Is Trump Making Europe Great Again? ft. Koen De Leus & Philippe Gijsels

[00:00:08] Koen

We say here, now, in Europe, okay, Trump is MAGA – Trump is making Europe great again. And for the next four years, I think that is going to be and is going to continue to be the case. Which is pretty good because I think Europe had fallen asleep and now it’s, it’s wide awake and trying to reform itself. So, in that sense, I think Trump is the best thing that could happen to Europe.

[00:00:37] Intro

Imagine spending an hour with the world’s greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level.

Before we begin today’s conversation, remember to keep two things in mind. All the discussion we’ll have about investment performance is about the past and past performance does not guarantee or even infer anything about future performance. Also understand that there’s a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their products before you make investment decisions. Here’s your host, veteran hedge fund manager, Niels Kaastrup-Larsen.

[00:01:32] Niels

For me, the best part of my podcasting journey has been the opportunity to speak to a huge range of extraordinary people from all around the world. In this series, I have invited one of them, namely Kevin Coldiron, to host a series of in-depth conversations to help uncover and explain new ideas to make you a better investor.

In the series, Kevin will be speaking to authors of new books and research papers to better understand the global economy and the dynamics that shape it, so that we can all successfully navigate the challenges within it. And with that, please welcome Kevin Coldiron.

[00:02:09] Kevin

Okay, thanks Niels, and welcome everyone to the Ideas Lab.

Almost exactly one year ago, we talked with Chief Economist and Chief Strategist at BNP Paribas, Koen De Leus and Philippe Gijsels who had just published their book, the New World Economy in Five Trends: Investing in Times of Super Inflation, Hyper Innovation and Climate Transition.

Now, they identified five trends: innovation and productivity number one, climate number two, multi globalization number three, debt number four, and aging. Now, their book was looking forward 5, 10 years, even more in some cases. But given all that’s transpired in the last 12 months, I thought it’d be interesting for all of us to bring them back and ask them how some of these events have impacted their forecasts. Have they changed their minds? And if so, how? Or if they haven’t changed their minds, why?

So, gentlemen, thanks for joining us today and welcome back to the show.

[00:03:12] Philippe

Thanks for having us.

[00:03:12] Koen

Thanks for the invitation.

[00:03:14] Kevin

Well, there’s a lot that’s changed, but one thing that hasn’t changed in the last year is my phonetic ability. So again, please accept my apologies if I’ve pronounced your names wrong.

[00:03:26] Philippe

No worries. You got closer than most.

[00:03:29] Kevin

Maybe that’s one of the trends you can identify is my ability to get your names right. Hopefully we’ll get there eventually.

So, as I said, the first two trends in the book are innovation, and productivity, and climate. And then the third trend is multi globalization. And given what’s going on right now with the US tariffs, et cetera, that seems like a natural place of interest to start.

So, I’m wondering, can you first of all just explain what you mean by the term multi globalization and then we can kind of dig into some of the details.

[00:04:05] Koen

Well, I think I’ll take this one. When we look over the past 20, 30, 40 years, you see there has been a period of hyper globalization after 2000 up to 2010. And then you see there has been a slowdown in globalization from 2008 until 2020. Now in 2019, Donald Trump had increased the import tariffs for Chinese products. And at that point in time, what did China do? They said, okay, instead of exporting directly to the United States, we’re going to invest in Vietnam, we’re going to export intermediate products to Vietnam, and then Vietnam can export to the United States.

And that is what we call multi globalization. Instead of having only China, that was really globalizing, you see that quite a lot of emerging markets like Vietnam, like Malaysia, like Philippines, have come out of the shadow of China and have put themselves in between China and the United States in order to not have to pay these import tariffs. And that is what we call multi globalization. It is, yeah, an additional step. And so, it adds to the costs of globalization from the other side.

It’s pretty good development for these emerging markets because like that they get out of the shadow of China, and, okay, they increase their wealth via trade as well.

[00:05:49] Philippe

If I can add something to that. And going back even to your initial question, after having written the book, would you change anything?

Well, today I have more conviction, even more conviction of what we have written than I did a year ago. And the multi globalization story is one of them. If I take one step back on that, we have drawn very heavily on the work of Neil Howe and The Fourth Turning.

Well, a lot of things that I see in the world today really subscribe to the view of a Fourth Turning, a world that’s fragmenting, a world where everybody goes back to its own parish and its own church and the world breaks down in parts. And that creates a lot of geopolitical uncertainty and volatility.

In that perspective, everything that happens in the United States, with Donald Trump, with the tariffs, with, now, Pakistan and India, a lot of things in the world seem totally random but if you take that view, well, things start to look more logical and then there starts to be order in the entire story.

So, in a Fourth Turning, you expect wars, unfortunately. You expect extremist parties taking power. You expect sitting presidents, sitting governments, sitting parties to loot the elections. So that’s, in fact, what you see.

And yeah, unfortunately, in a Fourth Turning, the mechanism to go from a Fourth Turning to a First Turning is that it first gets worse before it gets better. So, we can expect more of this. And it’s always hard to predict where it will happen exactly, but it will, basically. And that’s important because (and we will talk about markets, certainly, afterwards) this geopolitical uncertainty will clearly translate into volatility in markets.

And also, taking the point of Koen one step further, I think we can no longer talk about a globalized economy, and therefore we can no longer talk about a global business cycle. Five, ten years ago, we could do that, but now it’s very easy to imagine that Europe and US will grow economically at a different speed.

Everybody would have put all this money on the fact that the US would grow faster. Now you see some cracks in the economy in the US, and the Marshall Plan, or almost the Marshall Plan, is on the table in Europe. Maybe Europe and Germany are going to go faster.

China has clearly a balance sheet recession. They will probably stimulate their economy. They reduced interest rates, also, recently, and they will grow at a different speed. It’s hard to say if will grow the fastest, but it will be at a different speed.

In Japan there, inflation is going up there. It’s very well possible that the bank of Japan will increase interest rates. And I think we should see this a little bit as tectonic plates. They moved all these different blocks. They moved in the same direction at the same speed. Today, they move at a different direction at different speeds. They will collide. And these collisions will create volatility in the markets. And that’s what we see in the euro/dollar, that you see in gold, in rates, and commodities, and everywhere.

[00:08:59] Kevin

Okay, well, I mean, I appreciate that view. And by the way, we did have Neil Howe on the show here talking about his book. So, that’s a good episode for people if they’re interested in Neil’s idea.

So, I want to maybe just go back to the multi globalization aspect and pick up on what Koen said, at the begin, about how China reacted to the initial round of tariffs, which was to essentially, instead of exporting a lot directly to the US, kind of exporting through third parties, third countries, Vietnam in particular. Is that still a viable strategy though now? Because the, obviously the US Understands that’s what’s going on. The tariffs apply to Vietnam, the Philippines, et cetera. So, what happens to that aspect of multi globalization now that, you know, essentially, I don’t know if it being blocked is the right word, but certainly being hindered.

[00:09:54] Koen

No, that’s a very good observation. And I think with tariffs of 49% on products that are imported from Vietnam, this is no longer viable. I don’t think it will keep on being that high, 49%, yeah. Okay, then at that point in time, certainly this globalization, if this multi globalization network is finished that would be a drama, certainly, for countries like Vietnam. Because if you look to the export from Vietnam to the United States, instead of having a share of 4%, they doubled their share to 9% over the past five years.

From the other side, I think as well that there are going to be some corporates that are going to talk, hopefully, going to talk to Donald Trump and say, hey, if you’re going to do that, yeah, we are not able. We will not be able anymore to outsource some of our productions to Vietnam, or to South Korea, or to the Philippines. So, this means that at that point in time your imported products are going to be way higher compared to where they are now. And of course, in the short run, probably Donald Trump will say, okay, we’ll bite the bullet. But this is not short-term pain.

If these American companies can’t outsource anymore to countries like Vietnam, or South Korea, or Philippines because they’re going to be import tariffs of about 50% on shoes, on trainees. I don’t think that the American people are going to accept that. And the closer that mid-year elections are nearing, the more that I think that that Donald Trump, yeah, will have to reverse course.

[00:11:56] Kevin

I want to talk about Europe because you guys are based in Brussels and you’re talking to a lot of European clients, and I suspect when you were writing the book that you were thinking perhaps the world… And maybe not, maybe it’s multi globalization is different than what I’m about to say. But certainly, I was kind of imagining the world might bifurcate into a sort of Chinese oriented technology sphere and a Western oriented technology sphere. And now I just kind of wonder if that’s even likely to happen, given how the US has treated Europe.

I mean, if you’re a European company, would you really feel safe now relying on US technology if that relationship can be used as a choke point for, you know, for economic negotiations and leverage going forward?

[00:12:52] Philippe

I think this is a very important point and a very important question. And I agree with what you say. And so, you could indeed see the world falling in two parts, an American sphere and a Chinese sphere, and Europe would logically be in the American camp. At the moment I do not see Europe falling in the Chinese camp either.

But I think with our clients, there are two things. First of all, they try to understand what’s happening because we come to a totally new world situation where you have no longer the big brother United States taking care of everything that’s defense, military things. You look at the Federal Reserve, when there are problems, to come in and help the world economy. When it was risk-off in the market, you would typically go to treasuries into dollars. That does not seem the case anymore because today I see equity markets, when equity markets go down, they go risk-off. Typically, the dollar goes down and treasuries go down, so, interest rates go up. That’s something totally new. We will see how permanent that will be. But that’s a totally different way of thinking.

So, I think that Europe is, in a way, realizing that Europe should come together to find a way to be a voice, once again, in the world economy. But in a Fourth Turning, that’s very difficult because you have to work together.

And the Marshall Plan, that’s on the table in Germany, that’s the first step. Money is always difficult, but money is even probably the easiest because there are other things.

You need unified capital markets, you need more innovation, you need less regulation. So, there is a long and winding road to travel for Europe to be really a world power once again. But I think that thinking is with our clients.

So, they try to understand how the world is changing. We are looking for solutions, but we do not immediately have them. But the awareness, the sense of urgency with our clients is there. And then everybody is looking for answers. And everybody is trying to study the United States, and everybody is trying to study how permanent this is. Is this a Donald Trump thing that could reverse in a couple of years or is something that’s more permanent?

[00:15:04] Kevin

But isn’t even just the way you phrase that question suggestive of an answer in the sense that if you’re asking yourself how long is this going to be in place and will it be reversed by, say, a new Congress or a new president? Doesn’t that uncertainty, in itself, tell you, hey, I can no longer rely on, as I said, US technology or, say, US energy imports because those things could be switched off and on at the flip of administration. So, doesn’t that, just asking the question in some sense, tell you that it is a permanent shift?

[00:15:45] Koen

Well, I think it is. I think it is. If we look to what is happening in the economy, what you see, what Europe realizes, is that we are far too dependent on the United States. Before we were far too dependent on the United States for defense, far too dependent on China for our exports, and far too dependent on Russia for our energy. And then all of a sudden Russia invaded Ukraine, and all of a sudden we became much more dependent on the United States, as well for, for our gas.

And then all of a sudden you saw there was a big problem in China with regards to growth because there was basically a real estate bubble that exploded. And again, we became much more dependent again on the United States for our exports.

So now, all of a sudden, we are in a situation where we are very, very dependent on the United States for energy, for our safety, and for our exports. And all of a sudden there is an agonistic president. And so yeah, we really realize we have a big, big, big problem.

And what you see today is that Europe is reacting. Europe is reacting. You had the Draghi report, you had the Letta report and all these reports. What they do is say, okay, we have to step up our innovation, we have to step up our independence. Because in this world where we are living in today, in this new world economy, we can’t be too dependent anymore on anybody. Not on the United States for technology or for defense because, certainly, with Donald Trump, it’s all about coercion. And he’s going now it’s about trade. Next time maybe he will use SWIFT to put pressure on Europe. He has used SWIFT already to put pressure on Russia, on Iran, why not to put pressure on Europe?

And so yeah, we are in a world where we, as Europe, have to develop our own markets, our own technology, we have to install our own energy infrastructure and, of course, build quite a lot of sustainable energy, but maybe as well nuclear energy in order that we reduce all these dependencies on the United States, but as well on China and all the other countries. So, we are in an all different ball game. And yeah, we say here now in Europe, okay, Trump is MAGA – Trump is Making Europe Great Again.

And for the next four years, I think that is going to be, and is going to continue to be the case, which is pretty good because I think Europe had fallen asleep and now it’s wide awake and trying to reform itself. So, in that sense, I think Trump is the best thing that could happen to Europe.

[00:19:01] Kevin

As you’re talking about that, I kind of had this vision in my mind of two futures for Europe. There’s, I think, the future you’re potentially describing, which is kind of Europe as a whole gets together and says, okay, we have to develop our own technology, our own security. We have to develop enough power that we can kind of act on our own.

But there’s an alternative version which is that, you know, acting as a single entity, obviously, in Europe isn’t that easy. And we still don’t have a kind of, as you said, unified capital market. We don’t have a deep and liquid market for Euro bonds, things like that, that would make the European financial markets a more serious competitor to the US.

There’s an alternative, I guess, future, and I’m not suggesting that I think that’s going to happen, but it’s one that I could sort of visualize as you’re talking, which is Europe kind of splits. And you have certain states that say, you know what, I’m just going to align myself directly with the US, and I’ll do what they want, and you, maybe, have Eastern Europe saying, I’m going to align myself with China. And because of a frustration or an inability for Europe to act as a whole, maybe you get this kind of splitting.

And I know that’s, oftentimes, an Anglo Saxon perspective on Europe. And I’m conscious of that because I’ve lived in Europe for a while and I know that Anglo Saxons tend to be more pessimistic about Europe than Europeans, and we’re typically wrong about that. But I mean, is that the kind of second future something that you worry about?

[00:20:43] Philippe

Yeah, you should worry about it, I guess. And in the Fourth Turning, once again, that’s what would logically happen because in the Fourth Turning, it’s very difficult to work together. So, then you can imagine that countries will indeed split off and start to have their own industrial policy and everything. And some will work maybe more with the United States. So, that’s something that you can envision and that would be, in a sense, logical.

I think it’s either one or two scenarios, one or two, and either you integrate more and go forward, or you indeed run the risk of falling behind, and falling behind in parts. And back to your point of technology, and I agree with what Koen says, and we have the sense of urgency, and we have the wake-up call, and so on. But this is all easier said than done because the reality of the matter is also that we have not built a single company, in the last 30 years, in Europe, that has a market cap of $100 billion, like Palantir has, for example. And I’m not even talking about the Apples and the Microsofts.

So, we have a lot of building blocks. We have good universities, we have innovation, we have centers of innovation, we have quite a bit of savings. So, we have the building blocks, but you have to do it. And in Europe, scaling up is always difficult. We build good companies but we do not manage to scale them up fast enough. Also, as you mentioned Anglo Saxon, also not In UK and London, I love the city, it’s been a beacon of innovation for centuries.

But look at the FTSE, the FTSE 100, they have companies of 100 and 150 years old. In the S&P, you see the birth of new companies all the time. So, that ecosystem, you have to build that. You can put money against it, and you can have the belief, and the will, and the wakeup call, and everything that you want, but at the end of the day it’s not easy to do.

I was saying we have to be independent in technology. That’s a very noble cause to strive for, but it’s not a walk in the park. So, everybody realizes that.

But I totally agree with what you say, that either you get your act together and you go forward as one, or, indeed, you run the risk that it falls in different parts. And in a Fourth Turning, maybe the latter scenario is maybe what you would expect. So yeah, it will not be easy.

[00:23:03] Koen

But from the other side, if we look to Europe, we see that it takes big strides forward every time there is a crisis. And if you look over the past 20, 30 years, it’s always like that. And I think I’m much more optimistic.

If we look what has happened over the past couple of months, we see huge shifts, really huge shifts. If you look to… So, the adoption of regulation, all of a sudden the European Commission realized, okay, we have probably gone too far in regulating Europe, so we’re going to reduce it by 30%. Germany, nobody thought that they would stop it. And now, all of a sudden, they’re going to invest 500 billion in infrastructure plus again, 500 billion in defense.

If we look to all the countries who are stepping up their defense, which probably is going to promote innovation as well, that makes me pretty optimistic. Okay, it’s not going to be a walk in the park, that’s for sure. But as long as Donald Trump is putting pressure on us, I think we going to move forward. And okay, we have some difficult countries like Hungary and some others. But sooner or later, yeah, we’ll see what we’ll do with them as well.

[00:24:27] Kevin

Yeah, I, I think that’s an excellent point. And that, that was definitely my experience, living in Europe for a long time, is that you had, as I said, the Americans and the British were always very skeptical, but every time there was a crisis, Europe kind of doubled down. So yeah, I think you’re right. That’s certainly a possibility.

I wanted to kind of extend this conversation about multi globalization. In your book, within the multi globalization chapter, you had a section on global currencies, and you were particularly bullish on gold. And that’s obviously been correct. And I know, in the book, you weren’t making a forecast for the next year or so. But gold has done exceptionally well. And so, it’s a topic everyone’s interested in right now. What do you see as the forces driving gold higher or potentially driving gold higher from this point on?

[00:25:30] Philippe

Well, in the book we put forward the target of $4,000 per ounce, which was at that time a bit ambitious because I think we were at $1,800 or $2,000 or something. Today we have $3,300, $3,400 somewhere. I think there is still potential. Up until now this has been a central bank thing, only almost a central bank thing.

So, it started when Russia, like Koen said, invaded Ukraine. The US weaponized the dollar, Russians were kicked out of SWIFT, the assets were frozen. And that made a lot of countries like China, a lot of countries in the Middle East, Iran and others think, hey, if we get into a quarrel with the United States, the same will happen to us. So, we have to diversify from treasuries and we have to go to something else. There is no obvious candidate to be the reserve currency except the dollar. So, they went to gold. So, this has been buying by central banks, almost solely buying by central banks.

So, that means there cannot be a bubble in the gold market because investors have been absent from the gold market or have been net sellers in the gold market for the last three years. They started buying in January. So, this year we have seen this, and you see the flows in ETFs and other funds. And so, we can monitor this quite closely.

So, since the beginning of the year, the investors are back on board. But before the last three years, investors were net sellers of gold and the only buyers were central banks. And I think they will continue to do so. If you look at the percentages, central banks, of course, have increased their percentages in gold compared to their total reserves. But there is still a lot to go.

If you look at the investors at this moment, on average in the world, in an average portfolio in the world, they hold gold and gold related things, silver miners, and so on. The holdings in an average portfolio is only 1%. Back in the ‘60s, that used to be 50%, 60%. Well, we never will go back to these levels, I think. But if investors would go back, on average, to 3% or 5%, there is still a lot to go, a long way to go.

So, I still think even though we have increased quite a bit and then we’re probably technically overbought, and we will see some consolidation, maybe some correction depending on what happens with the negotiations with China and so on. But if you ask me where gold will be over the next couple of years, it will be way higher than it is today.

And if I have to pick one commodity today, it would be silver, because silver has lagged gold badly. Also, because central banks have not bought silver, they’ve not bought miners, they just bought gold.

So, when investors come back on board, they will probably also start to buy miners and they will start to buy silver, which by the way is also, on the industrial side, very important because if you look at demand for silver, it’s 50% basically industrial and 50% precious metal. So, there’s a lot of demand for silver from solar panels and batteries and everywhere new energy things. So, I think there’s a lot of potential. I’m very positive on gold. But if I were to choose, I would even prefer silver today.

[00:28:53] Kevin

You mentioned ‘the miners,’ and you do talk about that in the book as well. And I’m curious, from an investor perspective, how should you think about investing in the physical metal, say a gold ETF, versus investing in the miners themselves.

[00:29:13] Philippe

Yep.

[00:29:14] Kevin

How do you calibrate kind of that relative value? And you know, if you’re advising clients now, are you saying, hey, the miners look more attractive than the physical metal or is it not worth playing the miners because of all the other aspects that come into owning the stock versus just the physical metal?

[00:29:32] Philippe

Indeed, that’s a very, very good point. Now, I think the miners are vastly undervalued compared to the physical gold or whatever. Just to give you an example, it’s not a buy or a sell recommendation because I do not exactly know what a rating on the stock is. But if you look at Newmont Mining, for example, they were at $80, the highest level, and they now at $53. While gold has gone up so much.

If you look at Barrick, it’s the same. So, why has this happened? Well, because banks have bought gold, they have not bought miners. But they’re creating a lot of cash flow and are very much undervalued. But as we also say in the book, they’re extremely volatile. It’s a hated sector basically for many, many, many years. And it’s also a lot of risk to the downside because the day that gold corrects about 10% or 15%, you run the risk to go down 30%.

And what you can propose to clients, and it’s maybe an easy solution, but we always say to clients, look, if you want to invest in the space, take 3/4 or 4/5 in physical gold and take 1/4 or 1/5 in miners. Because then when you write, you get an extra upside, a booster, a turbo on it. But you do not get guilt if you’re wrong on the physical side.

But I think, to your question, fundamentally, they’re extremely undervalued. They have a way to catch up. Typically, this will come in a second phase. But given the volatility of these things, I would be a little bit more careful. So, I would buy a little bit of miners, and I would buy the largest majority still in the physical metal.

[00:31:08] Kevin

Well, thanks for that. Well, since we’re talking metals, let’s pivot a little bit and talk about another theme in the book, which is climate. And you know, you say, in your section in the book on climate, one of the things you said is that the energy transition (and we can talk about whether or not we’re still going to have an energy transition), the renewable energy industry relies a lot on raw materials, metals in particular. And, you know, we’ve done some episodes on that as well.

And you say that, you know, we’re on the brink of, essentially, a super cycle in raw materials, and particularly those that are critical for the energy transition. And copper was one that you were particularly keen on.

And I think both from the point of view that demand’s going to go up, but supply is constrained and it’s very difficult to bring a new supply of copper on the market quickly. Obviously, you know, copper hasn’t done particularly well since then. And I know your view is more long-term, not short-term, but if the tariffs are going to cause a kind of a stagflation sort of environment in the world economy, the US potentially going into recession, that sounds like it’s not good for copper. Traditionally it hasn’t been.

So, I’m kind of curious. I’ve got multiple questions here, but maybe the first one is, do you still have that long term bullish view because of supply and demand imbalances for copper?

[00:32:44] Philippe

Absolutely. And the point is, indeed that’s one of the things, a lot of things in the book have materialized, but the super cycle in metals that I was envisioning has not yet materialized. And copper is still okay. It’s not done great, but some like lithium, cobalt have done even worse.

So, indeed, there is the problem that you mentioned that indeed the world economy is slowing. The Chinese economy is still weak. We are basically in a balance sheet recession in China. So, I think that has delayed the story. But that does not change the long-term view, especially in copper. Demand is still increasing.

If you look at demand for copper, it’s still going up strongly even though China is weak. If you would have a chart of the copper demand, it is clearly decoupled from China. So, it’s going up even though China is weak. So, even as China works to stimulate this economy, demand would go through the roof.

Now, copper has done reasonably well still, but that’s not doubled like it’s in the book. But I still believe this is going to happen and it’s clearly a demand and a supply story.

[00:33:52] Kevin

Could I just follow up on that? Again, I’m definitely not an expert in raw materials, but I think like everyone else, I’ve gotten more interested in them over time. And, as I said, we did an episode on the kind of constraints for mining here in the US and we talked a lot about copper supply and lithium as well.

But you know, my understanding is now there’s been some big technological improvements in copper extraction and the ability to get copper onto the market. It seems like it’s faster now than it used to be and I’m wondering, does that change your long-term outlook on supply? Because I, you know, part of the argument is not only is demand going up, but you can’t bring supply on the market that quickly. And some people are arguing. Well, actually, the supply part of the argument isn’t as binding as it used to be.

[00:34:48] Philippe

Well, that’s an extremely good point. And what I always tell clients, as you can hear, I have a very big conviction on the super cycle in commodities. But I always say the more wrong I am on this, the better the world looks. Because if you look at the world from a material point of view, all the atoms, all the molecules, everything is here.

What’s innovation, what’s progress? It’s being able to rearrange these things, these atoms and these molecules in a better way. And that has happened in a number of things. Look for example at the nickel market.

The nickel market is at the moment oversupplied just because of new technology with Chinese money, Chinese technology. A lot of the nickel ore comes from Indonesia. It was typically low-grade ore. Well, with new technology they managed to extract, in a better way, nickel from low grade ore. And, basically, the world is flooded with nickel to the extent that some of the mining majors are just writing down their entire assets and holdings in nickel because they’re not worth anything anymore. So that risk you run.

Shale oil is the same thing. And if you look at the oil market, it’s 103.5 million barrels a day, demand and supply. Oil prices are very low at the moment. Saudi Arabia is pumping a lot. You have a price war again, but you have shale in the United States. Shale is about 7 million barrels a day or even more. Imagine an oil market where shale would never have existed, a new technology, prices would be way higher.

So, recycling, new technologies, better extraction are all things that can help. So, I still think, because it will take a while, even if you were to open new mines today at a rapid pace, you need 200 new mines, more or less, the estimates say. Well, you would only have more copper in 10, 12 years time. If you could reduce that time frame, well, it would help.

So, to your question, I’m still a big believer in this cycle. You have to look commodity by commodity. Nickel is not cobalt, it’s not copper. They are different things. So, I still think that the copper price is going to double. But I’m absolutely not blind to your argument. That is a very valid one. If indeed you manage to have new technologies, better technologies, better extraction and so on, then maybe the cycle will not be as violent or as strong as I envision. And then I will make less money, but probably the world will be a better place because that means that you find ways to manipulate the materials in a better way. So, yeah, I agree with you.

[00:37:35] Kevin

Okay, just one last question on, I guess, energy and the energy transition. I mean, should we still be using the term the energy transition? I mean, given the Trump administration’s hostility to green energy, I mean, does that change the picture? Does that just mean that we’re going to see progress outside of the US, and that the transition is on, but the US is not going to be participating in the way that we kind of maybe had thought it would?

[00:38:10] Philippe

I do not remember, Kevin, that you had Adam Rozencwajg on your show?

[00:38:16] Kevin

Yeah, he was on the macro series with Niels about a month ago, I think.

[00:38:23] Philippe

Yeah, yeah, he’s one of the brightest thinkers, I think, in the commodity space that I know. And he has this concept that we also used in the book, the EROI, the energy return on investment. It’s not the return on investment in terms of money, but how much energy you put into something and how much energy you get out of something.

And you’ve moved from a world where the EROI was 5 and then you get your industrial revolution. And then with coal it was 15, and with oil it was 25, and with nuclear it was 50. So, you get 50 times more output than input. So that’s fantastic.

And what you can argue is that wind and solar and all these other alternative energies do not have an EROI that’s as high as maybe oil or as nuclear. And that would be the first energy transition ever which has a lower EROI.

And if you’re a lower EROI, it means that you reduce the total amount of welfare that you can basically distribute uto a population. That creates tensions and so on. So, imagine a world where the US gets out of alternative energy and Europe keeps pushing this. Well, it’s all about EROI.

If Europe manages to improve the batteries and the grid and the wind and the solar and everything, that it really becomes competitive compared to the classic energy. Well, it is a big benefit. But then you have to have this innovation also fairly quickly.

If you look at markets, of course, the total alternative energy space has been killed in terms of performance – stock price performance. I think, now the sentiment is so negative, and probably the election of Donald Trump and his absolute dislike for alternative energy, was the final blow. I Think investors are still holding these stocks. And these teams, well, they’re the die-hards. They’re not going to sell anymore. So, I think that the sentiment is so negative that, from a perspective of a couple of years, it’s a buying opportunity.

[00:40:24] Kevin

Yeah, I mean, Adam is exceptionally smart and I really… If you haven’t listened to that episode, you should. It’s really good. And he does talk about the, you know, undervaluation of raw materials and why he thinks it’s an excellent time to kind of consider that from an investment perspective.

One thing that I’m, I guess, a little skeptical about the EROI argument is, you know, it’s the old idea in economics of externalities, and if we’re leaving out the costs of fossil fuels and then, you know, we’re really not calculating the EROI correctly (energy return on investment). And we’re starting to see that. I mean, where I live in California, a lot of people can’t get home insurance because of fire risk. We’re going to see flood damage. So, we have potential impacts on the economy all over, particularly in the insurance markets, that, as far as I understand, are not incorporated in that measure.

[00:41:22] Philippe

That’s why we have not put a figure… All the other figures that I’ve mentioned for nuclear and oil and so on that are figures that are well documented. We have not put a figure on solar or wind just because of the reason that you mentioned. Of course, if you look at a windmill, you have to recycle it as well.

So, then you get into the discussion, are you going to use a plastic bottle or you’re going to use a bottle in glass? And both sides, they have armies of scientists that can prove that the one is better than the other one. So that’s a discussion that’s complicated.

But I think Adam’s general view on this is a very good frame to think about these things. And what I find a little bit disturbing is that, in the world that we have, we can no longer have the discussion. Sometimes we should sit around the table and just discuss about this because the answer to the questions that you have asked, and that we’re talking about, are extremely important. And that’s also, once again, typical for a Fourth Turning. The two sides cannot talk anymore. And that’s a problem.

[00:42:28] Kevin

We’ve got maybe five or ten minutes left here, and I want to kind of touch on the first theme in your book, which was productivity and innovation. And, you know, I think I’d ask Koen, in that initial conversation, at what point could we start seeing AI make meaningful impact on productivity. I think his answer was, you know, that’s still kind of 5 to 10 years off.

And I’m curious if he’s updated that view of when AI might start helping us out in the sense of generating a faster economic growth.

[00:43:11] Koen

Yeah, it’s a good question. And I didn’t change my view yet. You see that development is going very, very, very fast. But if we look to all kinds of productivity indicators, we still don’t see a big increase in productivity because of this artificial intelligence. So, for the moment, you see, of course, that the uptake is going very, very, very fast. But is ChatGPT, because I think everybody is now using ChatGPT in a daily basis, Is that really increasing productivity? I don’t have the impression that that is increasing productivity enormously.

I think it hasn’t reached manufacturing yet. Okay, on an individual basis, I may do a little bit more, I may increase my productivity a little bit more compared to, let’s say, a year ago. But if you really are going into the manufacturing, if you’re going to the services, if you’re going into the corporates, I don’t see any increase in productivity yet.

[00:44:23] Kevin

Yeah, you know, we had Philip Carlsson on the show, and he had his book out called Shocks, Crisis and False Alarms where he talked about this notion of AI impacting productivity. And, you know, the way he framed it was that we’re not going to get a big impact on productivity until we see labor being displaced at scale. That’s really where you get the gains and that’s where real wages go up. And, you know, when real wages go up, then people have more money and they spend it on things that they haven’t spent it on before. And that’s when you get the new jobs being created and you get this kind of economic transition happening. Do you broadly agree with that perspective?

[00:45:08] Koen

Yeah, yeah, I think so. I think we should see, at some point, labor is going to be displaced by artificial intelligence, by new innovations. Of course, that is, as well, a scary picture that you hear everywhere. The trouble is (a little bit), okay, they’re going to be new jobs created, but these new jobs, these people that are going to be displaced, are they going to be ready to fill in these jobs? That is, a little bit, the question in going this fast.

Now, in the precedent of, let’s say, industrial revolutions, what you saw is that this change and this displacement in jobs, it took 20 years, it took 30 years. And okay, after 30 years you had seen a big displacement. But okay, the next generation, they were up to the game and they filled in the new jobs.

If today we see that we’re going to have a big displacement because of artificial intelligence, because of innovations, my scare is that this displacement is going to go so fast that people are not going to be able to find very fast, new jobs. And that is, for me, that is a little bit scary.

Okay. productivity might go up from the other side. What is very good as well is that compared to the last time, what we see today is that we have an active population, certainly in the west, besides the United States, that’s going down. So, we need some kind of automation to still be able to increase the revenues, to increase productivity and to increase our output. But maybe it’s going to go too fast and that is a little bit scary.

[00:47:20] Kevin

I’ve got some friends who are, you know, working very closely at very high levels in that area. They were saying that the next generation, and when I say next generation, I don’t mean in a couple years, I mean very, very shortly, of these bots will essentially be able to program code better than any existing computer programmer out there. So, the pace of change in some of these previously high paying industries could be unusually fast. And I’ve referenced this a couple times.

We had Ernest Scheyder on talking about… He had a book called the War Below where he talks about the mining and the controversies around that. And one point he makes there (I am going to tie this into AI) is that you know, there are lot of good jobs being created in the mining industry. High paying jobs that don’t necessarily require a lot of education and there’s an inability to fill those jobs in the US. But to your point, it’s not like computer software engineers are necessarily going to be able to go out and work in the mines in Arizona right away. So, you have this kind of odd situation, potentially, where you’ve got maybe higher than normal unemployment but a lot of job openings at the same time.

[00:48:45] Koen

Yeah, that are not going to be filled in. And to your point, to my point as well, what we see in China for example, in big companies like Alibaba, what you saw before is that these young people just coming from university, they were put to work in some kind of jobs that were not too difficult, that were a little bit IT related. But what you see today is that quite a lot of these jobs, which are pretty easy jobs, have been taken over now by artificial intelligence. And that is a big challenge for China as well, and certainly for these young guys that come out of university.

So, yeah, if that is happening in China today, then probably this is going to happen in Europe tomorrow and in the United States tomorrow as well. So, there are some warning signals that something is about to happen in this sphere.

[00:49:46] Philippe

If I can add, Kevin, one investment idea around this, because I agree with you, I think next generation AI, and then I’m mostly thinking about AI agents and smart agents and so on, they will replace a lot of jobs. So that will maybe make the cake bigger, but it will become a repartition problem.

So, it will be a bigger cake, but it will probably be more distributed more unevenly with the risk that you get social tensions and problems and so on. So that’s one point. What is an investment idea, and I think we’ve written about it, I do not remember exactly, but we’ve written about it in the book as well. You want to own robots.

You want to own the robots, because if you cannot make your money from the salaries you’re going to get, you can maybe make it from the investments or you want to be invested probably in this new technology. So, I think even with the Magnificent Seven down, with some of the robotics companies down and so on, it would be a mistake not to be invested in technology because nobody knows how fast it’s going to go and what the exponential growth will be. So, it would be a mistake not to be invested.

But at the end of the day, maybe the best investment is to invest in yourself, because if you need new skills in the new world, you have to keep up to speed. And some people will do that. They will just get into lifelong learning, but others will not, and they will get left behind. And that will create more inequality in the world with all the risks that are attached to that.

[00:51:21] Kevin

Yeah, well, thanks for that, Philippe, and you know, that’s. It’s an interesting point which I’m just going to mention. I don’t know if we have to explore it. I teach at Berkeley, and I’ve got two of my kids, one’s a graduate student, one’s an undergraduate student. And, you know, there’s investing in yourself by education, but what we’re seeing now, in the educational world, is students being utterly reliant on ChatGPT. So, they’re kind of getting through the traditional education process, but they’re really not learning that much. They’re kind of outsourcing a lot of their work to these bots. So, it’s not just doubling down on personal education, it’s actually being intentional about that and genuinely acquiring skills.

I’m not sure if that’s something that has come up in Europe. I suspect it’s global.

[00:52:11] Philippe

I see my kids also writing papers using ChatGPT, and so on. So yeah, that’s really going to… Maybe the skill set that we need in the future is maybe going to be different. But a lot of young people know where to find things, but they don’t have the active knowledge of these things.

And I read somewhere a very interesting thing, if you were to go back 200 or 300 years, and I would go back and I’m an engineer by training, but I’m not very good at computers and so on. So, I do not know how to switch on a presentation or something like that. But if I were to go back 300 years, I would know about cars, I would know about electricity and so on. But if people 300 years in the past would ask me, build me a car, or build me a video recorder, I couldn’t do it. So that’s the point.

And that will be more and more the case. We will know how to use these things, but we do not know how to make them anymore.

And then you get a class that’s even a book, I don’t know the exact title or the writer, but that are the makers and the takers, or whatever. So, you will have a group of elite people who still manage to make all the stuff and all the rest will become consumers.

And then you get to the economic problem. How will the consumers get money if they do not get it anymore from salaries? And, yeah, then you come to discussions of global income for everyone or stuff like that.

Because with the new technology in the new world that we’re going to have, it’s clear that education will have to change, but that also, the way that we organize society, that will have to change. And education is still organized. And I love tradition, and I love Oxford and Cambridge and all the tradition that goes with it. But maybe, indeed, at a certain moment in time you will have to look at the educational system as well.

[00:53:59] Koen

Yeah, we love Berkeley as well, of course.

[00:54:00] Philippe

Most of all, we just love Berkeley.

[00:54:05] Kevin

All right, thanks for that, guys. Okay, well, I think that’s a good place for us to leave off today. So, thanks, Philippe and Koen, for joining us on this one year anniversary conversation. That was really, really fun and enjoyable.

[00:54:21] Philippe

Thank you, sir.

[00:54:22] Koen

Thank you very much. And when gold touches on $8,000, I hope we get again invited.

[00:54:29] Kevin

We’ll have a special show.

[00:54:31] Philippe

Let’s have five or six, maybe.

[00:54:33] Kevin

I’ll put an alert on my Yahoo Finance to tell me to organize that.

Okay, so the book, again, is called the New World Economy in Five Trends. And please make sure you go out and get a copy because I think you can see from this conversation that a lot of the topics that we talked about here are not being discussed enough on mainstream media. So, for all of us here at Top Traders Unplugged, thanks for listening and we’ll see you next time.

[00:55:06] Ending

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