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Well, the dollar fell, long dated bond yields rose, and stocks wavered as President Trump's push to remove FED Governor Lisa Cook fueld, concerns about central make independence and inflation risks. It's not just that, though, it's also in Vidia Tomorrow. We've been saying there's a lot riding on that report. It's the world's biggest stock. It makes up three percent of the global market cap of all public companies. Will bring those numbers to you as soon as they cross tomorrow.
This is the backdrop for our conversation with Ben Inker. He's the co head of Asset Allocation Portfolio Manager at GMO. It's the Boston based asset manager co founded by Jammy Grantham, with seventy billion dollars in assets under management. Ben looks closely at megacap concentration, so yeah, in Nvidia certainly on his radar. He joins us from Boston. Ben, we're going to talk about the mag seven in the US and the context of the rest of the world. But First,
the threat of FED independence. What we were just talking about with Endo Current who covers the global economy, the President saying he will fire FED Governor Lisa Cook if he is successful. Does it change your view of US markets?
It probably doesn't change my view all that much because we're pretty skeptical of at least the US stock market these days. It would have It would create some more concerns for US about US bonds and create more concern about the US dollar because I think if the President is successful in bullying the Federal Reserve into lowering interest rates more than the economy warrants, the two places that that comes out are long term bonds and the dollar.
And the dollar, by virtue of being quite over value today, could fall really quite hard.
Do the president's attacks on the Federal Reserve confirm your skepticism? Does it essentially give you evidence that saying, hey, we are right in our call to be skeptical of US equities right now.
Well, we do think it is part of one of the key problems for US companies right now. The US stock market is trading at a big premium to the rest of the world. That is an issue. The US dollar is very overvalued. That is an issue. But the other thing we really worry about for the US is the US is facing a series of supply shocks that the rest of the world is not. So we've got
the tariffs, which increase inflation and decrease economic activity. We've got the move against immigrants, which tends to do the same, and then we've got this uncertainty problem where we have an administration that makes its decisions apparently by tweet, and where you really don't know week to week what is going to happen, and that makes it very difficult for USA businesses to make good long term investment decisions. This
is part and parcel of that problem. So while I certainly hope the administration does not succeed in pushing a Thud governor off of the board on the basis of a criminal referral, because you can have a criminal referral on just about anyone for just about no reason at all, So I hope it doesn't happen. If it does, it's another sign of policy uncertainty in a country that is suddenly a wash in it.
And we know that you are a skeptic of US equities because of their high valuations, but the Magnificent Six dominate US equity performance. What breaks their momentum and what will you replace them with if they falter?
Yeah, I mean to be clear, we are quite skeptical of the fact that the average US company trades at a big premium to the average company in the rest of the world. The Magnificent Six, which is the Magnificent seven x Tesla, because Tesla is not only a very different company, it's also a much much more expensive company than the rest. The Magnificent Six have been extraordinary in their ability to continue to grow at a scale where other companies in the past have really hit limits to growth.
Now they're trading around thirty times earnings on average. That Lord knows, that's not cheap. If they can maintain their past levels of growth, it's still a perfectly reasonable valuation for them. The question is can they maintain it. We're not honestly sure. One of the things that is very different from the past is they have hugely ramped up
their aggregate capex. These were always very capital life businesses, had wonderful free cash flow, and today they are investing in aggregate hundreds of billions of dollars in property, plant, and equipment, and it's a huge bet that they are going to be able to make a lot of money out of AI. Will that come true, I don't know If it does not. It is one of the most you know, economically meaningful bets we've ever seen from the stock market and could be a real problem for them.
Why do you think US premium has persisted despite stronger growth overseas?
You know, it's it's funny. I think some of it is the reflected the reflected glow of the MAG six. Because of the MAG six, the aggregate S and P has done better fundamentally right now, That fundamental out performance is a piece of it. The dollar has been a big source of the outperformance because the dollar has appreciated by a lot over the last decade versus every other currency on the planet. And then the valuation in the US over the last decade has really expanded relative to
the rest of the world. But there is this base of sort of fundamental outperformance, all of which is owed to the MAG six. So the Magi have been amazing
over the last decade. They're expensive, but they're amazing. The rest of the US has not been amazing, but has still captured some of the glow because they've been more associated with the MAG six than companies outside the US, and that I just don't see how it's sustainable because those companies are going to have to do a lot better than they have in the past to justify their valuations.
We're speaking with a Ben Ankor, co head of Acid Allocation portfolio manager at GMO. Of course, the co founded firm by Jammy Grantham seventy billion dollars in assets under management, been on the valuation side when it comes to the MAG six. I know you've talked about US stocks being more highly valued than international stocks, and if we look at stocks in the US, obviously that's based on where
investors think they're going to go. You said it could be justified if they continue their growth rate as the way they've been growing in recent years. What would you say, though, to someone who says, well, the US is a unique environment from a regulatory perspective, from an economic power perspective, from an international relations perspective, and there is this premium in the US because well, we have a regulatory environment
that allows for that. That essentially says, okay, well that is justified that the rest of the world doesn't have, and indeed, we haven't seen outperformance of the rest of the world save for the first few months of this year. We'll see what the future brings. But isn't the doesn't the US deserve to have a premium on it based on those factors.
Look, if the US deserves to have a premium, it would be on the basis of having a higher return on capital than we have in the rest of the world. There are plenty of countries where there are not a lot of regulations over what companies do. Most of the emerging world doesn't have that much any regulations. The return on capital isn't necessarily that brilliant. They aren't wonderful places to operate. The US has been a good place for
businesses to operate. One we are a very big market. Two, we have had a regulatory system that is very rules based, very kind of slow to change, And it has been a good base to try to sell to the rest of the world. All of that is under threat right now. The US is not such a brilliant place to be as a base for the rest of the world because things like steel and aluminum costs a lot more in the US than they do anywhere else on earth, because
we have the big the big tariffs on them. From a regulatory perspective, while the biggest you know, the biggest victims might be companies providing wind power or looking to
do so. We today operate in a world where the regulatory environment is much less predictable, and unfortunately, we also now operate in an environment where it is pretty clear that the way you want to get ahead, at least as a very large cap company, is getting in the good graces of the government, which is a very different game than we have had for the last eighty years in the US, and that you know, that pushes towards
rent seeking behavior, it pushes towards corrupt behavior. It is not a situation where you would say, aha, these are the companies that should be training in a premium for the rest of the world. That is more like what we have seen in countries like Russia or China, where in general people have said, oh, well, if you're going to invest there, you better have a discount to make up for the fact that you don't know what the
government is going to do. And the incentives for companies are not necessarily profit maximizing for shareholders.
You know, speaking of Washington, and we're going to have more questions on this. The President is having a cabinet meeting right now. We're monitoring it. If he does start to take questions, we will bring you those questions and answers as soon as we get them. Check out live go on the Bloomberg terminal to see that right now. Then on that the idea of the US government taking a stake in these companies, as you mentioned, it does
concern you. We did hear from Howard Lutnik earlier on CNBC who said the idea of taking a stake in a defense company such as Lockheed Martin for example, could be talked about at a certain point in the future. What's the warning that you have for US involvement US government involvement in private enterprise.
Well, you know, the basic problem is as the government gets more involved in private enterprise, the needs of shareholders take a back seat. And that isn't obviously, you know, that isn't necessarily the absolute worst thing in the world. But we do see, and we have seen time and time again, where businesses are more answerable to the government than they are to their standard owners. You get less
good business decisions. Now. On the other hand, if you are a defense contractor, it may well be in your interest to have the government take a stake, because if you are one where the government has not taken a stake, maybe you're less likely to win the next competition.
Ben, speaking of the President, we got to leave it there. Ben Inker, co head of Acid Allocation portfolio manager at GMO