Expert Investor: Viktor Shvets – Future of humanity and impact on investing

HOSTS Alec Renehan & Bryce Leske|24 September, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

This episode is a big one. Full of big ideas and a lot of thoughts about the future. We were joined by Viktor Shvets, Managing Director & Head of Asia-Pacific and Global Strategy at Macquarie Bank and author of ‘The Great Rupture: Do we need to be free? Three empires, four turning points and the future of humanity’. Viktor has spent a lot of time thinking about the future of humanity and what that will mean for the economy and investors.

In this episode we try and unpack it all and learn from his insight. We start with what is happening in markets today – COVID, expansive monetary policy and growing government debt – and then discuss where the world is going, and touch on everything from Modern Monetary Theory, Bitcoin, Artificial Intelligence and the future of work and political systems.

To purchase Viktor’s book, click here.


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Bryce: [00:01:28] Welcome to another episode of Equity Mates, the podcast, where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:42][14.3]

Alec: [00:01:43] I'm very good. Bryce very excited for this interview. We've got a guest that has been recommended by a few of our expert investors. And in preparing for the interview, I'm pretty excited to have this conversation. I think there's going to be a lot of fascinating insights and it's going to be very wide ranging. So this is a very exciting episode to get stuck into. [00:02:01][18.2]

Bryce: [00:02:02] Absolutely. It is our pleasure to welcome Victor Schmitz to the show. Victor, welcome to Equity Mates. Thank you very much. It's a pleasure. So Victor is managing director, head of Asia Pacific and Global Strategy at Macquarie Group. He has also just released a book called The Great Rapture. Do We Need to be free three empires for Turning Points and the future of humanity. The book pulls together history, economics, geopolitics and psychology to try and map how the missteps of empires in the past can help us prepare for a very uncertain future. And it's had a great launch recently. Number one on robotics, new release on Amazon US. And it was also robotics and Political Economy bestseller on Amazon Australia and named the best post capitalism book by book authority. So there's a lot to cover in that. And we're very keen to understand what is going on in markets at the moment, Victor. But before we do, we'll start with that overrated, underrated game, Ren. [00:03:05][63.2]

Alec: [00:03:06] That's it. So, Victor, we like to throw out a few different index's themes or investing ideas just to get your thoughts on whether they're overrated or underrated at the moment. And we like to start with some of the major indexes. So if we start in the US overrated or underrated, the S&P five hundred index, [00:03:26][19.9]

Viktor: [00:03:27] it's a great question. My personal view is that S&P 500 reflects so many great companies with so many themes that over the longer term, I'm still a great believer that SBX, the S&P 500, has a great future. Now, the question is shorter term, whether you believe there could be some pullbacks. And I think the answer is yes. But the longer term, I'm a great believer in America. [00:03:53][25.8]

Bryce: [00:03:53] Then let's bring it back home. A bit overrated or underrated. The ASX 200 [00:03:58][4.1]

Viktor: [00:03:59] don't follow Australia that much. To be frank. I tend to look more at the global indexes, so I can't really help you there except just one one point. Australia traditionally manages to find its way through a great deal of difficulties. And again, like with the United States, I do believe that Australia actually has a great future. But in terms of indexes, I don't really follow Australia that much. Our Australian fellow strategists are doing that. [00:04:28][29.8]

Alec: [00:04:29] Emerging markets are a really interesting investment option. But I was interested to hear your thoughts. So overrated or underrated investing in emerging markets, [00:04:39][9.7]

Viktor: [00:04:39] longer term emerging markets as the indexes have no right to exist, primarily because emerging markets as a concept no longer exist. The whole idea of emerging markets of the past was that they will be able to grow faster and catch up and converge to develop markets. And as that happens, you're going to have plenty of middle class, plenty of opportunities to grow, etc.. To my mind, all the avenues for growth for emerging markets are closing. That includes manufacturing, that includes trade, that includes globalisation. And so the ability of emerging markets to progress forwards are extremely, extremely limited. And that's why I mostly tend to emphasise North East Asia to a lesser extent, India, because there are places in emerging markets which I think will survive this world a lot better. But as a concept of convergence of foster growth rates, I think emerging markets no longer really have as much relevance as they used to 15, 20, 30 years ago. [00:05:45][65.1]

Bryce: [00:05:45] So Victor covid-19 obviously having some pretty significant impact across markets and a lot of countries around the world are overrated or underrated. The Federal Reserve's response to covid-19, [00:05:55][10.4]

Viktor: [00:05:57] to me, the covid-19 basically accelerates all the trends that we have seen before. So if you think of global financial crisis, so if you think of nineteen eighty seven, that was the beginning of a massive monetary stimuli all around the world. If you think of covid-19 what it does, it massively stimulates fiscal spending and I think alternatives to what Australia has done or what the US has done or any other. They would have been one of the most severe depressions globally, so to me it was an appropriate response and also to me it's an inevitable continuation of everything we've done since the Black Monday of nineteen eighty seven when Greenspan introduced his put option. [00:06:44][47.1]

Alec: [00:06:45] So Victor Bryce asked you about the Fed's response to covid-19. I might zoom out a little bit and ask you about central banks more broadly. So overrated or underrated, the concept of central banks. [00:06:59][14.2]

Viktor: [00:06:59] To me, I personally believe that central bank's independence and the idea of central bank independence is grossly overrated. At the end of the day, central banks are owned by people of the country. At the end of the day, they are owned effectively by the Treasury Department. And so nobody is truly independent. Everybody is part of some kind of political process. And so to me, what is important about central banks is that they have a very important political function to perform. When people say central banks, whether it's Greenspan, whether it's Janet Yellen with Bernanke, they really have done a terrible job creating this sort of debt level and financialization that we're suffering from. When people say that, I usually answer, if you want to know the guilty party, look yourself in the mirror. It's you. It's not central banks. Central banks basically delivered on what you people wanted and what people generally globally wanted is to grow, to have higher and higher wealth, even though in many cases their productivity could never justify it. Said the way system worked is that central banks delivered on the promise that they given to you, even though that promise could not be fulfilled in a conventional economic sense. [00:08:25][85.2]

Bryce: [00:08:26] So, Victor, an asset that generally performs well in times of market turmoil is gold so overrated or underrated? Gold. [00:08:34][7.9]

Viktor: [00:08:35] Gold to me is not a replacement for monetary system. It can never be. If you're not trying to put gold at the heart of the monetary system, pretty much everybody would need to recognise that the houses they are living in are not really worth what they pay for them. Everybody will have to recognise that we have huge excesses in a system that we've built up over the last 30 or 40 years. So the only role gold performs is an insurance policy and gold basically performs like a tips or inflationary breakeven rate. If you really are concerned that debasement of currencies, debasement of cryptocurrency, the potentially significant inflationary outcomes are on the horizon, gold is a perfect hedge and a perfect insurance policy. But gold can never be again, in my view, the basis of our monetary policy. [00:09:29][54.5]

Alec: [00:09:30] If you don't think gold could be the basis of our monetary policy, there is another asset class that gets a lot of people on Twitter very excited. I'm interested to hear your thoughts on it. So overrated or underrated Bitcoin. [00:09:41][11.4]

Viktor: [00:09:42] If you think of distributed ledger, sort of uncontrol currencies again, just like gold, they have a value. And the value is that essentially we are all residing in a version of a Ponzi scheme and have been for quite some time. So if you're concerned that that scheme is coming to the end, just like gold, Bitcoin provides you with a with a sort of the backstop. But to be a global replacement of currencies, again, it doesn't work. Now, there are two problems with both gold and bitcoin. First of all, it doesn't mean that if you have gold or something else, that you can't have asset bubbles. Some of the biggest asset bubbles historically were under the gold standard. And the second thing to remember, if you remove central banks and if you put gold or some version of gold or metal as a basis of monetary system, that will significantly restrict the ability of governments to manage cycles. So if you were to say to people, would you like to transform a recession into a ten year depression, the answer almost universally is no. I don't want that under the gold standard depressions quite often where very extensive, they could last a decade or longer. And that's the way conventional liberal capitalism is supposed to work. You're supposed to clean out, you're supposed to eliminate excesses. But that is not the way modern societies work. And I don't think anybody will accept that [00:11:14][91.5]

Bryce: [00:11:14] it's a victim. Before we jump into some further details about markets at the moment and your book, we always like to get a bit of an idea about your background. Are you able to tell us the story of your. Very first investment and perhaps any major lessons that you learnt from it? [00:11:30][16.1]

Viktor: [00:11:31] Yeah, I've been I guess historically speaking, I've been in the various versions of investment banking since early 1980s in Australia, but also in Hong Kong, in New York, in London, in Moscow, pretty much everywhere globally. And I was and continue to be very active primarily in equity markets. The best call I made, I guess, was on Adelaide Steamship Group in Australia back in the late 1980s, where I have tried and been reasonably successful, predicting that there are major problems that that conglomerate was facing. Inversely, one of the worst calls was also in Australia, because I was one of the people who actually thought that Christopher Skase and quintets will survive. Now, for a lot of your listeners, names like Adelaide Steamship Quintet's Bond Corp, Alyda Sykesville Brierly is probably don't mean much very foreign. But the 1980s, those were some of the larger names. Similarly, I backed in earlier years Rupert Murdoch and News Corp, when it was still a relatively small group and and I was expecting that group to get much, much larger as time progressed. There are many other calls one makes, but there are some over thirty five years, so whatever. But some calls are sort of imprinted on your brain and cause like News Corp, Adelaide Steamship, like Quintet's truly imprinted outside of Australia, I became renowned in the past a big calls on the US telecom and cable companies. Again, Nextel in the US was an example of a major kolok made in Europe on Deutsche Telekom, for example. So there is a whole range of calls that you make in as a strategist. Probably my biggest call over the last 10 years was my belief that neither value nor mean reversion aaba are likely to come back. [00:13:33][122.3]

Alec: [00:13:34] That's a big call. The value is never likely to come back and we're keen to unpack that a little bit more. As we discussed today. I guess the way we want to structure this conversation is to start with get a few of your thoughts on today's markets and some of the things that we're saying at the moment and then move into the book and unpack a lot of the themes and a lot of the information that you have in there. And then finally close it out by tying it all together and talking about what it means for people like Bryce and I, people listening to the show and how they can think about it going forward. So if we start with today's markets, obviously we've we've Covid we're saying a number of unprecedented economic policy settings and some unprecedented activity in financial markets. So I guess what are you saying today? How are you making sense of it all and other changes that were saying during covid that have changed markets forever? [00:14:24][50.4]

Viktor: [00:14:25] I think when we sort of touched upon a second ago that I don't view covid as necessarily breaking new ground, I think that will be historically and intellectually incorrect. The way I look at it is that every time we encountered a challenge and that challenge, I usually start counting from my first major setback, which was Black Monday of nineteen eighty seven. And the Greenspan put or if you look at 1992, what or if you look at a specific crisis of 97, or if you look at dot com in 2000, 2001, global financial crisis 2008, and if you look at pandemic of twenty twenty, every time we encountered those sorts of challenges, public and the politics basically insisted that we must fix the problem rather than rebase our economies. Now, what that implied, of course, for about 30 years that we were using monetary levers more and more aggressively. And as you use monetary level so aggressively over such an extended periods of time, it distorts economies. It distorts capital markets, it distorts financial markets. It creates more disinflation rather than inflation. It restricts growth opportunities. It massively increases income and wealth inequalities. So for the last five or six years, policymakers were already shifting towards fiscal spending, not monetary spending. And in fact, increasingly, more and more investors were tolerating higher and higher deficits without really penalising those countries. And so what covid-19 has done is moved us off to the next level in fiscal spending rather than just monetary what we need as a next step. And we're going to have another dislocation a couple of years down the track, whether it's market dislocation or pandemic, what we need. Is, in my view, the fuse fiscal and monetary levels and introduce a different style of policies, not because they will re-establish some version of liberal capitalism that's no longer possible, but rather it will provide with the bridge into the future, which is much more uncertain, and it will help us navigate what's going to happen over the next 10 to 20 years. So to me, covid-19 doesn't do anything other than very dramatically accelerate the trends that were with us now for quite a number of years. [00:17:02][157.3]

Bryce: [00:17:03] Nice Segway. You mentioned there that rather than re baseline our economies as we hit these points, we're just trying to, I guess, solve the problem, which leads to the concept of this debt bomb. Are you able to explain what is the debt bomb, perhaps when it started and how we've got to this point? [00:17:22][18.7]

Viktor: [00:17:23] Yeah, well, one of the things I discuss in the book is why have we started to financially so aggressively in 1980s? If you go back to 50s and 60s and 70s, even in 80s, most economists required no more than one one dollar fifty of debt for every dollar of GDP. However, from late 1980s, it started to escalate. And today we need, at a minimum, three or four dollars for every dollar of GDP. So what happened? Why have we mushroomed the debt levels globally from one hundred percent to three hundred and fifty percent? Why financialization or the value of financial instruments have gone from one hundred percent to something in excess of 500 percent of global economy. Why did we do that? The answer to me, and that's where I was arguing that you really have to look yourself in the mirror and blame yourself rather than blame the Federal Reserve or anybody else. Is that my answer is that productivity growth rates in most developed countries started to slow down in the 1970s and 1980s. For most emerging markets is become reality over the last decade or so. And as productivity slows down, you have a choice. Do you accept that you no longer deserve the money you get paid? Do you accept that you no longer deserve the wealth you have and perhaps your children will not have the same future? By and large, the answer from the electorate was as Democratic or not was no, I do not accept that. So the only politically and socially acceptable solution was to bring future consumption to the present was to leverage was to play assets. So if you go back to 50s and 60s, house was a place where you were cooking your meals or looking after your children. By late 80s, early 90s, it became an investable asset class. And so increasingly more and more consumers and households realised that if you rely on your wages and if you rely on your household chattels like cars and refrigerators, that's a recipe for poverty, oblivion and irrelevancy. The only way you can get a hat in the financial world is through asset classes and leveraging and a household's embrace that corporates made exactly the same judgement through this period. And that's why asset prices have become a guiding force, whether you do share buybacks or investment. But as you progressed through this period over the last 20 or 30 years, what happened is that asset price has become the essence of our economies. And so central banks then just could no longer allow volatility of asset prices. So gradually they started to contracting and corralling and controlling volatilities because any volatility of asset prices will have an immediate impact on the ground. Consumers certainly will not spend the splurge. They will save corporate suddenly will not invest. And very quickly, you will find they got very, very cold on the ground. So what we've done, essentially, we created a cloud of finance over the ground that at least five times the size of GDP. So in my olden days, what I started as an analyst, a real economy was a dark and financial economy was a tale. Today, it's the other way around. Financial economy is the dark and the real economy is a tale. And the objective of central banks policies essentially become to avoid the doc sitting on a tail. And hence, if we continue this monetary policy is the way we've done over the last several decades. Ultimately, zero volatility will be the only acceptable answer. And that is why we need to change policy tools [00:21:18][235.5]

Bryce: [00:23:12] So what are the implications of this ongoings? How should we be thinking about this? Is it sustainable? [00:23:19][6.6]

Viktor: [00:23:20] No, but there is no going back either. This idea that somehow you will recreate sound money, this idea that somehow you will recreate free market signals. That train left the station several decades ago. The ability to actually do that doesn't exist. So it's not a question of going back. It's a question how do we move forward? And the way I look at it is that private sector will no longer drive productivity. Private sector signals have been distorted and muted to an extent that they're no longer conveying any meaningful messages. And therefore the question is whether it's up to public sector to move us forward. You know, you can ask anybody in the audience, would you rather have gross or not? Would you rather have high income or not? Would you rather have more wealth or less wealth? Almost everybody would prefer higher growth and more wealth when you ask them. That does imply that public sector will have to become more aggressive. The answer for almost all people will be yes. Well, that's the price we need to pay. That's a price when you to pay. And if you tell those people but you know, it's not totally sustainable and we would be better off for a period of 10 years clearing the excesses. And yes, it might be painful. Yes, your house might not be worth what you paid for it. But believe me, ultimately you're going to be better off. How many votes do you think I will get there if I was running on this platform? The answer is probably myself. My wife would have voted for me, and that's about it. So the question is not going back. The question is going forward. And one of the things I discussed in the book is that there are so many distorting elements now working through our system, from technology to demographics to financialization and its impact. There are so many distorting elements that it's not even clear what the final outcome looks like 10, 20, 30 years from now. The only thing we can do now is try to keep the Humpty Dumpty on the wall as much as we can. And the way to do it is for much more aggressive public sector. And when people talk about debt, Bob, I never fully understand what is meant by that. For most countries, the debt is self-financing. Now, it doesn't apply to every country. Of course, a lot of emerging markets borrow in foreign currencies extensively. But for countries that have monetary sovereignty, in other words, they issued their own currency. They use the currency and illogically borrow in their own currency. National debt is a debt. You owe it to yourself. You don't actually owed to anybody else. And by repaying that debt, you're not necessarily backing yourself that much better. So to me, I don't fully understand the debt bomb for most countries. I think anybody who believes that 260 trillion dollars of global debt or 500 trillion dollars of global financial instruments will ever be repaid. If anybody believes that, good luck, I mean, I don't know how that is possible. The only thing we're doing is doing a slow burn default, but slow burn default can also continue only for so long. So none of those things are sustainable, truly in the conventional capitalist way. None of them are sustainable within purely private sector driven model. But we need to move forward on the breach. We can't go back. And the way forward are some of the ideas which we regard as incredibly fringe only five, 10 years ago, which gone mainstream. And that is equivalence of modern monetary theory. That's an equivalent of perpetual which don't have any value because those bonds never get repaid. In other words, subversion of merging fiscal and monetary policies together and enabling public sector to invest and to drive the cycles much more aggressively. [00:27:25][245.1]

Alec: [00:27:26] So, Victor, you mentioned modern monetary theory there, and I'm interested to get your thoughts on that. Maybe for people who are unfamiliar with the theory, if you can just give a quick definition for MMT and then, yeah, we're interested to hear your thoughts on the theory. [00:27:41][15.0]

Viktor: [00:27:42] Monetary Syria is neither modern nor monetary. It's actually a very, very old idea. And the idea is essentially very, very simple. What it basically says is if we have economies which have spare capacity and one of the things we can highlight that we don't even know how to calculate capacity anymore because we are intangibly driven and intangibles have almost no capacity constraints. But if we have a spare capacity in the economy and if at the same time private sector productivity cannot really drive us to a point that satisfied sort of societal demands for growth rates, then is it responsibility of public sector to lead the charge? And if it is a private public sector responsibility to lead the charge, how do you finance that public sector? And the answer is financing taxation doesn't make a great deal of sense. Instead, what you can do, you can connect central banks directly to government financing and then there will be no debt created as a result of this financing. And how you balance your economies is that through taxation and fiscal means? And so if we were to argue that today we have access capacity, if we would argue that today our demand is somewhat subdued, if you are also to argue that our capacity limitations are disappearing beyond the horizon as intangibles become larger and larger part of our economies. And if you also were to argue that private sector is unable and unwilling to drive productivity and grows at the level that society finds acceptable, then financing public sector through central banks become your answer. The problem, however, is that most people will argue if you give politicians free money and if you allow them to spend as much as they like, they will overspend. And not only table overspent, but they will run into severe capacity bottlenecks. Eventually, inflation will take off the bond and equity markets will crash and economies will crash. That's what the history tells you in the past has happened. And so the question then becomes which countries can adopt it efficiently? Which countries are not able or capable of doing it? If you're capable of doing it? How would you structure it? And so I don't think we're going straight into empty policy immediately. But if you think what we've been doing for the last 10 years, what is the difference between MMT and what Bank of Japan is doing? Japanese government issues, bonds and BOJ immediately buys it. So what is the difference? BOJ already Bank of Japan are already sitting on fifty one percent of Japanese government paper. If you were consolidating Japan as one entity that did no longer exist because it will be eliminated on consolidation. If you think of managing the yield curve, Reserve Bank of Australia does BOJ does it in many ways, ECB does it. Everybody wants Federal Reserve to do the same. What does managing yield curve means? Well, it means that central banks determine both quantity and price. Remember, in the liberal capitalist society and economy, central banks will either determine the price or the quantity, but you can't determine both. But right now, that's what's happening. Central banks determining price and quantity. If we determined price and quantity, why do we need prime dealers? Actually, why do we need commercial banks at all when central banks? Determining all of those outcomes and so the question is, when people are against MMT, when people are against Perpetual's that have no value, if people are against the fusion of monetary and fiscal policy. The question to ask, aren't we doing it already? Isn't what Federal Reserve does right now? Is Bank of England not directly funding the government? Is Australia not in the same page? And the only difference is that instead of pretending that that's not occurring and instead of trying to keep some kind of free market signal, MMT just goes all the way through and says, we don't need any of that stuff. Now, I don't think politically or publicly we are ready for a fully fledged MMT, but a version of MMT is already been practised everywhere around the world, and not just because of covid-19. It actually goes back all the way to, in the case of Japan, to early to mid 1990s. In a case of the rest of the world, it really goes back to 2007, 2008. [00:32:29][287.5]

Alec: [00:32:30] So, Victor, you said the biggest risk with money is that economies pump too much money in. They hit bottlenecks, there's inflation and the economy crashes. But if it's managed correctly and it's structured correctly, it could work. Does that mean you think that with proper regulatory framework, the right decision makers leading that money actually could be implemented and could be effective? [00:32:55][24.9]

Viktor: [00:32:56] Yes, it could be. Essentially, what you need is three things you need. First of all, monetary sovereignty. As I said earlier, you use your own currency, you use your currency, baraniuk currency. So a lot of emerging markets don't have that prerequisites. Some do like China and quite a few developed countries actually fully or pretty much fully satisfy those criteria. This criteria, for example, US and Japan fully satisfies us, UK, Australia almost fully satisfies. And we could just go on through the list a lot of developed countries do. Now, the second thing you require, as you correctly said, you require proper institutions of state and governance so you don't have Mugabes and Kershner, said Madurese. Because if you want to create Zimbabwe, it's very easy to do that. You can do it overnight. And so you have to have proper institutions of state. And the third thing you need is a I remember I mentioned capacity utilisation. You need to have demand and supply curve moving together. You can't have severe supply side bottlenecks occurring. So, again, in the case of most developed countries, that condition is also satisfied. But for a lot of emerging markets, that condition clearly is not satisfied. So there are some constraints on what you can do and how you can do it and who can adopt it, who can adopt it. But the key question to ask is not whether politicians will go crazy. The key question to ask, what is the alternative if you don't do MMT and if you continue to use primarily Moneta levers, what will happen to your country and what will happen to the world if we continue to aggressively use monetary levers, which basically means money stays in the cloud of finance. Most of it never finds its way to people on the ground. The net outcome will be no want more disinflation. The more aggressive our monetary policy becomes, actually, ironically, the more disinflation, not inflation, that you're creating. Secondly, the growth rates will become narrower and narrower. Thirdly, income and wealth inequalities will continue to mushroom all around the world. You'll find most investable strategies will just disintegrate. You'll find social pressures within the countries will escalate because people will be moving in different directions at different speeds. Geopolitical tensions will escalate as different countries will be moving in different direction, different speeds. Eventually, you might not be able to keep societies intact. So you have to change the policy tools. And so there is only two alternatives. You either try to replace your economy and be prepared for very complex, very painful transition period. Alternatively, you have to embrace different types of tools. And so to me, it's not that MMT is necessarily the best idea out there. It's just it's one of the ideas that is circulating that can help you on this transition as you go forward. The key to MMT is not is not that you aiming to inflate or even reflate. The key to MMT is that you're slowing down the strong disinflationary pressures that we are experiencing globally. And if you combine the MMT policy with much stronger income and wealth redistribution policies, then at the same. Tom, you have a chance to take the sting out of the social dislocation that most countries are experiencing now at the end of that breach, as I said in the book, the first 30 or 40, if you stop counting 70s, 80s for a first 30 or 40 years on this breach of transition, we were basically in the monetary world. If you think of the next 20 or 30 years on that bridge, it is not going to be monetary. It's going to be some kind of a fusion of fiscal and monetary. What lies beyond that 20 years or 30 years from now? Nobody knows. And that's why we are asking, is it capitalism or communism? Is it feudalism or despotism? Is it nirvana and a utopia or is that Mad Max? Nobody really knows what's on the other side of the bridge, but that is several decades from now. And the book that I published basically tries to explain what are the key drivers to get us there? [00:37:23][267.6]

Bryce: [00:37:24] I mean, if we end up like Mad Max, it'd be pretty crazy, that's for sure. Victor, you speak of wealth distribution policies and we'd love to get your thoughts on universal income or universal basic income. Is this something that you believe we're going to see within our lifetime in the next 20 years? Where does that play a role in all of this? [00:37:45][20.8]

Viktor: [00:37:45] Well, we're already seeing it today. The governments already replacing checks. They already are replacing salaries. They're guaranteeing a certain level of minimum income that as citizens of the country are going to enjoy going forward. So essentially, just like MMT Universal Basic Income Guarantee, not a new ideas, it's a very, very old idea as well. But in a more sort of baby boomer environment, you know, baby boomers were all about efficiency, all about freedom and choice. Get the government out of my face so I can do the things I want to do in that sort of a baby boomer world of the late 70s, 80s, 90s, early part of 2000s, idea of guaranteeing somebody's income was just ludicrous. The idea was that you create lazy people. You're not maximising your productivity. Now, the problem, as we as I discussed in the book, the problem is that the challenge people are facing is not being lazy or exploitation. The problem is irrelevant. People are increasingly becoming less and less relevant from an economic perspective. In other words, people are no longer the key drivers of productivity globally, which is totally unlike 19th and 20th century, where people with the key productivity drivers. And that's why you needed to educate them. That's why you needed to skill them, because people were the brains of the machines. Increasingly, people had to specialise in narrower and narrower dishes. Now, what has been happening for the last two decades is gradually people are getting dis intermediated from fruits of their labour. The first people to feel it would have been vice president and middle managers, then it was entertainers. Then it was journalists that it was fund managers, analysts. Now we're moving from data digits to atoms. So increasingly, it started impacting manufacturing, logistics, distribution. Within the next 10, 15 years, most factories will disappear. More supply and value chains disintegrate on a global basis. And beyond that, which is twenty five, 30, 40 years from now, it's a singularity. And a singularity is basically when you satisfy Turing test that you can't differentiate human versus non-human contribution. But that will be impacting PhD students, computer science graduates. So as you progress through this sort of gradual irrelevancy, you go from entertainers and journalists onto truck drivers, which eventually who eventually will feel it to construction workers who eventually will fail to graduate in computer science, to writers to to pretty much anybody. And so the question is, as marginal contribution of labour and as a marginal utility of labour declines, what do you replace it with? How do you make sure that people maintain a certain standard of living and that that people can discover themselves? You know, maybe you should be a podcast or maybe you're only doing it because that's the only way to make money. Maybe what you should be doing is digging trenches. You really love doing it, but you can't see how you're going to make money out of this. And so what minimum income guarantee Dollars is not create lazy people, but what it does, it basically removes the slavery of labour. In a time when labour is becoming smaller and smaller, proportion of the cost base is becoming less and less relevant as a contributor to productivity and what you're going to see in the next 20 years. Is will be far more disruptive than the previous 20 years, not a lot of people say, Victor, you're talking about technological progress and that's very true. And we had many technological revolution before. That's very true as well. But remember, the information age has a waterfront at least 300 times bigger than industrial revolution and the speed of change at least ten times faster. That's why I agree with McKinsey when they calculated that the impact of information age is 3000 times. And so what you need to remember when you look at a market driver becoming a truck driver soon there will be no truck drivers. And by that stage, what exactly would a truck driver do? So it's a much wider waterfront, much deeper water, front of disruption. And the other thing is, when we talk of pre industrial revolution, we don't really feel the pain of people who suffer through it. One of the things I refer to in my book, if you're suddenly transported into the past and find a bunch of Luddites just about to smash a cotton loom and you go there and you say to those guys, please don't smash the loom. Believe me, in 30 or 40 years time, everything is going to be fine. I wonder whether they will think you're really kidding because 30, 40 years was the entire life. And the same applies to us the last 20 years. And the next 20 years will is a period of transition. And it so happens to be our lifetime. Our grand grandchildren will not remember what we have gone through and they will argue everything was fine and it would be fine. It's just a question. How do you navigate the next couple of decades in the objective of the book was trying to identify how can we do it better without excessive dislocations, wars and other terrible things that actually could theoretically happen? [00:43:19][333.8]

Alec: [00:43:20] So, Victor, we've mentioned the book a few times and we're getting into a lot of the topics that you cover in the book. So for people that want to look it up, I might just give everyone the title. It's titled The Great Rupture. Do we need to be free? And it's available now, so people should definitely check it out. We'll include a link to it in the show notes if people want to go there. But I want to pick up on what you're saying about the rate of change being so much faster than with previous societal upheavals like the Industrial Revolution. I found a quote from another interview you did. I want to read it to you and then get you to expand on it a bit. So you said in a sense was saying if somebody woke up in the 40s or 50s, he will not recognise the year two thousand. He will not recognise even the year twenty ten jobs, what it means to be human. Why is it important that we turn up and work? Why is society structured around jobs? Why do we get educated? And then you suggest that in the twenty 40s or 50s, the campus of Harvard will be closed for lack of demand. That concept of someone 50 years from now, not even recognising today's society, it's a big thought to try and get your head around. So I guess can you help us try and get our head around it? [00:44:34][73.8]

Viktor: [00:44:35] Yeah, yeah, absolutely. It's a little bit like, you know, going from a feudalism into capitalism. If somebody, you know, went to sleep in the 13th century, wake up in the 15th century, he wouldn't have seen much of a difference. If somebody would have gone to sleep in the 15th, 16th century and woke up in the year nineteen hundred, he would not have recognised anything pretty much. And that's the sort of scope of transition that we are discussing. Remember, the assets of capitalism is capital and its labour. If capital no longer functions the way it has been over the last three to five hundred years, and if Labour no longer functions the way it has been over the last three hundred years, then capitalism as an idea no longer exist. You can call it whatever you like. And I must say, my publisher was telling me that I shouldn't sprinkle as many words about communism in my book, that people will just that people will just hang up, that people will just hang out with what word and they will be able to pass it. But nevertheless, I kept it. And the reason I kept it very simple that when people say communism has failed, that is incorrect. How could something fail when it has never been tried? What we regard as communism is not what Karl Marx felt. Communism is all about. Communism is supposed to be a society of such a high standard of productivity that needs a capital. No labour works the same way. And coincidentally, it's not just Karl Marx or John Maynard Keynes in 1930 wrote the piece, much more polemical piece about our grand, the future of our grandchildren. And what he was saying is that the biggest dilemma we're going to face for generations from now is what do we do with our life when productivity will be at such a level that the slavery of labour is no longer required? How do we entertain ourselves? How do we find satisfaction if it's not in jobs, money, success? What else is going to drive us if we go back to nineteen eighties, nineties, Peter Drakkar, David Worsham, many other people, we're pretty much debating the same ideas. So it's not just Karl Marx, but the ideas similar, i.e. it's a society of very high level of productivity. Not today. The reason our productivity cannot rise because effectively, as I said in the book, warehousing people in temporary bullshit occupations. And by the way, bullshit jobs is not my phrase. There is a great professor at the London School of Economics and he wrote a book called Bullshit Jobs. And What Bullshit Jobs Are is essentially a job, is essentially a job that even the person performing that function doesn't believe adds any value at all. And right now, when he did surveys across Europe, he found up to 40. Even 50 percent of white collar employees already believe that their jobs are bullshit jobs. And the reason we're warehousing people in this sort of bullshit job spending sort of their final disposal in a way in which society finds acceptable or palatable. The reason we're doing it is technology gradually reduced utility and value of labour. But technology has not yet progressed far enough to eliminate labour altogether. So every day you're sitting in your chair, you're losing your pricing power. And that is why even at low levels of unemployment, people are not asking for higher wages because they know they don't deserve those higher wages. It's something that. Economics has a problem is because Labour is supposed to be key ingredients, capital was supposed to be scarce and allocated in some kind of a rational way through discounted cash flow models or capital asset pricing models. And it's really inputs of capital and labour that drives you. But what is happening at what is known as total factor productivity or multifactor productivity, which is technology itself becoming a bigger and bigger function? And as it increases, as I said, people find themselves out of tune. They feel they're not eating as much. And that's the essence of your Maslova. A disappointment that spreading the world, Nazife, sense, in my view, of all the social upheavals we have or unusual electoral outcomes that we're getting, that people feel that they are no longer as valuable. They feel that they are somehow displaced. Somehow they don't get the same satisfaction, not that feeling of displacement is likely to get much worse over the next decade or two. And so the whole essence of empty policy, the whole essence of income and wealth redistribution policies is essentially to ease the pain. One of the examples I gave is Iren Chancelor, Bismarckian Germany in 1880. Give us the first one to introduce welfare policies, your pensions, your unemployment benefits. At the time, it was viewed as terrible. How could you do that? It's going to derail economists. Well, it didn't it didn't derail second industrial revolution. In fact, it got stronger. Today's welfare policies are based on expectation that people supposed to be working. And so it's designed essentially to help your transit from one job to another job. It's cracks down on abuses. You take the money and you're looking for a job. But increasingly, that idea of transition from one job to another and welfare policies are supposed to help you in this transition is becoming obsolete. And that's where your minimum of basic income guarantee comes in. And I think one thing covid-19, Dollars and has done is massively propagate this idea, because if you go back in time, we already have trials in Britain, in Finland, in Switzerland, in Japan, in the US, in Kenya, in Tanzania, in many countries. But nobody really fully embraced this concept. I sing off the covid-19 that concept will become much more palatable. [00:50:53][377.7]

Alec: [00:50:54] So, Victor, I want to pick up on what you said there around the sort of move towards the idealised version of communism that Karl Marx had in his mind. It feels like what we're talking about is a purely economic system. And I'm interested to get your thoughts on how a transition towards an economic system that looks more like communism than it does capitalism can coexist with the democratic political structures that we have across most of the Western world. Do you see a future where we have an economic system that is communist, but we maintain a political system that is democratic? Or do you think the political system will change as a result as well? [00:51:31][37.9]

Viktor: [00:51:32] Well, that's a very good question. And that's the second part of my book, that we need to be free. And people say, what do you mean by that? Well, the success of Western societies over the last five hundred years was build in the idea that the more freedom you give people to exchange views, to interact, to explore, the better economies work. The reason, as I describe in the book, that the Ching Dynasty collapsed. The reason the renewable Ottoman Empire, the reason why Russia had a revolution and the cars are no longer with us is that neither Russia nor the Autobots nor the Chinese empire have understood that. And so the great ability of the West to give that freedom, to give enforceable legal rights, to give impartial judiciary, to give the common space was a winning formula for 500 years. That's a reason why England had industrial revolution and China collapsed. But as we go into the new world and humans are no longer the key productivity drivers, we have abundance of capital. We have more capital than we can think what to do with it. As I said, we've got ten times more financial instrument than the underlying economy. Most of our activities today are not very capital intensive at all. 60 percent of private sector GDP in the US is now not tangibles that intangibles have almost no capacity limitations, not like factories and roads and machinery and humans and the rest of it. So if you sort of reach that stage and if you go beyond that and one of the things we highlight, an example of Russia, an interesting case of Nikolai Boritt, a man who invented Gosplan for your listeners. Gosplan was a central planning agency of the Soviet Union. And so in. 1920, after Soviet Union, after the revolution, tried the elimination of money, little red books and all the rest of it, economy collapsed and Lenin realised that unless he changes economic policy, people will kick the communists out of the power. So he gave Bahah young guy, a responsibility to redesign the system. And the way he tried to redesign it is by combining private initiative with state planning. In other words, he liberalised the agriculture small to medium size enterprises. But he kept central planning. He created central planning. How do you allocate resources through the country? Ultimately, the experiment failed in late 20th and of course he was shot by Stalin by 1937. If you think of Deng Xiaoping in China in 1980, he basically resurrected Bahah, an experiment and way, way beyond where Buhari wanted to go. So the question we ask in this book is, was Bahaman wrong that central planning can allocate capital better than Adam Smith's invisible hand? Is it possible that that actually a better outcome? Or and was he just one hundred years ahead of his time? Because remember, he had no computers. He was tracking galoshes and nails by using files. But shipping in China today has computer power and that computer power will get substantially stronger over the next 10 to 20 years. So is it possible that we no longer need as much of a free market as what we required over the previous five hundred years? The same applies to inventiveness and exploration. What enabled West to succeed is that every academic was building on the shoulders of the previous generations in China. Everything was forgotten and the wheel had to be reinvented every one hundred years from scratch. In other words, West encourage not just education but exploration debate argument. China now encouraged that. And so China failed. The West succeeded. Now, today, what we have, we have a decline in demand for postdocs, postdocs, a Ph.D. who now finished Ph.D. and are looking for other things to do. And they're helping some of the staff at universities. Now, the reason we have a decline is that increasingly computers also are getting more and more powerful. Artificial intelligence are getting more and more powerful. They're actually starting even to make some discoveries. Not today. It's nowhere near as flexible as human mind. But give it another 20 or 30 years. Why should we allow professor at Beijing University to access Google Scholar? Why should we allow them to exchange views with other people in the field? You would say, hey, if you don't exchange the views, that's what happened to Imperial China. That's why they collapse. But if computers are making discoveries, not humans, and if computers enhancing it, is it so important that professor at Beijing University has a freedom to exchange views and a third area, of course, professions as well as social media and how you interact? Bill Clinton believed that Internet will liberate the world. What we're seeing in Russia, what we're seeing in China is that Internet can be used very aggressively for negative purposes, too. Technology is morally neutral. It can be used for evil just as much as it can be used for good. So the ability to model behaviour through technology today is like 1984, George Orwell. And so the question that the book raises, can we try to make sure that our personal freedom, at least some of them, survive and that we do not end up in the brutal, illiberal societies because it is possible that with technology we could have very illiberal societies that no longer suffer from stagnation of ideas, innovation and wealth. And what I discussed, some of the policies that we can try to pursue, and some of them were already discussed in order to try to keep as many of our freedoms as we possibly can. And therefore, we will actually could still end up with a democratic society that enjoys very high level of productivity and a reasonable level of freedom. But the other side is totalitarian, illiberal and brutal society. That's a difference between the Star Trek and Mad Max. I guess, [00:57:45][372.4]

Bryce: [00:57:47] Victor, we've Covid a lot of ground and there's a lot of big concepts and ideas to get our head around as millennial investors. We obviously have a fair bit of time on our side. And when it comes to the equity markets and, you know, letting compound do its thing. And I guess the big question is, what does this actually mean for us as investors? And perhaps we can start with the major consideration that we need to be thinking about from a portfolio construction point of view over the next 50 years. [00:58:18][30.5]

Viktor: [00:58:19] Well, one of the. Thanks, if we just look over the next 10 years rather than 50 50, just too far away, five years, one of the questions I keep raising if risk free rate is zero and equity arace equity risk premium, another risk premium. Cesira, what is the valuation? The answer? It's infinity, right. And so what happens and what's happened over the last several decades as central banks become more and more aggressive as our leverage and financialization increase, risk free rate's collapsed at the same time as our leverage increase, central banks and public at large can no longer tolerate volatility of asset classes. And so risk premiums also collapse, which means cost of equity capital has collapsed even in emerging markets. In many places, it's only five six percent. In some of the developed markets, it's only three or four percent. Now, when you reach a very low level of equity cost of equity capital, almost any project becomes viable. And if almost any project becomes viable, everybody competes for those projects, which means returns from the projects also collapse as the returns of project collapse, cost of equity capital has to go down even more to compensate for it. And so ultimately the answer is zero. OK, that's your company. It's zero. But but as you progress through this stage and as cost of equity capital gets very low, strange things start to happen. In other words, some companies that are capable of overcoming this huge gravitational forces, pulling them down, some of those corporates become almost infinitely expensive because there's almost no valuation you can put on those companies. On the other hand, some of the companies which have traditional assets, traditional tangible assets, they're doing a decent job, become almost infinitely and ridiculously cheap. And also the companies that become infinitely expensive, if they actually stumble and for whatever reason, can no longer maintain momentum, they also become infinitely cheap. Suddenly, in a matter of seconds, the derating doesn't take terribly much stock. So the question then becomes in that sort of environment, how do you invest? Because, as I've said early on, mean reversion in that environment doesn't really work. Value cannot maintain its momentum for any length of time. On the other hand, your extreme winners could become extreme losers incredibly fast. And if you look at some of the conventional companies lot running factories, roads, machinery, whatever, good assets, good balance sheet, paying dividends, quite often the dividends you pick up, you could lose easily in capital value. So you can't really adopt the yield approach as you go forward. On top of that, there are the issues coming up. One of them are socially oriented. There is no question that millennials in generations have a completely different view of life compared to baby boomers. Millennials and WSA are much more into sharing a much more into community support. They ask the government to help them to resolve their issues. They also are much more in fairness, they're much more into equality, whereas baby boomers were all for efficiency, choice and freedom, completely different concepts. And so as millennials in each generation make their voice heard through electoral process and through the demographic process, a number of companies would need to change how they do sex. So if you think about it, 80s and 90s was all about shareholder return as a criteria. But that was not the case in 50s and 60s, in nineteen fifties, sixties, it was a social value of companies that was counted, not shareholder returns. So the question is about returning back to 50s and 60s that you need to derive social profits, not return to the shareholders. And overlaying that, of course, for ESG policies. In other words, everything to do with fairness, equality, environment, societal values. So corporates are changing at the same time. And one has to be very careful how one, invest in the companies because social backlash could be dramatic against some of the corporates. And on the other hand, some of them will be rewarded for some of these policies. But this is different to looking at price earnings ratios or looking at the bond yields that spreads. This is a completely different way of investing into the future. And so there is that involved. And then, of course, government will become more and more aggressive, investing, spending. And so there will be some local companies that are completely in line with the government and will benefit from it. So you have such a variety of issues that as an investor you need to deal with. That to me explains why Warren Buffett seems to be moving in a very erratic way. He's a space. Because this idea that Warren Buffett had all four good corporates was a moat around the castle, protecting it, no longer relevant because the moat gets breached in the second before, you know, there is this long goal. So climbing the parapets and your twice already on fire before you even know, before you know, it even happened. And so that's explain some of the unusual moves even very storeyed investors are increasingly making. And so to me, I basically recommend a couple of things. Number one, recognising that that sort of intangibles will continue eating tangibles. It's a little bit like a black hole, eating stars. So gradually tangible values will become less and less relevant, intangible, more and more relevant, people say. But how do I value intangibles, high value IT software, digital, social capital? Very hard. But as John Maynard Keynes once said, do you want to be precisely wrong or imprecisely correct? If you rely on tangibles, you're precisely wrong. If you try to assess intangibles, you will be imprecisely correct. And so intangibles will continue into intangibles and a huge Bryce and that's going to be one of the key criteria, which is still steering you to a variety of companies that can actually do quite well through this period. And so it becomes choosing companies that you will think become infinite because they actually doing so well, getting rid of companies that are infinite and just about to be directed, finding some local exposures that are a little bit more protected and will not suffer as much and try to get your hands around social values and how those social values actually impact your investment. [01:05:10][411.0]

Alec: [01:05:11] So, Victor, if we move away from stocks and bonds and we look at other investable asset classes, we mentioned gold in the game at the start and Bitcoin, but also things like property and commodities and stuff like that. How do you think some of these other asset classes will be affected by some of these societal and technological shifts that you write about in your book? [01:05:31][20.8]

Viktor: [01:05:32] In terms of commodities in nineteen fifty or sixty seventies, commodities was a real capacity constraint. Today, increasingly, again, technology and financialization basically makes us constrain far less relevant. Just look what happened with a shell. Guess who knew shale gas ten years ago. Right. It's just amazing how commodities can actually come online so much faster than they used to 50 years ago. The other thing is that as we progress forward and a combination of cloud computing, digital combination of 3D printing, artificial intelligence will reduce demand for some of the commodities because increasingly you would need them because they're just molecules you will recreate at your home one set of commodities, which is different as Agri-Business And I think this will be the last area ever to be this intermediated. But a lot of other commodities over the longer term might actually get this intermediated, whether it's oil as a basis of energy, whether it's a need for copper or cobalt or many other things. But agric agribusiness is going to be much, much staff up to this intermediate as you go sort of as you go forward. Now, that doesn't mean commodities don't play a very important role over the next five, 10, 15 years. Of course it does. They do. But longer term, a lot of that won't be relevant. Now, in the shorter term, the next sort of five years, 10 years, China will still be the key determinant. And given the China consuming so much in terms of commodities, the question becomes what would China do? China increasingly becoming less capital intensive and less commodity intensive and replacing China is almost impossible for a major commodity players. You really need Indian subcontinent, Middle East and Africa to start going, which is about the same size as China would solve. But the problem is investments in some of those areas are more like enlightened Genetix. This is why we were calling for in the book. We were calling for a major enlight Marshall Plan for the least developed countries because they really can't invest that easily. So the commodity side will be a little bit dependent on the speed of sort of disintermediation on the one side and how commodity intensive or less commodity intensive China is going to become over the next five, 10 years. And how much other countries globally can actually pick up some of that slack. So unlike gold, which is clearly to me is an insurance policy for things really getting wrong. And I think it's a very good insurance policy commodity that is a little bit questionable. Exactly where they're going to end up now in terms of a real estate and property is again, it's a very heterogeneous group. There's commercial real estate, there is residential real estate. But it also was the. And how government policies are going to change, whether we are going to have a period of continuing monetary policies, whether we're going to switch more into fiscal and monetary policy, because remember, in the MMT, you actually will have high productivity on the MMT, you will rely on financialization less than on the pure monetary system. On the MMT, the government might even allow a bit of volatility. Now, what that means, monetary system, as we've been reporting over the last 30, 40 years, encourages speculation whether it is financing unicorns, flipping the flat, whatever. It encourages financial speculation, MMT policy somewhat discourages it. In other words, some of the capital will be commandeered by the state and invest that in different areas. And therefore, some of the unicorns might not get funded as much. Some of the flipping might not actually go as well as it did over the previous three decades. So it really depends which part of the real estate market you are. And the same applies to commercial. I think we do have a very significant shift that will continue to go through. We already had it for 20 years before coronavirus, remember, in developed countries, twenty, twenty five percent of people already employed in gig economy in various forms. Now that by itself also already reducing some of the demand for commercial real estate. Now, if you go forward, I think coronavirus accelerating that substantially. So it's not totally clear how much of the commercial real estate actually will be needed. One area most people will say, and that's probably true, a very, very high end residential real estate might be OK. And that's probably true, but it has to be very, very high. And we're not talking about the middle subject. [01:10:12][279.5]

Alec: [01:10:12] We love bold predictions here at Equity Mates. Every year, Bryce and I dedicate an episode at the start of the year to making bold predictions. I predicted there would be a two trillion dollar company in twenty twenty. Thank you, Apple, for that Bryce. My prediction that CSL would be Australia's largest company by market cap by the end of the year. He's looking good there. And when we when we have an expert on we do like to pick their brains and ask them for a bold prediction. So I'm not going to ask you what asset class will be the best performing by twenty fifty with under all these changes, although if you want to predict that you're more than welcome to. But I'm wondering, as we get towards the end of the interview today, do you have a bold prediction for markets or one of the asset classes you're looking at in the context of some of the things we've spoken about today? Do you have a bold prediction for the coming years? [01:11:05][52.7]

Viktor: [01:11:06] In the shorter term, the biggest decision that investors will have to make is that whether, in fact, the fusion of fiscal and monetary policy that we're experiencing will result in a much higher inflationary outcome in the next several years, because remember, for the last several decades, we resided effectively in a disinflationary climate that benefited certain asset styles growth, for example, that eventually destroyed value as an asset class. But as we change policies away from monetary, are we going to see a significant shift in how people invest? And one of the things to highlight is that we had those shifts before in nineteen seventy two nifty fifty Americans, nifty fifty were destroyed now in fifties and sixties. Nifty fifty. We're benefiting from massive middle class creation in the US. Some of them are trading at 50 60 times earnings in 72, 73. They were totally slaughtered. And the reason that was slaughtered is that inflation took off and much more in reversionary styles came back until about mid 90s when the new growth stalls appeared. And so for the last several decades, the preference was for growth. And that's why your prediction on Apple came true or CSL came true. It was mostly about growth. It was mostly about cymatics that was driving us. Now, if we assume that the monetary world is sunsetting in its pure form, then should we actually change that? And what's going to break some of those predictions are the change from disinflation to inflation. Now, my personal view is that we will not be able to break this inflationary straitjacket. As I said earlier, if you want to create Zimbabwe, you can do it tomorrow. But for most countries, that is not going to be the answer. And so to me, this inflationary pressures will remain much stronger than what MMT will create in terms of inflation, because as I said to me, more monetary theory, just trying to reduce disinflation rather than. Create significant inflation now, if that is the answer, then sematic type investment will still do well. But if inflation is that correct, at least for a period of several years, the styles could alter dramatically and literally in the next 12 to 18 months. That will determine the future of most professional investors. [01:13:40][154.4]

Alec: [01:13:41] So, Victor, we like to end our interviews with the same final three questions before we get into them. Aside from your book, which people should all check out, and I'm sure many of our listeners during this conversation have jumped online and border. But aside from the book that people can find in the show notes, is there anywhere else that they can go online to follow you? Are you active on any social media or anything like that? [01:14:08][26.5]

Viktor: [01:14:08] I prefer to use LinkedIn. LinkedIn is my preferred sort of I guess by nature what I do and by nature what I write. It's a little bit less suitable for the Facebook and much more and much more suitable and much more suitable to LinkedIn. So LinkedIn is my preferred sort of social media, and some of your listeners might be customers of Macquarie Bank. And clearly there is plenty of notes and reports on the more specific issues rather than just long range issues we've discussed today that they can read up on. [01:14:44][35.6]

Alec: [01:14:44] I'm sure if they're not after hearing you talk today, some of them will be signing up to get more of your analysis. So Victor will jump into the final three questions. The first one is, do you have any books that you consider must read? [01:14:59][14.3]

Viktor: [01:14:59] It depends what people prefer to to get to know better. There are very good technology, Facebook, people like Bernsten and McAfee on platforms, a technology platform said machine age Martin for the arrival of the robots kerswill books on singularity. There is a lot that they can find at the back of my book, Actualise Biography, a lot of those sorts of books that they will find interesting. If, on the other hand, they're more politically inclined and they're looking more at social and political issues, you will Harare's sort of magisterial, I guess, trilogy on the fate of human race is very interesting. The same applies to Daron Acemoglu and Robinson books on why countries succeed in countries fail. Francis Fukuyama. Social books are very, very good. If they want to look more from a debt perspective, what book will be by their turn on debt? Which basically asks the question why we no longer can function without so much debt prevalent in the system itself? There are many books like that. The reason for writing my book essentially was that I couldn't find anyone that actually puts history, politics, sociology, economics and markets all in one. So if you read Francis Fukuyama books, it's very good discourse on social issues, but there is nothing there about the markets, nothing there about economies. If you think of Mervyn King Boake on Finance or Eterna book, there's is quite a lot on debt, quite a lot on on other things. But there's very little old technology. There is very little on the politics. If you think of Martin Ford or Johnson and McCarthy occurs, well, there is a lot of excellent stuff on technology. But what it's missing, in my view, what does it mean? What does it mean for societies? What does it mean for markets? You will Harari wonderful discussions, what it means for societies, but there is nothing relating to markets. What does it mean for economies? And so my book, I try to be sort of in the middle between that. There is also terrific books that you find in the bibliography on the history. What happened to Ottoman Empire, what happened to Russian Empire, what happened to China? And again, there is a plenty of books around Industrial Revolution around China. But again, none of them are forward looking, either in terms of technology or in terms of social spheres by definition. Therefore, when you take such a wide view, the way I have in every one of those sections with a history oriented or future oriented, you can't be as comprehensive as experts in those areas are. And experts, of course, will complain and argue that I didn't go into enough depth, but my objective was really to link all of that and answer what does it mean? And probably the biggest contribution that the book makes is combining financialization and technology. What I call Fujiwara Effect Fujiwara is when two hurricanes merge happens very, very seldom. By the way, it almost happened the other week in the Gulf of Mexico, but it happens very seldom that the two hurricanes actually merge into one. And so what I describe is that we have two hurricane. Age one is financialization that what we inflicted upon ourselves, the debt we inflicted upon ourselves over the last three or four decades, and the other one is technology, human spirit, ingenuity. Now, remember, technology would never have progressed if cost of capital wasn't that low. The ingenuity is good, but the speed with which it progresses depends on a cost of capital. So if we did not financial, this technology would not have progressed effectively. Financialization is pouring kerosene on the bonfire of the information age, and it's really the mix of the two, which is accelerating our fall towards a black hole. And so the other major contribution, I guess, is our discussion. What lies on the other side of the black hole and discussion we have? Do we need to be free? Under what circumstances? We might actually end up with a very illiberal orders without without such stagnation of ideas of wealth. [01:19:20][260.4]

Alec: [01:19:20] So, Victor, the second question that we like to ask is, what's your go to source for investing and financial information? [01:19:27][6.9]

Viktor: [01:19:28] OK, in the in the shorter term horizons? I am a bluebook user and I do use Bloomburg a lot. Most of my clients and most of the investors do the same from an economic perspective. There is a variety of exceptionally good sites that you can access. Most of them are free or near free. So to me it's a mix of economic websites as well as Bloomburg. [01:19:52][23.3]

Alec: [01:19:52] That's one. And then if you think back to your younger self, you know, when you are looking at companies like the Adelaide Steamship Company, what advice would you have for your younger self? [01:20:05][12.2]

Viktor: [01:20:05] Well, it's a very interesting question because I have two sons in the college in the U.S. right now. And when one of my youngest son is at the University of Chicago, ask me what major should I declare? Because in the US universities, you don't need to declare a major until much later in your studies. Should I do computer science? Everybody these days want to be a computer science graduate. My answer to him was, if you cannot solve a computer science problem, can you go to sleep? If the answer is yes, you can go to sleep, then you should not be doing computer science because even though you are good, you're not going to be as good. And ultimately, you probably will be connecting cables in the offices because it's only only the top, maybe five percent can actually add value increasingly as we go forward. So is the future of humanity if it is not humanity itself, instead of creating very narrow experts in a very, very narrow niches, which is what Industrial Revolution was doing, what you should do is to bring up humanity itself. And so my answer to my children is that in my days it was easy to predict what you should do. In the modern age. It is much, much harder and you should do whatever you think you enjoy and whatever you think it should be good at. In terms of the investment research, if you are unlucky enough to decide that your career is going to be an investment research and if that is what you like doing to me, it's a keeping an open mind. Try not to read other people's research, try not to follow your competitors because they pollute your mind and they deprive you from making choices and decisions that you otherwise would make because people are hard wired to follow the crowd. People are hard wired to be part of a society. People are petrified of making wrong turns. And so my suggestion, just keeping a very open mind and realising that neither economics nor finance series have a great deal of applicability to the world that you're going into. And you need to try to be as broadly based as possible, from history to politics to behavioural science to psychology to corporates that you do to markets and how people react much more broadly based. [01:22:38][152.5]

Bryce: [01:22:39] Victor, thank you so much for your time. It's been an unbelievably interesting conversation and you have left us with so much to think about. Absolutely. Encourage our audience to go out and buy your book to dig even deeper into a lot of the topics that we covered today. But on behalf of all of our audience, a massive thank you for your time today. We appreciate you coming on. [01:23:00][21.3]

Viktor: [01:23:00] Thank you very much, guys. And look forward to being your guests next on perhaps. [01:23:03][3.1]

Bryce: [01:23:05] Absolutely what we're going to be following up on that bold prediction. So stay tuned. [01:23:09][4.6]

Viktor: [01:23:10] OK, cheers. [01:23:11][0.8]

Speaker 5: [01:23:11] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything here in Equity Mates. This podcast is general advice, only the content has been prepared without knowing your personal objectives, specific financial circumstances or goals, the host of Equity Mates investment podcast may maintain positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [01:23:11][0.0]


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