Comments
Transcript
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DSI agree that China is probably not trying to be the reserve currency, but the SWIFT system will be marginalized as FinTech from China and others take over. The major US banks will join the FinTech but will have problems overcoming the memory of the US weaponizing the dollar. With all the fiat currencies in FX a reserve currency will become moot. The Chinese trade deal is done in January 2020. No tech resolution. Chinese will buy US agricultural goods which they were already buying on the world markets - much of it probably trans-shipped US goods. Economically China won on this round. DLS
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PJAbout to watch this vid, hope Ferguson doesn't mention his wife in this one.
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AEGreat interview. Bring him back in 6/8 months for a follow up.
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IFHow does one figure that Trump's trade policies have hurt his base? What metric or framework is one using to come up with this?
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DPGood interview. There's another Scotsman who would be great to have on - Russell Napier.
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BMEverything is Cyclical, nothing is linear
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JLawesome video, bring Niall back on the regular
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TDExcellent interview. Thank you both.
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MRbeautiful Persian rug!! i have very similar in my living room!! nice video too - could listen to thesetwo all day. great points on chimerica/appl
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VSChina will never last. We must understand that a planned economy must fail. Read Hayek as they can never have the knowledge to replace “the Market”. The one belt one road is an example where the debt they create will be the death of the China’s success. Great interview !
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SMThanks for the interview. With these types of interviews, I always reassure myself once again that how wrong Pro-Chinese economists, historians and others. He spent too much on persuading himself and others to believe that china is different and they will lead the world after coming out of this world reset, instead of looking at the facts and real numbers. The fact of the matter is that, China has a fake economy and it's controlled fake state with tyrant regime.
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DSNot sure who arrived at the conclusion that the CNY wants to be a reserve currency but do go on
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SCFinally, a volume control. This was very much needed. Keep up the good work RV!
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PGFantastic conversation!
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DRNiall Ferguson has argued that British aggression started WWI, and if innocent Germany had been allowed to win, it would have prevented America's rise to world power. ... Ferguson believes in colonialism and the White Man's Burden, and that we should conquer Third World countries for their own good. ... Ferguson predicted Trump's humiliation in the Republican primaries, then that he would lose to Hillary Clinton, and we all know how that turned out. ... Ferguson advised President Trump to cede vast swaths of Eurasia and the Middle East to a Russian sphere of influence (thanks, buddy). ... Ferguson supported the candidacy of Marine Le Pen. ... Ferguson supports privatizing and vouchering Social Security and Medicare (not a winning concept these days). ... In New York in 2009, Ferguson engaged in public debate with Paul Krugman and was laughed off the stage. Subsequent events showed Ferguson to be wrong on all counts. ... Ferguson accused Keynes of being indifferent to the future because he was gay and childless. ... It's all in his Wikipedia entry. The man loves to be contrary, whether he knows what's actually going on or not. You can build a whole career that way.
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SAGreat interview. Niall Ferguson is a real gem. My favorite part was the intellectual cyclical vs stochastic debate that erupted mid-session. The entertaining thing is that both gentlemen are right. Every system no matter how simple or complex has a life cycle (human body is a also a complex system of body parts). In hindsight the life cycle is clear. However, Ferguson rightly points out that you can't predict a complex system (stochastic process) by analyzing the life cycle of simpler systems because new interactions can lead to different outcomes. Anyway, gotta love two British (sorry Scottish) intellectuals casually dissing each other in the middle of serious discussion. Priceless.
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SDI think the comments on the end of Chimerica and the pending collapse of the Trans-America model are important, and the shift in perspective to emphasize the tech relationship/war is very valuable. Welcome riposte to Kyle Bass. What does he have to say about this?
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FGInteresting guy but he blew it completely in the aftermath of the financial crisis when he predicted that inflation and yields would shoot up (Weimar Republic inflation instead of Japan deflation << you need to pick the right bit of history). The other thing that is a bit insufferable is listening to that academic-fake-grave-intonation which is ok to project aplomb and impress an average audience but I guess here we know better and go beyond form and value the content. There quite a few 'nerd-interviewees' here in RV that provide better content.
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TRGreat discussion - and you can't have an historian with a financial markets perspective and not have a portion of the discussion on gold. Bull or Bear or indifferent - would love to have heard Mr Ferguson's perspective.
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TCgreat discussion all around!
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BBExcellent discussion! What I particularly appreciate about Mr. Ferguson is that he is a very clear thinker and a superb speaker.
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ggEnjoyed the interview but completely disagree on his view that China deal could wait. To me that’s the type of conclusion that undermines all the framework here. The deal can not wait, and that’s why it is coming much much sooner. Chinese could not do the deal because of mueller overhang but it is badly needed and coming shortly
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WMVery good indeed, have always appreciated Niall's thoughts, views and command of economic history. Like all "experts" he has many logical arguments, very few experts are right all the time or they would all be multi-billionaires by betting on their correct predictions. However, I cannot agree with Niall on cycles. There is simply too much evidence for cyclic activity, not only in economics but in nature. Suffice to say though, although it is true that history does not truly repeat, it most certainly does rhyme. What I do agree with is his comment that complex systems can often soldier on for ages, and then come to grief "all of a sudden". Suffice to say our current society is bound together and functions through a complex network of threads. You can break some of the threads and still the system persists, grow more connections and even thrive. However at some point the interconnectivity becomes so complex that severing one threads might unexpectedly lead to a chain reaction of breaks, potentially leading to the whole "ball of wax" collapsing. Debt, war, disease and natural ecosystem collapse can and will occasionally all combine to bring about tragedy.
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myKinda meh...
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SvI am not always agree with the Hoover Institute, Scottish, economic historian, but I read all his books and really like to listen to his views. I thing history does rhyme, and cycles do repeat, if not exactly. Thank you for doing this session.
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APBelieve Ferguson is correct on Trump's base support for his China policies.
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CSI think we might just have an academic here who gets populism. I'd love to hear more from him on that in fact. Also he's non-partisan - which helps us guys who accept what is just is, and want to make money regardless.
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JBI have read a few of Niall Ferguson's books and the most underrated financial historian is Murray Rothbard
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JHVery good interview and Niall Ferguson is such a fascinating (and dare I say, original) thinker. Brilliant remark that complex systems don’t operate in cycles. With that one insight, he has just changed my investment framework somewhat. Fantastic. Thanks, gents.
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MNWonderful! Niall is capable of articulating his view with great simplicity. I've loved his writing. Thanks RV and Larry for bringing him on. So much to take away from this.
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JALarry. In reference to the Chinese currency are you calling it the won or the Yuan? It sounds awfully like the former!
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GWLove it. The fusion of politics, history and finance (without the confusion) is what I am most interested in
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JSI'm only half way through this and am astonished that anyone can vote down this interview. Absolutely outstanding!
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ELFound myself wanting this discussion to go on for much longer. Thank You.
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NvInteresting take on Apple and US Semi conductor industry. Stocks definitely not priced for it
NIALL FERGUSON: I'm unusual amongst historians, because I'm interested in history mainly for what it teaches us about the present and future. The ECB is going to find a way to ease in so far as is necessary to avoid an Italian crisis. What happens in a complex system is that you are on the edge of chaos for really quite a long time. And then a phase transition happens. And quite suddenly what has appeared stable falls apart.
LARRY MCDONALD: My name's Larry McDonald, creator of The Bear Traps Report. Historians and philosophers have often said those who don't learn from history are doomed to repeat it. We're thrilled today to bring the Real Vision audience Niall Ferguson, Hall of Fame historian, someone that has looked at markets in history like no other person that we've really ever seen. And his view from looking at history and it markets going forward is, I think, fascinating. We're going to bring it to you today. We're really excited to have you with us, Niall Ferguson. Pleasure to have you here with Real Vision.
NIALL FERGUSON: Great to be here, Larry.
LARRY MCDONALD: I've been so inspired with your life. As a young boy on Cape Cod, I remember reading about you and through my life reading some of the fantastic books that you've written and inspired so many young people, and even though we're the same age.
NIALL FERGUSON: Well, I read you admiringly--
LARRY MCDONALD: Thank you.
NIALL FERGUSON: --and the feeling is mutual.
LARRY MCDONALD: And then I got my big break I did was doing a speech in Abu Dhabi six years ago this week. And I met you, and developed a good friendship. And we're was so honored to have you on. I'm personally grateful that you took the time to be with us. This platform is very exciting. And I think it reaches an amazing audience around the world. The Real Vision platform is the much higher intellect of financial acumen, which I like to say.
But yeah, take us back to your younger days. And, you know, what were your top inspirations and motivations as you were coming through school? Because you excelled at such a high level for such a long period of time. And what was that main driver?
NIALL FERGUSON: Well, Larry, I grew up in Glasgow. I guess we have Scottish roots--
LARRY MCDONALD: Yes, we do.
NIALL FERGUSON: --in common. And as a boy, I was an avid reader, and I suppose was inclining towards literature until I read Tolstoy's War and Peace. I think I was about 15, and there was really much less to do for young people in those days, especially in Scotland where it rains all the time.
LARRY MCDONALD: Yes.
NIALL FERGUSON: So you're either playing soccer or reading War and Peace. That was the choice. And on a rainy day I was reading War and Peace. And at the end of War and Peace, Tolstoy reflects on the lessons of this extraordinary novel, and indeed the lessons of history. He ends the book with a kind of philosophical essay on the nature of historical determinism. And this really grabbed my attention.
And it made me think more seriously about history as an option. I came from a rather scientific family. My mother was a physicist, and my father a doctor, my sister is a physicist. I'm the black sheep of the family. But history appealed to me from then on, because I found the study of human particles-- human particles with consciousness-- somehow more appealing than the study of, well, particles, the kind of things that physicists do.
And so I was lucky to have a very inspiring history teacher who encouraged me to pursue my interest, which at that time was in the 20 Years War, deep into the inner recesses of the Mitchell Library in Glasgow. And I set my heart and studying history at Oxford. I'm unusual amongst historians, because I'm interested in history mainly for what it teaches us about the present and future. The historian I most admired as a boy was AJP Taylor, a wonderful writer who not only produced extraordinary history books, but was also happy to be on television, and write for the newspapers, and opine about the events of the day.
So I suppose at some point I took it into my full head to be an AJP Taylor, to be a historian who used history to think about contemporary problems. And I kind of have chased that-- I've chased that vision, or that dog perhaps, ever since my late teens.
LARRY MCDONALD: That's the key to relating to the masses. And that's the key to the bestsellers. Out of all your amazing pieces of work, from Civilization to Ascent, what do you think is really the most compelling book moving forward that readers should look at for the next say, three to five to 10 years?
NIALL FERGUSON: Well, you mentioned financial acumen. I mean, if your viewers are mainly interested in finance, they should probably read The Ascent of Money. Because of all the books I've written, that's the one that aspires to tell the history of the world in financial terms. And as so happens, I've just produced a new edition of the Ascent of Money--
LARRY MCDONALD: Beautiful.
NIALL FERGUSON: --with two new chapters that take the story up to date. The book was published in 2008, just a matter of a few weeks before the bankruptcy of Lehman Brothers. But it was written with the expectation of a financial crisis in mind. So it seemed appropriate after 10 years to update it. And I think that's the right starting point for understanding my approach to the past, which has always given finance a relatively high priority.
My feeling as I was going through university at Oxford was that but most historians underestimated the importance of financial markets. Maybe as a Scotsman who was relatively numerate, quite good at math, I was sort of shocked by my English contemporaries at Oxford. Because they thought history was about kings and queens, and yeah, maybe the odd general. But it seems to me that bankers were just as interesting, actually, as those people, especially in the modern era. But even in the Renaissance, the Medici weren't originally interested in politics. They were originally forex traders, as it happens.
LARRY MCDONALD: Yes.
NIALL FERGUSON: So I suppose I started off thinking, hmm, I could maybe have an edge in this history game if I emphasize financial history. So I did a lot of my early work on kind of obscure stuff like the 19th century bond market, and how World War I functioned in financial terms. I wrote a history of the Rothschild family and banks, a massive, two volume history. By the time I wrote The Ascent of Money, my goal was to try to give financial history a large audience. It was also a six part PBS series.
And the goal I had was very simple. To explain the financial system to people and the financial crisis by showing them where it all came from. Because I think if you try and explain the financial system with some kind of flow chart or even worse, a mathematical model, most people are just baffled. But if you tell them the story of why we have banks, why money is mostly bank money, why there is a bond market, what the stock market is and where it came from, then it all starts becoming more intelligible.
So I greatly believe in financial education. I think a chronic problem we have in the United States, and indeed in most countries, is financial illiteracy. The Ascent of Money was designed to make the whole financial system seem more intelligible by just telling its story.
LARRY MCDONALD: So let's look at the next say, 2, 3 years. Italy has-- in terms of near-term debt maturities in Italy, you're talking about $820 billion of next three to four years of near-term debt maturities. You have, in Italy, for example, a movement with Mr. Salvini, an incredible populist who has gone from single digits in the polls to, I think, upwards of the 30s. On one side, this is a Reagan-esque tax cutter. And on the other side of his marriage party, you have Five Star, which is really like, a Bernie Sanders populist, which is fascinating. Because Europe is a little bit further than the US in terms of populism.
Whereas we've had Mr. Trump in more of a right wing populism, the left wing populism so far has risen but failed in 2016. If we look at the near term debt maturities-- if you're a bondholder right now in Europe or own the part at some of the banks and you have these near-term debt maturities, and you have Italy going up against France, and you see France with their budget starting to blow through because the yellow vests and what Mr. Salvini might say to the European Union and the EU in the next say, six months-- how do you see that whole debt profile playing out over the next year and a half, 2, 3 years?
NIALL FERGUSON: Well, I've spent a lot of my career thinking about public finance. In fact, I think the very earliest article I ever had published in the scholarly journal was, in fact, about public that in Europe, admittedly before World War I rather than more recently. But I spent a lot of time writing about this kind of issue. Back in the late 1990s as the European Monetary Union was taking shape, Larry Kotlikoff and I-- professor at Boston University and I, got together and wrote a piece for Foreign Affairs, predicting the ultimate degeneration of Europe's monetary union.
And the argument we made in this-- I think it was published back in 2000-- was that the monetary union would ultimately be unsustainable because of the fact that it wasn't in any way a fiscal union, and that there was bound to be substantial fiscal divergence between the member states. That was baked into the cake because of demographics and differentials in growth. So I was a skeptic about monetary union, mainly because of fiscal imbalances.
And back then when we were discussing where would things most likely go wrong, it was Italy that we always tended to come back to. Greece, of course, had even worse public finances, and probably should never have been allowed to join the monetary union. But Greece is relatively small, whereas Italy is not only a founding member of the EU, it's also really quite big economy. So I guess the big question for any investor is what's the end game for Italy.
It has zero to negative growth. It is a huge stock of debt, as you rightly mentioned, a quite large proportion that falls due in the relatively near future. In history, stories like that tend not to have happy endings. And they can end in a bunch of ways. They can end in default, or they can end in some monetary inflation if the country is in a position to do its own monetary policy, which of course, Italy isn't. Or it can end in agonizing austerity as the government runs primary budget surpluses to try and get out of the hole.
And when you look at the Italian case, you find yourself wondering, well, how can any of this happen? How can any of these classical historical scenarios play out? Because it would be so disruptive to the rest of the European Union if Italy defaulted. It would have terrible consequences for the Italian banks. It's impossible for Italy to inflate its way out of the situation, because it doesn't have an independent monetary policy. And it's very hard to imagine a populist government, especially a coalition of the populists of the right and the populists of the left, which was never supposed to happen, doing austerity.
From an investor's point of view, this is lots of flashing red lights on the dashboard. Go nowhere near this. My hunch is that when push comes to shove two things are going to happen. One, the ECB is going to find a way to ease in so far as is necessary to avoid an Italian crisis. Because it's just too big a risk for the system. The reality is that the ECB can't really stop quantitative easing. It can't normalize monetary policy, so long as Italy is in this situation.
But the other thing that has to happen is a political change in Italy. And the question really is at what point does Matteo Salvini, the leader of the League, press the button and take advantage of the fact that his party's far ahead of the populists of the left, of the Five Star Movement? And he could do that this year, but I don't think he's going to.
What Italy needs is actually the Brazilian formula. If you look at Brazil, you've got a populist leader, Jair Bolsonaro. But they're doing free market economics. They're doing structural reform. And that's what Italy needs. And as long as they're held back by the populists of the left, the Italian economy is not going to grow.
LARRY MCDONALD: So you've got the right wing populists, or the Reagan-esque populists in Salvini still rising in the polls, whereas the Five Star or left wing is kind of receding a touch. So there's a little bit of a spread developing, which you're saying over the next year could have actually Salvini and the League actually leading the whole show.
NIALL FERGUSON: Yeah. I think that's going to happen. The only question is when. And it's really the only way out for Italy. Italy needs structural reform. And it needs something like Reaganomics. And I think what's interesting about the Brazilian example is we're beginning to see, for the first time, that you can be a populist on issues such as law and order in the case of Bolsonaro, or immigration if you're Salvini. But you could also do free market reforms.
Now most people assume that even the populists of the right are going to do non-free market economics. I think that's an incorrect assumption. I think populists of the right are capable of doing good economic reforms that actually generate growth. And let's face it, say what you like about President Trump, the economy in the United States grew 3% in 2018, which is not something that the economists of the Democratic Party expected to happen. So I think that's the kind of winning formula. There's no other way out for Italy. It can't escape what was once called nasty fiscal arithmetic if it continues with zero growth and an ever rising stock of debt.
LARRY MCDONALD: When I was younger, my dad constantly referenced to Alexander Fraser Tytler, a Scotsman. And through my life reading some of your works, I always made that-- maybe I was wrong or right, but I always made that connection with the two of you. And I remember as being a young boy, my dad reading this