Dalio: "The World Order Has Broken Down"

0:01Moments.

0:02Ray Dalio:They have the power to change everything. The moments we try something new. The moments we travel thousands of miles. In seconds. The ones that transform how we spend. How we save. How we build. The moments we connect and create memories that last a lifetime. time. The moments 300 million people say in unison, we want a better way. But the moments that really matter are the ones that come next.

0:46Hey, everyone.

0:46Ray Dalio:As you know, on this podcast, I bring the best guests in the world at that nexus of understanding of macro crypto in the exponential age of technology. If you're enjoying the show, a quick five-star rating goes a long way. It helps us grow and keep these conversations coming with the best guests in the world. Thanks a lot.

1:11Mikkel Rosenvold:Hello out there. Welcome to Macro Mondays at Real Vision. My name is Mikkel Rosenwald. I'm your usual host. And as usually, I'm joined by you, Andreas. Welcome to the show.

1:21Andreas Steno:Thanks, Mikkel. It's good to be live on air during a U.S. holiday.

1:26Mikkel Rosenvold:Once more, us Europeans are at the assembly line while the Americans are taking another day off. That's how it usually is. We're an all-American team today. We couldn't get a U.S. producer, so we have a European producer as well. So I think, is it President's Day it is in the U.S.? I don't even know what that is, but I read as much.

1:47Andreas Steno:I think, Mikkel, the big difference is that We don't need to label a Monday an off day or a holiday. We just take the day off here, right?

1:56Mikkel Rosenvold:Yeah, absolutely. Absolutely. Absolutely. So, Andres, you told me that you got caught on a – trying to get a shirt delivered today as well. Yeah.

2:09Andreas Steno:Well, I think it was on Friday I bought a shirt online, and it looked very true, the webpage and everything. And then I received an email today stating that it will not be distributed to me until I think the 28th of February due to the lunar holiday season.

2:27Mikkel Rosenvold:The lunar holidays as well.

2:29Andreas Steno:So I may have bought something fake. Let me put it like that.

2:35Mikkel Rosenvold:Let's see about that. You're not alone in that, Andres. I used that as a poor segue to pull up this chart from The Guardian, a graphic from last week. We can get it on screen here. that apparently 23 % of the GDP of Myanmar, which is quite a big country, is cyber scams, which you have probably contributed to, Andreas, an estimated 120 ,000 workers. That's an extreme number, Andreas. I mean, yeah, you've helped finance this possibly. How do you even work with macroeconomics in a country where a quarter of the economy is a cyber scam? I don't know. I'm glad we're not covering that part of the world all too much here, Andreas.

3:17Mikkel Rosenvold:Rather, as you know, guys, this is our weekly macro show, our free show, where we give you a sneak peek into our macroeconomic research that we publish at Real Vision. For full access, you need to sign up to the Real Vision Pro Tour, where you get access to our model portfolio and all our research. So, Andreas, lots to talk about today. We haven't had a red hot week in headlines to trade for, but still lots of stuff going on, to some very major rotations in markets. And maybe we should begin there, Andreas. I love this meme that we keep using for almost every time we have an AI scare in a new sector.

3:54Mikkel Rosenvold:And we are currently seeing AI cutting deep into the SaaS sector, perhaps especially in the financial realm. We're even, especially Danish companies, being hit by an AI scare in logistics as well from a very, very strange Asian company as well. So is this called code? What is this driven by? And how are you seeing this in markets right now?

4:15Andreas Steno:Yes, we have this kiss of death going from sector to sector to sector at the moment. And it's quite tricky to navigate, to be honest. I think it was on Thursday or Friday, we had this white paper released by the company you referred to in the trucking space. I think they allegedly found out that they could increase their shipping volumes by 300 % just due to AI without adding any costs. And then all trucking companies basically fell out of bed. Not an AI story that I had on my plate, to be honest. And therefore, we probably should have put trucking in there instead of financial services. The reason why I put financial services in there is to have a look at ourselves, basically.

4:59Andreas Steno:Because there is so much going on within our sector. And I wrote a blog the other week, stating that I think between 90 and 95 % of the work that we typically had the team doing, the two of us, has now been automated by agents. And I sincerely mean it. So we're talking about that kind of progress over the course of 12 to 18 months. And yet we're stuck here with a fear that moves from sector to sector to sector, even though this is a major step forward for technology, a major step forward for technology. mankind in many ways, in my opinion. But we're currently at the stage where no one really gets where this is going.

5:44Andreas Steno:We're at the stage where it accelerates so rapidly that if you extrapolate the trends, we're all dead in a couple of years from now, right? So it is incredibly difficult to navigate as an investor. And one of the things that I see a lot at the moment is this focus on the vast amount of CapEx needed to bring forward this AI revolution and the impact on the big seven companies in the US, typically known as the hyperscalers, right? And I've borrowed a chart from a colleague at BCA Research, and I admittedly took a stab at him on X over the weekend. His name is Peter Paresen. He's a great guy, but the typical rumpy old man type of guy working within equity and credit strategy.

6:36Andreas Steno:And he posted this chart on the free cash flow on X. That's probably part of his broader analysis on the topic. And it's quite visible that the free cash flow is in free fall, to say the least among these big hyperscalers obviously as they spend they're building out their infrastructure in some cases they're trying to alleviate using nvidia chips by spending a lot of money on r &d on their own chips right and the big question here is obviously the other side of the coin because it's pretty straightforward if you spend a lot of money you don't have that cash readily available for buybacks whatever you could use it for I think that's textbook stuff.

7:20Andreas Steno:It's not like we need to lecture people on that. I think the missing link to this discussion right now is, is there a feasible use case on the other side of all of this capex? And my best guess is still that it's very, very underestimated how much of an impact this will make. But it's very tricky to convince these, quote-unquote, grumpy old men sitting there in their portfolio manager positions that it is a good idea to undertake this kind of capex until you actually see the results. And we don't see the results yet.

7:56Mikkel Rosenvold:No. And Andreas, if one of these companies did the flip of this, prioritized buybacks over AI investments, where would that lead them? What would the investment case be there? Because as you say, we're seeing AI going from sector to sector to sector. The companies that are surviving, that's what we're seeing so far, the ones that have some kind of moat. That can either be an extreme technological edge or integrations effects or most likely network effects, user effects. So these companies are racing right now to win this, and then they'll worry about the cash flow later. That's how all of them build their business to some extent.

8:34Mikkel Rosenvold:We talked about for years, is Google ever going to make any money? How's Meta ever going to make any money? They ended up doing so because they won the race in their specific technological niches. So in my opinion, Andreas, if I was at the head of one of these companies or other software companies or hardware companies, what's the alternative to not invest in AI, to not be part of this race? That's also quite a decision.

8:59Andreas Steno:So Mikkel, I asked my audience on X, what is the bigger risk for the MAX 7 to overinvest in AI or to underinvest in AI? And the result is a 50-50. The survey right now basically means that no one's got a clue or maybe we're in this very tribal situation again where one part of the market is incredibly upbeat on this and one part of the market is incredibly downbeat on this. I don't know, really. It makes for a very, very uncertain near-term outlook for a lot of sectors from a price action perspective. What I'll say is this. You can actually prove that over a long range of data sets. If you invest in companies that currently undertake loads of CapEx when they grow their asset base a lot relative to the size of their business, it's typically punished by markets.

9:55Andreas Steno:The market does not buy into it until they see the results on the other side of that CapEx investment. So I think simply put, the Max 7s will be tricky to buy as long as they spend this much. But they will probably turn, at least some of them will turn into huge investment cases once they start harvesting the returns of this. And I'll add this, using this very simple logic that you should never invest in companies doing CapEx. If we had followed that very simplified logic, it would kind of have left us all driving around bullet cards still, wouldn't it? I mean, of course, in very short term, CapEx is negative for your cash flow.

10:39Andreas Steno:It's kind of by design, right? That's the point of view. we probably underestimate the future returns in many of these cases as well.

10:50Ray Dalio:So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now.

11:07Mikkel Rosenvold:Yeah, and it's a matter of survival at the end of the day for these companies. That's also where we're at. Okay, Andreas. So let's dive into some of the recent macros here and look at the inflation report from Friday, Andreas. We can pull up the decomposition here. So we had another relatively soft inflation print. How much of this is AI-driven? How much of this very clearly also energy-driven? But how much of this is the beginning of the expected deflationary effect of AI that we're seeing in the economy?

11:39Andreas Steno:I think it's hard to judge at this stage, but let me put it like this. We've had, I think, 10 inflation reports since Liberation Day and the added tariffs, and seven of them came in substantially softer than expected. We've had most of those inflation reports right because we use big data series to track this instead of trying to second guess based on tariff effects and all of that. And we still get to the conclusion that inflation is softening. And the report we got on Friday mostly confirmed that we had one big outlier. You can see towards the bottom of the panel here within transportation services, rising 1.35 % on the month.

12:23Andreas Steno:Outside of that, we had mostly benign developments, both in shelter and all sorts of goods categories and food prices and especially in energy prices. So what happened in transportation services is something to worry about. We had the biggest spike ever in registration fees for autos, and we had the biggest spike ever for parking fees. The two combined grossed, I think, more than 6 % of the month. Never, ever seen anything like it. So please tell us out there if it has become a lot more expensive to park your car since December. I don't know. At least it wasn't something that we picked up in our data.

13:03Andreas Steno:So it looked like an outlier. And therefore, I'm pretty comfortable saying that this inflation trend is fairly blind and something that is underappreciated still.

13:15Mikkel Rosenvold:What's the immediate effects for the outlook for rate concentration? That's the obvious question here.

13:21Andreas Steno:I think the market is very help and not pricing in anything before Kevin Walsh is in power. So his first meeting will be in June. I don't think Paul has ruled out cutting. And to my understanding of the situation, I think it would be a feasible scenario to expect him to try and orchestrate what maybe one cut before leaving office just to get there in one piece. He's been very focused on trying to round off his presidency in a decent way or chairmanship in a decent way without getting too involved in all of that back and forth with the administration and delivering one-way cut if he is able to convince the committee over the next couple of meetings.

14:11Andreas Steno:I wouldn't rule it out, especially given our inflation statistics. I mean, it would be, you know, if we look at it live here in February, the outlook is even softer for inflation than what we saw in January. March is typically a very soft inflation month, seasonally speaking. And you can see on outcasts here, I mean, we're currently running at a 90 % probability, that's how we should read it, of falling inflation relative to the most recent print. So I think it looks very benign. And on top of it, we see this early stage cyclical re-acceleration in the US, which is, by the way, in sharp contrast to what we see in the eurozone now, where this cyclical growth picture is moving in the other direction.

14:59Andreas Steno:Yeah, we have the data here where you can see the light blue in the Eurozone basically peaked right around this whole Greenland debacle and the threat of new tariffs and all of that. So at least beneath the hood, the cyclical momentum is moving to the US from, for example, the Eurozone and elsewhere around the globe. And I'd like to add one chart in the context of that, which is page 10, Michael. I just saw this posted by another analyst earlier today. We're talking about U.S. equities versus the rest of the world here. Return year to date. Worst ever U.S. experience performance relative to the rest of the world since 1995.

15:38Andreas Steno:You could probably find outliers back in time, but it's an incredible outlier. And I think it's a very interesting outlier given what Marco Rubio said in Munich. Maybe that's a good bridge to that discussion.

15:50Mikkel Rosenvold:Yeah, it is. I've had a lot of questions about this, and I'll expand on it in the drill. article this week, also covering Ray Dalio's admittedly very, very good article on Twitter this week. It was too long. So a lot of people asked me to summarize it. I'll do that on Wednesday and give you some takeaways from what's really important. What we saw from Marco Rubio was really, really interesting. It basically underlined for me that the Euro bashing has several phases. Marco Rubio was much more smooth to European ears than J.D. Vance was a year ago. But the message is the same. As he put it, we still want to have beers with you, but friends pay for their own beers.

16:36Mikkel Rosenvold:And that's decoupling, Andreas. Europe has to pay for its own independence. Fair enough, we'll do that. But that's also a loss of U.S. power. That's the U.S. That's a new cause for the U.S. The U.S. used to be completely okay with buying for beers. as long as they decided where we all went. If you don't buy the beers, you don't get to decide where we all go. So that is the shift that we're seeing. I'll expand on Wednesday. But it underscores this decoupling as well, both between Europe and U.S. on certain areas, but obviously much more vital to the global economy, the decoupling between U.S. and China as well.

17:15Mikkel Rosenvold:So we're seeing that. other than that we had pretty much the expected talks at Munich I'd say we didn't get too much news out of the US Denmark meetings on Greenland which is a good thing it's a bureaucratic matter rather than a violent one so all in all pretty much what we expected to hear of Munich but obviously testament that we are looking at a new world order where the US is behaving quite differently one thing that is I would almost say business as usual, is the US gearing up for a war in the Middle East. And I'm not saying this to bash on the US. There are lots of reasons to be against the Iranian regime, a horrible regime.

18:00Mikkel Rosenvold:I'm just mentioning this because I think people tend to forget it, that we have almost a third of the US Navy deployed near Iran. So this tells me two things. One is the military is obviously opening up options for Donald Trump. This doesn't mean that you have to use it. You can pull these ships back. But there is a certain path dependency to this. Secondly, the deployment of a second carrier task force tells me that the U.S. is now building up the option or opening the option of prolonged conflict with Iran. So we're not necessarily just talking about hit and run type attack like we saw in the late spring.

18:42Mikkel Rosenvold:this could be built up to a prolonged at least the capabilities are there so negotiations are ongoing I don't think we're going to see US attack on Iran just now but the risk is there and it's something you have to to factor in overall this was less of an issue at Munich than I had expected because of this military build up but that probably also goes to show the importance of US here so we'll cover this much more in the drill article, Andres. I wanted to get to one or two listener questions here. One that ties in with our now casting. Let me see if I can get it on screen here. One second. It was from WeRemainBullish.