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Russell Napier

lines on the record: 105
first: 2022-01-30
most recent: 2022-01-30
sittings or episodes: 1
sources: podcast

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“That's going to become regular. That was the first one. So I also run a thing called the Library of Mistakes, which is a business financial history library. But librarymistakes.com is our website. And you will be able to link into a series of podcasts that I'll now be putting out through the library of mistakes. And then you can help us with our charitable goal. Our charitable goal is unique. We're the only people in the world who've got a charitable goal of changing the world one mistake at a time.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the course, it's a great course. So I've been running this course for 16 years in person. And I've educated over 1,500, mainly professional fund managers, but actually we've had a lot of, I don't want to call it amateur. I mean, in many ways, some of the people I meet who manage their own money know as much or more than the so-called professionals. But mainly professional fund managers, but we've actually got a lot of people, other people who take it. Anyway, for the very first time, I put it online and we got over 18 and a half hours of lectures there. self-test questions and looks at using financial history to try and understand the mechanism. And we think it helps you ask the right questions. And that's the crucial thing. And maybe it helps you get some of the right answers. So anyway, you can find out more about that. If you just put my name and course into the internet, it usually pops up into Google. But Didasco Education, DID ASKO education, you can buy it online, take it anywhere in the world, as of last November. So very...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So it's going to be a dangerous place to be investing. And just one final point on that, Jack. If I'm right, that the future is forcing savings institutions to buy bonds and sell equities. They can only sell what they own. And that's everything in the index. So you might want to be looking for some stuff that isn't in the index as some sort of protection against that forced liquidation.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Y pay a premium for a moat. So that would be the first example. In terms of technology, technology through the ages has been a very, very difficult place to pick winners. And we're just at one of those peaks now where people assume that anybody can pick a winner. And there will be winners. And there will be people who are smart enough to pick them. But most of us, particularly us graybeards, will not be able to pick these winners. So there are quite a lot of losers in there as well, as well as some winners. So at a structural change, you need to have active management and people will think, I am now an apologist for active management. But this is the time. This is the time when you're going to need it. You're going to really need it. And this is definitely not a time to be following an index. And that's because it's at a structural break, a structural shift. And everything that's worked for the last 30 or 40 years may not work anymore. But the index is composed of everything that's worked for the last 30 or 40 years.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“I absolutely believe that's correct. I mean, in a momentum orientated market, the index is just the index, and that's fine. But occasionally, and not very often in a career, you come to a great structural break and a great structural change. And if you've lived through 40 years of disinflation and then you go into, let's say, just 20 years of inflation, remember that the winners, the big cap stocks will be those who are adapted to the old environment. This is kind of like an evolutionary thing. And you get rewarded with a high valuation for being well adapted to that. And then we go into the new system. And it may not be that your earnings do particularly bad. I mean, they might do and they might not, but you don't get that valuation because you were so good at this. The classic example is the so-called moat that people have paid up for for years. And the moat has been the ability to put prices up in a period when prices aren't going up. And people say, this is a fantastic thing for a company to be able to do. And it is. But remember, the definition kind of inflation is that everybody gets to put their price ups.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So I have recently written for my clients about the capital cycle. There are two wonderful books on this. One is called Capital Account and the other is called Capital Returns, which are the edited letters of the fund management company Marathon Asset Management. And it seems to me that in the new world that we're going into, there are lots of bits of the capital cycle which have been underinvested in for many, many, many years, where returns would go up for many, many, many years and valuations are low. And they tend to be what we call heavy industry or capital heavy companies, where just the sheer scale of the Chinese production boom and capacity boom has destroyed returns. So it's more, I think, about industries than countries. But in terms of where these kind of things come together, Japan also that helps from a geopolitical perspective, Japan clearly being an ally of America in any forthcoming Cold War. Japan seems to be the place where these things come together best, but it's an industry rather than country.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Well, not China. I mean, I do think we're heading to a cold war with China where it could easily be illegal to invest money in China. I mean, that usually gets people very upset. But, you know, that's what a Cold War is. That's what the last Cold War was. And it's not clear to me that investing money in China will mean you'll be allowed to bring it out, whether by the Chinese or by the Americans. You may not be allowed to do it. So there's just this kind of huge geopolitical risk investing in China that things can look very cheap for a good reason for those of There's no one old enough to remember this, but there were. The French in particular were huge investors in Russian bonds in the early 20th century. And that didn't work well in 1916. So, you know, there are, you can't ignore these geopolitical risks. It definitely wouldn't be China. I think Jack, so for countries, it's Japan. But beyond that, it's really about industries. And that takes us back to what investing is really all about. It's trying to find...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Find very cheap stocks, so I do think it's value, but not necessarily American value stocks, but at least historically they have been able to play a role. So twice it's worked. If you want to build a portfolio around two samples, then let's build it on value stocks.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“inflation and then you look at what sectors of the stock market actually managed to preserve wealth reinvested dividends compounding rising faster than inflation and once again you get value stocks but particularly mid-cap value and small cap stocks as well so that doesn't mean to say this has to repeat but it's at least a intriguing sign that for someone who's concerned about inflation that there will be sections of the equity market not the equity market but there will be sections of the equity market where you can outperform and I think value is one of them and value is global you know it's not just America we're talking about here if I was to look at all the equities in all the world the most expensive for the US even value stocks now if I start looking elsewhere in the world maybe Japan I will find very cheap value well in my opinion very cheap value stocks if I look at certain industries all around the world which have had to compete with China and where that competition may be lifting you'll”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“America brings in price controls, of course, during World War II. So the actual rate of inflation is significantly higher than it's reported. But the biggest outperformance ever of value relative to the growth was going from the 30s into the 40s, from going from a deflation to the sort of inflation, you get associated with warfare. And then you get the same thing happening the next time when you go from the 60s to the 70s. Now, is that a big enough sample bit? I know people watching this will think that that is an incredibly long period from 1929, but actually you've only got a couple of samples in there. But anyway, for what is worth two examples, both of them worked out pretty well for owning value relative to growth. I have looked recently at more detail within using the Ibotson data, looking at that long kind of bear market from 1966 to 1982. Remember the Dow Jones hits 1,066 and by 82 it's at 600. So that's a hell of a bear market, particularly in a world of high...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So the data set goes back to, I think it's 1929, which is the French fama data set where they split out value and growth. And there are lots of quibbles, as you know, about how you divine the two. But anyway, that's what we're going to use because that's the best thing available. I wrote a large report on that for clients Christmas 2020. And there aren't a lot of times when inflation kind of really breaks out. But obviously going from the 30s to the 40s is one of them.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“However, meanwhile, over in the real economy, the banks are creating liquidity like it's going out of fashion. And that's a liquidity that affects nominal GDP growth. So that's your friction. You've got this friction in the kind of financial markets, but it can be more than outweighed by the outlook for the liquidity in the real economy. If that feeds through to earnings, that can offset the negatives coming from the other market. So I'm more in that gap. And it's not a consensus view at all that the liquidity being created by the commercial banks is really going to feed into such high levels of nominal GDP growth that for certain stocks it can more than offset what is”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So when the two are in competition, what you should get is rotation. You should get people moving within the market, and there'll still be a bull market somewhere within the market. And that's what we're getting in terms of value stocks, or at least I think it started, and I think it will continue that there'll be a rotation to value because the impact of the higher interest rate will not be as negative, will not offset the pace of growth in earnings for economically sensitive cyclical value-orientated stocks. So that rotation will go on and those stocks will continue to go up. Just one thing where I don't really completely agree. It is obvious that if the Fed puts interest rates up, and particularly if it contracts its balance sheet, that it is restricting liquidity to the banks, either reserves, and also to the market because it's actually going to be not buying bonds from the market. So in terms of that liquidity cycle, I think, you know, that is not good.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“And as I said, the growth rate was 43%. So if central bankers are right in their kind of lags on this, then there's a lot more to come in inflation. So I think he's just wrong on this. And it's very hard to bet on low inflation when broad money growth is really that high.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“won't find them so behind all of this we're trying to sort of work out how many angels can dance on the head of a pen when does a supply side thing fix itself when does that drop out and then believe that somehow behind that all the monetary stuff was irrelevant so as long as you believe that the monetary stuff is irrelevant you don't have to work out how many angels can dance on the head of this particular pin you just have to realize that that is inflationary i did mention it's interesting the ecb actually used this statistic that monetary policy will impact the real economy at inflation 18 to 24 months after it's instigated well we started all this in march 2020 april 2020 may 2020 which is quite spectacular in terms of the timing because it does suggest that a lot that maybe jail is somewhat right that maybe what we've seen so far is actually supply side and that's really scary because what it's saying is that the real monetary impact of inflation is only just beginning to hit”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So, I'm definitely more in the Friedman camp. I think we can all sit down for and we can write learned papers on the supply side disruption. And somebody might be better than that at somebody else. And I agree that on the whole, the supply side reacts, supply goes up and these price things pass. I don't really have to disagree with that. My other question is, what's that got to do with the underlying and long-term rate of inflation if money supply growth is, you know, was it 27% and has settled all the way to 14%? You have to look through that. You have to look through the supply side disruption, which none of us can forecast with any great degree of certainty and say, let's find all those periods in history where broad money growth was at 14%, where it had gone up 43% in two years, and inflation was low. Well, good luck.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“If expanding the central bank balance sheet doesn't work, then abuse a banker. That's where we go next. I mean, it's funny for the bankers. For 10 years, they were the problem. And then they woke up one morning and they were the solution. And it'd be an interesting historical essay to write. Is it better to be a problem or a solution? Because being a solution can also be hell of a problem if you're trying to run a commercial organization.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Just pausing. Just imagine if nominal demand now at 43% over the next two years. I mean, it seems impossible, but a huge amount of that can now explode into nominal demand. That couldn't have happened with commercial bank reserves. It just simply couldn't have happened unless the banks had turned that into loans and they didn't. So that's the fundamental difference. And I see it everywhere and I see it as a norm of government policy. This is the crucial thing. It's not an emergency measure that was put in there. It's not that the banks are necessarily wanting to do it. It's the governments have suddenly realized just how powerful it is. If you can control, influence, cajole with carrots and sticks, the growth of commercial banks' balance sheets, you can achieve all your wildest dreams until you get too much inflation. And that's kind of where we are already. But there'll be plenty more of this to come. Abusing commercial bankers is the new game in town for governments. I mean, if you're tapped on what you can borrow in the markets.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it's different types of money, which is the key thing. So, bank reserves are an asset of the commercial banking system. They are, if you like, the liquidity of the commercial banking system. If you and I were bankers, it's kind of the money we have on hand to pay back our depositors. It's not in the form of cash, but it can be turned to cash instantly. If we suddenly get a lot of it, the question is, what do we do with it?”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Of energy. So that sort of thing, and ultimately controlling bank credit growth with something other than interest rates like credit controls, credit quantity controls is something we get to. And all of these fit within the financial repression toolkit. All of these take us away from a market system. But anybody who says that the Fed will do all of this via interest rates clearly believes that we're staying in the old system and doesn't believe, no, that might be right and I could be wrong. But there's a hell of a bet to be made here. Either we're in the same old system where the Fed uses nominal rates to control everything or we're going to a system where all of these other horrible bits of the toolkit have to be used. And I'm strongly in the second camp. But as of this morning, the market is clearly of the view that the Fed can drive rates to a level to destroy equity valuations and destroy growth. And I think they can't do either with the tool of nominal interest rates.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So, the broadest measure now current publicly available now in the US is M2. We used to have M3. So it's the closest we can get, although not very accurate, the total amount of dollars in the world. It's not actually that, you know, the total amount of dollars in the world is bigger, but it's the best proxy we have. And it's grown 43% in two years. Now, I'm being told all the time that five normal interest rate rises are going to stop this rip-roaring economic recovery. And I just don't think they are. And I think we're going to consider, or the policymakers will consider there must be other ways to try and stop this thing because interest rates aren't working. And what level of rates would we have to get to to even begin to try and slow this thing down? We're starting with inflation today at 7. So I think this horse has bolted. And there are things they'll do. I mean, I was not joking when I said price controls are one of the things. The French have already gone for price controls. They've screwed their electricity generator to try and keep down the price.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Credit growth is really starting to pick up very quickly, so somebody's borrowing money to do something, even if the newspapers keep telling us that the Federal Reserve is stopping them. There's quite a lot of evidence that they aren't. Broad money growth is now growing at 13%, bank credit growth at 16%. Total growth in dollars over the last two years is 43%.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I don't know if they'll get to five, but I know it won't be enough even if they do get to five because we have to look at what's going to happen to nominal GDP growth over the next two years. There is also an 18 to 24 month time lag between monetary policy decisions and impact. That's what's generally considered to be the case. Where do we begin here? We've had obviously compulsorily restrained consumption, particularly of services. It's been illegal to consume lots of services. So that's going to come bursting out, something we haven't really seen since wartime. Obviously in wartime there's lots of things that are illegal as well. So that's going to be there. There is my estimate at least $2 trillion in excess liquid savings on household balance sheets. That's just where the look at the savings rate got to compared to where it was pre-COVID. Now unless people see of all of that, that is going to turn up in some form of consumption. There's always pent-up demand after a recession anyway and that's going to be there.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“to such a level that it will destroy the economy and destroy equity valuations. That's what's playing out in the markets as we speak, Jack. I think they're wrong. I don't think the Fed is going to get interest rates anywhere near high enough to stop what is going to be a runaway economic recovery and inflation. And eventually we'll go to plan B. And one thing I know about politicians, if they're going to make the same mistake for the second time, they'll give it a different name. So I don't know what the win badge will be called this time. But I bet you there'll be an equivalent of the win badge in four or five years from now from a politician who will do anything to control prices except raise interest rates.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“That's what I think happened, so I'm more optimistic. But of course, I'm not foolish enough to think that that can go on forever. So there has to be something that brings it to an end. Nine out of ten bears will tell you it's because interest rates have to go shooting up eventually. Well, eventually it can be 10, 15 years from now. So I think before that, keeping these interest rates down is not easy. It's not as if you wave a magic wand in the 10-year bond, you'll stay as at two. So looking at the history of these systems, at some stage we have to force savings institutions to buy these bonds. And of course, if you're forcing them to buy the bonds, you're forcing them effectively to sell equities. So I think the cap on equity valuations is not through the market mechanism where the discount rate eventually has to go up. It's through a whole different thing, which is this massive distortion to the savings system on the compulsory liquidation of equities. So that's a very different type of bear market, not one that I can convince many people off is going to happen because everyone's in the view that the Fed will drive rates.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“I'm glad that you brought up Hong Kong as an example of inflation running much higher than discount rates, as it can be very bullish. And that makes a lot of sense because the value of a stock is its earnings and then the multiple on that earnings. And inflation is obviously very good for earnings because the economy is running super high. And then the multiple on the earnings typically it's thought that that contracts because long-term bonds sell off and yields rise. And then that's partly used as the discount rate. But yeah, if we're in a world where long-term, you know, the 30 year stays at 2% as inflation is 7% for the next five years. I'm not saying it is. I mean, how could that not be great for pretty much every single stock?”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“You got just massive distortions in everything. And everybody knew how to fix it and nobody had the guts to do it. And that's the bottom line. And really it was until the people demanded that something was done about it, which was incredibly painful. People talk about Volcker and one of the great things he did. Believe me, people didn't think it was great at the time. Volcker was mailed lots of two by fours by the construction industry who didn't like it. Junks of it, and he used to have one in his apartment, actually, just to remind him of these. So society has to get to a stage where it doesn't want wacky policy. But it can take quite a long time before we say.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Seen one of these before, I like to wave these around. So we're in the mid-1970s. As 1974, Gerald Ford has just come into office. Everybody knows that one way to combat inflation is to put interest rates up. I mean, it's not as if that was a secret. Everybody knew that's what could be done. But instead, Gerald Ford decided to mail these to Americans. Now whip inflation now is what this means. W-I-N-WIP inflation now. And the idea was that this... This would combat inflation”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Are societal problems that come along, and eventually we reverse all of this and just say, this is nuts and we have to stop it. You get an excessively high level of equity valuation in that world until one day something comes along that says this is unsustainable. And sometimes that has to be something that's social. I mean, I've just read actually Arthur Burns' speech from 1979. Arthur Burns, having been the chairman of the Federal Reserve during the runaway inflation. And he gets a lot of criticism for accommodating Johnson and Nixon. But says, look, this was about society until society wanted to do something about all of this nonsense. We couldn't do anything about it. I have something here to show you. Another way we try to do something about it. I don't know if you've ever seen it.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Well, I like the phrase wacky because that's weird at average cost of capital, isn't it? So it's in there It's all in there somewhere. The one I like to talk about more than any is my early days, early days in Hong Kong. So before this bust. So the interesting thing about Hong Kong is it has a currency board system, which means it gets US nominal interest rates. But it gets whatever the domestic level of inflation is. And in those days, because Hong Kong was plugged into this great growth engine of China, interest rates were coming down in America in the early 1990s. We had that bust, particularly in New England and Texas. And Chinese growth was going up. inflation just kept going up to I think 12% and interest rates came to three. And what happened is the stock market tripled. So that's what happens. I mean you can kind of argue potentially that the correct cost correct valuation for equity in that word is infinity. Now obviously it isn't because”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I want to draw attention to something you said some viewers may be familiar with the concept of negative real rates that inflation is running higher than the risk-free rate, but I that is not what you said. You said not that inflation is higher than the risk-free rate, but inflation is higher than the discount rate, which is used for valuing risk assets such as equities, which is the discount rate is very off the cuff, but it's the sum of the risk is the sum of the risk-free rate plus a risk premium. So yeah, that is really wonky. What wacky, I should say, are there any parallels in history that come to mind in the 1960s, 1940s, where inflation was so high, it was running higher than the cost of equity. And yeah, that seems like a very bizarre world. What are some of the consequences of that?”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Right down the line. But in the early days of this, it's really quite a warm bath, and people quite love it. Wages are going up and mortgage rates aren't, and people kind of like that.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“It's not a kind of theoretical problem that it's bad for savers. It's bad for the whole economy because capital will be misallocated. So that's what I mean about this is much worse than sort of returning to a kind of Bretton Wood stability because this misallocation of capital infects the whole system. And sometimes it takes a long time to show up as misallocation of capital. But what we get there in the end, and in the end, what you get if you misallocate capital so badly is actually stagflation, which is high unemployment and high inflation. That doesn't have to be this year, next year, the year after. But that's where we got to the last time. The word stagflation wasn't invented until 1966 because nobody had ever seen it before. It wasn't thought possible to have high unemployment and high inflation. But in a financial repression, where you sever the link between these two variables, which is something we hadn't done before outside of warfare, then you do get high unemployment and high inflation.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Something else. So we have to move to that system. Now that's really going down the rabbit hole because in a world where the discount rate and the inflation rate are unconnected, all sorts of perverse things can happen in capital allocation. And I don't just mean capital allocation in portfolio markets, capital allocation in terms of plant machining and equipment, because when you have the wrong real discount rate, anything is possible and it just misallocates capital into all sorts of silly things. So in the last time we did this, mainly more Europe than America after World War II, it poured capital into old master paintings. Old master paintings were owned by pension funds. Now, to have a productive economy, it would be nice if pension funds lent to corporations that did productive things. And in the process, hopefully employed people as well. But actually, we were funneling capital into gold and old master paintings and classic cars. So this is the problem.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So, what is coming is a world where we have to permanently keep inflation above the discount rate. And I know a lot of people who'll be watching this are probably schooled in finance and would argue, well, that's impossible because what we teach as in the finance faculty is that people who lend money will always demand compensation for inflation risk. And therefore, nominal rates will always reflect inflation and they probably will always be slightly ahead of inflation to reflect the inflation risk. If you read a book on market economics, that seems to me a very sensible thing to say. As someone who lends money myself, I would want compensated for future inflation. And then we have the real world and financial history, and that hasn't always been the case. Sometimes it's been essential to move away from a market economy where the cost and price of money is determined long run cost of money is determined by the private sector's willingness to lend it and impose some”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I know the Fed keeps talking about how it's going to tackle inflation, but it doesn't actually mean it. I mean, they know that these debts have to be inflated away and they are complicit in inflating them away. So there'll be lots of jaw-jaw against inflation, but not a lot of war, war against inflation because it's essential to fix the balance sheet and try and de-geear. And we've been here before. I mean, we were here after World War II. United Kingdom was here after the Napoleonic Wars. It was here after the First World War, after the Second World War. There are tried and tested ways of dealing with this. And in a democracy, the tried and tested way is inflation.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Bretton Wood style system with relatively low inflation I think we're going to have to go for something significantly more aggressive that opportunity passed. We're starting from a different”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Was China was so cheap on the exchange rate that it did take a lot of pretty good jobs out of America. I mean, other jobs replaced it, but they weren't as good jobs. So I would say that had we followed in 1998, in October, in Washington, D.C., Bill Clinton, President Bill Clinton, made a speech saying that we had to do all this, saying that we have to now build a Bretton Woods for the 21st century. And had we built it, I think we'd have less inequality, less debt, greater economic stability and fewer imbalances. But that's a world that never happens. So now we have, what do we do about the world that we have? And sadly, it isn't going to be going to that because the number one priority for all of these people now is to destroy the levels of debt. We were starting at pretty high levels of debt to GDP. So if I go back to America's debt to GDP level then for the whole economy, it was probably going to say about 150% of GDP. It's now 290% of GDP. So it's too late. It's too late, I think, to go back to a kind of reasonable...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So that's not talking about what's coming next because there's something worse coming next. But in the system, if we designed a system correctly back then, let's say we'd all got in a room in late 1998 and said, you know what? The whole world was on the verge of oppression. Let's design a new system. Well, now it maybe would have been something like the Bretton Woods, where we'd all agreed the levels of our exchange rates that would be fairly close together. And what that would mean is there would be some sort of self-regulation as somebody got too competitive. They would create too much inflation, then they'd become uncompetitive. Reserves would move around. The bottom line is we wouldn't have this much debt. We just wouldn't have this much debt. Interest rates wouldn't have stayed as low. They wouldn't have been so much capital flowing in permanently, government mandated capital flowing into one place to fund it. So we would have had a much lower debt to GDP ratio. I think we'd have had lower asset valuations as well. And I think we'd have had significant more equality as well. Remember one of the key drivers of...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Monetary system. This is the root cause of everything, and therefore to fix it, it's going to have to be changed. I'd love to say they'll fix it and make a better job of fixing it. But when it comes to politicians, there's every prospect that they'll make a worse job when they try to fix it.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Only half the world was in it. Half the world was floating. Half the world was managed. And it allowed us to get this whole thing completely out of kilter and to where we are today, which will lead us on to a very different type of monetary system because the hybrid system has taken us to such a dangerous level of debt-to-GDP ratio. So there is a book to be written about that as well, which should I get round to it will be the next book just explaining them. The mechanism of how we go and where we go next. But we have to change the global monetary system because that is ultimately responsible. And you will note that very brief description I've given you there is also the root cause of inequality is also the root cause of social problems that we have. And most people, when they talk about these things, don't think about a global monetary system, but Volker did, and he understood how this was coming from a badly. Look, it wasn't even a designed monetary system. It was a kind of an ad hoc global monetary.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So rising asset prices moored debt, rising asset prices moored debt. And that's the world that most of us have become very familiar with for the last quarter of a century. And of course, the argument in the book is that it was here we set the foundations first. China devalued in 1994. Asia devalues in 97. Then, of course, importantly, the final leg of this stool is China's admission to the WTO in 2001, which really allows it to get going in amassing these reserves. So that's how we, you know, we began this talking about managed exchange rates and reserves circulating in the system. And, you know, Paul Volcker wrote about this in his book, Keeping At It. And he referred to this system, which really came to home to roost in the mid-1990s as the hybrid system. And the hybrid system had no correcting mechanism. It wasn't as if somebody got very uncompetitive and suddenly the reserves went the other way and monetary policy tightened. It just kept going and going and going because”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Other Asian countries were very big in it as well. And they then launched from 1998 this massive accumulation of foreign exchange reserves, which is a massive accumulation of developed world debt, 62% of which is United States treasuries. So this hell down the yield on Treasuries made debt cheaper in the developed world. The growth, by the way, was $6 trillion worth of foreign currency debt. So that freed up savers in America and elsewhere to go off and finance other things like Elon Musk or whatever they wanted to finance. So there was now even more capital to go and gear up something else in the private sector because a lot of the public sector debt was being held by these people. Interest rates were being held down. Their exchange rates were undervalued so they were importing deflation to the rest of the world. That kept the central bankers with their rates low because they were terrified of deflation. And throughout this entire thing you just had a perfect prescription for rising asset prices.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“You can imagine that that didn't go down very well. I mean, it was cloaked in other phraseology that we need to destroy crony capitalism. And maybe you do need to destroy crony capitalism, but it's not actually your business. And that's the business for the people of Indonesia and the people of Malaysia, not necessarily the business of people from the IMF. The authorities in these countries took a lesson from this and said, you know, if we don't have a really big kind of protective buffer, Actually, we're not sovereign. At any given point in time, somebody else can come along and tell us how to run these countries. We need to be build a moat. That's the word we like to use these days when it comes to businesses. And the countries wanted to build a moat as well. Now, building a moat for a country is really accumulating a huge pile of foreign exchange reserves, or at least I thought so. And that's what they set out to do. And that's the birth of the age of debt, Jack, because what it did, and obviously China was at the core of this, but we mustn't forget the...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Develop some society is structured. And business kind of flows from the structure of society. And a lot of these business systems were radically different from American system. They weren't anything like Adam Smith's invisible hand. They were completely different. And when the IMF came along, they basically had a template which said, no, you're going to be like America.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So, what I said is there wasn't really a central bank bailout. It wasn't really a Fed put I'm pausing a little bit because it did end up with a bit of a Fed put at the very end of this because it affected a company called Long Term Capital Management. So at the very end of this, there was an element of the Fed coming along. And that was important. But let's go back to the beginning. So the IMF was involved in all of this. So there was a bailout from the IMF, but it was the conditions under which those were delivered. Now, Asia is a very different culture from America. Wherever you go in Asia, it's not America. And every country has a right to choose how it...”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Of capital in those days, so it was the Manhattan of China, so it was going to go through a great boom. But for that period, roughly from, I think the market probably peaked in July 97. So for one year, one year people thought the reverse. They thought the whole thing was going to collapse. And then, of course, it didn't. And then the game continued.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“Through all of this, but the fear was really about China. I mean, people just thought, well, of course, China will devalue. Why won't China devalue? Which I thought was kind of nutty because they had devalued in 1994 and this was 1997. And there's quite a lot of evidence that they were really very competitive at that exchange rate. But anyway, the consensus was China will devalue get your money out now before it's too late. Get it out of Hong Kong. Get her out of China. And the reason that Hong Kong was so important and positive for Hong Kong is that obviously China was moving away from being a communist country. It had just unleashed. And I can't remember, there's a famous Deng Xiaoping tour of southern China, which I think I'll date to 1994. Anyway, he basically said to get rich is glorious and the resources of China were unleashed into a form of capitalism. But anyway, whatever it was, it was very good for growth. So that was obviously very good for Hong Kong, which was the entrepot of goods in those days and also the entrepreneur.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“And they just didn't care. And another great part of my career then was sitting in rooms trying to argue with people why these currencies wouldn't devalue and why China wouldn't slow. But nobody cared. And that's something we alluded to earlier. There was a thing called an Asian asset class. You mentioned the Morgan Stanley Asia X-Japan Index. If you were sitting in an asset allocation meeting in London or New York, you wanted money out of the index. And the index had Hong Kong, Korea, and Taiwan in it. And if you were going to liquidate the index, you were going to pull money out of these things regardless of the so-called fundamentals. So Hong Kong was the poster child for this because they didn't devalue the exchange rate. But as a consequence, interest rates went to astronomical levels as capital came out and those astronomical levels obviously pushed the stock market lower and lower. So it didn't, it wasn't down 90%. It was one of the better performing stock markets.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT
“So, what I wrote at the time is that Hong Kong will not devalue its exchange rate and China will not devalue its exchange rate. And guess what? They didn't devalue their exchange rates. So everywhere else, the exchange rates were plummeting and we should add that by October they were also collapsing in North Asia, in Korea and Taiwan. So I thought if they're not going to devalue the exchange rate and China's going to continue to grow, big, big call, then Hong Kong is going to continue to benefit. And I didn't see why China would not continue to grow. These were early days for China. It only just really started to emerge as an economic superpower. It was starting from such a low base, the growth rate was going to be huge because they were mobilizing all these people. The problem was that all of those things turned out to be true. The currencies didn't develop. China did continue to grow. And I growth slowed, but growth continued. But the markets didn't care.”
2022-01-30 · Forward Guidance · Lessons From The Asian Financial Crisis | Russell Napier · IDENTIFIED FROM THE TRANSCRIPT