Why Governments Won’t Let Inflation Go Away

interest rates to be about four percent. The fact that inflation is around tempercent, we'll put that one side at the moment. This first my progress, right, Yeah, it's nice to get away from zero's. It feels somewhere approaching something, getting towards normality. And if inflation actually does come down, obviously it's going to come down next year and next year, but if it does kind of stay around maybe four or five percent in the long run, then the Bank

England doesn't have that much although it should. I mean, obviously it's not planning to reads them much further at all effort all actually, but we'll see, and certainly not planning to raise them above inflation, because you know that would be crazy and old fashioned. But it does mean it does mean that if we have an even vaguely consumer phacing bank, we should be able over the next few months, just like getting proper interest on our deposits,

not more than inflation. Obviously isn't a real return on cash, but a return on cash the less. Yeah, and I mean there's quite a few fix Street boinds know that you don't alsus have to lock up for that long. You get over four per cent, may even be high on the um. And then there's a few accounts you can get stuff. I mean, obviously with the Continent account you can't see really white money in it, but I'm sure I saw one that was picking up above sex

or seven percent actually recently, I don't believe you. Now listen, you can get above four percent on UK equities as well, right, And one of the great things about UK equities is that they are usually dividend paying and not particularly expensive.

And I put up a chance the other day on twitship that everyone got right across about pointing out that in capital terms, real the UK market hasn't actually moved since the nineteen sixty seven, which meant everyone go, oh, you can't like this, You've forgotten about dividends, and I haven't got about dividends. I was just putting up an interesting chart and people didn't find it interesting. I found

it quite interesting. But nonetheless, you've had a perfectly reasonable return from the UK market thanks to dividends, right, Yeah. And I think this is actually really important because and that's it's really important in the context of a very specific thing today, which is a Shell obviously just reported its results as well, and it's made draka profits blah blah blah, and of course everyone is kind of disgusted, appalled,

blah blah, et cetera. But this and one of the things they always highlight is it pays out there's something of dividends to share holders. But if I called up a chart the Royal Dutch Shall over the past ten years, if you include dividends re invested, it has made exactly as much as if you put your money and a

foot who shared tracker. If you don't rest the dividends, the capital gain is less than six percent, So I think that's a good measure of Look, the dividends are part of the reward to shareholders for owning the stock. They are not actually egregious and they are not, you know, flying ahead of every other company in the country. Um. So that that's kind of like I think one could measure that helps to separate the can effect from the

fiction side. This argument about whether kind of energy companies, etcetera. Are making profits that are kind of over the top. Um, and you know, the discussion about wind fall taxes, etcetera. Greedy shareholders. I mean that's the story, isn't it. You greedy shareholders. You shouldn't want those dividends. Everyone forgets that

those dividends are paying their pensions. Yeah. And also those greedy shareholders would have been like far, far, far better off by being invested in the SMP five hundred for those ten years. So we should be we should be grateful, grateful to those greedy shareholders exactly, these sacrificed returns and wait for this. I'm gonna wait for the thank you letters now. In terms of anything but the US, which is kind of where most investors are beginning to get

to these days. One of the things that I'm talking about in the podcast that you're about to hear fantastic conversation with with Russell Napier or other. He's fantastic. I just sit there as usual, but you know, he does say some really interesting things. One of the things he points out is that in pretty much every environment similar to the one we have today i inflationary or one jammed with the financial oppression measures, the best way to invest is to invest in stuff that is cheap. And

outside of the US almost everything is reasonably prized. You know, look at the the MSCI World Index if you take out the US, and again it's barely budged for a decade. Yeah, I mean, I think this is really good. It's it's actually I mean, this is the nice thing that interest is going up. We've get something closer to normal environment. We are you can also put your money, are we we haven't a or in sort of like really weird conditions lasting forever, which is what you had to do,

you know, maybe five years ago. Um. And I think, I mean, one of the things I've been writing about this morning the zou Ki equity income investment trusts, and one of the brokers was out talking about basically how cheap they look, and it wasn't exactly I kind of is it. The UK might quite possibly be quite a good place to be this year. So it's not like

a ringing endorsement. God, it's hard for people to It's hard for people to say this isn't it after all these years are saying the UK is rubbish, rubbish, rubbish. The fact that it looks like a perfectly really bras market with good dimit impayment, it's really hard for some of these professionals to force themselves to say, but you know what, the more it goes up, the easier they're

going to find it. Well, yeah, I mean, interesting thing is the Investment Association came out it's annual figures on where we've been putting our money basically, and last year was the first year ever, including two thousand and eight, the UK retail investors have actually had a net outflow. In other words, we took money out of funds and of course the hardest sector again was UK equity funds generally something like twelve billion outfloor is the only thing

going up? Yeah, and then well this is you know, it's good news for anyone who's got a kind of contrarian bent because it's still really widely detested. It's not quite as heated as it was in September, but that's really not seeing very much relative hatred. Wonderful thing, right, John, Thank you very much. Thanks. Welcome to Mary Talks Money, the podcast in which people who know the markets explain the markets. I'm there in sum Stweb this week. Our

guest is Russell Napier. He's author of The Solid Ground Investment. Well it's a newsletter, really report anyway, it's brilliant. If you can't get your hands on it, do He's also the author of two excellent books, Anatomy of the Bear, which I think we might be eating over the next few years, and The Asian Financial Crisis, both absolute must reads now rather than I started by discussing one of the things that is absolutely crucial to Russell's analysis, which

is understanding where the global economy is heading. And to look at that, we need to look at government debt and private debt relative to g d P. Has it, pete, Is it at a point where something has to change? Now? If we can understand where we are with that, then we can start to understand how governments will react. And if we know what governments are going to do, then we can get a sense of how markets are going to react. So my first question to Russell was where

are we right now? Globally in terms of public and private debt levels. I mean, one of the biggest questions and finances when it's too much debt, too much debt. Throughout my entire career, debt to GDP ratios have been going on. Either's more debt, but yet it always seems to be sustainable. So we have to focus on why suddenly that isn't the case. Let's talk about three metrics.

So one is debt to GDP ratio, and that would be the debt of the government, the dead of the household sector, and the debt of the non financial corporate sector as a percentage GDP. Well, it's at the highest level ever recorded. Often when people look at this data, they look just at government data, and you could show for the Hunted Kingdom, for instance, that it's below where it was at the end of World War two. But if one looks at the whole lot, which includes the

households and the corporates, were at a higher level. America, for instance, would have got to the end of World War two with its debt burden on those three sectors at about a hundred and GDP. It's now two hundred and sixty to GDP. So it's not marginally higher, it is significantly higher. So you'd come to the conclusion it's the highest level of debt to GDP and human history. That still doesn't mean it's too much, but it doesn't

raise the vibraes as to why it might be too much. Now, let's look at the other metrics, because the problem with that the GDP is it's measuring a stock, which is the debt to a flow which is GDP that's the

annual amount of the production of the economy. A second one people can look at is the Bank of International Settlements Early Warning Indicators, and they have back tested this and look at the growth rate off debt to GDP relative to trend, and a deviation from trend on the upside as produced as a very high prospect of a private sector debt crisis. In other words, there's too much debt because the private sector can't possibly service it. So that's another indicator. And the one that I like to

look at is private sector debt service ratios. So that's just the private sector and not the government, and it's the total amount of income private sector income needed to service the debts. And there are many many countries where that's above. That's always been a warning signal, particularly if interest rates are going up and you're already at And the problem we have today is they're going up from

five thousand year loans. And when interest expense goes up, interest rates go up from five thousand year loans, interest expense goes up particularly quickly. Anybody with the UK mortgage it's maturing this year will be all too familiar with that dynamic. So you put all that together, I think it's too high. It's dangerously high. It risks a prior that sector debt crisis if interest rates properly reflect the inflation outlook. So that's the final little bit of the

ingredient that is now in the in the pudding. If you like, inflation is high, interest rates are supposed to go high to correct that bring it down. But can the system, this geared system, live with the level of indust rates that will do that. My answer is no one. So finally, too much debt is too much debt. Okay, Well, that sounds like there's a really simple solution here. We just keep interest rates low forever everything I'll be fine.

I think that is the solution. There's a problem with that because short term rates are controlled by the central bank, and long term rich are supposed to be controlled by you and me the saver. They're not supposed to be within the control of the government. Remember one of the reasons that we took it out of the control of the government as they did such a bad job of it. And that is why we made the Bank of independent in the nineties. That is why we give our central

banks targets. That is why we left this up to them. Uh. And if the market you and I demand the correct level of interest strates to compensate us for future inflation one if that's just simply too high and forces everybody to default or forces mass default in the private sector.

And if you look at the British government profit and loss account of the minute, and look at how much money we're paying on interest expense and the inflation compensation we pay on indexlling guilts, and the transfers were making to the Bank of England to compensate them for their losses, and the transfers will soon be making to the commercial banking system to compensate them for the losses on the

COVID loans that the government guaranteed. You know this number is rapidly getting to about a hundred and thirty hundred forty billion sterling, quite close to the budget for the National Health Service. So I focused on the private sector and say, you know, the private sector couldn't cope with higher rates. But if we stick with the status quo where a central bank independent sets short term rates and bond investors right even the set long term rates, we

may not have a feasible economic system. What should interest rates be at the moment to compensate us for inflation? You know, CPI is branning knocking around ten the center, so that we should be getting twelve on our deposit accounts in a way. Well, in short term rates, yeah, and in long term rates it's a bit more problematical.

There are lots of distortions already in the long term bond market, Lots of force buyers already, and those buyers will be life funds and pension funds when they're doing their liability management and matching. Those were their aspects, So they're already distorting the rates. The central bank ownership is

distorting the rates. And there's a unique function post Great Financial Crisis, of which many organizations used government debt as a form of collateral for borrowing, and that also distorts rates. So yeah, we're showing much much higher, but they are not going higher. And part of that is a government action through forcing savings some savings institutions to buy this

part of it is a central bank distortion. But I think it's very difficult to argue that these rates are properly set by a market and fully compensates for future inflation.

So there's some distortion already there. But let's go back a little bit to the last time that that debt was extremely high, although as you set year is different because we're talking about the post war period when it was public debt alone that was the major problem, and then didn't see massive distortion of the relationship between interest rates and inflation or how how did that work? Well, it worked by forcing the savings institutions to buy government bonds.

So I want to quote from Isaac Newton here, and Newton, as you probably know, quite a lot to do with finance, and his time was Master of the Mint, and that was particularly go to executing people for forgery. But we'll leave that as a as a separate issue. So UT's third laws dates that for every action there is an opposite and equal reaction. And what I will now arrogantly called Napier's laws is that for the modern investor, for every market action, there is an opposite, never equal, and

always distortionary government reaction. So let's talk about the reaction, but more importantly, let's talk about some of the distortions that it causes to the entire systems. So during warfare, it's quite easy to get people to buy government bonds. I mean, the sacrifices people make during war are much bigger than finances, so they there are war born drives. Also, your institution Usians are forced by government bonds through ferties

Freeconian measures. In World War Two, the savings institutions of the United Kingdom had the hand over all of their offshore assets, particular dollar assets, to the government and they got government bonds in return. So there's a pretty blunt sledgehammer approach to this. Obviously, there was a dollar assets where liquidated and used to purchase war materials, but the investors suddenly find themselves for herself or in government bonds. After World War Two, it's more tricky to make the

case that we should continue financial repression. But the case is made, and then that we have to switch and say this was not about preserving the state and preserving the welfare and the liberty of the people. This is about their safety. And this is because we have to get them into really safe assets, because we all know

how dangerous assets. Other assets are not that difficult after World War Two, given the prolonged her performance from equities which began famously in October nine and had lasted really throughout that entire period. But we now have to say that it's government bonds that are saying if the yield has capped, in particular, if you don't let the price

of bonds fall, there won't be a capital loss. The yield is reasonable, it can be argued there is no risk of principle not being paid, There is no risk of interest not being paid. Why wouldn't you want this coercy of our set right in the middle of your portfolio. And then we go to the institutions under the guise of macropotential regulation and say you need to have x

percentage in government bonds. And a nice little example of the legacy of this, which has only just disappeared, is the need to force retiring pensioners to put all the money into ennuities, and the nuities are backed by government bonds. So there's lots of little works of the system you can put in place to force the compulsory ownership of government bonds. Okay, so I can see how it works that time around. How might this work this time around?

I mean, obviously, what we're trying to do here is to get investors to hold onto government bonds at lower yield than our appropriate given the inflation environment, that gradually eats away at government debt in real terms. And the problem is that stop, friend, So it works, I mean, it works, so there is an upside here, right, Yeah. I think a nice little example of that is I think it's nineteen fifty seven where Harold McMillan said to the people of the United Kingdom, you've never had it

so good. By that stage, I think you've already lost thirty percent of your money in real terms investing in British government bottoms. So you've never had it so good. It was clearly in that one section of the population, but not necessarily in another section of the population. So if you're a portfolio investor and you can see how

wealth maybe realigned during this period. You can do something about that as long as you're free to do so, and you can look at it to invest in equities and shares of companies that might benefit from such realignments of wealth. So it's being alive to the opportunities to do something rather than believing that this is temporary. And I think that's the other thing worth stressing. Could last a long time. It doesn't last a year or two years.

This to get our to GDP and say, oh, I mean the advanced economy, it's not just the United Kingdom. To get it back into line, I think it's a decade's work. Don't own government bonds unless they force you own them. Well, let's come back to how financial repression, because that's what this is. How finance repression might work this time around. We talked about how it worked last time around and has some of the remnants of it.

For example, annuities being as something we're forced about exceptionaly, they're relatively recently fallen away, right, But nonetheless, if we're going to start again, how how might it happen or is it happening already? I think the other that might be Yes, yeah, I think it's happening already, depending on My main job is to advise financial institutions, and the more I'm talking to longer term pension funds and life funds, the more they'll tell me this is already happening to them.

If I'm talking to mutual funds, they'll say, what's financial repression? So in the obviously easy answer that is just hang around and you'll find find out. So it has to spread down through the system. It's like low hanging fruit. The low hanging fruit to be repressed. It has to be regulated, but it has to be natural owners of government bonds. If you like multi asset funds, so multi

asset I shouldn't call them funds. Multi asset pools have been the easy place to repress because it's not revolutionary to tell them that forced them to buy more government bonds. As if we ever get beyond that two funds that are dedicated to equities, or if we get to your SIP or your ISA, that's when it becomes more revolutionary.

So the minute they've just been plucking off the low hanging fruit, and I think it's about to become much more, much more dramatic than somewhere sometime we're going to see an institution or a form of savings compelled to buy, say to buy bonds that we just didn't think was ever going to be owning bonds, and that may be coming to Japan before it comes here. Well, it's interesting, I mean, we've heard a little bits involves that suggest to us that various things might be coming that we

will find uncomfortable. I mean, but until up until now, we've seen, for example, defined benefit pension funds providing people with their defined benefit pensiants having to hold larger amounts of bonds than possibly some people might think is sensible

under the circumstances for regular reasons. But we've heard mutterings recently about the suggestions, for example, that perhaps all penci of funds may be the ones that people hold under order enrollment, might be persuaded to invest in various government initiatives via green bomb system, that kind of thing. So what you're talking about having to having to assist the government bio iss that already kind of feels like it's

out there to a degree, doesn't it. Well, the Bike of England, and this is before COVID formed a committee I think it's called the Bank of England Working Group on Productive Investment. Now I'm I'm not sure that the Bank of England knows a lot about productive investment, but anyway, it has a working Group on Productive Investment which includes h m r C, includes the regulator and includes Last time I looked about seventeen financial institutions people are listening to.

This will be interesting to know that they're not banks, that the people who look after your money. So they're sitting in a room and what are they discussing. Well, that's all over the newspapers you can read about it. But it's effectively about getting those institutions to buy more long term securities, and those long term securities are ultimately aimed at achieving some sort of political goals. Now those political goals can be in renewables, but can they be

all the political goals? And the high biling is what coupon really should people get for this returned? And there's a lot of argument from those institutions and other institutions, but the fact is that the working group is there. It's trying to find a way to get the people who look after your money to buy more long term fixed coupon securities and in my opinion, that is not

good for the own customer. So there's lots of ways you can dress it up to say it is good for the own customer, but I think it isn't, and I think it is tinged more than tinged with a needed by the politicians to have your savings where they need the savings to be. So basically the point is that the concepts are out there now we're just bickering

about the price. That's a very good way of putting it. Okay, So if that is the case here we are in a situation where as you say, if saving institutions and fund managers, in particular the fund managers so we think of as being mainly equity only investors, long the only investors, if they are now forced to put even five teen percent of their portfolios into what we might call it the bank giving they would call long term productive investments,

and we might call long term not particularly productive political investments. If they're forced to that, then as you say, they are then forced to sell equities, and so what we have Obviously we know that inflation has a long term nemic negative effect on equity valuations, but there's selling of equities would have a secondary negative effect on equity valuations.

One of the consequences of that for us. Well, so we all go back to the seventies now and we think about what happened in the seventies, and it wasn't a good time to be in order of equities. I think there's an interesting dynamic though, because one of the key reasons why it wasn't a good time to be an honor of equities is because indust rates went so high. Nominal rates went so high. Now we've already discussed why that's unlikely, just because the levels of debt are so

much higher, So it's not to be rising rates. What is it that would bring down valuations? And as you said, it's going to be this shift that forced the savings institutions to sell equities. And then we reach an interesting dichotomy here because some equities are already cheap and some aren't. So if I do that in broad terms, I would say to categorically the SMP five hundred is grossly overvalued, and data that we have stretching back as far as

eighteen seventy one, it looks like it's very expensive. If I look at UK equities, looks like they're really at best fair value and potentially really quite cheap. So I think there are still opportunities and equities. It may be that UK st in institutions have to sell the UK equities, but frankly they don't own a lot of them anyway. And secondly, there's always this other buying power below that, and that is in the form of solid wealth funds,

private equity management biots. So I would not be so negative in a word of financial repression in the markets where we start with low valuations. So last time we didn't and it didn't do well. But if you want to look at the period in the in the fifties and sixties when UK was clearly running a financial repression, equities didn't do too badly because they started at a very cheap price. Now they're not as cheap as they were.

In we're looking at the world x US equity markets in dollar terms, there really haven't gone very far in twenty two years. The MSc I, this is an index of world equities, doesn't include the US in dollar terms, it's not much above it's March two thousand level. But if you have an asset class in the capital returns of being close to zero for twenty two years? High risky is it to invest in? They asked a class.

So I don't rule out some forms of equities as a way to defend yourself from this financial repression, but I think one should be very very cautious about US equities, which are sixty four of global market capitalization. Yeah, and any fund you might hold, literally, any fund that is not country specific is going to have very high exposure to the U s sense. So it's pretty much any passive fund that you might buy in any sector or any kind that anything global or world and the title

is effectively can be tracking the US. Right. Yeah, Passive I think is particularly dangerous. And I suppose you have people involved with active management on here every week saying how dangerous passive is, and they've been saying that probably twenty five years. But it is dangerous in this world. This is a sea change in how the system works and the market. This is the nature of equity markets. They fill up with winners, and they fill up with

winners of a certain type of system. And the system, particularly US market, is filled up with is those that benefit from falling infest rates, more debt, lower inflation, off shoring, productive capacity just running with brands financial engineering, if you like, in its broadest terms, and those are not the winners of a financial repression. In fact, they may be forced to re equitize. So when you're buying passive, you're buying

the winners of the old regime. I would say, even in America, there are lots of stocks to buy that are winners in the new regimes. So if you've got a good map fund manager who's not compelled to be orientated towards the benchmark, I would be pretty convinced that they could buy a good portfolio of reasonably priced equities. As you know, the thing that biases us towards that

would be the word value in the title. So value managers would be looking for lower valuation stocks, and if the risk from equities in an inflation is really the valuation and not the earnings, which is what history tells us that I think even in America, with the right sort of mandy, a good fund manager could potentially produce with terms have been inflation. But it's difficult to see that happening in the SSP, which is full of the winners of the old regime. They are actually saying that

this could be a stockpickers market. People have been saying that to me for ages, and I've written several columns about it, saying, you know, now it's a stock pickers market. And it turns out that the momentum of the index JAZZ keeps going. But the last year or so, we

have begun to see a change, haven't we. So you know, value stocks about performed, and you're beginning to see I think, as you say, the shift towards people who can really step away from the index and really look for value, really by stuff that is cheap to begin with out performing, which is is reassuring for the likes of us. Yeah, well, you know, I can't say you heard it here first obviously because you've been hearing it for twenty odd years.

But it is coming, and I think there's an interesting quirk in it, which is the gorhythms fascinating. The algorithms obviously use lots of historical data to work out relationships that they see in the market, or relationships they see related between the market and macro variables. And if I'm right that there's a whole new system coming, and one of a lot less market and a lot more government.

One wonders what the algorithms do because at some stage the data dropping into the equation against the sense that actually some of these old relationships don't exist anymore. And then there has to come a tipping point where they begin to pick up new relationships. And at that stage do they all go at the same time, that they all move at the same time. So strangely, one of the reasons that we've been so wrong about stop picking for so long is the automized automization of the whole

system through algorithms and index funs. And it may be the algorithms lead us or don't lead us. Hopefully human beings are ahead of them, but sort of exacerbate these strands. But as when they get that important piece of data that tells them that we're not in Kansas anymore, I don't know. But when they do, it might all happen quite quickly, okay. And when they do, what do you

what what do you want to be in? I mean, when when we look back to history, what are the kind of stocks that should perform well in this environment outside value? I've heard you speak before about it being a matter of size and the midcaps and small caps. Ever history of that performing in this environment. But again, is that because historically when these things have happened, they've been cheap at the beginning, or is it because there's smaller mid caps. Yeah, I think it's because they've been

cheaper againing. Primarily, what we're talking about is the politicization of the flow of credit and capital. So when would want to look to see which companies benefit from it? Okay, that's just the whole point. We said, this is a transfer of wealth, but there are people and companies and sectors that benefit from it. I don't think it's that

difficult to work out what the political goals are. And the political goals are clearly energy and renewables, shorter supply chains, and the big one which we don't really talk enough about but it's really important, is that we're becoming less reliant upon China. From a geopolitical perspective, We've got to become less reliant up on China. Now, those companies are going to be getting cheap credit. It's worth pointing out that if you can access credit at all and a

financial repression, it is pretty cheap. I mean, the government fleeting away Zone debts isn't fleeting away everybody's debts. If you're on the political nice step and not the political naughty step to get some of that cheap debt capital, and you and I invest in the equity, then those companies that get that cheap capital to solve the political problems that we've just discussed, well, their equity should do

quite well, even better if it was cheap. Now that's the sort of place I think you should be investing in. But you can see the problem here which the managers acclimatized to that which for manager has been thinking in that sort of world. I have an answer to that, actually, and that is if you if you've been operating in emerging markets for the last thirty years, you've got a reasonable idea how that system works. Emerging markets are not

percent like that, there's a huge variety in them. But I think emerging market managers in a better sense of working out the political economy, because that's what we're talking about here. It's profiting from a political economy, uh, and being very careful of the old financial engineering economy, which is the legacy which will now be allowed to wither on the vine. One of the things that you're expecting as we attempt to make our supply chains more secure

and shift away from China. Is a capex boom in the West, the capox boom in in developed markets. So we need to be looking to invest in the kind of companies that will benefit from that. So the industrial sector, for example, which had been much ignored over the last couple of decades. Absolutely. I mean, if I look, I

have a nice chart somewhere. It's in the Andrew Smith's book Productivity of the bonus culture of the US corporates investment in tangible assets as a percentage of US GDP, and from two thousand onwards it just goes down and down and down. And I don't think it's at an old time Lobo. I think it's close to a post war blow. They didn't have to invest in these tangible assets because that productive capacity was being added in China.

And they may have invested in the intangible assets and the brands and the goodwill acquisition, but not in the tangible assets. There has been a massive under investment. Lots of reasons for that. Andrews for this in his book, argues it's the bonus culture. But anyway, whatever the cause and reason was, it now has to end an interesting prohibit from Christians suing who's the man who runs Deutsche Bank? He was asked why his loom books, expanding why are

German corporations boring from him? And what looks like it could be a recession law for Germany, and he replied, well, the rebuilding their supply lets. That is a huge form of reinvestment, and it relates not to Russia, but it relates primarily to China. So yes, absolutely, this, this reinvestment

in our productive assets is going to do well. And there are people who make the picks and shovels once again, of any such form of physical capital investment, and there are bits of the country that do much better from it, and bits of the world that do much better from it.

And worthwhile then saying that the other bit that whether's on the vine, which is financial engineering, we are going to focus on directing capital to something that builds new cash floats and not financing old cash flow, because, as everybody listening to this knows, the quickest way to get rich in the last thirty years was to borrow as much money as you could and buy an existing income strain and were or a house. Many houses that's that's

exactly that. You know, whether it was commercial properly a house, private equity, gear up, buy an income strained. Watch your industry has come down, watch your asset price go up. That is a form of financial engineering, or any different derivations of it. It's over and therefore that's the opportunity, because the opportunity is to be in the other bit, which benefits not from the flow of cheap, cheap credit.

So there are two parts for this. As I said, there's the naughty step and there's a nice step, and then a politicization of credit. But a lot of things will be on the naughty step. Does this mean do you think that the northeast and northwest of the UK might level themselves up? Yes, I hit to to talk about British vaults, but I do suspect it's coming back. I do suspect there will be a battery pack factory, and I do think it will be at Blithe, northumber

and whoms. It will be a very different question. These will be some of the highest quality jobs to being Blinth, Northumberland ever and certainly for many decades, but perhaps perhaps even ever. And that sort of thing does begin to regenerate not just the United Kingdom, but lots of parts of Europe and lots of parts of America that haven't

seen it before. So the leveling up agenda, maybe you know, not coming from the government, may just be coming from geo politics and the need now that we are self sufficient or partially sufficient in key strategic goods such as chips, such as electric batteries, and there'll be plenty more. And I think it's interesting that those two things hit all

the headlines. But when you ask got to bank what's happening with their long book, companies are boring to invest in everything to make them less reliant on China and Russia. And that's a that's an investment boom which goes on for many many years to come. So yeah, it should really focus on bits of the country that need the investment and have been starved off it. And it should

happen without the intervention of government. It should be fairly natural to go where the labor is over some short suppliers, you know, so goodworth on the ammer rigs, but with the land is cheap, and it could happen with its old court. Yeah, you know what's going to happen now. All our listeners, because they're obsessed with houses, are rushing out to buy house prices on the Northumberland coast. I have looked at the price of houses in Blair, Northumberland.

I'm sure everybody will night be googling, but they are. Let's put it this way, there are a lot cheaper than a garage in Kensington, isn't everything? Russell? Listen to you talking about emerging markets and about China and about how emerging markets are the place to be at the moment, I would say it's any obvious from what you said that you are not talking about China, You're talking about

the other emerging markets. Do you have a favorite? So my long term sort of macrobublitioners has been on India, but I would find it very difficult now to commit capital to India just because of the valuations. How may I may be a macro guy if you like, but value matters. It's too expensive and I think it's time to be a bit more cautious on India. There are, however, lots and I'm more familiar with Asia because I used

to of there. So Indonesia, Malaysia, Thailand, even Singaport, which is not an emerging market, but sits at the middle of those emerging markets and benefits from their growth and benefits from financing that growth. So I think Southeast Asia looks particularly attractive. Vietnam has been, uh something that people have been promoting that fit into your structure. Yeah, no

reason not to include Vietnam. The other markets are more familiar with and I can e's much easier check the valuations, and there's more liquidity in the markets as well, and they just look cheap. Last thing I want to talk about, because they you've been brilliant. Thank you. Gold got la force everyone about gold. Would you hold gold in this environment? Yeah? Gold is they go to asset of a financial repression. Two reasons. One, we're kind of locking in negative real reads.

But that's what we're doing, so that's important. It's not that there are negative real rates, is that we're locking them in, that we're institutionalizing, and that institutionalization means that you can forecast them but hire degree of certainty. So if I'm right, we will now be forecast a negative real rates. That takes a certain amount of risk out of running gold. There is risk, and gold at the minute. If rates should suddenly spike above inflation, infltation should collapse

the low interest rates. But if you think we're institutionalizing the gap between the two, then that's positive for gold. There are bigger things for gold. A financial repression is interfering in people's property rights and forcing their savings to be where the government wants them to be. In gold is much more difficult to do. That not impossible, as we know from the Roosevelt legislation of Thanking thirty three, but it is very difficult and not really necessary. So

much wealth is held in regulative financial institution. So I think as we realize that more people will come to

whole gold, central bankers already doing it. I'm sure everyone seem the data central bankers were particularly big buyers of gold last year, And which two central bankers were They were the People's Bank of China and the Central Bank of Turkey, two governments that may find themselves in dispute with other governments who are being pretty clear that they think it's safer to own gold than those other government's

government bond markets. And something else. For gold, we're talking about the naughty step and who's not going to get credit and capital going forward. I wonder if gold miners are high up the list to get capital to create more gold, because you know it's not that good for

the environment. You create this thing, you smelled it, put it at the bar, and then you could have back in the ground to get so I think there could be an interference with their ability to have a cheap cost of capital, which if it makes it more difficult to produce it, then it's going to be The existing gold is worth even more. It is one third of the height of the Washington Monument. All the gold in

the world, I've just flown past the Washington Monument. It's a lot, but it's not the hell of a lot. So I think it's the It is the asset for a financial repression. Yeah, there was say there's only enough gold at the ground globally to fill one basketball court. These things are under amazing if true. Now we have a joke to jump step back and alas you think is absolutely hysterical, and I'm not sure everyone else last in the same way where we call god physical bitcoin.

I think you enjoynce you get into the marketing business. I think you've got a whole thing going there. But of course we call it physical bitcoin because they used to call bitcoin digital gold, and I just want to double check that there's none of that digital gold in your portfolio. It's not something you're looking at for the future, because it is, i'd be interesting. So in a financial repression, what we're saying is the government is taking the part

of control money away from the central point. So the idea that it would do that slowly at first, and then quickly, but yet somehow I allow this private sector money to exist out there, which will become a means of transaction. It's highly unlikely, but that loophole is allowed to work. So I think there will be crypto. I think it will be stable cooin. I think the government's gonna love stable coin. Stable cooin properly regularly. It was

entirely backed by short term government debt. Who's not going to like that. So you get all that functionality that you know people who are in the crypto talk about. You know, there is great functionality in it, but that was a particular form of crypto which government's like. That then leaves to what we might call private sector crypto, which is bitcoin. I just see that as being a kind of curiosity in which one can make money, and it one understands that one can trade it and make money.

There are lots of assets I don't understand, don't trade and would never make any money, and it's about crypto will be one of them. Baseball cards is one I've never really managed to get the grips with. Fine, why I knew there's lots of things that one can play around in and occasionally make money in, but it's never gonna be a currency, and it's never going to be a store of value. It's going to be a spectative

asset of beast. So that's my view on crypto, which is, you know, if you really really understand crypto, well, you know, people really really understand baseball cards. Nothing wrong with that, but it doesn't become this thing that it's been marketed as. I was walking in Edinburgh just before Christmas doin George Street and was a bitcoin conference on and the headline and they had the assembly rooms, which you know, well a great big poster for a bitcoin and said fix

the money, fix the world. No it isn't money, but it's one of the greatest mark getting efforts of all time to call something money and to say not only that that it fixes the world. What about I mean who, I don't know who thought of it, but it's an active genius create a new form of money that fixes the world. Well, No, in its purest form, it would destroy the world because it would strip the power of

away from government. Many people think that would be a good thing, but it would strip all the power away from government, So governments will not consionate. I think that's always been as biggest flaw by the understand it or not, it is not going to be allowed. And that's the kind of that. Um Russell, thank you so much for

joining us. I found that unexpectedly optimistic because we're away now where that we know that we should be buying physical bitcoin, we know that we should be buying emerging markets, and we know that if we carefully inside all stock markets, we can find stuff that is reasonable value and that may benefit from cheap credit or from the Catholics zoom having to zoom Catholics boom industrials, et cetera. So Russell, thank you so much for joining us today. She hugely appreciated.

And that, Russell, what would you like to promote while you were here? The library mistakes of course, well, there are two charitable ventures, so I don't feel about promoting charitable ventures. So one of them is the Library Mistakes, which is in Edinburgh. We hope to bring one to

London this year. Watch the space free public Library for anybody who walks to register of God the Library Mistakes dot com and the same charity runs a course in finance which will find out the DASCO education dot or work. So if you think you need education in how the markets have worked as a guide to how they will work, which is, you know, a lot order than the last thirty years, so hopefully covering some of the things that we've already discussed. If you'd like to get into that,

we have that as an online version. You can do it online, So go to dadasco education dot org have look see if you are ready for several hours of high quality education on the history of financial markets and hopefully that will prepare you somewhat are somewhat better for what is to come. I have been on that course, by the way, everybody, and it's absolutely brilliant. Um, so do go on if you have the time. Russell, thank you very much, so true thanks for listening to this

week's Marion Talks Money. We will be back next week in the meantime. If you like our show, rate review and subscribe wherever you listen to your podcast, and do remember that we prefer good reviews to bad reviews. This episode was hosted by me Marin's Somerset Web. It was produced by Summer Sadi. Additional editing by Blake Maple's and special thanks to Russell Napier and of course as ever to John's Steppeck. Thank you John, and of course don't

forget to sign up to John's Weekly Notes. Sorry daily news letter. Money distilled the linkers of the show Notes and you won't regret it.