2022 Virtual Value Investing Conference | Keynote Speaker: Russell Napier

April 20, 2022: Russell Napier, Author & Founder of Electronic Research Interchange (ERIC), was a Keynote Speaker at the Ben Graham Centre for Value Investing's 2022 Virtual Value Investing Conference and presented the topic “The Capital Cycle in an Age of Financial Repression”.
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[@rocking1313]

Buy Chaos, Sell Order . Thanks Prof. Napier...

[@sheevamatimbas4300]

Bloody excellent podcast, I'll have to watch 2 or 3 times to take it all in as a student of Macro Economics.
Thank you Mr. Napier 👍

[@3morrisgc]

Russell just puts everything together so incredibly well

[@declandonahue592]

Can’t believe this is free - thanks Russell

[@Poochie1]

Dude is incredible, what a presentation 🤯

[@SuspendedLogic]

I can't follow 😕

[@advocate1563]

Hi Leo I struggled too. But I listened to it many times at 0.75 and this is what I got. Hope it helps:
Things go wrong in 1994.
Fall of the RMB means that they move from fixed exchange rates to floating, ultimately on a self-select basis.
This made money extremely cheap for Asia.
We then let China into the WTO in 2001.
Investment heads East with over-production and investment in China operating at disproportionately favourable exchange rates (average growth in Chinese Fixed Assets approximately 20% over the period mid 90s to today).
Net effect is that many industries in the West are priced out of the market.
China operates a communal capitalist system - they don’t care about ROE, ROI, etc - they care about capacity and full-employment.
This explains why the break was made with capitalism and it favoured growth stocks over value stocks.
In the West, since they couldn’t compete with China in many markets, they turned to financial engineering (eg share buybacks).
Bottom line: more debt, less equity as a trend.
Of course all this cheap production from China ran the risk of deflation being imported into the West.
Governments were terrified of deflation because of the memories of the 1930s.
They were persuaded that they needed to reduce interest rates to keep the economy moving in an upward direction.
Of course this money wasn’t invested into corporate assets (steel plants, capital equipment, etc) since many of these companies couldn’t compete globally.
So, instead, it was used to gear up existing assets, and this was one of the reasons for the explosion in Total debt:GDP (combination of government, household and corporate).
As the East’s growth continued and western government ran of out lower interest rates, they turned to QE, buying bonds/treasuries/security-backed assets, etc).
This supported a “non risk” investment environment (after all, the government will pick up the tab) encouraging increasingly speculative investment in the West.
Importantly much of this credit was non-bank (money market funds, investment funds, insurance companies and pension funds). This matters because these institutions don’t create money; only banks can do that.
And only money creates inflation (inflation is and always will be a monetary phenomenon).
But now we’re shifting to a world where economic activity is funded by bank credit and that IS inflationary.
So we can expect higher interest rates.
Moreover, through Covid we saw the government (rather than Central Banks) get politics involved with money through guaranteeing the Covid Loans. Through a series of carrots and sticks, governments are forcing the commercial banks (the money creators) to support government policy, and this will be even more inflationary since government ALWAYS overspend and now, not only do they have the whole Energy/Net Zero stuff to fund, but in light of changing relationships with China/Russia, they’ve also got to re-shore/friend shore, and build resilient supply chains through industrial strategy eg semi-conductor chip plants, food processing, etc).
And on top of that, we’re now got all this debt at levels higher than WW2 and we have to pay it down somehow.
There are only 5 ways to kill debt on this scale: hyperinflation, default, austerity, productivity revolution, inflation.
Of these, sustained inflation is most probably the preferred route out of this. Expect capital controls, mandated purchase of yield-curve controlled government bonds in savings institution, capital taxes, etc.
The way this will be mandated is to trap people through the introduction of Central Bank Digital Currencies.
Solution: bearer assets of various types (including holding stocks in your name, not a savings institution), agile mindset, and a second passport. That last bit is my view. Good luck.

[@ianmcc87]

@@advocate1563 thank you so much. I’m trying to learn as much as possible but don’t have a finance background so this really helped!

[@roym1444]

@@ianmcc87 Russel or aswath damodoran are good lecturers