Wealthion’s Best Of 2025: China Has ‘Leapfrogged’ the West | Louis-Vincent Gave
Summary
China Equities: Guest argues Chinese stocks remain attractive and undervalued, now with clear policy support, QE-like measures, and falling domestic bond yields aiding risk assets.
China’s Industrial Edge: Detailed case that China has leapfrogged the West in EVs, batteries, autos, solar, nuclear, and industrial robotics, underpinning a $1T trade surplus and growing EM export share.
US Value Stocks: Prefers US value over mega-cap concentration, favoring the equally weighted S&P; sees banks benefiting as real estate stabilizes and the economy remains resilient.
Financials Focus: Explicitly bullish on US financials, expecting banks to piggyback on improving real estate and a healthier Main Street backdrop rather than chasing concentrated mega-caps like AAPL, MSFT, NVDA.
Energy: Recommends sizable energy positions as the best portfolio hedge, warning that a move in oil from $75 to $100 would pressure consumers and broader markets.
Inflation Outlook: Remains an “inflationista,” citing procyclical US fiscal deficits, potential protectionism, and global stimulus (notably China) as tailwinds to inflation risks.
Capital Flows: Notes Chinese trade surplus recycling into gold, offshore USD deposits in Hong Kong, and Chinese government bonds, contributing to falling CGB yields versus rising UST yields.
Competitive Landscape: Highlights consumer value from China’s “Hunger Games” capitalism in EVs and batteries, contrasting it with the West’s subsidy-driven model and citing companies like TSLA, AAPL, MSFT, NVDA in discussion context.
Transcript
They completely missed what I think was the biggest story, which was basically China leaprogging the West in industry after industry. >> Hi Louie, thank you very much for joining us today. How are things in Hong Kong? Things are good. Thanks a lot for having me. Uh things are dark as you can tell outside. Uh but yeah, things are great. Good to be here. So I want to focus our discussion today on the US and China and together these two economies represent 50% of the global GDP. So what happens in these two countries impacts the entire world and you and your team have done a lot of research on China and the Chinese economy. What's your view of the Chinese economy right now? And have the policy changes that were announced in September and October of 2024, have they had a positive impact? >> Um so how much time do you have? because just putting a coin in that machine, I could ramble on for hours. But look, I think uh the way to to conceptualize the Chinese economy is you had an economy for roughly 20 years that was a a real estate driven economy for all intents and purposes. You had 20 million people moving from the farms to the city every year. Um and that required a lot of, you know, infrastructure investment, a lot of real estate investment. Uh and that drove a very strong growth rate. Um and in 2018 I think this model was basically uh you know completely torn uh apart by the US's decision to stop uh the semi the export of semiconductors to China and when that happened the Chinese leadership basically freaked out and they thought okay the US is preventing us from growing uh it's semiconductors today tomorrow it might be you know auto parts or petrochemicals or you name it. Uh we have no choice but to become um self-sufficient in pretty much every industrial vertical. And so the government told the banks, look banks, no more loans to real estate and from now on you're only lending to uh to industry. And so you had a period of you know roughly six, seven years 2018 to today where uh loans to industry shot up and loan to real estate collapsed. Um what I think every foreign commentator uh focused on was the collapse in real estate because for 20 years the growth had all been about real estate. Uh but also because we'd gone through a real estate bust in the western world. So everybody's like, "Oh, I've seen this movie before. I know how this is going to end." Um and while they were focusing on the real estate bus, they completely missed what I think was the biggest story, which was basically China leaprogging the West in industry after industry. um where we're seeing it very blatantly today is in autos, but it's also true in industrial robots. It's true in um uh you know solar panels and nuclear power plants, in uh batteries, you know, you name it. Trains, uh road building, tractors, you name it. China is now producing at a quality level that's often better than usually better than the West and and a fraction of the price. Um and that's a a much bigger challenge for our our economies. Now I think having basically achieved now this industrial independence, China can now afford to relax a little more. So you had six years where it was like I said all the money has to go to industry. It was almost like being on a war path footing. Uh and now having again now that they've they've gone to the point where they've leapfrogged the west, it's like okay we can relax a little bit and we can have some um uh some subsidies to consumers. So now you've gone from you know real estate driven market to industrial-driven markets and now you're trying to shift to uh you know boosting consumption and so you're starting to see a lot more stimulus on the consumption side. Um you're obviously seeing absolute collapse in interest rates which uh you know makes u uh you know consumer loans, mortgage loans etc much more attractive. You're seeing uh a bunch of measures taken to make real estate pick up again. Things like you know used to it used to be you needed to put 30% equity down uh to buy a house. Now it's only 10%. Um, and uh, and so you had a huge transition in 2018 and I think we're starting a new transition again today. Longwind answer to your question. That's a great backstory and I a couple of comments. First of all, I find it interesting that you say China's trying to become self-sufficient now because every country in the west is trying to do the same thing, especially the US, and they realize this, especially after Russia invaded Ukraine, that they were relying on a lot of these other countries for a lot of resources. And the other comment I would make is I think China has done an exceptional job of just being way ahead of the curve compared to countries in the west. And I look at EVs and also lithium-ion batteries. If you're a EV manufacturer, you have to go to China to get these lithium ion batteries batteries because they're the only ones with the technology to do so. And they were working on that 10, 15, 20 years ago when nobody else cared about it. And I look at what's happening right now within nuclear energy and also uranium. They're doing the same thing. and they have the world's largest nuclear reactor buildout in the history of mankind. They're building 150 reactors between now and 2035. And they're they virtually produce uh very little uranium, but they're acquiring all this uranium right under the noses of all these western countries. And so there's another industry that they're dominating. >> Well, they have the advantage on that. Sorry to interrupt you. You know, their next door neighbor Kazakhstan is, you know, there's two big uranium producers in the world, right? Uh there's I mean there's Canada and then there's there's Kazakhstan and then and then there's you know bunch of African countries who also produce some but uh so they're next door to you know to one of the biggest producers so that helps um it's uh it helps and you know what China's been doing in with Kazakhstan with the countries in Central Asia the countries in Southeast Asia and elsewhere is you know coming in building infrastructure And you know the idea being pretty simple. It's it's the story of every empire through history as you build roads to bring in commodities cheaper, transform them into higher value added goods and then you know export the goods again. Um those goods might be cars or they might be batteries as you point out they might be solar panels or or whatever they might be. Um and that is again the story of every empire. Every empire fundamentally is a roadbuilding exercise. That's why in Europe, you know, I'm French. In Europe, we say all roads lead to Rome. Um because that's what empires do. They they build roads. And and today, you know, China has it's not that it's taken over Kazakhstan. It hasn't. Uh but China's presence into Kazakhstan is multiples of what it was just 10 years ago. uh and on this you know if you're uh in interested in this one of my colleagues uh Tom Miller who's been working at Gaffc for 20 years uh went around all the uh uh central Asian countries and looked at the various projects and he wrote a really fun read about it uh fun book and so I'll plug his book it's called China's Asian Dream and um uh it's it's a very fun read it's like a you know it's a bit of a travel book but you know going to places like Kyrgyzstan and Tajikistan are like places that you know most people would struggle to put on a map uh and basically explaining what China was doing in all these places. It's again it's I recommend it. >> I'll be sure to check it out. I think one of the big issues with countries in the west is that we have these new governments every four or five years and so there's no constant direction. And if you look at the US economy right now, of course we had the Biden administration, they pushed forth this inflation reduction act and they allocated trillions of dollars toward renewables and uh solar and wind and I guess a little bit toward nuclear, but now you have the Trump administration and they're going in the completely opposite direction. So, I want to ask you a little bit more about China and >> can I interrupt you? >> Can I interrupt you there on this? cuz cuz I think I'm smiling cuz one of the jokes in China is that uh in China we don't change politicians but we change policies. Uh and in the west they change politicians but they never change their policies. They still end up with the same healthc care policies. They still end up with the same agricultural policies. They still end up with the same foreign policies. they still end up with the same energy and environmental policies almost regardless of who you vote for. Now, in fairness to your point, I think that's been true for like quite a while that in essence, it didn't really matter who you voted for. The policy was driven by essentially a government bureaucracy um that just sort of turned on. Um this is the big question of course today with the US, you know, does does Trump upend all this? Now, he promised to uh upend all this back in 2016, uh to drain the swamp and to, you know, bring bring power back to the people and all that stuff. Um very Andrew Jacksonlike. Uh and and he didn't do it. Uh so it'll be interesting to see if it happens this time. But you know, I think actually in China, you actually get changes of policy. You don't change the policy makers, but you change the policies. uh in the west you know what's what's the difference in the say the US health care policies like US health care has to be one of the biggest challenges or for that matter healthcare is a huge challenge in Canada and it's a huge challenge in the UK and it's a huge challenge in France and tell me the difference between the various politicians of the past 20 years in terms of their healthcare policies it's always been the same >> hi I hope you're enjoying the discussion with Louis Goff there's There's so much happening in the world right now, especially when it comes to geopolitics. And if you need help understanding how these events will impact your financial future, consider having a discussion with a professional financial advisor. You can find out more information at wealthon.comfree. Once again, that's wealthon.comfree. Now, back to the show. I guess the word the point I was trying to make is that the government let's just say in China they're going to say okay lithium ion batteries we're going to spend 10 years or 15 years building this technology out whereas in Canada or the US >> it change you're never going to get that because every government has their own ideas so they're never going to pick one course and then go with it and >> on this yeah know and I'm sorry I keep interrupting you I'm being super rude it's your show and uh and I keep busting in. I apologize. Um, and so I guess what you're pointing to is sort of industrial policy, right? It's the way that China says, "Okay, you know what? We're going to be doing we're going to be doing EVs or we're going to be lithium ion batteries." Um, now I think the way this is perceived in the West is um that, you know, the government decides to do EVs and like does a bunch of subsidies and and then you get uh an EV market out of the ground. But in fact, Chinese capitalism works a little bit differently. It doesn't work exactly like that. What happens in Chinese capitalism is that Cining at the top says, "Hey guys, the future is EV and we got to produce EVs." And then basically every mayor of every major town, every uh provincial governor, every party secretary picks up his phone uh to his local bank and says, "Hey bank, Cinping, the big man, just said we need to do EVs, so you're going to give a loan to my EV maker." And before you know it, you actually have 130 EV producers in China, which is what you have right now. You got 130 guys that are all very well funded by the banks. Um, and then starts what I've, you know, come to call the hunger games of capitalism, of Chinese capitalism. You got 130 guys and they're just going at each other's throats. Um, and eventually you have four or five who survive. And this happened in the lithium uh batteries. It it that's exactly how it happens. Like, oh, we need to be better in batteries and, you know, 150 guys get get uh funded and only five survive. Um, and now the consumer is the end winner of this because the consumer gets, you know, a cheaper car at a better price, uh, and a better car because to survive you have to put together the best car. Um the end losers of course are all the banks and the private savers because the way the system works is because there's capital controls and there's basically financial repression, people have no choice but to put their money at the bank and the banks can then turn around and and and lend and lend this money um on on competitive terms to businesses that are always in structural overcapacity. Um and so it's it's a very different system. Um so the way we do it in the western world is we say okay you know what uh electric cars uh that's the future. So either we're going to give subsidies for people to buy electric cars or we're going to subsidize that we're going to pick a winner i.e. Tesla and we're going to give Tesla a bunch of subsidies u and the end result is Elon Musk you know is worth whatever it is $200 billion. I'm picking the number out of thin air I don't know but I think it's somewhere around there. uh Elon Musk gets to be $200 billion and instead of having electric cars that are sub $10,000 which is what there is in China, you know, you want to buy a Tesla, it's $50,000. Um and and so it's a it's just a different way to do things. Um one of them definitely is very attractive to I would say you know top-end businessman uh to shareholders and the other is very attractive to consumers. interesting points. So I want to ask you about the Chinese consumer. Now in the US, the consumer represents 70% of GDP. What's the comparable number in China? And how would you characterize the health of the Chinese consumer right now? >> Um so that's a a tough question. Um it's a tough question because I think fundamentally you're comparing apples and oranges. um comparing apples and oranges because you know out of that 17% you have like 18% for healthcare right um in in China it's less than half that um but then you think okay um you know it's uh now you could say yeah you get much better healthcare in the US but then you look at the matrix and you know you get a better life expectancy in China now than you do in the US even though China spends a fraction of of of what the US spends um so It's you're you're comparing a lot of you know very very you know it's very different things. Um so the the reality uh in China is that you know you've just had like I said a six or sevenyear transition where all of the focus was on building up industrial capacity. Um and that brings you to today where the industrial capacity has far outpaced the the consumption capacity. So you know China, you know, we're talking about cars. Um China is producing today roughly 6 million cars more than it can consume. U and you know it's consuming roughly 34 million cars. it's uh you know it could it could produce 40 but actually it could probably produce 45 or 50 if it really wanted to if it was working flat out. Um so you got the excess capacity and this underutilization of of industry. Um and you know most people look at this and say well it's uh it's not China is not consuming enough. Now the reality is China consumption growth has continued to click you know to continue to click on. You know China today consumed twice as much beef as the United States. It consumes eight times as much fish as as the United States. It consumes three times the number of smartphones per year that the United States consumes. Uh it consumes you know roughly two times the number of cars. Uh so on and so forth. So, uh, but if you put relative to the production capacity, um, that there's a lot there's there's room for consumption to pick up, uh, no, no doubt about it. And I think that, uh, you know, this is what a lot of the stimulus you're now seeing is about, um, is to basically, you know, get get consumption picking up. that that's you've gone from a focus of amongst policy makers of we need to be self-sufficient industrially on everything to now all of a sudden the focus being we need to um uh we need to boost consumption and that's fairly recent you know the the real like the first time the policy makers really came out and said we're going to need to boost consumption here was in September of 24 so what is that five months months, four or five months. >> So, as you alluded to, China is a large exporter. It has the world's largest trade surplus growing at 100 billion a month. So, I I believe the number is over dollars. >> Yeah. Yeah. It's nuts. >> Massive number. But, but um maybe you can just speak to that and what this is going to do to the economy. And I guess I also want to know where that excess money is going to. >> Yeah, I think that's a great question. I want to know it as well. Uh I was hoping you tell me. Um so look the uh the reality is today for me so right now as you point out China's running one maybe 1.1 trillion trade surplus um per year. That's probably going to be the number for for 24 and for 25. uh you know to put things in context up until a few years ago until China started to reach these kinds of numbers the biggest trade surplus you'd ever seen in the world were two to300 billion you know Japan at their top Germany at their top so this is an enormous outlier and you know logically what should be happening uh the fact that China's running these massive trade surpluses tells you that the the industry there is super competitive which we They're producing great cars for 10,000 bucks. They're producing phones that are much better than Apples for threequarters of the price. Yeah. Like you you go right now if you want to book yourself into the Four Seasons in Shanghai or Beijing, it's going to be 200 bucks a night. Um you know, it like the economy is super super competitive. Um and and yeah, and most foreigners who who go visit uh there's not a lot of them who still go visit, but most of them who do are like, "Wow, things are so cheap." uh and everything works and the trains are on time and they're clean relative to what China was 15 years ago. It's literally night and day. Um so, you know, you've got usually what should be happening for an economy that is that competitive is, you know, the guys the guy making shoes for Nike um should be earning money and he should be turning around and building another factory or he should be just turning around and buying local assets. Historically, that's that's what happens. And as he does the exchange rate goes up, local asset prices go up. Uh domestic consumption picks up on the back of a stronger currency and a stronger uh asset uh prices. And as the exchange rate comes up and consumption comes up, the uh trade surplus abates and that's sort of how nature heals itself. U that's how you know this the the invisible hand sort of fixes things uh in the background. I think what's happening in China today is all these entrepreneurs who are making very good money um live in a world of absolute and utmost uncertainty. Um they have uncertainty internationally of course where you know they don't know is Trump going to do 60% tariffs is he not is Europe going to do 60% tariffs is he not are we going to get sanctioned because we're trading with Russia are we not so they're dealing with like this huge uncertainty but then even domestically you know they've gone through five or six years where they felt that instead of helping them the central government kept tripping them up. you had the the real estate crackdown and the tech crackdown and the education sector crackdown and then three three years of COVID lockdown. Um and so even their own faith in their own government has been seriously tested. So you know I think most entrepreneurs most business people u they just want to know the rules of the game and then they get on with it. uh they just want to know okay what are the taxes going to be what are the regulations going to be and then from there they decide okay I'm going to make that investment or or I won't um but if they don't know what the rules of the game are then they sit on their hands they they wait and see so right now all these guys are making tons and tons of money and they don't know what the rules of the game is going to be for the next six months 12 months two years five years so they get all this money and they do one of three things um one of them is they buy gold and you can see China's gold imports going up and gold prices going up in spite of rising yields in the US and rising uh US dollars. So number one, they do that. Number two, they um they keep their cash offshore if they have an opportunity to do so. Uh so you look at Hong Kong as an example in the past 18 months. US dollar bank deposits in Hong Kong have grown by $220 billion. That's a lot of money. You know, Hong Kong is a tiny, you know, we're eight million people here in Hong Kong or 7.7 and it's a small it's a small place. 220 billion. It's a lot of money. Um, and so you you're seeing a huge uh surge in deposits and then uh the rest of the money I think is coming back to China to be honest just sitting at the bank and at the bank the banks have nothing to do with it because there's no demand for bank loans. The banks have nothing to do with it but buy Chinese government bonds. And so Chinese government bond yields go down every single day. Um and so I think a lot of you know some of the anomalies that you see out there I gold doing well in spite of a strong dollar and rising treasuries, Chinese bond yields collapsing even as US treasuries sore. A lot of these things uh are linked to this mass the recycling of this just gargantuan Chinese trade surplus uh combined to the lack of confidence today amongst Chinese entrepreneurs. >> You didn't mention real estate in Toronto or Vancouver. >> Well, no. In the old days, No, no, you're absolutely right. So in the old days, if I was a rich Chinese guy, um I did buy real estate in Toronto and Vancouver or in Sydney or in London or lots of or LA or San Francisco, lots of different places. Although you're right that, you know, Toronto and Vancouver were, you know, very high on the list of of places to buy real estate. Um I think this has been shaken by a number of things. Of course, you know, Canada started to put tax on on um on foreign foreigners trying to buy real estate in Canada. uh started to put taxes on um buildings that were left left unoccupied. Um and uh but perhaps most importantly, you know, what really shook the Chinese faith in let's keep buying Vancouver and Toronto was the seizure of the Russian assets, right? when um when the combined Western world said not only are we going to seize the assets of the Russian government, which was one thing, but we're going to seize as well the assets of all the Russian oligarchs. If you're a rich Chinese guy and you own a house in Vancouver, um you know, you think, hold on, if tomorrow CJ Ping decides to invade Taiwan, something I have absolutely no visibility or influence on, um then the Canadian government is going to confiscate my house. I own I bought this house in case things went bad in China. And now you tell me in case things go bad in China, I'm going to lose it. So this house isn't what I thought it was. Um it's not, you know, it's it was my sort of safe money, my uh my fall back uh in case things go really bad. And what you're telling me if things go really bad, I lose it. Um so all of a sudden, I'm not that interested in it anymore. And so I think you have seen, you know, a lot less Chinese money being, you know, with a trillion dollar trade surplus, to be honest, the Vancouver real estate market should be going nuts. It should be going absolutely bananas. So should Sydney uh and so should Auckland and and Toronto. Um but it's not uh because that that recycling into western real estate I think has really stalled following the the Russian u confiscation of assets >> and it's amazing to see this trade surplus grow in the past eight years when this cold war has been going on between China and the US. So who are they selling all the goods to? Yeah, I think that's a super important point you just made there is, you know, six, seven years ago when we said, "Okay, we're going to block China from getting semiconductors." Well, we didn't say it. It was the US who said it. When the US said, "We're going to block semiconductors to China." Um, you know, the idea was to basically designify our supply chains to say China's a bad actor. We're going to trade less with them. Back then, the trade surplus with China was roughly 250 billion a year. Now, it's a trillion. So the whole idea that we're going to desinify our supply chains and make China less relevant in the global trade equation has been an complete and utter failure. Um you know I think if policy makers were ranked on on results uh that that has obviously failed. Uh that should be an F. you get an F-grade for your attempts to isolate China because in what's happened to answer your question what's happened in the meantime is that China's growth into other emerging markets has gone bananas um and you know today China exports more to emerging markets than it does to developed markets in fact China now exports more to countries you know Indonesia, Malaysia, Philippines and the like. uh the the Association of Southeast Asian Nations, uh China exports more to ASEN than it does to the United States. And what's fascinating is that the export mix of China, so now you know it's like 55% emerging markets, 45% developed markets. Emerging markets are growing very fast. So pretty soon, you know, in a few years we'll be at like twothirds, one third. Um and what they export to emerging markets is higher value added goods that are higher margin. uh it's the cars, it's the nuclear power plants, the railroads, uh it's the turbines, it's the industrial robots and increasingly what they sell to the developed markets is increasingly either Apple um consu other consumer electronics you know which are very hard to move somewhere else because it's you know complicated supply chains etc or increasingly frankly the pretty low value added stuff the shoes the Tupperware that you buy at Walmart. Uh, you know, the the cotton socks that uh that you're probably wearing right now, the uh you know, like the all all that stuff that you you find at uh uh you know, in the big box stores uh all over the US and Canada, um that is increasingly that China knows it's going to lose gradually like the plastic toys you buy for kids over Christmas. all that stuff is going to be moving to um to Vietnam, to Indonesia, to Bangladesh, to wherever else. China knows it's going to lose that. So when the US says, "Hey, we're going to do a big tariffs." I think China increasingly is like, "Okay, so you're going to tariff Apple, you know, sure, have at it. That's, you know, your issue." Um you're going to tariff all the consumer electronics. Okay. Uh that's a bit of a bummer, but we know that can't move because it's complicated supply chain. So that's not going anywhere either. and it's definitely not coming back to the US and you're going to tariff all the low value added stuff that we were destined to lose over the next 5 to 10 years anyway. So maybe we lose it a little faster. But we don't really care because our future I'm talking like if I'm Chinese, I'm not. But you know, you know, if you're Chinese, you think our future is not selling Tupperware at Walmart. Our future is selling BYD cars to Brazil. Uh it's selling long machinery to Indonesia. Uh it's selling nuclear power plants to Saudi Arabia. That's what I that's what if you're the Chinese Ministry of Commerce, that's what you care about much more so than selling Tupperware at Walmart. >> And now that we have a new administration in the US, do you see things improving? Um, you're probably quite familiar with the with the cabinet, are there a lot of hawks on the ch are there a lot of China hawks on the cabinet? And do you think Trump will want to renegotiate the trade deals? >> Um, Trump will definitely want to renegotiate the trade deals. Absolutely. You know, he Trump loves negotiating trade deals. I mean, he said it, you know, when you went to Joe Rogan, he was asked, you know, like he says, you're 78 years old, 79 years old, I can't remember, but uh, you know, why you still doing this? And he said, look, I I'd love, he said, what gets me really excited is negotiating great deals for America. So, I think that's, you know, that's how he sees himself. That's how he likes it. So there's no doubt he's going to want to sit down with CJ Ping and hammer out some kind of deal. Now the bigger question is, you know, is CJ Ping going to be interested in a deal. Um, you know, I think there's there's a fair amount of bad blood that that that's happened over the past eight years. China's felt very targeted by the US. You know, I think it's easy to criticize people. You know, the old Steve Martin joke, you can't criticize anyone. Well, before you criticize anyone, you should walk a mile in their shoes like this. when you criticize them, you're a mile away and you have their shoes. But the, you know, when you look at China and from their point of view, the US messed up massively with the mortgage crisis. The world almost imploded. They came in and they did a big stimulus which you know almost saved which in their view basically saved the global economy, got the global economy back on track. They did this uh at at with they took a lot of risk. They put on more debt and they like it also led to a lot of corruption in China. But they feel like in 2008 we were g you know good global responsible citizens and then the US turns around and like plants a knife in our back. Um now I'm not saying I agree with this view but I'm just saying that's how they view things. So you know will how keen will they be to to have a deal? Um especially since remember they spent really the past 8 years cushioning their economy from potential US attacks. Um so they may very well feel look you know you want to tariff us have at it we don't care. Um we don't care all the more since I think deep down they know that 8 years ago what everybody was worried about was deflation. Today what everybody's worried about is inflation. And politically can you know can Trump really surf on a wave of higher inflation? um you know to the extent that he got elected thanks to a wave of higher inflation, you know, you saw that uh in Americans who earn less than $50,000 a year, you had a 16 percentage point swing from Democrats to Republicans. Uh and what drove that swing was first and foremost inflation. So, I highlight this because, you know, it'll be interesting. I if you know, I think Trump will want to sit down, will want to make a deal. Uh, how China how interested China will be. Uh, I think that's up in the air. >> And we have this back and forth going on with Tik Tok. Um, >> so right now, Tik Tok is still operating in the US. Trump gave it uh I think it's a 75day >> That's right. um break. But uh do you think he's going to use this as a bargaining tool with the Chinese? >> I think if you see Jin Ping, you don't give a hoot about Tik Tok. I mean, the ownership of Tik Tok is 60% US VC firms. It's 20% the staff, mostly based in the US incidentally, and 20% the founders. Um now, you know, Tik Tok is a global business. um you know if they have to shut down the US I think it like if you're seeing Ping it's like what do I care uh it's it's absolutely no skin off his back now I know the perception in the US is oh I know but you know it's like a tool of the Chinese Communist Party to control the minds of our um of our youth uh so on and so forth uh so if you believe that then then you think Okay. Uh, what's CJ Ping going to do? There's still no reason to give it to the US. Um, so, you know, the whole like, oh, you know, if you do a deal with us, we're going to give you Tik Tok. Like, I think if you're CJ Ping, what do you care? Like if if if American VCs that are again own 60% of the company have to take a huge hit, I don't think it it prevents you from sleeping one minute less than you would have otherwise. >> Interesting. Okay. And by the way, if you see CJ Ping, just just on Tik Tok, if you see CJ Ping, in fact, you might want to go all the way through and see and say because you then you show the world, look, you know, these guys uh the like America pretends that they're the land of business and that they're the land of free trade and that they're but as soon as you go over there and you're successful, they try to steal your business from under you. Um and then if you know and if you if you don't give into their terms, uh then they shut you down. So, you know, how really is it really the land of capitalism that it claims to be? So, it, you know, I think for Cin Ping, he might actually rather close it down. Uh, it'd be a better propaganda coup for him than selling it to the US. >> So, in summary, it sounds like things are definitely improving in China. And in the past, you have said China was the most undervalued market in the world. Do you still think it is? >> I think it is. It's less undervalued. you know I I was just in Oslo and one of my slides in my presentation is the performance of the big country ETFs so you know Japan, India etc. So last year the S&P you know the big the S&P 500 essentially uh was up 24%. Um the FXI the biggest Chinese ETF uh was up 28. Um, so I asked this now I'm in front of a room of big and then now granted this after a terrible 22 and a terrible 23 but I asked this room of you know big pension funds like there was about 100 Scandinavian pension funds and I asked you how many people here uh knew that you know China last year Chinese equities the FXI actually outperformed the S&P uh and out of about 100 pension fund managers only one put his hand up which told me that not only are they not invested in China um they they're even looking at it. Um, which you know I find interesting. So it is less undervalued than last year. You know it's gone up. Um, but you know if you take a step back what do you have in China? You have a market that is basically in the bottom quartile of its valuation at a time where all of a sudden the policy uncertainty has been lifted. Um, you know the government since September has been very vocal of look we're going to keep throwing money at this until the economy picks up. um we're going to do fiscal um uh stimulus, we're going to do monetary policy stimulus. And at the same time, and you know, they're doing the monetary policy stimulus because bond yields are falling every day. Now, why are bond yields falling? Because the the PBOC keeps buying Chinese bonds like their balance sheet is exploding. It's like going through QE just like we did in 2009. We being the Western world, just like we did in 2009, 2010. So, they're going through QE. And so, you know, I look at this and I think, okay, I have the opportunity of buying a cheap market with policy support and at a time when the differential between the dividend yield and bond yields has never been this high. So, I know that every Chinese pension fund, insurance companies, etc. today has to sell bonds and buy equities. Meanwhile, I look at the US and in the US, I have a market that's in the top desile of valuations. I have massive policy uncertainty uh because you know I have no clue what Trump is going to do and more importantly I also have no clue how the Fed is going to respond to whatever Trump does. Uh so there's really two levels of uncertainty. Um meanwhile I've got bond yields that are going up every day. And what's fascinating to me is everybody's like, "Oh yeah, you want to buy the market where bond yields are going up every day and you want to sell the market where bond yields are going down every day." And I'm like, "Well, actually that's not how it works." like you like like falling interest rates is a pretty strong tailwind for asset prices. Rising interest rates are a pretty strong headwind for asset prices. So yeah, personally I'd rather buy the cheap market with falling interest rates and policy support every day of the week and twice on Sunday. >> Okay. So you just mentioned that the US economy is overvalued and I was going to ask you about that because when you look at the US economy, the Q3 GDP number just came out. It was revised upwards for the third time to 3.1% from 2.8%. I I never understand these revisions. They happen all the time with the government. But uh also the most recent non-farm number came in very hot. 256,000 jobs were added versus expectations of 155,000 jobs. And you also made mention of the fact that with the Trump administration, there's a lot of unknowns. We don't know what they're going to do with taxes and tariffs, deregulation, deportation. Uh but those elements I just mentioned, a lot of people are saying they can be inflationary. Do you see a threat of inflation heating up in the US and so instead of cutting rates in 2025, maybe rates are left unchanged, maybe come Q3 or Q4 they lift rates. What are your thoughts? >> Look, I've I've been an inflationista for for quite a few years. Um and you know simply put the way I look at it is uh I love Jacrev's definition of inflation. Jacre was the uh he was a famous economist in France but he was also Doul's economic adviser and he was the one who advised the goal. He was looking at the the um the twin deficits in the US. He was looking at the guns and butter policies of Johnson you know funding the Vietnam war plus uh plus uh the Great Society. and he said, "Look, they better repatriate our gold." Uh, which you know, the Americans were really upset at the French uh for um but so uh yeah, we basically brought all our gold back. Um and Jacref used to say inflation is subsidizing expenditures that give no return with money that does not exist. Uh and to be honest, I think there's been a you know, we've done a lot of that in the Western world in recent years. Um you know, look at it this way today. You mentioned the very hard non-farm payrolls like for all intents and purposes the US is running at full employment right I mean if you want a job you can find a job in the US today and unless you're in a very like you know there's a few regions that are perhaps you know struggling but by and large uh in the US today the job market is super tight and you're running budget deficits of 7 and a half% of GDP uh it's it's absolute menace you you know in recent years you've gone from 5 and a half to 7 and a half% of GDP um you know massively procyclical uh fiscal policies. So uh so yeah you know you got to pay it somehow and the way you end up paying it is is through inflation. Um so yeah I abs I absolutely do remain um an inflationista and the way I look at it is we're still far from the Fed's 2% target. The Fed started cutting uh for the first time. Usually it never cuts until the inflation gets to 2% or below. Um this time around basically the Fed started to cut the inflation was at 2.6. Um the the message the Fed sent to the markets I think was 2% used to be the ceiling and it's now the floor. As we get close to 2% we you know we start to cut. So 2% is now is now the floor on inflation which means that through the cycle you are you are going to be higher defective. If 2% is your floor um you're going to end up higher. And uh so I no I look I think uh now if I look at the past year you had to be honest uh every reason for inflation to be weak you know energy prices were very tame. You had uh a very strong dollar super weak yen super weak um uh China uh you know other commodities outside of gold. So if you take your soft commodities, your copper, your nickel, etc., all that was really soft. Uh, and you had easy year-on-year comparisons. Uh, and with all of this, uh, still you couldn't get back to 2%. Uh, so now, you know, fast forward to 25 and what do I know? I know I'm getting massive stimulus in China, which I think does matter for things like commodities and just overall growth. I think as soon as the German election is behind us, you're going to get more stimulus in Europe and more rate cuts in Europe. Um, you're going to get uh, you know, then you get to the question of what you get in the US. Do you get protectionism or not? Uh, if you get protectionism, that's inflationary. Do you get more fiscal pump priming uh by the Trump administration? If you do, that's inflationary. Um, so, you know, I'm I'm left wondering. You've got oil inventories at record lows. Everybody came into 25 thinking, "Oh, oil is going to keep going down and it's it keeps grinding higher." So, I don't know. And if you know, if by chance you have uh an end to the Russia Ukraine war, then you're going to have all the re the reconstruction of Ukraine, which is, you know, going to be pushing commodities higher. So, I I don't know. I put it all together. I'm like, you know, what's going to be the big deflationary force in the next year or two? And and I I now you could say well it's going to be China exporting all this excess supply but remember China is now stimulating its domestic consumption number one. Um and number two we're you know we're talking of putting tariffs on this Chinese excess supply. So I don't know I I I yeah I am an inflationista. I have been and I remain one. >> So you're bullish on the US? um is that >> uh the US is a massive economy. Um and I'm uh I'm definitely bullish on US value stocks. Um I'm very bullish on US financials. Um I'm not bullish on the market per se because I think the markets in the US is distorted by the you know the the the extreme concentration that such as you've never seen. Um you know it's or or let me put it this way. If I was going to buy the US, I'd buy the uh equally weighted S&P 500 more than the market weighted. I you know I I don't want to have uh you know 6% of my portfolio in Nvidia and 6% of my portfolio in Microsoft and 6% in my portfolio in Apple. Apple that hasn't grown in sales for four years now u and that is trading at whatever it is 35 times earnings for a company that's no longer growing. No, I'm not that interested in that. But uh you know beyond that uh you know uh is the US economy, you know, is real estate going to do okay? I think it is. Uh is are the banks going to you know piggyback on the real estate doing better? I think they will. So on and so forth. But you know if you look around the world I think there's way more attractive opportunities than the United States on a valuate basis and just on a fundamental basis. You know, the US today mortgage rates are 7%. Energy prices are creeping up. Um, the US dollar is very high, which is going to hurt corporate earnings. So, you know, I'm I'm not bearish the United States. I just think there's there's more attractive opportunities elsewhere. >> Okay. So, you just touched on interest rates and mortgage rates at 7%. and interest rates. In spite of what the Fed is trying to do, they've slashed the short-term rates by uh >> I believe 100 basis points in the last three meetings. So, they're doing everything they can to keep it down, but at the same time, you got the long end of the curve going up. I believe it was around 380 in September and right now it's at 460 470. It feels like it wants to go higher, but what how do you interpret that? What do you think the tenure is trying to tell us? Oh, I think uh you can make many many scenarios. Um you start to see a an acceleration in the sell-off uh in US treasuries post the pres the presidential election result. Um so from there you could say okay well markets getting excited. Trump's going to make America great again. He's going to deregulate. He's going to cut taxes. So it's going to lead to a lot of growth. So I think you know that that's one possible explanation. I'm not poo pooing it by the way. I'm like like you know one one explanation. I think there's another because while US bond yields have been shooting up, Chinese bond yields have been collapsing which is highly unusual. Usually, you know, they sort of move a little bit together at least, but for them to basically open up by 160 basis points in the space of a few weeks is is simply unprecedented. Um, so you know, I personally wonder to what extent when Trump got elected, um, you know, I don't know if it was Xiinping or Lie Chong or, you know, the PBOC or whoever, telling CIC safe, uh, you know, who manages the Chinese reserves, but also telling the pension funds, etc. It's like, look, Trump's back in. He might bash us, he might not. Uh, who knows? But better be safe than sorry. Why uh keep so much exposure to US treasuries? Just start bringing the money home. Um and so you know that could have been contributing to the selloff and the rally on the other side. um as you get a reallocation of a lot of Chinese flows, you know, away from US treasuries because the reality is if you're a foreigner, uh you know, Trump might not be that compelling, uh an investment proposition. I mean, you're Canadian. Uh did you expect, you know, for Trump to come right out of the gate and bash Canada the way he has? Probably not. Um and does that make you more likely or less likely to buy US treasuries? Now, if you're Canadian, you're probably thinking, "Well, I know I'm not going to get my money confiscated in the US." But, you know, what if you're Chinese? What if you're Qatari? What if you're from Bahrain? Uh, you know, do you feel the same? Do you feel that all of a sudden if you're from Bahrain, uh, and you know, Trump wants something from you, he's going to beat you up until you give it to him? You know, could that involve me losing access to my treasuries? You know, it seems like nothing is off the table. Um, and so, you know, it's maybe it it's just that simple. It's, you know, if if you spit in foreigners's eyes, maybe foreigners are like take take their ball and go home. >> So, I want to ask you, >> sorry, sorry, just just just on this. If you're a foreigner, if you're China and you're a little worried about Trump is going to do to you and you see it how he's treating Canada, who you if you're China, you think Canada and the US are like this. They're like, you know, big brother and little brother. They're like this tight. If he treats Canada like this, what's he gonna do to me? >> Yeah, very good point. So, let me ask you about Canada because I always like when I speak to people throughout the world, I always want to get their view of of or their perception of what's happening in Canada. I'm sure you've read there's a lot of turmoil going on right now with our federal government and also with our provincial governments. And it's like we have a vacuum here. there's no real leadership. Uh what what's your perception of and just for the benefit of our viewers, the prime minister of uh Canada, uh Trudeau, Justin Trudeau, he has resigned. There's a leadership race going on and I believe it's going to be in the month of March. We're going to get a new leader of the Liberal Party and a new prime minister. But what's your perception of what's happening in Canada? So, first I don't know if I'm a great foreigner because you know my my wife is Canadian and I have uh four Canadian kids who go to who go to boarding school on Vancouver Island. Um so, uh so I do pay a lot of attention uh de facto to uh to what happens in Canada. Um I do think most foreigners don't really care to be honest because you know it's never really been an issue and Canadian politics aren't that interesting. Um, so no, you look, you've mentioned, yeah, there's a vacuum today. I would argue there's been a vacuum for 10 years. Um, and you've had you've had a lack of leadership. You know, you look back at the past 10 years. What has been the big achievement of Trudeau. You know, you had 10 years to build pipelines to free the oil from Alberta, go put it through BC, ship it on to China, ship it on to Japan or wherever else in the world. That didn't happen. Um post uh Russian invasion of Ukraine, Olaf Schultz came to Canada uh sat down with Trudeau and said, "Look, you know, we desperately need your gas. We desperately need your oil. Um we'll come, we'll build the terminals. We can build them quick. We'll pay for it all. We'll sign you 20-year deals. You know, like he was literally throwing money uh at Trudeau to uh you know, basically to get the gas that uh that that he needed. And now, you know, this is Germany. This is a NATO ally who's in, you know, at the early days of the war is in deep trouble uh because they've been so reliant on Russia. In essence, he comes and says, "Look, I've been reliant on Russia. That was a mistake. I now want to be reliant on you." And what does Trudeau do? He tells him to take a hike because of climate change. Um, now the end result of all of this is that basically Canada has left itself uh completely dependent on the United States. um it had over the p it's done nothing in the past 10 years to uh basically reduce this dependency on the United States and uh that is such a failure of leadership by Canada uh because you had a warning shot in 2016. Trump gets elected in 2016. Uh he says, "I'm going to turn tear NAFTA apart." And you know, he slaps Canada around a little bit, but not too bad. On the back of this experience, Trudeau should have, you know, you know, said, "Okay, I got caught with my pants down here. Let's not have that happen again. Uh let's boost my trade with EU. Let's boost my trade with Asia." Uh he he did absolutely none of that. Absolutely did none of the infrastructure spending that was necessary for this. did none of that. Um, and I think they just took it for granted that, you know, Trump was just a bad dream and it won't happen again. Um, and instead here we are, you know, boom. Uh, and now he's caught, it's not that he's caught with his pants down, he's caught with his pants off. He's just like, you know, he's just being a nudist on the beach here. Um, and so, no, I, you know, you said we have a a lack of leadership today. I would argue you've had it for 10 years. Um, and hopefully that changes. You know, it's the old story, if you're going to plant a tree, the best time to plant a tree was 20 years ago. Uh, the second best time is today. Uh, there's been a cruel lack of leadership in Canada for 10 years. Uh, but, you know, hopefully that gets remedyed soon. >> Yes. And to your point, >> sorry, sorry that was a little politically biased. >> Oh, no, not at all. I wasn't expecting that and I didn't realize you had relations to Canada. But this is what happens when you have a left-leaning or socialist government who's more focused on using the right pronoun and sending gender advisors to the Ukraine than they are on building up the economy and and creating a higher standard of living for its citizens. >> To be honest, I I don't think I don't think it's even a left right-wing thing. It's a it's a virtue signaling because you know I think it's how the perhaps the left has evolved because you know in France in 1981 when we elected Mitron who was right-wing he was socialist he powered he powered ahead on the need to build nuclear power plants he saw that as you know a comparative advantage for France and as a way to maintain France's geopolitical independence essentially um and uh because energy you know I I in a lot of my work I tend to say look energy is uh is economic activity is energy transformed. Everything starts with energy. If you don't have an energy policy that makes sense, uh your economy is going to hit the wall at some point. Um and you in the past you have had leftwing governments that have energy policies that make sense. Um you know because I think in the older days actually leftwing governments you know a proper leftwing government would have said okay great let's bit up build a pipeline job for the boys job for the unions. uh you know jobs for guys with you know big tattoos, big arms, lunch boxes, hard hats. Like the left used to like these kinds of used to like these kind of things. They used to be all about it. Um and they they've turned their back on those voters to, you know, to embrace just just just virtue signaling and cloud cuckoo stuff. Now fortunately I think actually that the election of Trump the reason why this time around the left in America isn't like up in arms against Trump is that I think half the left is actually almost relieved that this page is being turned on the virtue signaling on the woke ridiculousness and they can go back to being what they always were a party defending the workers and uh what they should be uh you want and I say this you know I'm a very right-wing guy, but I you want a leftwing that defends workers, that defends uh you know the infrastructure in your country, etc. You want that as a counterbalance. Um that's a healthy counterbalance. Uh because it doesn't divide society into an us against them kind of thing like all the woke woke nonsense does. >> Very good points. So Louie, before we wrap it up, I I just want to summarize a few of the points you made. So first of all, you think the Chinese economy is turning around and it's on its way up. Things are definitely improving there. You still think things are fine in the US. The economy is still very strong, but uh you don't see any trouble there. But at the same time, you think there's better value in other parts of the world like China. Do I have those points right? >> Yeah. And you know, I know a lot of people don't like China. It's like it's a communist regime, this that and the other. uh and you know long-term returns equity is in China poor etc. There's lots of places we get great value. You know, Brazil right now is being given given in the streets. Um, you know, you have great value in in other parts of Asia. Um, now if you're more of a growth guy, you've got great growth great growth opportunities in India. Um, so yeah, I still think it's an exciting world and there's, you know, there there's things to do in uh in different places. Um, I think the real big risk for the US, for for everywhere, less so for Canada, but for everywhere. The real big risk, uh, is that energy prices continue to grind higher because I think most entrepreneurs, most households can take one punch. So, if interest rates creep higher, we mentioned mortgage rates at 7%. people can take that punch. But if at the same time filling up your car every week keeps on getting more expensive and paying your heating fuel bill and paying your uh your electricity bill, if those go up at the same time, then you get squeezed. Most people can take one punch, the second one knocks you out. Um and so today for me the big risk like I said I'm like I'm decently sanguin but I fear that if you know if we move from $75 oil to $100 oil I'm talking US dollars um then we get a we move into a much more complicated world. So I I continue to believe that having big energy positions if only as a hedge you have your energy positions and if oil stays at 75 they're not going to do very much. Um, if all goes down to 50, then they're going to go down. But if all goes down to 50, the rest of your portfolio will absolutely fly. So, you know, it's it's how you build, you know, you build a portfolio knowing that not everything is going to do well, but you you build some cushions in there. And today, the best cushion you can have is not government bonds. I'm not even sure it's gold anymore. I think the best cushion you can have is energy. >> Well, that was a great discussion. It was very all-encompassing and I want to thank you for spending time with us today. If somebody would like to learn more about you and the services that your firm offers, where can they go? >> Yeah, absolutely. So, uh, we're Hong Kong based where, um, the the easiest is to go to our website, uh, it's called gaffcow.com, g-vek. We really do three things. We have a, uh, a sort of independent research business for for institutions. Um, we have a an institutional asset money management business and we have a a private wealth business. So, feel free to go to our website. I also have uh uh I'm on Twitter or X uh my handle is Gavans. I post every now and then, not all the time, but uh I I'll post a paper that I write on there every now and then. So, feel free to check me out there as well. >> Louie, one final question about Hong Kong. You have lived there for many years now. What do you enjoy most about that city or that region of the world? >> Uh, I think Hong Kong is, uh, you know, it's a super exciting city. U, it's a very easy city to live in. You, uh, if you're into the outdoors, most people don't realize this, but, you know, there's beautiful beaches, amazing hiking, you know, 15 minutes from my office, I can be in the middle of the jungle, uh, hiking, uh, into just really beautiful scenery. So, I definitely enjoy that. I enjoy the fact that it's super safe. You know, as a parent of teenagers, it's uh you know, living in a crime-free environment, uh is uh is very very nice. And then as a businessman, to be honest, I enjoy the the minimal red tape, uh the you know, you know, fairly pro business, pro uh light regulate regulatory touch uh that that we have in Hong Kong. So, it's it's an easy place to run a business. Uh, it's an easy place to raise a family. Um, and it's an easy place to escape from when you want to escape. >> I'm going to have to check it out sometime. Once again, Louie, thank you. >> Thank you very much. >> Well, I hope you enjoyed that discussion with Louis Goff. As Louis mentioned, there's a lot happening throughout the world right now and a lot of turmoil. And if you need help in understanding how these events will impact your financial future, consider having a discussion with a vetted financial advisor at wealthy.com/free. It will only take a few minutes of your time and there's no obligation whatsoever to work with any of these financial advisors. Once again, you can find out more information at wealthon.comfree. Thank you very much for being with us today and I look forward to seeing you again soon.
Wealthion’s Best Of 2025: China Has ‘Leapfrogged’ the West | Louis-Vincent Gave
Summary
Transcript
They completely missed what I think was the biggest story, which was basically China leaprogging the West in industry after industry. >> Hi Louie, thank you very much for joining us today. How are things in Hong Kong? Things are good. Thanks a lot for having me. Uh things are dark as you can tell outside. Uh but yeah, things are great. Good to be here. So I want to focus our discussion today on the US and China and together these two economies represent 50% of the global GDP. So what happens in these two countries impacts the entire world and you and your team have done a lot of research on China and the Chinese economy. What's your view of the Chinese economy right now? And have the policy changes that were announced in September and October of 2024, have they had a positive impact? >> Um so how much time do you have? because just putting a coin in that machine, I could ramble on for hours. But look, I think uh the way to to conceptualize the Chinese economy is you had an economy for roughly 20 years that was a a real estate driven economy for all intents and purposes. You had 20 million people moving from the farms to the city every year. Um and that required a lot of, you know, infrastructure investment, a lot of real estate investment. Uh and that drove a very strong growth rate. Um and in 2018 I think this model was basically uh you know completely torn uh apart by the US's decision to stop uh the semi the export of semiconductors to China and when that happened the Chinese leadership basically freaked out and they thought okay the US is preventing us from growing uh it's semiconductors today tomorrow it might be you know auto parts or petrochemicals or you name it. Uh we have no choice but to become um self-sufficient in pretty much every industrial vertical. And so the government told the banks, look banks, no more loans to real estate and from now on you're only lending to uh to industry. And so you had a period of you know roughly six, seven years 2018 to today where uh loans to industry shot up and loan to real estate collapsed. Um what I think every foreign commentator uh focused on was the collapse in real estate because for 20 years the growth had all been about real estate. Uh but also because we'd gone through a real estate bust in the western world. So everybody's like, "Oh, I've seen this movie before. I know how this is going to end." Um and while they were focusing on the real estate bus, they completely missed what I think was the biggest story, which was basically China leaprogging the West in industry after industry. um where we're seeing it very blatantly today is in autos, but it's also true in industrial robots. It's true in um uh you know solar panels and nuclear power plants, in uh batteries, you know, you name it. Trains, uh road building, tractors, you name it. China is now producing at a quality level that's often better than usually better than the West and and a fraction of the price. Um and that's a a much bigger challenge for our our economies. Now I think having basically achieved now this industrial independence, China can now afford to relax a little more. So you had six years where it was like I said all the money has to go to industry. It was almost like being on a war path footing. Uh and now having again now that they've they've gone to the point where they've leapfrogged the west, it's like okay we can relax a little bit and we can have some um uh some subsidies to consumers. So now you've gone from you know real estate driven market to industrial-driven markets and now you're trying to shift to uh you know boosting consumption and so you're starting to see a lot more stimulus on the consumption side. Um you're obviously seeing absolute collapse in interest rates which uh you know makes u uh you know consumer loans, mortgage loans etc much more attractive. You're seeing uh a bunch of measures taken to make real estate pick up again. Things like you know used to it used to be you needed to put 30% equity down uh to buy a house. Now it's only 10%. Um, and uh, and so you had a huge transition in 2018 and I think we're starting a new transition again today. Longwind answer to your question. That's a great backstory and I a couple of comments. First of all, I find it interesting that you say China's trying to become self-sufficient now because every country in the west is trying to do the same thing, especially the US, and they realize this, especially after Russia invaded Ukraine, that they were relying on a lot of these other countries for a lot of resources. And the other comment I would make is I think China has done an exceptional job of just being way ahead of the curve compared to countries in the west. And I look at EVs and also lithium-ion batteries. If you're a EV manufacturer, you have to go to China to get these lithium ion batteries batteries because they're the only ones with the technology to do so. And they were working on that 10, 15, 20 years ago when nobody else cared about it. And I look at what's happening right now within nuclear energy and also uranium. They're doing the same thing. and they have the world's largest nuclear reactor buildout in the history of mankind. They're building 150 reactors between now and 2035. And they're they virtually produce uh very little uranium, but they're acquiring all this uranium right under the noses of all these western countries. And so there's another industry that they're dominating. >> Well, they have the advantage on that. Sorry to interrupt you. You know, their next door neighbor Kazakhstan is, you know, there's two big uranium producers in the world, right? Uh there's I mean there's Canada and then there's there's Kazakhstan and then and then there's you know bunch of African countries who also produce some but uh so they're next door to you know to one of the biggest producers so that helps um it's uh it helps and you know what China's been doing in with Kazakhstan with the countries in Central Asia the countries in Southeast Asia and elsewhere is you know coming in building infrastructure And you know the idea being pretty simple. It's it's the story of every empire through history as you build roads to bring in commodities cheaper, transform them into higher value added goods and then you know export the goods again. Um those goods might be cars or they might be batteries as you point out they might be solar panels or or whatever they might be. Um and that is again the story of every empire. Every empire fundamentally is a roadbuilding exercise. That's why in Europe, you know, I'm French. In Europe, we say all roads lead to Rome. Um because that's what empires do. They they build roads. And and today, you know, China has it's not that it's taken over Kazakhstan. It hasn't. Uh but China's presence into Kazakhstan is multiples of what it was just 10 years ago. uh and on this you know if you're uh in interested in this one of my colleagues uh Tom Miller who's been working at Gaffc for 20 years uh went around all the uh uh central Asian countries and looked at the various projects and he wrote a really fun read about it uh fun book and so I'll plug his book it's called China's Asian Dream and um uh it's it's a very fun read it's like a you know it's a bit of a travel book but you know going to places like Kyrgyzstan and Tajikistan are like places that you know most people would struggle to put on a map uh and basically explaining what China was doing in all these places. It's again it's I recommend it. >> I'll be sure to check it out. I think one of the big issues with countries in the west is that we have these new governments every four or five years and so there's no constant direction. And if you look at the US economy right now, of course we had the Biden administration, they pushed forth this inflation reduction act and they allocated trillions of dollars toward renewables and uh solar and wind and I guess a little bit toward nuclear, but now you have the Trump administration and they're going in the completely opposite direction. So, I want to ask you a little bit more about China and >> can I interrupt you? >> Can I interrupt you there on this? cuz cuz I think I'm smiling cuz one of the jokes in China is that uh in China we don't change politicians but we change policies. Uh and in the west they change politicians but they never change their policies. They still end up with the same healthc care policies. They still end up with the same agricultural policies. They still end up with the same foreign policies. they still end up with the same energy and environmental policies almost regardless of who you vote for. Now, in fairness to your point, I think that's been true for like quite a while that in essence, it didn't really matter who you voted for. The policy was driven by essentially a government bureaucracy um that just sort of turned on. Um this is the big question of course today with the US, you know, does does Trump upend all this? Now, he promised to uh upend all this back in 2016, uh to drain the swamp and to, you know, bring bring power back to the people and all that stuff. Um very Andrew Jacksonlike. Uh and and he didn't do it. Uh so it'll be interesting to see if it happens this time. But you know, I think actually in China, you actually get changes of policy. You don't change the policy makers, but you change the policies. uh in the west you know what's what's the difference in the say the US health care policies like US health care has to be one of the biggest challenges or for that matter healthcare is a huge challenge in Canada and it's a huge challenge in the UK and it's a huge challenge in France and tell me the difference between the various politicians of the past 20 years in terms of their healthcare policies it's always been the same >> hi I hope you're enjoying the discussion with Louis Goff there's There's so much happening in the world right now, especially when it comes to geopolitics. And if you need help understanding how these events will impact your financial future, consider having a discussion with a professional financial advisor. You can find out more information at wealthon.comfree. Once again, that's wealthon.comfree. Now, back to the show. I guess the word the point I was trying to make is that the government let's just say in China they're going to say okay lithium ion batteries we're going to spend 10 years or 15 years building this technology out whereas in Canada or the US >> it change you're never going to get that because every government has their own ideas so they're never going to pick one course and then go with it and >> on this yeah know and I'm sorry I keep interrupting you I'm being super rude it's your show and uh and I keep busting in. I apologize. Um, and so I guess what you're pointing to is sort of industrial policy, right? It's the way that China says, "Okay, you know what? We're going to be doing we're going to be doing EVs or we're going to be lithium ion batteries." Um, now I think the way this is perceived in the West is um that, you know, the government decides to do EVs and like does a bunch of subsidies and and then you get uh an EV market out of the ground. But in fact, Chinese capitalism works a little bit differently. It doesn't work exactly like that. What happens in Chinese capitalism is that Cining at the top says, "Hey guys, the future is EV and we got to produce EVs." And then basically every mayor of every major town, every uh provincial governor, every party secretary picks up his phone uh to his local bank and says, "Hey bank, Cinping, the big man, just said we need to do EVs, so you're going to give a loan to my EV maker." And before you know it, you actually have 130 EV producers in China, which is what you have right now. You got 130 guys that are all very well funded by the banks. Um, and then starts what I've, you know, come to call the hunger games of capitalism, of Chinese capitalism. You got 130 guys and they're just going at each other's throats. Um, and eventually you have four or five who survive. And this happened in the lithium uh batteries. It it that's exactly how it happens. Like, oh, we need to be better in batteries and, you know, 150 guys get get uh funded and only five survive. Um, and now the consumer is the end winner of this because the consumer gets, you know, a cheaper car at a better price, uh, and a better car because to survive you have to put together the best car. Um the end losers of course are all the banks and the private savers because the way the system works is because there's capital controls and there's basically financial repression, people have no choice but to put their money at the bank and the banks can then turn around and and and lend and lend this money um on on competitive terms to businesses that are always in structural overcapacity. Um and so it's it's a very different system. Um so the way we do it in the western world is we say okay you know what uh electric cars uh that's the future. So either we're going to give subsidies for people to buy electric cars or we're going to subsidize that we're going to pick a winner i.e. Tesla and we're going to give Tesla a bunch of subsidies u and the end result is Elon Musk you know is worth whatever it is $200 billion. I'm picking the number out of thin air I don't know but I think it's somewhere around there. uh Elon Musk gets to be $200 billion and instead of having electric cars that are sub $10,000 which is what there is in China, you know, you want to buy a Tesla, it's $50,000. Um and and so it's a it's just a different way to do things. Um one of them definitely is very attractive to I would say you know top-end businessman uh to shareholders and the other is very attractive to consumers. interesting points. So I want to ask you about the Chinese consumer. Now in the US, the consumer represents 70% of GDP. What's the comparable number in China? And how would you characterize the health of the Chinese consumer right now? >> Um so that's a a tough question. Um it's a tough question because I think fundamentally you're comparing apples and oranges. um comparing apples and oranges because you know out of that 17% you have like 18% for healthcare right um in in China it's less than half that um but then you think okay um you know it's uh now you could say yeah you get much better healthcare in the US but then you look at the matrix and you know you get a better life expectancy in China now than you do in the US even though China spends a fraction of of of what the US spends um so It's you're you're comparing a lot of you know very very you know it's very different things. Um so the the reality uh in China is that you know you've just had like I said a six or sevenyear transition where all of the focus was on building up industrial capacity. Um and that brings you to today where the industrial capacity has far outpaced the the consumption capacity. So you know China, you know, we're talking about cars. Um China is producing today roughly 6 million cars more than it can consume. U and you know it's consuming roughly 34 million cars. it's uh you know it could it could produce 40 but actually it could probably produce 45 or 50 if it really wanted to if it was working flat out. Um so you got the excess capacity and this underutilization of of industry. Um and you know most people look at this and say well it's uh it's not China is not consuming enough. Now the reality is China consumption growth has continued to click you know to continue to click on. You know China today consumed twice as much beef as the United States. It consumes eight times as much fish as as the United States. It consumes three times the number of smartphones per year that the United States consumes. Uh it consumes you know roughly two times the number of cars. Uh so on and so forth. So, uh, but if you put relative to the production capacity, um, that there's a lot there's there's room for consumption to pick up, uh, no, no doubt about it. And I think that, uh, you know, this is what a lot of the stimulus you're now seeing is about, um, is to basically, you know, get get consumption picking up. that that's you've gone from a focus of amongst policy makers of we need to be self-sufficient industrially on everything to now all of a sudden the focus being we need to um uh we need to boost consumption and that's fairly recent you know the the real like the first time the policy makers really came out and said we're going to need to boost consumption here was in September of 24 so what is that five months months, four or five months. >> So, as you alluded to, China is a large exporter. It has the world's largest trade surplus growing at 100 billion a month. So, I I believe the number is over dollars. >> Yeah. Yeah. It's nuts. >> Massive number. But, but um maybe you can just speak to that and what this is going to do to the economy. And I guess I also want to know where that excess money is going to. >> Yeah, I think that's a great question. I want to know it as well. Uh I was hoping you tell me. Um so look the uh the reality is today for me so right now as you point out China's running one maybe 1.1 trillion trade surplus um per year. That's probably going to be the number for for 24 and for 25. uh you know to put things in context up until a few years ago until China started to reach these kinds of numbers the biggest trade surplus you'd ever seen in the world were two to300 billion you know Japan at their top Germany at their top so this is an enormous outlier and you know logically what should be happening uh the fact that China's running these massive trade surpluses tells you that the the industry there is super competitive which we They're producing great cars for 10,000 bucks. They're producing phones that are much better than Apples for threequarters of the price. Yeah. Like you you go right now if you want to book yourself into the Four Seasons in Shanghai or Beijing, it's going to be 200 bucks a night. Um you know, it like the economy is super super competitive. Um and and yeah, and most foreigners who who go visit uh there's not a lot of them who still go visit, but most of them who do are like, "Wow, things are so cheap." uh and everything works and the trains are on time and they're clean relative to what China was 15 years ago. It's literally night and day. Um so, you know, you've got usually what should be happening for an economy that is that competitive is, you know, the guys the guy making shoes for Nike um should be earning money and he should be turning around and building another factory or he should be just turning around and buying local assets. Historically, that's that's what happens. And as he does the exchange rate goes up, local asset prices go up. Uh domestic consumption picks up on the back of a stronger currency and a stronger uh asset uh prices. And as the exchange rate comes up and consumption comes up, the uh trade surplus abates and that's sort of how nature heals itself. U that's how you know this the the invisible hand sort of fixes things uh in the background. I think what's happening in China today is all these entrepreneurs who are making very good money um live in a world of absolute and utmost uncertainty. Um they have uncertainty internationally of course where you know they don't know is Trump going to do 60% tariffs is he not is Europe going to do 60% tariffs is he not are we going to get sanctioned because we're trading with Russia are we not so they're dealing with like this huge uncertainty but then even domestically you know they've gone through five or six years where they felt that instead of helping them the central government kept tripping them up. you had the the real estate crackdown and the tech crackdown and the education sector crackdown and then three three years of COVID lockdown. Um and so even their own faith in their own government has been seriously tested. So you know I think most entrepreneurs most business people u they just want to know the rules of the game and then they get on with it. uh they just want to know okay what are the taxes going to be what are the regulations going to be and then from there they decide okay I'm going to make that investment or or I won't um but if they don't know what the rules of the game are then they sit on their hands they they wait and see so right now all these guys are making tons and tons of money and they don't know what the rules of the game is going to be for the next six months 12 months two years five years so they get all this money and they do one of three things um one of them is they buy gold and you can see China's gold imports going up and gold prices going up in spite of rising yields in the US and rising uh US dollars. So number one, they do that. Number two, they um they keep their cash offshore if they have an opportunity to do so. Uh so you look at Hong Kong as an example in the past 18 months. US dollar bank deposits in Hong Kong have grown by $220 billion. That's a lot of money. You know, Hong Kong is a tiny, you know, we're eight million people here in Hong Kong or 7.7 and it's a small it's a small place. 220 billion. It's a lot of money. Um, and so you you're seeing a huge uh surge in deposits and then uh the rest of the money I think is coming back to China to be honest just sitting at the bank and at the bank the banks have nothing to do with it because there's no demand for bank loans. The banks have nothing to do with it but buy Chinese government bonds. And so Chinese government bond yields go down every single day. Um and so I think a lot of you know some of the anomalies that you see out there I gold doing well in spite of a strong dollar and rising treasuries, Chinese bond yields collapsing even as US treasuries sore. A lot of these things uh are linked to this mass the recycling of this just gargantuan Chinese trade surplus uh combined to the lack of confidence today amongst Chinese entrepreneurs. >> You didn't mention real estate in Toronto or Vancouver. >> Well, no. In the old days, No, no, you're absolutely right. So in the old days, if I was a rich Chinese guy, um I did buy real estate in Toronto and Vancouver or in Sydney or in London or lots of or LA or San Francisco, lots of different places. Although you're right that, you know, Toronto and Vancouver were, you know, very high on the list of of places to buy real estate. Um I think this has been shaken by a number of things. Of course, you know, Canada started to put tax on on um on foreign foreigners trying to buy real estate in Canada. uh started to put taxes on um buildings that were left left unoccupied. Um and uh but perhaps most importantly, you know, what really shook the Chinese faith in let's keep buying Vancouver and Toronto was the seizure of the Russian assets, right? when um when the combined Western world said not only are we going to seize the assets of the Russian government, which was one thing, but we're going to seize as well the assets of all the Russian oligarchs. If you're a rich Chinese guy and you own a house in Vancouver, um you know, you think, hold on, if tomorrow CJ Ping decides to invade Taiwan, something I have absolutely no visibility or influence on, um then the Canadian government is going to confiscate my house. I own I bought this house in case things went bad in China. And now you tell me in case things go bad in China, I'm going to lose it. So this house isn't what I thought it was. Um it's not, you know, it's it was my sort of safe money, my uh my fall back uh in case things go really bad. And what you're telling me if things go really bad, I lose it. Um so all of a sudden, I'm not that interested in it anymore. And so I think you have seen, you know, a lot less Chinese money being, you know, with a trillion dollar trade surplus, to be honest, the Vancouver real estate market should be going nuts. It should be going absolutely bananas. So should Sydney uh and so should Auckland and and Toronto. Um but it's not uh because that that recycling into western real estate I think has really stalled following the the Russian u confiscation of assets >> and it's amazing to see this trade surplus grow in the past eight years when this cold war has been going on between China and the US. So who are they selling all the goods to? Yeah, I think that's a super important point you just made there is, you know, six, seven years ago when we said, "Okay, we're going to block China from getting semiconductors." Well, we didn't say it. It was the US who said it. When the US said, "We're going to block semiconductors to China." Um, you know, the idea was to basically designify our supply chains to say China's a bad actor. We're going to trade less with them. Back then, the trade surplus with China was roughly 250 billion a year. Now, it's a trillion. So the whole idea that we're going to desinify our supply chains and make China less relevant in the global trade equation has been an complete and utter failure. Um you know I think if policy makers were ranked on on results uh that that has obviously failed. Uh that should be an F. you get an F-grade for your attempts to isolate China because in what's happened to answer your question what's happened in the meantime is that China's growth into other emerging markets has gone bananas um and you know today China exports more to emerging markets than it does to developed markets in fact China now exports more to countries you know Indonesia, Malaysia, Philippines and the like. uh the the Association of Southeast Asian Nations, uh China exports more to ASEN than it does to the United States. And what's fascinating is that the export mix of China, so now you know it's like 55% emerging markets, 45% developed markets. Emerging markets are growing very fast. So pretty soon, you know, in a few years we'll be at like twothirds, one third. Um and what they export to emerging markets is higher value added goods that are higher margin. uh it's the cars, it's the nuclear power plants, the railroads, uh it's the turbines, it's the industrial robots and increasingly what they sell to the developed markets is increasingly either Apple um consu other consumer electronics you know which are very hard to move somewhere else because it's you know complicated supply chains etc or increasingly frankly the pretty low value added stuff the shoes the Tupperware that you buy at Walmart. Uh, you know, the the cotton socks that uh that you're probably wearing right now, the uh you know, like the all all that stuff that you you find at uh uh you know, in the big box stores uh all over the US and Canada, um that is increasingly that China knows it's going to lose gradually like the plastic toys you buy for kids over Christmas. all that stuff is going to be moving to um to Vietnam, to Indonesia, to Bangladesh, to wherever else. China knows it's going to lose that. So when the US says, "Hey, we're going to do a big tariffs." I think China increasingly is like, "Okay, so you're going to tariff Apple, you know, sure, have at it. That's, you know, your issue." Um you're going to tariff all the consumer electronics. Okay. Uh that's a bit of a bummer, but we know that can't move because it's complicated supply chain. So that's not going anywhere either. and it's definitely not coming back to the US and you're going to tariff all the low value added stuff that we were destined to lose over the next 5 to 10 years anyway. So maybe we lose it a little faster. But we don't really care because our future I'm talking like if I'm Chinese, I'm not. But you know, you know, if you're Chinese, you think our future is not selling Tupperware at Walmart. Our future is selling BYD cars to Brazil. Uh it's selling long machinery to Indonesia. Uh it's selling nuclear power plants to Saudi Arabia. That's what I that's what if you're the Chinese Ministry of Commerce, that's what you care about much more so than selling Tupperware at Walmart. >> And now that we have a new administration in the US, do you see things improving? Um, you're probably quite familiar with the with the cabinet, are there a lot of hawks on the ch are there a lot of China hawks on the cabinet? And do you think Trump will want to renegotiate the trade deals? >> Um, Trump will definitely want to renegotiate the trade deals. Absolutely. You know, he Trump loves negotiating trade deals. I mean, he said it, you know, when you went to Joe Rogan, he was asked, you know, like he says, you're 78 years old, 79 years old, I can't remember, but uh, you know, why you still doing this? And he said, look, I I'd love, he said, what gets me really excited is negotiating great deals for America. So, I think that's, you know, that's how he sees himself. That's how he likes it. So there's no doubt he's going to want to sit down with CJ Ping and hammer out some kind of deal. Now the bigger question is, you know, is CJ Ping going to be interested in a deal. Um, you know, I think there's there's a fair amount of bad blood that that that's happened over the past eight years. China's felt very targeted by the US. You know, I think it's easy to criticize people. You know, the old Steve Martin joke, you can't criticize anyone. Well, before you criticize anyone, you should walk a mile in their shoes like this. when you criticize them, you're a mile away and you have their shoes. But the, you know, when you look at China and from their point of view, the US messed up massively with the mortgage crisis. The world almost imploded. They came in and they did a big stimulus which you know almost saved which in their view basically saved the global economy, got the global economy back on track. They did this uh at at with they took a lot of risk. They put on more debt and they like it also led to a lot of corruption in China. But they feel like in 2008 we were g you know good global responsible citizens and then the US turns around and like plants a knife in our back. Um now I'm not saying I agree with this view but I'm just saying that's how they view things. So you know will how keen will they be to to have a deal? Um especially since remember they spent really the past 8 years cushioning their economy from potential US attacks. Um so they may very well feel look you know you want to tariff us have at it we don't care. Um we don't care all the more since I think deep down they know that 8 years ago what everybody was worried about was deflation. Today what everybody's worried about is inflation. And politically can you know can Trump really surf on a wave of higher inflation? um you know to the extent that he got elected thanks to a wave of higher inflation, you know, you saw that uh in Americans who earn less than $50,000 a year, you had a 16 percentage point swing from Democrats to Republicans. Uh and what drove that swing was first and foremost inflation. So, I highlight this because, you know, it'll be interesting. I if you know, I think Trump will want to sit down, will want to make a deal. Uh, how China how interested China will be. Uh, I think that's up in the air. >> And we have this back and forth going on with Tik Tok. Um, >> so right now, Tik Tok is still operating in the US. Trump gave it uh I think it's a 75day >> That's right. um break. But uh do you think he's going to use this as a bargaining tool with the Chinese? >> I think if you see Jin Ping, you don't give a hoot about Tik Tok. I mean, the ownership of Tik Tok is 60% US VC firms. It's 20% the staff, mostly based in the US incidentally, and 20% the founders. Um now, you know, Tik Tok is a global business. um you know if they have to shut down the US I think it like if you're seeing Ping it's like what do I care uh it's it's absolutely no skin off his back now I know the perception in the US is oh I know but you know it's like a tool of the Chinese Communist Party to control the minds of our um of our youth uh so on and so forth uh so if you believe that then then you think Okay. Uh, what's CJ Ping going to do? There's still no reason to give it to the US. Um, so, you know, the whole like, oh, you know, if you do a deal with us, we're going to give you Tik Tok. Like, I think if you're CJ Ping, what do you care? Like if if if American VCs that are again own 60% of the company have to take a huge hit, I don't think it it prevents you from sleeping one minute less than you would have otherwise. >> Interesting. Okay. And by the way, if you see CJ Ping, just just on Tik Tok, if you see CJ Ping, in fact, you might want to go all the way through and see and say because you then you show the world, look, you know, these guys uh the like America pretends that they're the land of business and that they're the land of free trade and that they're but as soon as you go over there and you're successful, they try to steal your business from under you. Um and then if you know and if you if you don't give into their terms, uh then they shut you down. So, you know, how really is it really the land of capitalism that it claims to be? So, it, you know, I think for Cin Ping, he might actually rather close it down. Uh, it'd be a better propaganda coup for him than selling it to the US. >> So, in summary, it sounds like things are definitely improving in China. And in the past, you have said China was the most undervalued market in the world. Do you still think it is? >> I think it is. It's less undervalued. you know I I was just in Oslo and one of my slides in my presentation is the performance of the big country ETFs so you know Japan, India etc. So last year the S&P you know the big the S&P 500 essentially uh was up 24%. Um the FXI the biggest Chinese ETF uh was up 28. Um, so I asked this now I'm in front of a room of big and then now granted this after a terrible 22 and a terrible 23 but I asked this room of you know big pension funds like there was about 100 Scandinavian pension funds and I asked you how many people here uh knew that you know China last year Chinese equities the FXI actually outperformed the S&P uh and out of about 100 pension fund managers only one put his hand up which told me that not only are they not invested in China um they they're even looking at it. Um, which you know I find interesting. So it is less undervalued than last year. You know it's gone up. Um, but you know if you take a step back what do you have in China? You have a market that is basically in the bottom quartile of its valuation at a time where all of a sudden the policy uncertainty has been lifted. Um, you know the government since September has been very vocal of look we're going to keep throwing money at this until the economy picks up. um we're going to do fiscal um uh stimulus, we're going to do monetary policy stimulus. And at the same time, and you know, they're doing the monetary policy stimulus because bond yields are falling every day. Now, why are bond yields falling? Because the the PBOC keeps buying Chinese bonds like their balance sheet is exploding. It's like going through QE just like we did in 2009. We being the Western world, just like we did in 2009, 2010. So, they're going through QE. And so, you know, I look at this and I think, okay, I have the opportunity of buying a cheap market with policy support and at a time when the differential between the dividend yield and bond yields has never been this high. So, I know that every Chinese pension fund, insurance companies, etc. today has to sell bonds and buy equities. Meanwhile, I look at the US and in the US, I have a market that's in the top desile of valuations. I have massive policy uncertainty uh because you know I have no clue what Trump is going to do and more importantly I also have no clue how the Fed is going to respond to whatever Trump does. Uh so there's really two levels of uncertainty. Um meanwhile I've got bond yields that are going up every day. And what's fascinating to me is everybody's like, "Oh yeah, you want to buy the market where bond yields are going up every day and you want to sell the market where bond yields are going down every day." And I'm like, "Well, actually that's not how it works." like you like like falling interest rates is a pretty strong tailwind for asset prices. Rising interest rates are a pretty strong headwind for asset prices. So yeah, personally I'd rather buy the cheap market with falling interest rates and policy support every day of the week and twice on Sunday. >> Okay. So you just mentioned that the US economy is overvalued and I was going to ask you about that because when you look at the US economy, the Q3 GDP number just came out. It was revised upwards for the third time to 3.1% from 2.8%. I I never understand these revisions. They happen all the time with the government. But uh also the most recent non-farm number came in very hot. 256,000 jobs were added versus expectations of 155,000 jobs. And you also made mention of the fact that with the Trump administration, there's a lot of unknowns. We don't know what they're going to do with taxes and tariffs, deregulation, deportation. Uh but those elements I just mentioned, a lot of people are saying they can be inflationary. Do you see a threat of inflation heating up in the US and so instead of cutting rates in 2025, maybe rates are left unchanged, maybe come Q3 or Q4 they lift rates. What are your thoughts? >> Look, I've I've been an inflationista for for quite a few years. Um and you know simply put the way I look at it is uh I love Jacrev's definition of inflation. Jacre was the uh he was a famous economist in France but he was also Doul's economic adviser and he was the one who advised the goal. He was looking at the the um the twin deficits in the US. He was looking at the guns and butter policies of Johnson you know funding the Vietnam war plus uh plus uh the Great Society. and he said, "Look, they better repatriate our gold." Uh, which you know, the Americans were really upset at the French uh for um but so uh yeah, we basically brought all our gold back. Um and Jacref used to say inflation is subsidizing expenditures that give no return with money that does not exist. Uh and to be honest, I think there's been a you know, we've done a lot of that in the Western world in recent years. Um you know, look at it this way today. You mentioned the very hard non-farm payrolls like for all intents and purposes the US is running at full employment right I mean if you want a job you can find a job in the US today and unless you're in a very like you know there's a few regions that are perhaps you know struggling but by and large uh in the US today the job market is super tight and you're running budget deficits of 7 and a half% of GDP uh it's it's absolute menace you you know in recent years you've gone from 5 and a half to 7 and a half% of GDP um you know massively procyclical uh fiscal policies. So uh so yeah you know you got to pay it somehow and the way you end up paying it is is through inflation. Um so yeah I abs I absolutely do remain um an inflationista and the way I look at it is we're still far from the Fed's 2% target. The Fed started cutting uh for the first time. Usually it never cuts until the inflation gets to 2% or below. Um this time around basically the Fed started to cut the inflation was at 2.6. Um the the message the Fed sent to the markets I think was 2% used to be the ceiling and it's now the floor. As we get close to 2% we you know we start to cut. So 2% is now is now the floor on inflation which means that through the cycle you are you are going to be higher defective. If 2% is your floor um you're going to end up higher. And uh so I no I look I think uh now if I look at the past year you had to be honest uh every reason for inflation to be weak you know energy prices were very tame. You had uh a very strong dollar super weak yen super weak um uh China uh you know other commodities outside of gold. So if you take your soft commodities, your copper, your nickel, etc., all that was really soft. Uh, and you had easy year-on-year comparisons. Uh, and with all of this, uh, still you couldn't get back to 2%. Uh, so now, you know, fast forward to 25 and what do I know? I know I'm getting massive stimulus in China, which I think does matter for things like commodities and just overall growth. I think as soon as the German election is behind us, you're going to get more stimulus in Europe and more rate cuts in Europe. Um, you're going to get uh, you know, then you get to the question of what you get in the US. Do you get protectionism or not? Uh, if you get protectionism, that's inflationary. Do you get more fiscal pump priming uh by the Trump administration? If you do, that's inflationary. Um, so, you know, I'm I'm left wondering. You've got oil inventories at record lows. Everybody came into 25 thinking, "Oh, oil is going to keep going down and it's it keeps grinding higher." So, I don't know. And if you know, if by chance you have uh an end to the Russia Ukraine war, then you're going to have all the re the reconstruction of Ukraine, which is, you know, going to be pushing commodities higher. So, I I don't know. I put it all together. I'm like, you know, what's going to be the big deflationary force in the next year or two? And and I I now you could say well it's going to be China exporting all this excess supply but remember China is now stimulating its domestic consumption number one. Um and number two we're you know we're talking of putting tariffs on this Chinese excess supply. So I don't know I I I yeah I am an inflationista. I have been and I remain one. >> So you're bullish on the US? um is that >> uh the US is a massive economy. Um and I'm uh I'm definitely bullish on US value stocks. Um I'm very bullish on US financials. Um I'm not bullish on the market per se because I think the markets in the US is distorted by the you know the the the extreme concentration that such as you've never seen. Um you know it's or or let me put it this way. If I was going to buy the US, I'd buy the uh equally weighted S&P 500 more than the market weighted. I you know I I don't want to have uh you know 6% of my portfolio in Nvidia and 6% of my portfolio in Microsoft and 6% in my portfolio in Apple. Apple that hasn't grown in sales for four years now u and that is trading at whatever it is 35 times earnings for a company that's no longer growing. No, I'm not that interested in that. But uh you know beyond that uh you know uh is the US economy, you know, is real estate going to do okay? I think it is. Uh is are the banks going to you know piggyback on the real estate doing better? I think they will. So on and so forth. But you know if you look around the world I think there's way more attractive opportunities than the United States on a valuate basis and just on a fundamental basis. You know, the US today mortgage rates are 7%. Energy prices are creeping up. Um, the US dollar is very high, which is going to hurt corporate earnings. So, you know, I'm I'm not bearish the United States. I just think there's there's more attractive opportunities elsewhere. >> Okay. So, you just touched on interest rates and mortgage rates at 7%. and interest rates. In spite of what the Fed is trying to do, they've slashed the short-term rates by uh >> I believe 100 basis points in the last three meetings. So, they're doing everything they can to keep it down, but at the same time, you got the long end of the curve going up. I believe it was around 380 in September and right now it's at 460 470. It feels like it wants to go higher, but what how do you interpret that? What do you think the tenure is trying to tell us? Oh, I think uh you can make many many scenarios. Um you start to see a an acceleration in the sell-off uh in US treasuries post the pres the presidential election result. Um so from there you could say okay well markets getting excited. Trump's going to make America great again. He's going to deregulate. He's going to cut taxes. So it's going to lead to a lot of growth. So I think you know that that's one possible explanation. I'm not poo pooing it by the way. I'm like like you know one one explanation. I think there's another because while US bond yields have been shooting up, Chinese bond yields have been collapsing which is highly unusual. Usually, you know, they sort of move a little bit together at least, but for them to basically open up by 160 basis points in the space of a few weeks is is simply unprecedented. Um, so you know, I personally wonder to what extent when Trump got elected, um, you know, I don't know if it was Xiinping or Lie Chong or, you know, the PBOC or whoever, telling CIC safe, uh, you know, who manages the Chinese reserves, but also telling the pension funds, etc. It's like, look, Trump's back in. He might bash us, he might not. Uh, who knows? But better be safe than sorry. Why uh keep so much exposure to US treasuries? Just start bringing the money home. Um and so you know that could have been contributing to the selloff and the rally on the other side. um as you get a reallocation of a lot of Chinese flows, you know, away from US treasuries because the reality is if you're a foreigner, uh you know, Trump might not be that compelling, uh an investment proposition. I mean, you're Canadian. Uh did you expect, you know, for Trump to come right out of the gate and bash Canada the way he has? Probably not. Um and does that make you more likely or less likely to buy US treasuries? Now, if you're Canadian, you're probably thinking, "Well, I know I'm not going to get my money confiscated in the US." But, you know, what if you're Chinese? What if you're Qatari? What if you're from Bahrain? Uh, you know, do you feel the same? Do you feel that all of a sudden if you're from Bahrain, uh, and you know, Trump wants something from you, he's going to beat you up until you give it to him? You know, could that involve me losing access to my treasuries? You know, it seems like nothing is off the table. Um, and so, you know, it's maybe it it's just that simple. It's, you know, if if you spit in foreigners's eyes, maybe foreigners are like take take their ball and go home. >> So, I want to ask you, >> sorry, sorry, just just just on this. If you're a foreigner, if you're China and you're a little worried about Trump is going to do to you and you see it how he's treating Canada, who you if you're China, you think Canada and the US are like this. They're like, you know, big brother and little brother. They're like this tight. If he treats Canada like this, what's he gonna do to me? >> Yeah, very good point. So, let me ask you about Canada because I always like when I speak to people throughout the world, I always want to get their view of of or their perception of what's happening in Canada. I'm sure you've read there's a lot of turmoil going on right now with our federal government and also with our provincial governments. And it's like we have a vacuum here. there's no real leadership. Uh what what's your perception of and just for the benefit of our viewers, the prime minister of uh Canada, uh Trudeau, Justin Trudeau, he has resigned. There's a leadership race going on and I believe it's going to be in the month of March. We're going to get a new leader of the Liberal Party and a new prime minister. But what's your perception of what's happening in Canada? So, first I don't know if I'm a great foreigner because you know my my wife is Canadian and I have uh four Canadian kids who go to who go to boarding school on Vancouver Island. Um so, uh so I do pay a lot of attention uh de facto to uh to what happens in Canada. Um I do think most foreigners don't really care to be honest because you know it's never really been an issue and Canadian politics aren't that interesting. Um, so no, you look, you've mentioned, yeah, there's a vacuum today. I would argue there's been a vacuum for 10 years. Um, and you've had you've had a lack of leadership. You know, you look back at the past 10 years. What has been the big achievement of Trudeau. You know, you had 10 years to build pipelines to free the oil from Alberta, go put it through BC, ship it on to China, ship it on to Japan or wherever else in the world. That didn't happen. Um post uh Russian invasion of Ukraine, Olaf Schultz came to Canada uh sat down with Trudeau and said, "Look, you know, we desperately need your gas. We desperately need your oil. Um we'll come, we'll build the terminals. We can build them quick. We'll pay for it all. We'll sign you 20-year deals. You know, like he was literally throwing money uh at Trudeau to uh you know, basically to get the gas that uh that that he needed. And now, you know, this is Germany. This is a NATO ally who's in, you know, at the early days of the war is in deep trouble uh because they've been so reliant on Russia. In essence, he comes and says, "Look, I've been reliant on Russia. That was a mistake. I now want to be reliant on you." And what does Trudeau do? He tells him to take a hike because of climate change. Um, now the end result of all of this is that basically Canada has left itself uh completely dependent on the United States. um it had over the p it's done nothing in the past 10 years to uh basically reduce this dependency on the United States and uh that is such a failure of leadership by Canada uh because you had a warning shot in 2016. Trump gets elected in 2016. Uh he says, "I'm going to turn tear NAFTA apart." And you know, he slaps Canada around a little bit, but not too bad. On the back of this experience, Trudeau should have, you know, you know, said, "Okay, I got caught with my pants down here. Let's not have that happen again. Uh let's boost my trade with EU. Let's boost my trade with Asia." Uh he he did absolutely none of that. Absolutely did none of the infrastructure spending that was necessary for this. did none of that. Um, and I think they just took it for granted that, you know, Trump was just a bad dream and it won't happen again. Um, and instead here we are, you know, boom. Uh, and now he's caught, it's not that he's caught with his pants down, he's caught with his pants off. He's just like, you know, he's just being a nudist on the beach here. Um, and so, no, I, you know, you said we have a a lack of leadership today. I would argue you've had it for 10 years. Um, and hopefully that changes. You know, it's the old story, if you're going to plant a tree, the best time to plant a tree was 20 years ago. Uh, the second best time is today. Uh, there's been a cruel lack of leadership in Canada for 10 years. Uh, but, you know, hopefully that gets remedyed soon. >> Yes. And to your point, >> sorry, sorry that was a little politically biased. >> Oh, no, not at all. I wasn't expecting that and I didn't realize you had relations to Canada. But this is what happens when you have a left-leaning or socialist government who's more focused on using the right pronoun and sending gender advisors to the Ukraine than they are on building up the economy and and creating a higher standard of living for its citizens. >> To be honest, I I don't think I don't think it's even a left right-wing thing. It's a it's a virtue signaling because you know I think it's how the perhaps the left has evolved because you know in France in 1981 when we elected Mitron who was right-wing he was socialist he powered he powered ahead on the need to build nuclear power plants he saw that as you know a comparative advantage for France and as a way to maintain France's geopolitical independence essentially um and uh because energy you know I I in a lot of my work I tend to say look energy is uh is economic activity is energy transformed. Everything starts with energy. If you don't have an energy policy that makes sense, uh your economy is going to hit the wall at some point. Um and you in the past you have had leftwing governments that have energy policies that make sense. Um you know because I think in the older days actually leftwing governments you know a proper leftwing government would have said okay great let's bit up build a pipeline job for the boys job for the unions. uh you know jobs for guys with you know big tattoos, big arms, lunch boxes, hard hats. Like the left used to like these kinds of used to like these kind of things. They used to be all about it. Um and they they've turned their back on those voters to, you know, to embrace just just just virtue signaling and cloud cuckoo stuff. Now fortunately I think actually that the election of Trump the reason why this time around the left in America isn't like up in arms against Trump is that I think half the left is actually almost relieved that this page is being turned on the virtue signaling on the woke ridiculousness and they can go back to being what they always were a party defending the workers and uh what they should be uh you want and I say this you know I'm a very right-wing guy, but I you want a leftwing that defends workers, that defends uh you know the infrastructure in your country, etc. You want that as a counterbalance. Um that's a healthy counterbalance. Uh because it doesn't divide society into an us against them kind of thing like all the woke woke nonsense does. >> Very good points. So Louie, before we wrap it up, I I just want to summarize a few of the points you made. So first of all, you think the Chinese economy is turning around and it's on its way up. Things are definitely improving there. You still think things are fine in the US. The economy is still very strong, but uh you don't see any trouble there. But at the same time, you think there's better value in other parts of the world like China. Do I have those points right? >> Yeah. And you know, I know a lot of people don't like China. It's like it's a communist regime, this that and the other. uh and you know long-term returns equity is in China poor etc. There's lots of places we get great value. You know, Brazil right now is being given given in the streets. Um, you know, you have great value in in other parts of Asia. Um, now if you're more of a growth guy, you've got great growth great growth opportunities in India. Um, so yeah, I still think it's an exciting world and there's, you know, there there's things to do in uh in different places. Um, I think the real big risk for the US, for for everywhere, less so for Canada, but for everywhere. The real big risk, uh, is that energy prices continue to grind higher because I think most entrepreneurs, most households can take one punch. So, if interest rates creep higher, we mentioned mortgage rates at 7%. people can take that punch. But if at the same time filling up your car every week keeps on getting more expensive and paying your heating fuel bill and paying your uh your electricity bill, if those go up at the same time, then you get squeezed. Most people can take one punch, the second one knocks you out. Um and so today for me the big risk like I said I'm like I'm decently sanguin but I fear that if you know if we move from $75 oil to $100 oil I'm talking US dollars um then we get a we move into a much more complicated world. So I I continue to believe that having big energy positions if only as a hedge you have your energy positions and if oil stays at 75 they're not going to do very much. Um, if all goes down to 50, then they're going to go down. But if all goes down to 50, the rest of your portfolio will absolutely fly. So, you know, it's it's how you build, you know, you build a portfolio knowing that not everything is going to do well, but you you build some cushions in there. And today, the best cushion you can have is not government bonds. I'm not even sure it's gold anymore. I think the best cushion you can have is energy. >> Well, that was a great discussion. It was very all-encompassing and I want to thank you for spending time with us today. If somebody would like to learn more about you and the services that your firm offers, where can they go? >> Yeah, absolutely. So, uh, we're Hong Kong based where, um, the the easiest is to go to our website, uh, it's called gaffcow.com, g-vek. We really do three things. We have a, uh, a sort of independent research business for for institutions. Um, we have a an institutional asset money management business and we have a a private wealth business. So, feel free to go to our website. I also have uh uh I'm on Twitter or X uh my handle is Gavans. I post every now and then, not all the time, but uh I I'll post a paper that I write on there every now and then. So, feel free to check me out there as well. >> Louie, one final question about Hong Kong. You have lived there for many years now. What do you enjoy most about that city or that region of the world? >> Uh, I think Hong Kong is, uh, you know, it's a super exciting city. U, it's a very easy city to live in. You, uh, if you're into the outdoors, most people don't realize this, but, you know, there's beautiful beaches, amazing hiking, you know, 15 minutes from my office, I can be in the middle of the jungle, uh, hiking, uh, into just really beautiful scenery. So, I definitely enjoy that. I enjoy the fact that it's super safe. You know, as a parent of teenagers, it's uh you know, living in a crime-free environment, uh is uh is very very nice. And then as a businessman, to be honest, I enjoy the the minimal red tape, uh the you know, you know, fairly pro business, pro uh light regulate regulatory touch uh that that we have in Hong Kong. So, it's it's an easy place to run a business. Uh, it's an easy place to raise a family. Um, and it's an easy place to escape from when you want to escape. >> I'm going to have to check it out sometime. Once again, Louie, thank you. >> Thank you very much. >> Well, I hope you enjoyed that discussion with Louis Goff. As Louis mentioned, there's a lot happening throughout the world right now and a lot of turmoil. And if you need help in understanding how these events will impact your financial future, consider having a discussion with a vetted financial advisor at wealthy.com/free. It will only take a few minutes of your time and there's no obligation whatsoever to work with any of these financial advisors. Once again, you can find out more information at wealthon.comfree. Thank you very much for being with us today and I look forward to seeing you again soon.