The Great Global Rebalancing: How Trump's America is Losing its Grip on the World's Capital with Sony Kapoor

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1:26To understand the economy, you have to understand human nature.

1:32David McWilliams: This podcast is powered by Acast. How are you doing there? It is time for the podcast. And I think the podcast is going to do what most people around the world have been doing, is trying to digest precisely what happened last week at Davos, what it means for the economy, what it means for global markets, what it means for geopolitics, and the new buzzword, John, of the year, which is geoeconomics, which we will look at. Which we will own. Which we will own, absolutely. Anyway, I'm going to start with the basis of today's podcast. is going to be on one of the oldest, oldest truisms about investing.

2:21David McWilliams: Right. And it's called the diversification of risk. So we're not going to start with Donald Trump. We're not going to start with Elon Musk. I was desperate to start with Donald Trump. Well, we will. We'll come back to him. But I'm going to give you a bit of history, economic history. Go on. I'm going to talk to you about a man. The hero of this podcast is going to be Sonny Kapoor, who is one of the great, great financial minds. Yep. he's going to come on later on and explain something to us. He actually explained the whole world. He's going to explain why it's all been a good thing, right? Yeah.

2:51David McWilliams: That in fact, it's not about America's preeminence, it's about America's decline. And that should be celebrated by the rest of the world because he makes the basic idea, and it's a very good point, that America has 4 % of the world's population, 2 % of the world's population under 18, and yet gets 70 % of the world's speculative capital. Yeah. Right? And attention. And attention. But the most important thing is the capital. Yeah. So the world has doubled down, tripled down on risk in America. The world has concentrated all its risk in one country, which is the United States, to the detriment of the rest of the world.

3:33David McWilliams: But not only to the detriment of the rest of the world, but it flies in the face of the basic, basic rules of investment, which is you diversify your risk away from a certain area. And if all the risks of the world are your portfolio... Yes, my portfolio. ...is centered on... My extensive portfolio. But if it's all centered on one asset... Yeah. ...or one country, one location, then you've got a problem. Just so that you know, I don't have a portfolio. John, you do have a portfolio. You just don't know you have one, right? You have a portfolio of assets, intellectual assets, physical assets, social assets, all those sort of things.

4:12David McWilliams: You have a portfolio. When I see you walking into the pub at McKenna's, it's a walking portfolio. I say, look at that man. Look at that man. But I'm going to give you a little bit of history, right? A portfolio of children. You actually do. You have been very productive in that area. Very productive. No, I want to talk to you about, before we start, a man called Henry Lowenfield. Have you ever heard of this guy? No. Or Lowenfeld, I think, right? Was the genius behind a stock exchange in the UK, in London, at the turn of the century, the last century, the 19th century, called the Universal Stock Exchange.

4:50David McWilliams: Now, he's not remembered these days as a great, great genius of finance, but I believe he is essential to understanding modern portfolio theory. So he emigrated from Poland. He made a fortune in the brewing business selling non-alcoholic ale. Really? In the UK. Now, that's quite interesting. Sorry, what year? This is 1889. Non-alcoholic ale. Non-alcoholic. Why? But what he understood was that there was a massive temperance movement. Salvation Army. You know, in Ireland, there was a huge temperance movement. The whole Father Matthew in Cork was a temperance movement against alcohol. It was an economic and a moral crusade against alcohol, which was all over Ireland and the UK in the last part of the 19th century.

5:39David McWilliams: Sort of Victorian moral crusade. Our friend Mr. Lowenfeld from Poland figured out, hold on, I'm going to make a few shekels on this, and shekels he made. Then, interestingly, he made money in the temperance movement, selling non-alcoholic ale. He then became a successful theater entrepreneur in London. In 1889, he then turned his talents as a businessman and as an observer of social trends to the vogue at the time for market speculation. So at the end of the 19th century, we had this explosion of stock markets all around the world, right? And they were the result of an explosion in speculation.

6:20David McWilliams: people decided, I'm going to buy the shares in Argentinian railways. I'm going to buy the shares. What was the big bubble at the time? The big bubble at the time was actually Argentinian, Russian railway shares. Right. That was the emerging market of the time. Now, our friend Lowenfield, okay, he got into the brokerage business because he realized people were mad for this carry-on. He was full of energy. He was full of energy. But he had one brilliant insight that really induced people to buy more investments. he was convinced that the more different securities an investor buys, the safer his or her investment portfolio will be.

6:58David McWilliams: He pioneered the modern science of diversification. So at the time, everyone was saying, this is a sure bet. Go for this. You can't lose. And he said, no, actually, what you do is you spread all your bets over a diversified portfolio. So you buy a little bit of this, a little bit of this. you're exposed in one country one asset it's a different region you have kind of what they call go-go stocks which are like going stocks you know brilliant but you also have these kind of steady eddy stocks that just generate for example income yeah big sense see he was thinking clearly because he was on the non-alcoholic beer exactly he wasn't locked like us okay and in 1909 he wrote a book called Investment the Exact Science right and this quite a claim.

7:47David McWilliams: He proposed the theory of basically geographical diversification of capital. The geographical distribution of capital, according to which portfolio should be divided among securities in seven different zones of the world. North America, South America, Africa, Northern Europe, Southern Europe, Russia, China, India, etc. etc. So Lohenfeld was the pioneer of what has become the Bible of investing, which is you diversify your portfolio. Now, look at what's happening in the world. The world has done the opposite in the last two or three decades. We have doubled down on our investments in America. So in one country, in one economic zone, and the interesting thing is that as long as presidents and the Americans sort of presented themselves as rational, Lots of people forgot that the world was making this hyper bet on one location.

8:49David McWilliams: Totally at odds with what Lohenfeld would have told us to do. But now that Donny J, your mate, has emerged as a second time president and performs like an imbecile on the stage of Davos, there's a lightning bolt moment on, which is like, not only are we over-invested in America, but we're over invested in America run by this guy. And so what Sonny is going to explain to us a little bit later on, John, because I know you're urging to talk about something, right, is how this is all going to pan out. And I think it's fascinating because most of the world is like, oh my God, this was a display of American power in its most raw, most tooth and claw fashion.

9:36David McWilliams: And Europeans cowered and we were waiting for Trump to say one thing, another thing and we couldn't figure out what we wanted to do because we are overwhelmed by American Britain no we just realise now all our eggs are in one fucking basket and that basket is run like a basket case by a lunatic by a basket case by a basket case yeah so that's a podcast going to be on it's bizarre actually like there is like we've been talking about this shift that's happening over the last while. But it's becoming so apparent now to everybody, which is a good thing. But I had a moment there last week. Oh, this is always worrying.

10:20But there was this moment where I was walking along the street in the absolute pissings of rain.

10:27David McWilliams: It was really dark. And then I was just being fed with all this news, this craziness from Trump. And it just felt like a kind of a Blade Runner, dystopian kind of moment. and that's what it feels like is happening at the moment. Sky, by the way, if you are listening outside of Ireland, we'll just give you a little bit of visual about Ireland the last seven days. What was most exciting about Plato was the fact that the clouds were incredibly low. Yes. And it never stopped raining. Yeah, exactly, exactly. And the city was a sort of futuristic, slightly Asiatic futuristic sort of vibe, okay? We don't have that Asiatic, superistic sort of vibe.

11:06David McWilliams: In fact, we have a very backward-looking city. but the clouds have been so low for so long and the rain has been so heavy. With the rain, we have been drenched. We are fluk boitja, as they'd say, right? And I can remember John saying to me when we were kids, we're not kids, maybe in our 20s, we were talking about hangovers, which we just started to get. And John said to me, in sort of a eureka moment, he said, you know, the hangover, I said, yeah, he said, it's a function of the clouds. I don't remember that at all. And I looked at you, I said, what? And he said, it's all to do with the clouds, man.

11:44David McWilliams: I said, really? Tell me more. And he said, you see when the clouds are very low, right? I said, yeah. He said, that's when the hangover is worse. And he says, you know, when there's no clouds in the sky, you can drink all the night before you get up and you're chipper. That's been my theory all my life. And that's why I only drink in good weather. But there is an element of truth to that. I'm sure somebody will take me up on this. But low pressure affects people in different ways. Anyway, anyway, apart from this dystopian world. One thing I was, which is related to what we're going to talk about, but one thing that Trump did say, which I think speaks volumes as well, is the fact that he threatened more tariffs on anyone or any country that seeks to divest from the states or sell US treasuries.

12:41And that, to me, speaks volumes because it's clearly something he's incredibly worried about.

12:47David McWilliams: Well, it's fascinating. Let's talk about psychology there, because this idea of punishing people for doing what they want to do. This is what he's saying, right? I remember years ago, and Sonny, who's going to come up in a minute, and I worked in financial game, in investment banking. Both of us worked for large Swiss banks. And I remember I was about 26, 27, and I was in Zurich. And I said to a Swiss boss of mine, because I couldn't figure out, why do so many rich people put their money in Swiss banks? And why do those people put their money in Swiss banks and the Swiss banks don't pay them a very high rate of interest?

13:26Right.

13:27David McWilliams: And I said, you know, is it because of security and secrecy and all those things that we imagine? Yeah, it's all dirty money. And he said, no. I said, why do these rich people put their money? He said, because when they want their money back, we never ask any questions. We give it to them straight away. Right. Now, this is fascinating. So what he was saying is, when they want their money back, we give it to them. No holds barred, no withholding taxes, nothing, right? I would have thought that's what's supposed to happen, but anyway. No, because most banks, if you go to an Irish bank and say, I want to take my money out, they say, oh, well, you put a withholding tax and after 30 days and you do.

14:02David McWilliams: Right, okay. He just will give back. And what he's saying is the psychology is that the safer the bank, the safer the financial institution, the less regulation. We're going to tax you this, that, and the other. Because you let people do what they want. So what Trump is actually doing, and you're absolutely right, by saying we're going to tariff you for divesting from America, he is actually, that's finger in the dike stuff. Right, that's the boy with his finger in the dike because ultimately if money wants to flow, it flows towards the path of least resistance like water. If you try and stop it, it'll find a way.

14:39David McWilliams: And what we're going to talk about right now, John, is exactly that, which is money will leave the United States as a result of this show of idiocy that we saw at Davos the other day. And no better man to discuss this than Sonny Kapoor. So let's go to Norway, where Sonny Nader lives. Let's talk to one of the finest minds in finance, economics, and strategy. That is Sonny Kapoor. Now you are in for a real treat, because we have been trying for quite some time to make some sense of what I would call the post-Davos world. Not post-Davos as in the end of the World Economic Forum, but the world after the performances.

15:29David McWilliams: not just Donald Trump's, but the various performances across the board that were on display at that Alpine retreat last week, because the world has changed since. And most people have taken the apocalyptic view. But some people are saying, well, hold on a second, this is a line in the sand, not just a red line, an intellectual, financial, a monetary, and an economic line in the sand where America, under Trump, has displayed its weaknesses, not its strengths. And in fact, those weaknesses will cause a shift of capital, a shift in resources, away from the United States, a structural shift, as happened in the British Empire, as happened in the Roman Empire, as arguably happened in the German Empire before the First World War.

16:20David McWilliams: And the man who is going to explain all this to us is one of the finest minds that I know in the economic world. He is Sonny Kapoor. He is in Norway. And we are going to Sonny right now. By the way, Sonny and I have suffered also from both being young global leaders at the World Economic Forum at Davos. We put our hands up guilty as charged. Sonny, great to see you. How are you? I'm very good. Never been better. Now, Sonny, you have made the point to me, and I would really like to share that with the listeners, that America is becoming, in effect, uninvestable. The way America's talked about Venezuela is uninvestable, or at least that Trump has shifted and changed and underscored an American weakness.

17:07David McWilliams: Explain that to me and explain what the implications are for finance, for resources and for the global economy. So to do that well, we're going to rewind by a full year. So if you recall, when Trump 2.0 started, it was with a complete flooding the zone strategy, right? Day one, day two, week one, it was completely overwhelming, just as the start of 2026 has been, right? For entirely sort of similar reasons. And I just landed in London from the States. And I was asked to do a series of 10 investor and policymaker keynotes. And the first one, I felt so depressed for understandable reasons that it was a bottle of red wine that saved me.

18:03And I'm pretty sure at least two people in the audience went and drowned themselves in the Thames that night. But I realized, and this was more or less exactly a year back, I realized that for the sake of my mental health, given I'm a man of a particular age. The finest vintage, Sonny, the finest vintage. Exactly, you and I, right? I needed to come up with a better framing. So primarily from the perspective of my mental health, but drawing on what has been a 25-year career now across finance, policymaking, and geoeconomics. I said, what is the best possible thing that could happen from this big, huge change in the United States?

18:48And I came with the phrase, this is the beginning of a great global rebalancing. And later on, when I was asked about it more, I quipped, you know, borrowing from Hemingway. The rebalancing has started slowly at first and then will pick up pace. And I think this is what has happened in Davos this week, that the rebalancing already started, the rebalancing away from America of global finance, capital allocation, trading links, security strategy, governance, and people, you know, headspace, our scarce headspace, that already began, started picking up pace. But the final straw, this was the last straw, and Carney's speech sort of, you know, has been hailed, but he hasn't said anything new, right?

19:42I mean, every single thing he said has been discussed with increasing urgency and intensity behind closed doors in every institutional investment committee I work with, every government cabinet I advise, every corporate boardroom I work with, right? He just finally, this was the last straw, and he just said it in public in an articulate manner. So Trump is, I think, best thought of as a catalyst, right? So the idea that 4.1 % of the world's population, which is the United States, 2.5 % of under-18s, right? 13 % of global imports and shrinking, 25 % by market value, more like 15 % by purchasing parity of global GDP, and again, shrinking.

20:32The country of United States would, given these statistics, account for what is 70%, 65, 70 % of global listed equities, right? 40 % and rising of global bond markets, 70 % of private credit and private equity and rising. I mean, this is a crime against economics. It's a crime against governance. It's a crime against risk management. It's a crime against prudence. And it's a crime against climate change, development, what have you, right? So the rebalancing away from America was statistically, macroeconomically, financially long, long, long overdue. And Trump and his antics have proven to be the final catalyst which will accelerate what should and would have been a sensible rebalancing away from America towards the rest of the world in any case.

21:30David McWilliams: So what we're saying is, and it again goes back if you look at the history of finance and economics, all the way back to our friends, the Romans, which is that when an empire begins to suck in the capital of the periphery and the regions to such an extent that the empire is actually overflowing with capital, overflowing with money, overflowing with investment opportunities, that eventually people twig, hold on a second. all the money is concentrated in one area, i.e. the United States right now, to the detriment of the rest of the world, and all the opportunity is elsewhere. And what you're saying is Trump has evidenced that in a way that maybe was masked in more democratic presidents, etc., etc.

22:11David McWilliams: And now we're at this sort of moment that Trump has ended the notion of America being a risk-free bet. Explain that to the listeners. So paradoxically, you know, we recall how the United States and the excesses of its financial system and poor regulation gave us the global financial crisis in which, you know, you guys in Ireland were amongst the worst affected country, for example, right? And very paradoxically, so at that time, I think around 2009, there was about$10 trillion of foreign investment in American equities and bonds. And rather than learning our lesson from that and saying, okay, let's be prudent, this was, you know, poor oversight, poor governance, bad incentives, poor investments.

23:07Let's look elsewhere in the world. We've tripled up, not just doubled up, right? So from 2009 up until 2025, the amount of money invested by foreign investors, including large trillions of dollars of European capital in American public equities and bonds and private credit, has tripled from$10 trillion to about$30 trillion now, right? So they gave us the GFC, and we rewarded them by tripling the bet on the same governance structure, the same electorate, the same poor regulatory environment that gave us, you know, the biggest crisis thus far in our living memory. And the euro crisis was, of course, accentuated and made much worse by the GFC.

23:54You know, they were sort of, they were related. So over time, as, you know, I mean, which other civilized country do we know of in the sort of, you know, Western alliance where the question of whether or not Ireland or Germany or France or the UK will repay our debt, right, or voluntarily default on it, comes up for politically polarized discussions again and again and again, right? I mean, they've made a complete sort of theater out of it, so much so that people have even stopped looking every single time there's a budgetary standoff in the United States, right? So much so that eventually all the three rating agencies have taken away the AAA rating.

24:39And as David, you and I, when we studied finance, when we worked in investment banking, knew, right? I mean, all of the financial sector is built on the premise of US treasuries being the ultimate risk-free asset, right? And everything is priced as a margin above the treasury, as spread above the treasury. And now there's not a single person with real money in the institutional investor space, who thinks of U.S. treasuries as a risk-free asset, right? So this was sort of slowly developing, but particularly after last year, with theatrics that included discussions on taxing foreign investors, penalizing foreign investors in U.S.

25:24treasuries, deliberate attempts to significantly weaken the dollar, you know, political polarization on steroids, etc. So U.S. treasuries, particularly the long end of the curve, are starting to be priced as a risky asset, right? And were it not for the fact that it is the largest, most liquid asset in the world still, and most investors are committed to that to the tune of, you know, tens, hundreds of billions of dollars, so it's hard to exit, we would have seen a massive exodus. But what is important is at the margin in terms of new money being invested and money that is being slowly reallocated away, what has happened over the past one year has made sure that no investor in the world thinks of U.S.

26:16treasuries as a risk-free asset, as the ultimate safe haven anymore. Those dynamics have changed for the foreseeable future for good, which changes the behavior of markets. Every time there's a crisis or there's volatility, money doesn't automatically flow to the dollar and U.S. treasuries. And the U.S. begins to lose some of that exorbitant privilege. We'll start to have to pay higher and higher interest rates for what is really a very profligate fiscal situation.

26:48David McWilliams: Right. So what you're saying, this is fascinating, is the misallocation of capital that has been ongoing. And as you say, we have doubled down and tripled down since the global financial crisis. That era is now over. And that capital will shift from the United States. We will see this in the value of the dollar. We will see this in the way in which global capital is allocated. We will move from the United States towards the rest of the world as it should? It's already started. So in the investment advice that I offered at the beginning of last year, my recommendations were to hedge dollar risk, to increase allocations, particularly to emerging economies, such as India, et cetera, and to start cutting down exposure to the United States.

27:42So at an aggregate level, the evidence is clear that it's happening, though still at the margin. Yes, the S &P 500 still rose, right? But the dollar fell, depending on which measure you look at, somewhere between 7 % to 10%. And that had been a tailwind for many years. Foreign investors enjoyed outsized returns by investing in American markets because the dollar kept rising in addition to the S &P 500, you know, registering double-digit returns. So that has now ended. Now, 80 % of this$30 trillion that foreign investors have in American financial assets is unhedged, right? And the one thing you and I know from our work in the financial markets is demand for hedging, which has skyrocketed, puts a huge further downward pressure on whatever you're trying to hedge, right?

28:37And in this case, the dollar. So the prospect for the foreseeable future is for the dollar to stay weak and continue to weaken, which further reduces the attractiveness of American financial assets. And it's not as if, if you look at the numbers from last year, right? So it's not as if Germany, the UK, France and Italy suddenly discovered their economic mojo, right? My God, for all we're criticizing the United States, we've got enough problems of our own, political, economic, budgetary and all of that. But our equity markets outperform, right? The equity markets in emerging markets were on a tear.

29:16And the answer is simply that rebalancing at the margin has begun. And the arithmetic is so overwhelming. The average allocation to American equity markets, for example, is around 50 percent. that even small changes to that potentially doubles the amount of money suddenly looking for interesting opportunities in India, right? Suddenly increases the amount of money flowing into British and German and French and Italian equity markets by 25%. And this then becomes self-fulfilling as the cost of financing becomes easy, as the opportunities for IPOs rise, as that translates into higher investments, further productivity gains, a stronger currency.

30:01And this dynamic has now taken hold for good and will run its course over the foreseeable future. Now, let's take that idea and move on to the global stage,

30:14David McWilliams: Sonny. And I know you've always said, for example, your home country of India is ripe for services investment. We have an extraordinary demand for investing capital all over Africa, etc. I mean, are you talking about this rebalancing having a profoundly positive effect on opportunities elsewhere? Absolutely. So the downside to what has been an exceptional period of American financial market outperformance over the past decade has been the giant sucking sound that has emitted from the US sucking up capital, headspace, attention, narratives, away from the rest of the world, right? There is a very real cause that came with that.

31:05And now, belatedly, that dynamic is reversing, which means there is an unprecedented amount of capital that is seriously both to diversify their excessive exposure to the US and the key person risk from this particular administration, right? And to look at better, higher return opportunities elsewhere. So there's the risk reduction motive and the return chasing motive, both of which are making investors in a way I have never seen in my 25-year career look far more seriously at opportunities elsewhere in the world. And this is nothing but good news for everything from development opportunities for the likes of India to looking at reducing the cost of financing for the economies in Latin America to finally getting large real investments to be able to support their growing young populations in sub-Saharan Africa.

32:13So the wall of money will finally be looking at where economic opportunities actually lie, reversing the decades-old economic paradox, the Lucas paradox, which is money flows uphill from poor countries to rich countries. It's time for this to reverse, and this is nothing but good news for everybody else.

32:36David McWilliams: So let's look at the moment, because again, this is a fascinating way of elucidating what is happening, right? So we have like Davos, there's a moment, there's the bully moment, there's the Trump show. I think you're absolutely right. This sucking out people's headspace, people's attention. But obviously, all this money going into the States has created bubbles, little bubbles everywhere in America, whether it's in real estate, whether it's in shitty corporate bonds. But of course, the major, major one now is in this AI promise. Do you think that the realization of what you are saying will only come after we get a massive, massive puncturing of the last of the great American capital bubbles, AI?

33:24I think the puncturing of the bubble will happen this year. It's not a question of if, It's just a question of when. But I think that this rebalancing thesis is going to unfold irrespective of how long this bubble may yet continue, right? So at the margin, even if the AI hype continues, let's say for the rest of the year, everybody is already massively overexposed to this, right? So within the S &P 500, there is an unprecedented concentration of exposure of the big cap, the mega seven or whatever they're called. Right. That's about 35 percent of S &P 500. And if you look at earnings per share, earnings growth and profit, et cetera, the share is even larger, something like, you know, 40, 50 percent or so.

34:22Right. So far too many global investors, including, for example, Norway's two point one trillion dollar oil fund, half of which is portfolio is in the United States. Right. Is exposed to the tune of tens, hundreds of billions of dollars to what can be best thought of as an AI bubble. So even the less prudent amongst them, particularly given the antics of this administration and what has now been an explicit threat to use military force against a NATO ally in Denmark, is going to limit, if not reduce, the exposure to this particular country, to this particular asset class, to this particular sector.

35:11And that means everybody's maxed out on a portfolio basis to this exposure. So all the new money coming in from retirement savings, from oil revenues in Norway for retirement savings, pension funds, etc., will be allocated differently. So that rebalancing will continue. It will pick up pace. It will accelerate when and if there is a puncturing of the AI bubble. But I think the broader dynamics are in place and irreversible for the foreseeable future.

35:41David McWilliams: So Sonia, let's conclude because this is fascinating material, really fascinating material. So despite bestriding the world on a, it seems like a dodgy Air Force One from what I gather, what Trump is actually doing is rather than humiliating everybody, he's actually giving people, the rest of the world, sovereignty, power, and resources on the basis that he is the trigger. He is the visible sign of American degeneration, degradation, something that could have been masked by a more subtle president over the last while. But now that he's actually the trigger, he is the sign of it. Three quick points on that, right?

36:29So the first is, would you rather have a gorgeous brown-eyed dog that wags its tail, it's cuddly, and bites you without warning, or would you rather have an obnoxious barking dog that barks, puts your back up, does bite, but the bite is never as bad as the bark, right? So the rest of the world has got ridiculously lucky with an American administration that publicly humiliates, slaps everybody around, is like the bull in the China shop, offends everybody left, right and center and reminds everybody that so many of us have been locked in what can honestly only be called as a toxic relationship with the United States that it's impossible to stay indifferent, right?

37:28So this stark reminder, the longer it goes on, which is why every time the humiliation of European leaders gets worse, I consider it to be a bull signal. This is good news because finally, this is going to make us look outside of our comfort zone because it is, you know, the history is sort of very clear. It's not as if we haven't had warning shots before, right? I mean, we had Trump 1.0, Biden came and remained sort of quite aggressive on trade tariffs, etc. Obama had deported more people than Trump did by this first time in the year. So we've had warning shots. And instead, we've just doubled and tripled up our exposure.

38:09And this time, it's impossible to stay indifferent because so consistent, so bad is the abuse and so public it is that the political cost to not doing anything to rebalance away from the United States, as Carney discovered and sort of acted on belatedly, right, is just far too high. So this is why this is very healthy. And then the bite, when it does come, right, as it came on tariffs, et cetera, is a far more diluted version of the bark and the rhetoric, which is the right way of having it. To have it where without warning, the world economy gets completely shattered with a 50 % American tariff across the board, et cetera, would have been a far worse outcome.

38:57So this is good news for the global economy. Every humiliation is a good sign, a reminder of belated rebalancing away from America. And the fact that, as we know, power corrupts and absolute power corrupts absolutely. And the United States is no exception to that, right? If you have the power, you're going to exercise it. The other related point to this is, again, it's not to say that the United States does not remain a very robust, dynamic, amazing economy. It does, right? But at the margin, does a country with 4.1 % of the world's population, 13 % of world trade, 25 % of world GDP, all of them shrinking, deserve 70 % of your capital allocation in equities?

39:44And the answer is absolutely not, right? And the most underrated aspect of this discussion, I think, is how large the U.S. looms in our headspace, right? There is nothing more scarce than cognitive headspace. You and I, we know the names of Laura Loomer and God knows, you know, 20 obscure MAGA agitators and senators and congresspeople. But if I put you on the spot now and I asked you who the finance minister of India is or who is the central bank governor of Indonesia, right, or who is the premier of China, you know, you probably will have a hard time. Yeah, absolutely. So in order to be able to look at where the rest of the world is in order for Europe to stop thinking of Africa in colonial terms, to get an updated belief on what a dynamic economy India is, they need to look away from the United States, right?

40:43Because cognitive headspace is so limited. So even today, two-thirds of asset managers, two-thirds of European diplomats still think that the birth rate in Bangladesh, you know, a non-negligible country of about 200 million people, you know, development success story, is five when it has been two for more than 20 years, right? And that assumption of birth rate in Bangladesh being five comes with all the unwritten stereotypical thing of, you know, Muslim country backward and all of that. So the world, particularly us in the West, are locked in this very outdated belief system where all we see is the United States.

41:22And it so large in our political debates, in our culture, in our financial allocations, etc., that any reminder that this is unhealthy and unsustainable that forces us to look away is a good thing for us and it's a good thing for the rest of the world.

41:40David McWilliams: Sonny, a tour de force, my friend, a tour de force. We will leave it there, but a wonderful, wonderful alternative, practical, logical, and I would say historically accurate.

42:22That's S-T-O-X-X dot com slash celebration.

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43:30David McWilliams: Interpretation of what is going on. Thank you so much. Thank you for having me.

43:41so mike there was quite a lot of financial speak there um but he's basically saying if i got this right that with a capital flight it's not quite a capital flight but with capital moving away from the united states is or could be actually good news for everyone else yeah what he's saying is

44:03David McWilliams: really in a nutshell eggs in one basket idea right that the world has doubled down on putting all its eggs in one basket he says that around the time of the global financial crisis there was about 10 trillion of foreign money in american securities bonds yeah debts equities etc he said that has risen to 30 trillion. So America is in effect swimming in other people's money. And that has destroyed the adage of Mr. Henry Lohenfeld, which is diversification of risk is essential for long-term financial health, number one. And number two, the emergence of the MAGA movement has actually given visibility to the madness of over-investing in one area.

44:59David McWilliams: And that now what you're going to see and what he's seen from his professional contacts are lots and lots of people saying, do we really want to be in America? Why can't we go to Brazil? Why don't we go to India? Why don't we go to China? But actually on that, is there an obvious safe bet now? Or is everything... The European Union would be a much safer bet than America because of the concentration of assets. So it's European capital. So basically what's happened is if you want to start a company in Europe, it's very, very hard to get your hands on capital. One of the reasons of that is the capital's in America.

45:40Yeah.

45:41David McWilliams: By contrast, if it's very easy to get your money on capital, as it is in America, the chances are that really shitty companies get financed. Right. Because the capital is there looking for a home. Yeah, yeah. And there's a perception, well, if it's in Silicon Valley, it must be good. And so what he's saying is that all that overwhelming investment in America is leading to overinvestment, is leading to a reduction in perceived risk, is leading to a nonchalance about what might happen. And ultimately, those American companies, that American real estate, those American bonds, are all highly overvalued.

46:22David McWilliams: By implication, assets in the rest of the world are highly undervalued. So what you do is you go to normal countries that have got very good financial infrastructure, that have good regulation, that have good financial systems, and you will find little pearls, companies, individuals, that when they get the cash, they will grow rapidly. Now, he was talking about India. India, yeah. He's talking about China. Sonny is Indian. So you might say he would say that, wouldn't he? Yeah, yeah. But obviously what he's talking about is there's a massive world out there. America is 4 % of the world's population.

47:04David McWilliams: It is declining power. it's 2 % of the world's population under 18 and yet it gets over 50 % of all the world's capital that is a diversification accident waiting to happen and he's saying this is the signal for it I find that particularly interesting we're going to leave it here but dear listener we are going to do a podcast on Ireland we were going to do today but we're going to wait and it's going to be out on Thursday we're going to pick up on that idea of diversification and we're going to look at what is the implication of Ireland from trade wars, from tariffs, from Mr. Trump, from diversification, from our evident over-reliance on the United States and where does it leave us looking forward, not 10 months, but maybe 10 years.

47:57David McWilliams: So we'll talk to you then.

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