bitcoin, but I do like it. I think it's going to break higher. Uh I've been long gold. So, long gold, long equities, uh long bonds. Um, I favor uh European stocks because I think like all um basically we're just like in a real asset bubble and and and you want to basically pick uh the assets that are still not priced for the artificial intelligence revolution. Uh if you look at um SNPX AI, we are at like 21.7 uh PE um which is actually same level as like the NikK which is actually quite pricey as well. uh but you know you look at like European stocks and uh and we're just at 17p and you know there's absolutely no reason why um artificial artificial intelligence will not be harnessed by like European uh European companies as well to basically boost uh margins and productivity and I think that needs to be priced. Uh so I I see like all like scarce assets um you know being revalued one after the other. I think gold was the precursor pre precursor to everything. Uh which is like clearly showing us the path to much lower uh real yields and and and I expect basically every um real asset to like basically like burst higher one after the other and and and basically contribute to like the global real asset bubble that will make the AS wealthier and the AS not poorer. So just to summarize, you are bullish on the US economy, the US stock market, the bond market. >> I'm not bullish on the US economy. I'm There's a big difference between the economy and the stock market, right? It's not the same. Um it's not the same animal. So I'm not bullish on the US economy, but I'm I'm still bullish the stock market. >> Okay. Uh but you prefer European markets over the US market just on a valuation basis. >> Yeah. Yeah. I think it's got I think Europe Europe has a lot more to go than than than the US. Yeah. >> So, I'm based in Toronto. I'm always uh curious to get other people's views of Canada. Do you have any views on Canada right now? >> Not really, I'm afraid. I think you already you already asked me uh in January and I was just like god I haven't you know the US and and and Europe and to some extent UK have been so exciting that and and you can get like so much opportunities um you know just looking just really understanding what's happening in in those key markets that are basically driving the rest of the world uh that I haven't had time to like look at the alpha of like uh you know Canada Um, you know, so you you tell me what you think of of of Canada. Is there any big opportunities I'm I'm missing? >> Well, you got to be long resources and we already talked about gold and we didn't touch on silver, but that's another uh byproduct. And then you can look at uranium if you're bullish on nuclear energy. >> Uh, oil and gas of course. So, it's all commodities related. But just to give you a sense of what's happening here, things are pretty bad. I touched on the youth unemployment rate being 14.5%, highest since the 1990s. Uh if you look at the unemployment rate across the country, it's 7% in the province of Ontario where I reside, it's 8% and in the city of Toronto, it's approaching 10%. So that gives you a little idea of what's happening. >> And what do you think is the reason behind that? >> There's numerous reasons, but a number one reason has to do with the current government. The Liberals have been in power for 10 years. So the policies that they've implemented or lack thereof has resulted in a >> stagnant economy and uh they were more focused on social policies like using the right pronoun as opposed to >> real economic unleashing policies that were going to result in a stronger economy and a higher standard of living for the people that live here. And now as you know these things take many years for them to turn around. There's no way Mark Carney is going to be able to snap his fingers and say boom, we're going to see two or 3% uh GDP growth again. It's just too little too late. So, um if we're not in a recession right now, we're going to be in one very soon. And then, of course, this uh trade war going on with the US >> um is not helping at all. It's only making things worse because it's leading to a lot of uncertainty. >> Yeah. Yeah, I hear you. Now that's this has been a great conversation as always and I want to thank you very much for spending time with us today. Uh if somebody would like to follow you online or check out your services and your research reports where can they go? So jdireearch.com and on Twitter I am uh julietjdi. Um but the best is my website to basically um you know request um a subscription and I have to warn um you that I I I don't have any retail uh prices. So, I'm I'm really the the hair mess of um of the research world and I'm trying to keep it that way given the Champagne um New Republic. >> Well, once again, I want to thank you and I will include links to all of your u your website and your other social media platforms in the show notes below. Julia, >> your timing is your timing is amazing, by the way, because I'm literally we we're discussing a report that's not even out yet and that will be out tonight. So, you know, well done. >> Well, thank you. Enjoy your day. >> Thank you very much. Bye-bye. [Music] [Music]
Get Long Stocks, Bonds, Gold, Bitcoin | Juliette Declercq and Jimmy Connor
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[Music] Juliet, thank you very much for joining us today. How are things in London? >> Uh, I think it's great. You know, we've had a lovely week. It's a blue sky and um, you know, so far so good with the Indian summer. >> It's a great time of year. So, I was recently in London and I got to tell you, I was shocked by the prices and inflation and I was just there a year ago. So, I saw I noticed the change year-over-year. And I'm going to throw a few prices at you just to get your thoughts. But one of the ways I always measure inflation in various cities is by what it cost to get a cab from the airport to downtown. >> Yeah. >> In whatever city I'm in. So, in London, I was I flew into Heathrow. I got a black cab to downtown London. And it was a hundred pounds, which is 200 Canadian dollars. And it's >> used to be like 50 quid, I think. Yeah. >> Yeah. And a typical ride in Toronto, that would cost me about $80. Okay. Yeah. >> Uh a coffee in Americano, three bucks in Toronto, would cost me six bucks in London. Um fish and chips. I love fish and chips >> for two people. No alcohol, no booze. It was 50 pounds, which is like a hundred Canadian dollars, which is crazy. But what are your thoughts on inflation and just the economy overall in London? >> Well, inflation for sure. You're absolutely right. I mean, I'm I'm shocked like um you know, I do shop in the kind of um what I call in the report um the nice aristocracy retail shops, you know, with like all these nice Italian and and French products. Um but you know, just to go back to like basic, I think these days, even when I do a kebab takeaway for like four, it cost me like north of 100 quid. So yeah, kebab takeaway north of 100 quid. I mean, I think prices probably have doubled like I would say since Brexit. Um, and so you're absolutely right uh on that and that's obviously uh a source of anger. Uh I think there was this kind of um utopia that you know everything was about uh immigrants and uh that you know Brexit would sort out everything and in fact you know as you know most um many microeconomists like warned uh Brexit Brexit only made things much worse right uh you know it costs uh much more to I mean UK is an economy that imports a lot of the food for example and and so you know you you've had to like add uh all those costs and barrier um border frictions uh to the mix and obviously add to that the lack of immigration uh notably from Europe uh which used to be like a a source of cheaper labor uh in the services tourism uh industry and and and and I think that's kind of um missing now uh which is kind of like fueling the inflation bubble that you have like pretty much in in all UK like you can feel uh much more in um in London. Obviously uh as I explained uh in my new report uh you know the anger that you feel uh in UK or in France and and obviously uh in the US as well uh is is not uh so much uh down to immigration as it is to like basically subsequent waves of um of you know we first we had like the industrial revolution then we had the tech revolution And now we've got the AI revolution and um you know like very famously uh Ford uh thought that he was going to deliver uh an El Dorado to to workers that you know productivity would be like directly feeding into higher wages and famously he doubled wages for all his employees saying you know there is no capitalism if you can't uh pay uh employees well. Unfortunately, that's not how uh tech revolution work. Uh first you get the productivity. Uh but then basically the the the the real the the the goal of those uh tech advances is basically to replace uh humans. So you know first you got the productivity and the and and the pay rise and then basically you lose your job. So that's happened in the industrial revolution. we've seen it uh happen uh and and and probably uh increase uh after the tech revolution and today you know this is basically turbocharged by the AI revolution and and I think you know that I quite like to uh introduce the uh saying the English saying is like um uh fool me once uh shame on me uh fool me twice um no fool me once shame on you fool me twice shame on me and I think basically workers are realizing that, you know, they've been fouled. Um and that all those promises of higher productivity, higher prosperity uh is is actually um just triggering um you know asset bubbles uh first and and obviously um you know the fact that um the gains occur more and more at the top end of the earnings uh cohort and and um you know tech owners and and capital uh rather than workers themselves. Now, that's not something that um you know, politic politicians like to talk about. Um and and so I think but but that's definitely what's feeding uh global populism. Uh and whether you look at what's happening in the US, what's happening in in UK, what's happening in France, it sort of like transpires in different ways. Uh but I mean you know Trump to basically get to power promised made those promises to like the middle class, the working class and today what you see is that basically the gains of his um you know the first part of his um of his um mandate uh whether you're looking at like um um fiscal um the fiscal skew is all towards um basically uh equity owners and and all economic uh direction is also going to basically turbocharge those um macroeconomic trends that we've already experienced uh since basically the dotcom bubble and and the tech revolution. So that's the source of anger. Uh and then but but then it's difficult to really pinpoint for the average draw in the street, you know, what's actually happening to them. Why are they losing uh purchasing power? So the first you know the first thing to think about is is basically uh pointing at uh immigration. >> Yes. I I read recently I think the OECD is projecting inflation in the UK to be at 3.7% give or take and that's the highest in the G7 and I was really surprised because I thought it was be higher in Canada but a lot of the issues you touched on it's it's also happening in Canada and these prices are out of control. Um, immigration is a big issue. I guess that's an easy thing to point at, right? But yeah, the governments in the UK, in the US, and Canada, they've all incorporated these idiotic policies infl immigration and a lot of it has to do with immigration. It's just out of control now, and it's resulting in a lot of other issues. We can get into that deeper, but something else I think that's very important too, and you did touch on this, but this wealth disparity that's happening right now in your country, my country, and in the US, you have people that are doing extremely well, and then others that are not doing well at all. If you're long assets, you're doing well. And I read a stat recently that in the last 10 years in the US, between 2015 to 2025, the number of billionaires has gone from 500 to 2500 today. in the town of in the ski town of Aspen, uh there's over a hundred billionaires just in that one ski town. >> I think that might be more than in France, >> but but I think this is a big part of it. This wealth disparity that we're seeing, right? It's like people that are doing extremely well and those that aren't doing well at all. >> Well, it it's it's not um it's not a bug. I mean it's basically hardwired by um basically like promises of productivity gains and um you know the the the three uh revolutions that we've just discussed. I mean the whole point is to displace uh labor and do away um without like the fixed cuts of labor and increase productivity to basically you know make more profits on the back of like uh um lower like final demand because you know there there is a big issue today. I mean probably the biggest macroeconomic issue today is the fact that with weak demographics, you have to find ways to basically like you know capitalism works on like um you know making returns and and growing uh every year but with weak you know with negative demographics in most of the developed world you have to find ways to to grow outside of just like purely uh population and labor force growth and and productivity is like the whole part of it. um except for the fact that you know tech revolution productivity never um benefit uh the workers and and all it does is basically hardwire those inequalities that we've seen you know starting to happen um at the in in the middle of the '9s uh which is really interesting because um you know at the time like uh Paul Krugman uh wrote a book um basically saying that uh you know productivity was everything the source of all prosperity and and I think that actually pinpoints the time where pay started to diverge massively from like productivity and and I think you know there's one of the chart in in my new report which is showing now that we're like about like at a 40% divergence pretty much since the mid '9s. So we we're very far away from like the golden age of um capitalism uh in the post World War II uh era. So let's talk about the US economy now and u do a deeper dive on AI and the impact it's having on the economy and also uh unemployment. But the when you look at the GDP or the US economy is measured by GDP. It looks like it's doing very well. It's growing at 3% give or take as measured by the Atlanta Fed uh GDP estimates. But yet, when you look at the non-farmms or when you look at the unemployment rate in the US, and it doesn't matter if you look at non-farmms, ADP, the Michigan survey, they're all pointing to higher unemployment. And I believe the last number we saw out of the um non-farmms or unemployment rate in the US is 4.3%. So, it's still not really high from a historical point of view, but it has been ticking up um every month. What are your views on the US economy and do you think it's as strong as we're led to believe it is? And maybe you can also touch on unemployment and how you reconcile the two numbers because you have a very what appears to be a very strong economy, but it looks like unemployment is ticking up. >> Yeah, I mean um it's all down to um what I just um uh discussed with you and that's um you know the first uh paragraph in in my new report. Um basically what's happening uh since the beginning of the year pretty much um you know without um you know capex from hyperscalers um you know that's one thing um we would probably already be in a recession but the the main thing is um I would say that consumption itself has actually been quite resilient and that's actually something that pretty much never happened uh in the history of uh of microeconomy that you can have like a a clearly cooling labor market and as you say uh I think there is um you know I think three months ago there was still uh a lot of microeconomists looking for like a pick up into the end of the year and actually some are still um thinking that there will be a reaceleration I think there's absolutely absolutely no chance um of that so what's allowed uh consumption to to stay kind of resilient well there's two things um there's two two pieces to that puzzle. Uh the first one is like wells gains uh and you can see it um very well from like uh uh different uh metrics um that I look at uh more and more um you know it's no secret that the US economy is like um increasingly hyper financialized but actually now you see that um effect feeding directly into consump consumption uh which is you know what what I now what I in the new report I call like the Champagne uh Champagne Republic uh where basically consumption has been uh basically pulled up um thanks to worlds gain uh and much and less and less by um labor gains. I mean real income are actually uh collapsing in the US. So you know that's one thing. The second thing is um a front loing frontloading like pre-tariff uh and I think that's been lingering much longer uh than most of us uh expected for the simple reason that uh for a lot of products you still don't know what is going to be the end tariff. Um I think so far the effective tariff is um is only like just below 10%. And it's supposed to uh to in the end be like 17%. So there is still a kind of like a you know what uh you know frontloading of like cons consumption where you're um you know better off buying buying something today because you think uh prices will be higher next year. So for me that's really the the two key parts uh which are um you know capex AI will be whatever uh it will be uh I think a lot of people are talking about it but not a lot are like actually adding um added value to to to that kind of um uh mystery. I mean there is some uh sort of like um a break uh in in in in the scale at which it's it's it's being powered up. Uh but for sure like consumption um has been driven by wealth gains and um and frontloading. So for for that that's the main thing and I still think that we could be having a bit of front loading and I still think that world's gains have a lot more way to go. So the new title the title of of my report is like um welcome to the champagne republic where real assaet bubble um keep the c the party going into the night. Um so so that that the whole point um is basically describing uh an economy which is uh more and more financialized but um interestingly the fact that it it's more and more financialized makes makes it more and more fragile. So as soon as you will have uh you know a little bit less uh return from um you know capital gains from stocks you know consumption will collapse and and the Fed and and I think my view is that and and that's a chart that I've got in the report as well which shows very clearly that inequalities lead to basically zero to negative real rates. So we're still quite far away from that. uh but we will tend uh towards that. And the beautiful the beautiful thing is that you know that tends to basically uh pump up uh capital gains. So that means uh for me that there's still a way to go uh before that bubble burst. And you know I would even argue that's not a bubble. It's it's basically like a um you know how the new system works. >> I like the title of the report. the Champagne Republic Republic because that goes back to what I said earlier about this wealth disparity, right? You have people that are long assets, whether it be real estate or investments in the stock market, and they're getting extremely rich. And then you have this other end of the spectrum and and people if they're not long assets, they're not doing well at all. But, uh, I want to ask you or dig a little deeper in on, uh, what you said about AI. And you said in your report that AI is really the elephant in the room and it's going to result in massive labor displacement. But uh so if we have unemployment right now at 4.3% if you look at a year two years what does AI do to unemployment? >> I mean you can already see uh what it's doing to like use your employment. So I like to take the example of um of of legal firm. Uh so you've got like at the top you've got uh you know the the skilled and experienced and today they can probably you know before they had like five clients now they they can probably have like 20 and instead of having like all the collaborators um behind below them they they can basically doing it do do it like pretty easily with um with AI tools. So that sort of like cuts all the entry- level uh jobs that are basically based on knowledge and that's basically uh the use coming straight out of university. So you can see that uh in you can see that uh in the UK which is um a heavily service uh driven economy. You can see that and and obviously that's also part of like the ongoing anger right because um you know on one part of the spectrum you've got u the retirees that have the assets and the pensions that is being paid by like uh the youth uh which basically has no uh job prospect. So in the US um you use unemployment has gone up to like 10.5%. And in fact like the the the rise in um in unemployment in the August report because we didn't get the September report was all down to like youth unemployment. The same is true in in UK where you've seen a complete collapse of um job entry uh levels. Um and and and that's for me is like the first premise of um you know what AI actually does uh to the job market. Um yeah I I really have like a no question about that and and you know AI tends to be like implemented um and adopted a lot faster than any other uh tech revolution we've seen. Um there's a flip side uh to that story as well um which which is um which is something that I discovered uh in the new report. It's also that what you can see is that with only a moderation of final demand, the fact that you can actually count on uh AI tools for like productivity to to basically boost productivity and margins even when demand is a little bit lower means that you know you've got a a very low hiring economy but you also have very low firing so far. What would normally happen when you've got uh lower demand is that you know profits get hit straight away and and that sort of like triggers the doom loop of like a labor demand where you start start to have layoffs to protect profits and you we're not seeing that this time thanks in part to the fact that you can basically boost your margins uh with AI tools and again that's um that's the chart a chart that I've got in in a new report and that shows very clearly that uh margins are diverging very strongly from um from from labor um and and that's basically you know that tends to happen before recession um but not to the extent that we are seeing today. So clearly there is a big element of like productivity gains weighing um on labor. you mentioned something and I just had to look this up, but you were just talking about the adoption rate of of uh AI and so I saw this stat recently. The internet took 787 to eight years to get to 100 million users. >> Chat GBT only took two months. >> I know. Yeah. I mean, I'm I'm not surprised. Yeah. >> Yeah. But uh you also touched on the uh youth unemployment in the US at 10.5%. In Canada, it's 14.5%. Okay. And >> I didn't know that. Yeah. >> 15 to 24. So, um, if you're coming out of university right now, things are not looking too good. >> So, >> well, and it's it's the the the kind of like scary bit is that, you know, like five years ago, we were telling the youth, you know, you need to to know all about tech and you need to study tech. And, you know what, tech the tech sectors basically like, you know, disappeared in terms of a hiring uh force. um you know and probably it's been the case at like every level but you know today it's like you know no one needs to be able to code anymore the machines do it for you and yet they might have spent the last three years learning to code in Java um so yeah that's the scary the scary bit and but the other part of that equation um is also the fact that AI the point of AI is to basically massively downgrade knowledge uh you know you don't need knowledge anymore you need creativity, you need a brain. Um, but you know knowledge is is there for you from like GPT to some to you know like at least to a large extent. So you touched on the wealth effect and you're saying one of the reasons why the US economy is so strong is because of the wealth wealth effect and because of what's happening with the S&P and the NASDAQ. Uh so why don't we talk about valuations right now and the S&P is up 15 14 to 15% on the year. NASDAQ's up a little bit more, but all 11 sectors in the S&P are up on the year with uh the technology leading the race. It's up over 30%. The worst performing sector is consumerism or um consumers stocks. It's up less than 1%. But what's your take right now on the S&P? Do you think it's fairly valued, overvalued? Are you concerned about where it is right now? So um I I like to sort of like um split it between um two parts. So I look at like the 10 uh AI stocks uh which have been you know responsible for most of the performance of uh since the the chat GPT announcement. We're currently like valued in those stocks at like 35 uh PE. If you take S&P X those obvious um AI stocks uh we are around like um 21.7 I think uh which is you know quite uh it's quite froy um 21.7 but it's not outrageous. My view is that um AI productivity gains are praised are priced way too much uh in the hyperscalers and way too little in the kind of like traditional industries that are going to be able to harness um the power and of AI and make uh those productivity gains. So you know I mean is um is SNP pricey? Yes. Do I have worries about the way it's priced? for sure. Um but overall um I think the bubble can continue as long as the labor market stays weak. >> We're like in a slower and slower um um you know lending which which totally lends itself to basically the the the perfect um equity bubble. Uh so on one side uh you basically give like all assets to the top which basically don't consume but invest and on the other side um you basically make sure that the Fed has to be super dovish uh because the labor market will falter. >> I read a report recently from a research firm called macro strategy and they said the AI bubble is 17 times larger than the internet bubble and four times larger than the subprime real estate bubble. I mean, I'm I'm I'm a bit like puzzled about I think I've seen it as well, but I'm very puzzled because if you're looking at the equity risk premium, which is the way I like to value uh stocks, I mean, the NASDAQ equity risk premium was like massively negative uh just before the com bubble. And you know, that's not at all the case for the S&P today. So, you know, and I'm I'm not sure you can compare um those two times because um obviously in the com bubble, you were like um basically pricing companies that were not making any profits. Uh today, you've got companies that are making profits. So, you know, you're kind of comparing Apple and pairs uh to start with, but um I disagree that uh the bubble is 17 times better today, greater today than than it was at the com. I mean every you know I've seen the headline I haven't seen the the actual analysis behind it. Um but that's not my view. >> So you touched on the Fed so why don't we go there and the Fed recently cut uh by 25 basis points first cut since December of 2024. Seems like a lifetime ago. But uh I guess Jay Powell also expressed some concern about the the what's happening with the jobs market. but also with inflation. So, he's walking a very fine line here because like this inflation is is being very resilient. It's not going away. I don't think we're ever going to see 2 or 3% inflation again. But, uh what are your views? Do you think he's do you think the Fed is is behind the curve here? Like, should he be cutting now or should be cutting more? >> I think the Fed has u no idea what's happening. Um I think it's quite interesting to um you know they've got this um neutral rate at like 3%. They don't really know why. Um you know you've got this um new Fed member uh Miran that came out with at the New York club uh last week about um reasoning of why um real rates may actually be at zero. And it was a bit of like a mumble uh which um which was called out by um uh I can't remember who called him out. Um anyway, he was just like and and it was a bit of a mumble. I mean, for me, uh the real elephant in the in the room is basically AI. Um if you look at what the tech revolution did to the real equilibrium interest rates uh I mean we basically like um um struggled for pretty much like until the the the pre-COVID we basically struggled uh to get back inflation higher even with like super negative uh real rates and a big part of the reason for that was basically uh inequalities. So when you increase inequalities you get lower inflation because those at the top they they basically um buy uh luxury products and financial products and that's not the basic um inflation basket that the Fed uh is looking at which is actually driven uh by the middle class. So that's one thing. Um and and so for me really the elephant in in the room is AI. The fact that workers are going to lose uh huge amount of uh bargaining power and and therefore purchasing power uh with that you know gross is going to become even more um even less inclusive than it was pre-COVID. And I think we're just like we're basically in the process of um understanding what is like the um the the the new economy uh postcoid and there's still a lot of like uh COVID uh distortions uh and and obviously like frontloading distortions uh political uh disruptions but for me really the the elephant in the room is that we are uh turbocharging the inequal the inequality um trends of the precoid area and that's got huge um that's got huge uh ramification into rates into what the Fed will do not because they anticipate anything but but because they will be forced into it. Um and um and and so I expect the real uh neutral rate to be um you know downgraded to like levels that Mirror now talking about but not for the reason that he expressed uh last week at the New York club. You know what? I actually suspect that he might know what this is all about, but this is like a kind of like politically radioactive, right? To say to tell the middle the middle class actually real rates is much lower because you guys are all going to lose your job and if you don't lose it, you're not going to be uh catching up in in terms of like purchasing power because you've got no bargaining power. But for me, that's really the the crux of the matter. >> So, it sounds like you're really concerned about AI and labor displacement. uh like do you see interest rate or do sorry do you see the unemployment rate going from the current level of 4.3% to 6% or 8% in the next couple of years because of AI? >> Um yeah I mean it's it's a matter of time but yes I think unemployment will rise uh and that again that's not a bug that's the whole point of AI. Uh and then over time what normally happens with this tech revolution is it's not like unemployment unemployment will rise in the short term because you know there's like huge labor frictions and you can't just get a lawyer to basically start doing care work right uh but what normally happens in this revolution and it will take time uh is that the pool of labor that is displaced from like all the services that are now like um u made much more efficient uh by art artificial intelligence actually move to lower part to lower productivity labor intensive part of the economy. So for example the gig economy for example care uh I mean there will be other examples but that's always what happened in the past it's like you know those like um employee at Ford first they got the pay rise and then second they were displaced uh and the same thing in like the tech revolution so I think you know that exactly the same will will happen this time aggregate the the aggregate um working population will necessarily move to lower um to to lower productivity part of the economy and that's kind of like um what will save us in in in in a way right because we have this like um in in the end we do need labor just not where it will get where it will get uh well rewarded I mean labor basically always moves where it's likely to be less rewarded. >> Yeah. So ultimately, you don't want to be the uh village candlestick maker. You got to pivot and do something else. >> Yeah. I mean, I don't know. Candlestick might might be like not such a bad idea, but you know, I mean, plumbing, electricity, that's the kind of jobs that won't be replaced and they get paid really well in UK. So Jay Powell has expressed concern about uh inflation and just how resilient it's been and it's been above the 2% target now for 54 months. And um I guess big part of that has to do with what you were saying just about uh higher wages but also immigration. Maybe the crackdown on immigration is also driving prices higher. But where do you see inflation going? And and I I got to bring up another fact here. So I'm based in Toronto. There's a very well-known uh coffee shop here. It's called Tim Hortons. Uh pervasive through Canada. Have you ever gone? >> No, I've been once to Canada. >> It would be like a Dunkin Donuts in the US. Okay. But uh so it's good coffee and it's really >> which I don't know either. >> Oh, okay. Yeah. Massive change. >> I know Starbucks and Costa. >> Yeah. So, anyhow, Tim Hortons came out and said they're putting their coffee prices up uh very moderate at 1.5%. And in the same article, they said they're doing so because the price of coffee has gone up 100% in the last three years. >> Yeah. >> And so therefore, they got to, you know, pass on some of the higher prices to consumers. But >> what are your thoughts on inflation and why is it being so resilient and where do you see it going and are we ever going to see two or 3% inflation again? >> Yeah, I mean I'm not worried about inflation not in the US and I'm not worried about it in Europe. I think uh UK has like very specific um macro uh backdrop. Uh you know it's a small island that basically imports pretty much everything um with like a lack of um immigration, lack of um labor force and also like a population that is quite wealthy and and doesn't fancy uh working anymore as well. uh especially not in the services uh like tourism like all the like services industry used to be basically um all down to like uh Europeans. I mean you don't see an English like uh being a waiter in London. So that there's like a but in in the US and and Europe I think um you know demand will come down and I'm not worried about inflation and and I think the Fed won't be uh worried about inflation for much longer. Uh rents will collapse. um you know if if you the only reason we got uh inflation uh postcoid really the only reason is that we started to uh send out checks to the middle class this it's only the middle class that can really uh you know basically propel uh demand on the basket uh that the Fed uh is targeting but if you if you basically suppress um purchasing power at the medium level uh I don't think you will get inflation in the long term. So I'm actually I'm I'm actually short uh inflation and actually it's been working you know five year break evens have been coming down quite a bit uh in the last months and I think it's a brilliant hedge for like uh long equities. Well, you touched on the newest uh Fed member, Steven Moran, and as you mentioned, he wants to cut uh interest rates significantly and uh 200 basis points. But if they were to do that, let's just say that the president gets his way here in the next few months, gets a new u governor in there, uh and they start cutting rates drastically, like don't you think that's going to push inflation up? >> No, because I think it will be on the back of a failing labor market. So lower demand um you know I can already see lower demand so I don't think it will be a mistake. I think the Fed's already behind the curve. So I I agree with Miran but in you know in a different way and I think you know the whole fact that uh consumption this year was basically driven by wealth effects and and frontloading you might actually have like a gap of consumption uh into next year. uh and and the fiscal boost uh next year is basically targeting the higher earners as well which is madness. But you can see that politically they know that you know the economy is basically going to be driven uh by the west by the wealthiest. >> So let's talk about what investors should do here uh in the last few minutes. Um, you you said you you think the US economy is is growing pretty good, but you're concerned when you look further out because you because of AI and I guess the efficiencies of AI, that's going to result in higher unemployment. That's going to result in lower consumption by the consumer and that's going to result in a slower economy. But if you look out six or 12 months, how do you feel about the economy and where are you suggesting investors should be allocating their investment dollars? So firstly I think uh doing strategy at the moment uh thinking over the next 12 months is um you know is is not possible. Um I think you need to revalue um you know every day, every week, every month. Um which is what I do. Uh I mean that's basically my job. Um you know I think we will uh continue to grow the sort of like respirity bubble. I've been recommending um respirity uh strategies since pretty much the aftermath of the liberation day. I think this will be like uh accelerating uh into the end of the year. Uh the main risk is basically a start of layoff but as long as we are in the kind of like low higher low fire this can go on. Um you know my answer to to your question is like uh you know I I can see what will happen but I will be able to tell you when you know the party has ended and you have to go the other way. It will happen in the next 12 months. Uh but you know when I I can't tell you today I mean I look at I look at the data every day. Um you know for now I'm full on respirity. It could easily last into the end of the year but I'm not promising it. Um, and you know, you you'll have to like basically reassess constantly uh because things are moving really quickly and um and you can't you can't just sleep on your uh on your savings. I think you have to be like super proactive um and and you know if you want to be the winner in the next uh 12 months but yeah Julals >> can you just expand on that? When you say risk parody what exactly do you mean? uh like basically long stocks uh and long bonds. So, you know, one is actually feeding the other and I see this dynamic basically accelerating into the end of the year. >> And in the past, you've been bullish on gold and bitcoin. Where do you stand now? >> Yeah. So, I'm still like um long gold, long bitcoin. I like bitcoin. I haven't been recommending long uh long bitcoin, but I do like it. I think it's going to break higher. Uh I've been long gold. So, long gold, long equities, uh long bonds. Um, I favor uh European stocks because I think like all um basically we're just like in a real asset bubble and and and you want to basically pick uh the assets that are still not priced for the artificial intelligence revolution. Uh if you look at um SNPX AI, we are at like 21.7 uh PE um which is actually same level as like the NikK which is actually quite pricey as well. uh but you know you look at like European stocks and uh and we're just at 17p and you know there's absolutely no reason why um artificial artificial intelligence will not be harnessed by like European uh European companies as well to basically boost uh margins and productivity and I think that needs to be priced. Uh so I I see like all like scarce assets um you know being revalued one after the other. I think gold was the precursor pre precursor to everything. Uh which is like clearly showing us the path to much lower uh real yields and and and I expect basically every um real asset to like basically like burst higher one after the other and and and basically contribute to like the global real asset bubble that will make the AS wealthier and the AS not poorer. So just to summarize, you are bullish on the US economy, the US stock market, the bond market. >> I'm not bullish on the US economy. I'm There's a big difference between the economy and the stock market, right? It's not the same. Um it's not the same animal. So I'm not bullish on the US economy, but I'm I'm still bullish the stock market. >> Okay. Uh but you prefer European markets over the US market just on a valuation basis. >> Yeah. Yeah. I think it's got I think Europe Europe has a lot more to go than than than the US. Yeah. >> So, I'm based in Toronto. I'm always uh curious to get other people's views of Canada. Do you have any views on Canada right now? >> Not really, I'm afraid. I think you already you already asked me uh in January and I was just like god I haven't you know the US and and and Europe and to some extent UK have been so exciting that and and you can get like so much opportunities um you know just looking just really understanding what's happening in in those key markets that are basically driving the rest of the world uh that I haven't had time to like look at the alpha of like uh you know Canada Um, you know, so you you tell me what you think of of of Canada. Is there any big opportunities I'm I'm missing? >> Well, you got to be long resources and we already talked about gold and we didn't touch on silver, but that's another uh byproduct. And then you can look at uranium if you're bullish on nuclear energy. >> Uh, oil and gas of course. So, it's all commodities related. But just to give you a sense of what's happening here, things are pretty bad. I touched on the youth unemployment rate being 14.5%, highest since the 1990s. Uh if you look at the unemployment rate across the country, it's 7% in the province of Ontario where I reside, it's 8% and in the city of Toronto, it's approaching 10%. So that gives you a little idea of what's happening. >> And what do you think is the reason behind that? >> There's numerous reasons, but a number one reason has to do with the current government. The Liberals have been in power for 10 years. So the policies that they've implemented or lack thereof has resulted in a >> stagnant economy and uh they were more focused on social policies like using the right pronoun as opposed to >> real economic unleashing policies that were going to result in a stronger economy and a higher standard of living for the people that live here. And now as you know these things take many years for them to turn around. There's no way Mark Carney is going to be able to snap his fingers and say boom, we're going to see two or 3% uh GDP growth again. It's just too little too late. So, um if we're not in a recession right now, we're going to be in one very soon. And then, of course, this uh trade war going on with the US >> um is not helping at all. It's only making things worse because it's leading to a lot of uncertainty. >> Yeah. Yeah, I hear you. Now that's this has been a great conversation as always and I want to thank you very much for spending time with us today. Uh if somebody would like to follow you online or check out your services and your research reports where can they go? So jdireearch.com and on Twitter I am uh julietjdi. Um but the best is my website to basically um you know request um a subscription and I have to warn um you that I I I don't have any retail uh prices. So, I'm I'm really the the hair mess of um of the research world and I'm trying to keep it that way given the Champagne um New Republic. >> Well, once again, I want to thank you and I will include links to all of your u your website and your other social media platforms in the show notes below. Julia, >> your timing is your timing is amazing, by the way, because I'm literally we we're discussing a report that's not even out yet and that will be out tonight. So, you know, well done. >> Well, thank you. Enjoy your day. >> Thank you very much. Bye-bye. [Music] [Music]