Henrik Zeberg joins Maggie Lake to issue a bold and urgent warning: the global economy has already hit the iceberg, and a massive crash may be just months away. But first, he says, markets could soar in a final liquidity-fueled rally, creating one last chance to prepare before everything changes.
Henrik lays out his thesis for why we’re nearing the end of this business cycle, why central bank and fiscal stimulus might backfire, and why the next crisis could end the U.S. dollar’s dominance in a global monetary reset.
Key topics:
- Why Henrik says the housing market has already frozen, and what that means
- How $4.5 trillion in global liquidity is fueling a dangerous blow-off top
- What could trigger a deflationary bust followed by a stagflation crisis
- Will the U.S. dollar lose its global reserve status?
- The long-term opportunity Henrik sees in AI, tech, and innovation
Make sure your portfolio is built to survive any economic icebergs. Get your free portfolio review with Wealthion’s endorsed financial advisors at https://bit.ly/4e4dt4F
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Henrik Zeberg 0:00
All the signs are there. I’m, as I said, the housing market is definitely showing us that we have had yield spreads that have been telling us we have had the yield worse than the yield spread inversions that we have ever seen. We have had the, you know, we have the largest equity bubble, asset bubble, everything bubble.
Maggie Lake 0:20
Hello, everyone, and welcome to wealthion. I’m Maggie Lake, and today we’re going to look at the global risks and opportunities with Henrik zieberg, head macro economist at Swiss block. Henrik, wonderful to have you on with us.
Unknown Speaker 0:32
Thank you very much for having me on.
Maggie Lake 0:35
So it’s a great time to catch up with you, because I think we have a lot of mixed messages that investors may be trying to grapple with. There are a lot of concerns swirling around bonds, deficits, tariffs, just to name a few. And yet, we’ve watched US equities at least rally strongly off their April lows. And you know, we’re having a conversation about whether, you know, it’s rest of the world and the end of us exceptionalism, or maybe, maybe not. Maybe there’s a tech revolution. You know, there’s so there’s so many differing opinions. What’s your larger, macro view of what’s taking place? So
Henrik Zeberg 1:11
I think, unfortunately that we are, we are seeing the business side of coming to an end, and as often, for before, we’ll see that there will be a lot of narrative, a lot of talk about what will cause the economy to come to a stall. I don’t think it will be the tower then, actually, I was very vocal about that, also in April, and before that, about that this will not be it’ll not be the tariffs that sends the economy into a tumble, but it’s actually the structure of it so but from the 40,000 feet, I think there’s a lot of talk about what can be the, what can be the reason for, for, for the recession. Now we’ve seen the markets actually starting to soar and rally higher, which is actually also what I expected in April. But that’s not the same as everything is fine. I think a lot of people take it as the all clear signal, but it’s definitely not. And the the big thing that I honestly do not understand, why nobody talking is talking about it seems like, yeah, it’s just something that’s runs in the background. This the slowdown in the US housing market. It’s really, really looking, you know, as like it’s frozen solid. So, and to me, that is one of the big component in a in a slowdown. Here you see that there are, you know, normally, two major components to a to the economy, that is the housing market, the labor market. And the labor market has been standing quite kind of strong for now. And I say strong ish, but the housing market has been really bad. And I think the latter one is one what actually will pull the rest of the economy down at some point.
Maggie Lake 2:36
So just to be clear, when you’re talking the end of the business cycle, are you talking the US only are you worried about a global slowdown.
Henrik Zeberg 2:44
So I where the US goes, the rest of the world goes. It’s still like that. The US is still the main driver of economic growth here in the world. And I think if I couldn’t see a situation where the US will be running into a recession, and the rest of the world will will not fall into a similar thing. So, so I think the rest of the world right now is is actually leaning up against the US. At this point here, there is not a lot of strong signs. If you look to Europe or to Asia, for that matter, China does not look too good either. So, so I think that for now, it’s been the US and the strength of the US economy that has been keeping the rest of the world up. And it’s the moment when we don’t see the strength of that continuing, then I think the rest of the world will will follow along, actually become much worse place than than the US. So So I think it’s a global phenomenon. I think when I talk about the end of the business cycle, my business cycle model indicates that this is the entire world that we fall into a recess at some point. We’re not there yet. I want to say, emphasize that. And there’s a difference between actually seeing the Titanic hit the iceberg and getting you the structural damage to the to the hull, which will actually make it sink, and actually seeing the ship sink. And that’s the difference where people are thinking, Oh, but maybe something can be done at this point. I don’t think there’s much that can be done at this point. I I think we’re way past that, and at this point is more like, how long will it stay afloat, even though the there’s a big hole in the hole?
Maggie Lake 4:07
So we okay, we’re talking about the Titanic. So I want to take a deep breath here, because I think that we just are maybe braised for what’s coming next. But it sounds like you think we’ve hit the iceberg already.
Henrik Zeberg 4:18
Oh yeah, we did. I mean, and there, all the signs are there. I mean, as I said, the housing market is definitely showing us that we have had yield spreads that have been telling us. We have had the Euro worst and the yield spread inversions that we have ever seen. We have had the, you know, we have the largest equity bubble, asset bubble, everything bubble that we have ever seen. So I find find it difficult why people think it’s we, you know, a recession is not something that could be at least a probability at this point here. And and we think you know, what is going to keep things afloat? If you’re right now, we say you well, it will be the US that can just pull, you know, keep pulling for now. We have seen that the labor market has been staying strong. People haven’t been laid off in, you know, in large context. Is at this point here, but I think there’s a slowdown. And you see the US consumer is not, is not happy at this point. We see the delinquencies around, whether it’s mortgage loans or whatever, you know, credit cards and so on, is actually soaring to levels that we have seen. So there’s a lot of things out there that is not looking good, and it’s actually resembling very much the situation we have to before 2008
Maggie Lake 5:22
Yeah, yeah. And people, and some people also reference in 1999 you know that the before the.com crash, you got those periods where things continued to rally, even though the fundamentals were deteriorating underneath. And I know people concerned about so it sounds like we should? We should? We’ve got a short term situation, and then we have this longer term. We’re sitting on a sinking ship. You believe situation? Let’s just focus on the short term for a second, because I think this is causing a lot of a lot of, it’s a lot of where the confusion or the or the sort of stress and anxiety comes from. Because people may agree with you, especially if they’re connected to the real economy. The problem is, you’ve been watching these equity markets rally off this this April low, especially the US and and even the sector that everybody said was done and dusted, tech, that’s been leading as well. And if you’re not in it, you’ve left massive gains on the table. Why would we see this equity market rally so strongly when we’ve got these warning signals that a serious recession is coming,
Henrik Zeberg 6:26
because the market is not working as a an efficient machine. It’s not like that. You know, as you mentioned yourself, like in 1999 we saw the market could just keep going up higher and longer than anybody expected. And we also saw it into 2007 we also saw the market rally on even though we had a lot of concerns already, you know, Michael Burry just know, famously, was out in 2006 already and and before that. So you can see some of these structural damages actually, you know, getting or hitting the economy before we see that the economy actually rolls over. And at this point here, you’re looking at, we have had a 4.44 point 5 trillion in terms of extra liquidity coming in. And two, I’m talking about here, in this in this year, only alone, 4.5 trillion. Just think about that’s a huge number of liquidity coming in. So right now there that, you know, the liquidity coming from Central Banks, not so much the US still, but the US is also starting, but from the rest of the world, China and and also Japan, especially, we will see that comes into the market, and that will create a situation where you’ll equities can can rally for longer than we can expect them to. If you look from a more fundamental perspective. Does that mean that will continue? Not in my book. In my book, it comes to an end, and you’ll see that end is closing in there are some levels that I and I was not one of those calling it in April actually, I was standing there and in April 7 and April 9, and then telling our clients and saying, Well, I don’t think this is it. And I actually said, we’re going to see a very, very strong rally from here, because this is an overreaction to the situation at this point. There’s no recession at this point. It was so clear and and we have seen exactly that. So I think this is now where everybody’s now piling into it again and say, Oh, everything is fine. We got, you know, there’s no trade war. And Henrik, why would you even think this would be a recession? And then you actually get the opposite situation. So, so I’m, you know, still long, I think we’ll have a more of a slowdown into the summer, and I think, but then I think it will continue somewhat into the early autumn, and then I think you’re going to see a top there, which will be much higher, 6800, on the s, p as a minimum. And then, and then, I think that’s going to be it. And most people won’t recognize that. It’s being a it’ll be a top before we we get a little further down the road, because nobody really rings a bell at the top.
Maggie Lake 8:39
You stole the exactly what I was thinking. No one rings the top. So my rings about the top. My concern, Henrik, when I’m listening to this, is, if we’ve got this potential for a rally, everyone is going to chase that. And then, you know from past experience, people can’t get out the door at the same time if it turns and I think especially now, and let’s use the the even the 2008 experience. We know that everyone is it’s immediate. Right. Information is quick. Algorithms are driving things. People trade off their phone. We saw this with Silicon Valley Bank, that bank failure happened so quickly, so that that that rush for the door is going to be more, even more intense from where we sit right now. Do you think people are over investors in general are overexposed to equities, to US equities especially
Henrik Zeberg 9:33
well. I i only have, you know, limited amount of experience if you compare to some of the real, the real big, big big ones out there, like Warren Buffett, which is one of my personal, you know, our relative, at least, somebody yellow, got to in terms of how you should do things. And we know, all know that how he has been de leveraging, or at least de risking, I would say, not delivering, de risking over the last many months here. And I think that’s probably to to know, not to be in a situation where he has to do. And everybody else gets tries to get out the door. So the answer is yes, I do think that a lot of people are I am the same. I’m actually risk on right now, you know, in my portfolio, because I think I I’ll manage to get out and in due time, but there will be a crowded situation at some point. But yeah, but the answer to your question is yes, I do think that people are not. It seems like there is no, you know, people really can comprehend why there should be a reason for for for equities to sell off. But as we saw into April, when, when, when fear starts to hit, it can be really, really quick. And the and the the bubble here, looking at PE levels, looking at market capitalization to GDP and all that, it’s just through the roof compared to what we’ve seen before. We are at 200% market capitalization to GDP, and 1929 was around 100% and or, I think it was even lower than that. In 2007 we were at 107% and in 2000 which was a crazy bubble, we laughing at that, which was 130% so now we 200 and nobody’s saying, Yeah, well, Henry, I don’t really see the bubble when I talk about with people and saying the bubble, and then you have a crypto market where everybody thinks that I’m even long crypto at this point also, because I think we’re going to have a crazy rise into the top of it. But you see, everybody’s thinking that, you know, crypto is going to be a fantastic thing, even though it generates, you know, zero returns. So we have all the meme coins, and they have crazy valuations. I mean, 10 years from now, we’re going to look at this and say, What were we thinking and just like what we’ve done before? So as I see it, we have a crazy bubble, and we all living in the world of the crazy bubble, and nobody likes the the doomster, who’s standing there and saying, Hey, this is, this is not real, guys, I don’t think it’s real. This is not real. And yes. So the answer is, if you I, you know, prudent in your, you know, investment, an education, kind of, you know, then you’ll probably say this is the time to take some, some some chips off the table, even though we may see the market rally, but nobody likes to see the market just running away from you, and I think
Maggie Lake 11:53
on the sideline and sitting on the sidelines, that’s the problem. That’s, I mean, I want to say it’s called greed, but it’s not. It’s also trying to sort of maximize the situation. I it. Thank you for being so honest about sort of saying we’re all going to sit there and regret and and saying you’re long to chasing it and you think you can get out. This is the thing. So, I mean, I’m taking this as a as an opportunity to take a look. I think you’re saying everyone should be taking a look. A look at what they’re doing and how they’re positioned, and what your time frame is. If you are a trader mentality and you think you can manage this last stretch, if this is true, then you’ve got to be super active and super nimble. If you are not that person, this is a time to go check in with someone and take a look up your portfolio and see what you want to do with risk, and see have them scenario, run it right. Say, if this is going to happen, what happens if you were if you’re in that position? By the way, you can go to wealthion.com/free and get a free portfolio review by an endorsed one of our endorsed advisors. So please do that if you want. You’re not alone if you don’t have help already and are self navigating. So Henrik, this is a worrying picture you paint. What is, and I’m going to let’s stress test that scenario. What do you think the trigger is? Though, you say not enough people are paying attention to this. And like we can all see that housing is, is, is collapsing underneath, and yet we keep rallying. What’s the trigger to turn it? What happens that causes this equity blow off top to turn?
Henrik Zeberg 13:32
Well, this we can ask ourselves the same question. Back in 2008 what was the trigger? And 2007 actually, the recession started in December, the month of December, and the market top was in October. What was the trigger? In October? There was no, there was no trigger. So this is the the thing is
Maggie Lake 13:50
that it just runs out of oxygen.
Henrik Zeberg 13:52
It runs out of oxygen Exactly. And at some point you just, you know, get to a certain part. What is the trigger? When you know, yeah. Also, if you, you know, getting shot up into the air, what is that’s going to pull you down? Well, there is a, you know, gravity to back to to Earth. So the earth will pull you back down. And this is what we’re looking at right now with the, of course, you know, the we can, we can still, you know, can rise for a certain amount of time, but at some point it simply needs to be some kind of reality to it. And I think that that’s what we don’t have anything up right now that there will not be a trigger, trigger, but it’ll be that the situation at the evaluation level will just come to a point where it’s, yeah, somebody was going to maybe pull the it’ll be the credits facilities of, you know, some bank or something. I don’t know what it’s going to be that’ll just, you know, slowly start to deteriorate to a degree where things will then, you know, things will top out. So I don’t think there’ll be a trigger and not be the Lehman Brothers kind of thing. I think the Lehman Brothers kind of thing, when the Bear Stearns, they are the black swans that you see inside the recession. That is because the situation now becomes so severe for the for the consumer, that at some point the banks are starting to. Have problems, and then you start to have a so it’s the situation that becomes more and more like the frog sitting there, and water that becomes hotter and hotter, all of a sudden it needs to jump out and and I think that is the what we will see here as well. The situation is already there. Now we can see, we can look at the consumer, we can look at the credit card delinquencies, mortgage loans and so on so forth. We have all the data there, and I don’t think it’s happening right now, because there’s simply so much more, you know, liquidity that seems to be coming in right now, where the economy is still growing, but at some point it will, it will roll over. And the business cycle model that I’m following here or using is simply, you know, clear on that. I think we have another maximum six months, and then we’ll be in a recession.
Maggie Lake 15:44
What about this argument that this is a bifurcated economy, and that it is true that the, I don’t even want to say the lower end, but the folks who live in the real economy, you know, who have to borrow, who have car loans, who have who have mortgages, who need to come up with a down payment, who may be, you know, hourly workers are hurting, and those consumers are who you described with the delinquencies. But the wealthy, even though they’re a smaller percentage, are doing really well. Assets are their asset. Their net worth is, is has grown enormously because of assets they benefit from the higher interest rates they can get off of the bond yields sitting in cash and that they’re driving the economy and will continue to do. So what about that? Is that? Does that just extend it, or is that a scenario that didn’t really exist before the economy got so financialized?
Henrik Zeberg 16:38
I think that is how we would like it. Now, I don’t know if we would like to see the light that way, that way, but I think the reality is that the main economy is the bottom 70% of of the people in an economy that is the real economy, and the top 20 then you have the next 20% they as you know, they probably will be okay. In the 10% we know the lot of the top 10% is doing fantastic, you know, in either, either kind of environment, but the 70% is what drives the growth and the economy by down the road. And if you look at the banks there, and you look at their losses that they’re going to have if that 70% is not thriving, that is the problem. And that’s also, I actually think we’re going to get another financial crisis. Also, I know Yellen said famously that there would not be another financial crisis in her lifetime. So I hope she’s all Well, but, but I do think that’s going to happen within the next few years, because that 70% will be a huge drag on the on the banking sector, if, if they start to realize some of the of the losses there that they might encounter. So so I think the I don’t follow that with the 10 or 30 or 20% there it’s, I think it’s about the 70% and that is not, it’s not looking good. It will. It’s a more slow, slow driving kind of a slow, kind of topping process. But it’s, it’s something that is happening. It’s and it’s real people, and it’s, if they stop to spend, you know, the 30% will be, not be able to do anything about
Maggie Lake 18:02
it. What do you make of the fact that gold is rallying in this environment? Because in a blow off top, I would think that it’s all sort of risk assets, and you mentioned it. We’ve got equity, we’ve got tech again, we had we’ve IPOs off the charts. We have, you know, crypto rallying. What do you make of fact that gold’s rallying? Is that just people chasing momentum as well? Or is that a signal that maybe not all as well, and that there is a huge desire for safe haven?
Henrik Zeberg 18:28
I think maybe goal is also into 2007 and we and eight, we also saw that gold actually did well into that period. And then we saw actually the gold after into the deflationary bust, we saw gold not doing so well. I think maybe this time around, because we have had this whole inflationary kind and of narrative that we’ve seen gold actually, you know, shooting off into the into the highs here. But I also noticed, as though, that gold, and if you look at gold and silver, platinum and all even the gold miners, that gold has been the odd man out and actually been over performing. So I’m actually thinking here that maybe the narrative has been driving things a little much, a little on that inflation is coming and we’re going to see, you know, yeah, and that’s where gold normally would do well. So I think maybe the narrative has been pushing gold up too highs here. And I think it can even see gold moving up quite, you know, bigger, sorry, higher than what we are now, into this kind of top here. So I think it’s the narrative. It’s a Yeah, and that’s normally what drives the bubbly kind of environment. So I don’t say gold is in a bubble, but I’ll say that it’s been front running things a little here, and maybe front running a little too much, because I would think still that in the deflation kind of environment. And in what we saw in March, 2008 2000 to September, October, 2008 where things are starting to unfold, the liquidity is not present. Banks are experiencing big losses that gold actually will be sold off. In that period where cash is king, that’s where you need liquidity to
Maggie Lake 19:58
right exactly in that kind of damage. Downturn. Okay, so, so let’s, let’s, I want to finish off with the short term, and then we’ll get into what plays out in this longer term, so that people can prepare for it, if they, if they want to get ready. We have a we are in the last stage of this boom time. So we’re seeing equities fly. You think S and P to 6800 possibly. We have gold, maybe a little overshooting here, and Bitcoin. What’s your feeling about crypto? Does that continue to Rod? You mentioned you’re long it. Are you expecting continued moves? How high could Bitcoin go? And does it spread through the crypto ecosystem?
Henrik Zeberg 20:38
No, so I’m not a Bitcoin maximalist or anything like that. Or a thinking that crypto is going to save the world? No, absolutely not. I think crypto is a is like, you know, there will be a few of these projects out there, 125, 10, maximum of the 1000s of them that maybe where the technology down below and the solution to the real world will actually come and, you know, make a change to some business, businesses around the world. I’m not, you know, clever enough to see which one it’ll be, but that’s what I see. Like that they will but it, but they, you know, the majority of this is risk. Is a risk on it as it is, because we see the liquidity coming in. We see the 4.5 trillion in m2 of in this, in this, in this, this year, 25 actually in m2 coming in. So that is what is driving this kind of FOMO on the so it’s, to me, it’s a bubble. I have to say it’s a bubble. Nobody likes it, but it is a bubble that will, at some point, you know, come to what you will burst. So, but Bitcoin, yeah, it has got, you know, wider acceptance. And I think it may also it will have a place in, you know, on as an on the asset shelf, so to speak, over the night, for maybe forever. But I would not be holding any of that going into a deflationary bust. I hold it now because I think that when you see this final four FOMO and blow off top, and I think it can be much more on the on the crypto side, you know, crazy, than what we have experienced before. And into 21 the top there in 2017 also, because it’s such so widespread now, every kind of body kind of accepted now that it’s crypto is a thing, and the SEC is now embracing it, and so on, all these things here. And I, I think it’s gonna, you know, go, you know, just vertical into the final phase of it, but it will also catch a lot of people on the wrong side there. So I’m holding it. I’m holding it into that kind of FOMO environment, and then I’ll be, hopefully clever not to sell it off. When, when, when things, when it peaks out. And I will not be holding it. I don’t see it as any kind of safe haven asset in a in a recession
Maggie Lake 22:37
at all. Interesting. And what about some of the other areas of crypto? We see eth on the move. You mentioned altcoins. It feels like if it’s a cycle that we’ve seen before, people would be a little bit burned by some of their experience, or no, are you going to see people chase that, chase that, and try to capture those short term, short term gains?
Henrik Zeberg 23:00
I think what you normally see is that the bitcoin is the one that drives the the move. So everybody moves into Bitcoin, and everybody talks about Bitcoin, how fantastic it is, and it drives a lot of capital into it. And then at some points, people start to think, oh, maybe there are some alternatives out there. And then the Ethereum starts to move. And you know, that’s what we see now. We actually see Ethereum over the last few weeks here having over performed Bitcoin. That is the Ethereum phase. And then your next phase will become where people are saying, Oh, now Ethereum has been working up and moving a little too far. Maybe we should think about some of the other alternatives, and then it moves down. And what you see there is the normal risk rotation into into more and more risky projects. And I think it’s going to end up down at the really end of it. Things where some of these completely nonsense, kind of, you know, coins and tokens are just going to take off one more time, and we’ll, everybody will be full one more time into it again. I mean, we are. It’s the animal spirit. And, you know, we are all greedy and and I think that’s what we’re gonna see unfortunately, because a lot of people would get burned. And the reason I say unfortunately is because if you, if you’re investing into something which actually made a return, you could, you know, sit on that stock and then it probably, in a few years time, it’ll go back above the all time highs, and you will also return. You receive a dividend. The only reason why crypto is making a new high is because there’s somebody next to me or behind me that is willing to buy at a higher price than I bought it. It’s not because it has created more value or anything like that in the in the meantime, it’s simply, you know, I have something here, and we agree that it has a value today. And then somebody says, Oh, I’ll give, you know, extra 10 bucks for it. And then he gets it. And, you know, somebody will be standing with that at the end of it, when it starts to drop. And I hope not to be one of them. But I fear that a lot of, especially young people, are going to get dragged into this at the at the very end of it,
Maggie Lake 24:46
that’s, that’s a, it’s a really, sort of, that’s a really worrying outlook, because there are, there are real consequences to that, and there’s also, I think it sort of deteriorates all. Ultimate trust in investing. I think it, you know, I think that, but that’s a whole other conversation. But, you know, any of these blow off tops. It’s so worrying because there’s generational pain done and and there’s a lack of willingness to even participate, which I think, you know, feeding into the already, the fraught situation we have, that that’s a real problem. So we’re going to go from that, that worrying note, to something, probably more stressful. But I think this is really important, because it sounds like there’s a really unique opportunity to prepare if this is the case, because while everybody else is stuffing their gills with speculative stuff and thinking they can time the top, because that’s what’s happening, if you’re right, then there’s an opportunity to maybe take this moment to prepare a little bit before everybody else tries to run for the same destination. So first of all, let’s, let’s sort of put some bones, some meat on the bones of this downturn. So what are we looking at? Are we looking at a recession? Are we looking at something more serious? It sounds like you’re concerned.
Henrik Zeberg 25:59
I am actually very concerned, because I think I know that they gave Bernanke a Nobel Prize in Economics for under for reinventing money printing. And I think that’s probably one of the stupidest and I’m being very harsh and direct here, and maybe that’s just my, my nature. But I don’t think that anything new has been, you know, has has occurred with with what they call monetary, modern monetary thinking, or theory. Here it is actually that they have been trying to push down the yields, and that will then encourage more risk taking. And when you get to a certain level, you know that the Leo is so low, then you know valuation will just go berserk, and that’s what you see. To a certain degree, you’ll then see a trickle down. The way you do valuation is that you say, if the interest rate is at 3% 4% you’ll say, Okay, I got a certain cash flow, and I’ll divide it by what else I can get in the risk free market. And then you’ll see that the lower that gets, well then I’m willing to take on more risk. That is what has been happening, nothing else. And then they have done it through some, you know, some engineering, some ingenious kind of, in a ways, of trying to, you know, just cover it up to but it’s really down the road. It’s just about, you know, making people take more risk on and that’s what we’ve seen. That’s why the S and P is up seven, 800% since 2008 I mean, it’s, it’s ridiculous kind of move that we have seen in the stock market here and in everything else in all in assets across the, you know, anything we look at, that’s why we have the whole crypto market and anything else that you know, where also, if you look at the companies, startup businesses, that have been valuated, valued at the extreme levels You have all sorts of expectations of unicorns out there and all sorts of business models that do not really hold water, and they’ve been evaluated at extreme levels. But anyway, so I think we have a situation here where valuation has been pumped up with this. And you can keep that illusion going for quite some time, but at some point you’re going to see inflation coming back into the system. And I think we had what I call the inverted and inverse Volcker moment in after Coronavirus. So all this money printing has been going on since 2008 but I think 2020 was when we we saw that this was overdone it. We the Fed and the rest of the central banks around the world and administrations overdid it. So like in 1981 you saw that Volker came out and killed inflation, famously, by hiking rates, and we got a recession. I think here we saw the opposite from the downside, that inflation, the deflationary pressures, were so strong, everybody thought we can just do whatever we want, and then we were crazily stimulating demand into a supply crisis, which Corona was, which creates inflation, and what does that create? Now? That creates an inflation on the backbone of people so thinking, oh, actually there is something called inflation, and it can actually hurt me. And I think that is a big thing that has happened. And if you look on the long term charts, I have a chart of the 10 year yields, you actually very, very clearly see that the yield, the 10 year yield, now has jumped into a new level, like what we have seen before, when we have inflationary rates, so inflationary periods. So we have a chart that goes more than 100 years back, and you look at that, and you’ll see there are inflationary periods, and then there are deflationary periods, and we are now step into an inflationary period. So when, why do I go through all this? When you ask me, Why would this be disappear? Because for so long, since 2008 we’ve been thinking we can actually just pour liquidity on things, and then everything will be fine. I think they’re going to find out this time that when the deflation hits first, and I think that’s what you’re going to see first, then they’re going to come out with their guns placing again the Fed will save the day, but they are actually going to trigger a stagflation, because that is the moment where this where we sit and say, Well, I, you know you’re I’m saving $1,000 a month now on my mortgage loan or whatever. But the problem is, I’m not going to spend it because I saw inflation, because I saw yields rise, because. I saw unemployment, and I think more people now this time around, not be spending that money. And that’s where you’ll see that the quantitative easing, monetary, you know, you know, stimulus will actually become less effective and much less effective, and that will be, you’ll see that the real economy will take much longer to bottom out, where all the money that they’re going to send into the system, which they are actually already doing now, and it will find its way into commodities and the likes, which is then the consumers will see a kind of a spiral going into to the coming phase after the deflationary bus. So, so for me, there is this, you know, blow off top. There is when we then start to see the deflation. I think the Fed is going to react, but then I think they’re going to trigger something which is actually worse than a deflationary bust, a deflationary bus, like in 2008 you pour a lot of liquidity on it, and you can actually create a demand. And you can create that for a certain amount of time, but if you keep doing it, like what we have done, then at some point you’re going to see inflation coming out. And I think that’s the point. Why
Maggie Lake 30:58
does it go into commodities? If there’s no demand, why do you have commodity inflation or any inflation at all? We know last time, it was because there were supply issues. But if, if there’s, if they’re not supply issues, and you’re just talking about stagnant growth, Why would, why would you know, stimulative measures from the Fed result in inflation? If I’m not going to buy, then there’s, I’m not,
Henrik Zeberg 31:17
that’s, that’s, that’s going to be the problem. Actually, I am. And you can say also that many reasons why inflation could be moving up. It can also be because we can see supply issues again, the same. This
Maggie Lake 31:27
is where the timing and the tariffs start to matter, right? If we’ve not, if we are in a de globalized world while this is happening, then
Henrik Zeberg 31:35
that will make it that could make it worse. Yes, exactly. And that’s why I think it’s probably could be like that this time around, also as well. So you will see that problem that that kind of, you know, rotation into into commodities at this time. And also, because, technically, it seems like we have seen a commodity bull market actually taking off here. It’s something that we have seen been pushing lower for quite a some time. Then since the Coronavirus stimulus came out, we saw a new commodity leg higher, and now it seems like we are in a correctional phase. I think it’s going to push lower. But again, something shifted, something it was a big shift that we saw in 2020 and and I think that can kick up. So that’s technically but, you know, it’s back to the supply chain issues that I think we could see with the tariffs and with a less globalized world that can push prices higher in the in the in the coming years. What
Maggie Lake 32:23
we haven’t talked about the fiscal side? So in 2080 was the Fed. It has been for a long time central banks trying to manage this and buffer cushion recessions, if you think they’ve run out of ammunition, what about the fiscal side of things? Or, you know, the legislative side of things, not just in the US, but around the world. Might a recession jar them into action that is useful, or can help 100 100% that
Henrik Zeberg 32:51
they’re going to do that, but that will be even more so a driver of inflation, as I see it. And I think the thing is, we would like to see the moment we kick in with stimulus, that it actually comes right into the labor market, and things are just fine there in the labor market, right again, but the it requires, whether it’s, you know, fiscal stimulus will be more direct, and it can go, you know, let’s go build a bridge somewhere, and and I think there will be more of that. But I also think that can be a driver on the shorter time frame, on of more inflation, again, as we said, also depending on the whole situation there, again, with the globalized the globalized trade in mind and all that. But I think you know now we have all this money that has been there from the monetary side. And if you add on fiscal stimulus as well on that, then I think inflation can be faster. And if you do not get the fast move in the in the labor market, on the private side as well, then you can also be looking into a more stagnant, stagnating, bottoming process of it so but again, we are few years out here and a year, two years maybe out, and I think it’ll be interesting to see how it all develops, whether we will see this, first of all, the recession, obviously, but also how they were going to react to it this time. But fiscal stimulus is absolutely also what I expect. And you already see that also in Europe, you see Germany also started to spend a lot more than what they have done previously.
Maggie Lake 34:07
Yeah, you, you, I’m glad you mentioned Germany, because it’s not just the US facing this problem, right? We have high levels of debt, declining populations. All of this that, that you know, causes many to concern about a lot of concern about the long term sustainability, but because we have so many countries dealing with this, do you see any kind of coordinated action or global policy, again, that might help mitigate some of the fallout?
Henrik Zeberg 34:36
I can hope that we will see that. But again, there are so many things we can do. And again, it’s about getting the consumer to start spending. And will we send money to them directly? We’ll send money to the fiscal stimulus, like what we saw in Coronavirus checks, right? Yeah, but, but we also saw that, what that can do to the to the economy in terms of inflation, so, so I think that it will be a, you know. Tricky situation is it’s easy when inflation is is that, you know, 0% or and we don’t have the inflation inflation expectations building. But the problem right now, this time around, is that inflation expectations have been moving up. They’re quite higher at this point. And I think that is what is going to hurt, and it’s going to harm the any kind of stimulus that they would that we could see so but, yeah, I would think that we will see some kind of coordinated, you know, attempts to to stop this, and especially if we get a stagflationary environment, there will be a need for to do that, because there will be no kind of stimulus that will be able to help us that point. It needs to be a structural kind of reform. It needs to be returned to sound money. It will need to be, you know, monetary reset, as I think it said, that we’ll see down the road where we say, okay, we know now that we cannot just print money in, you know, abundance. We actually need to have some kind of restrictions to that, and we will adhere by these rules. And then you’ll kind of see that a new, new monetary regime is going to be established, but, but that’s for down road, and I don’t think you will see that before you actually. So again, this is about keeping the faces right. I think the deflationary face is what hits us first with the hammer, and then the easy, let’s, let’s print ourselves out of it, because the Fed is what can react first and before you see the politicians start to wake up. But then as inflation maybe starts to come back, I think you’re going to see that it’ll be a problem that the politicians will need to do. And also, as you suggest, there in a combined or a coordinated kind of attempt to to get to to to limit these the the devastating effect of stagflation. We saw eight, nine months of, you know, ish, stagflationary, ish kind of conditions in after Corona. And that was not time, a good time for pension funds and the likes, because if you’re in bonds and equities, and you, both of them are declining, well, then you’re not. You see your pension funds actually having a problem. And I think down the road we could see something like that as
Maggie Lake 36:48
well. Yeah, so much for 6040, right? That’s, that’s, that’s correct, exactly. That’s, can be the problem, yeah, what? So if you expect a financial crisis? I mean, you know, the ghosts of Oh, eight haunt a lot of people. That was very painful. Are we looking at something that’s serious? Is it? Is it a serious recession? Is it something more substantial in terms of things blowing up? How do you see this? What are you most concerned about?
Henrik Zeberg 37:11
Well, I’m actually concerned about the all the same things that we saw in 2008 I mean, it’s when you have just valuations. This time around. It’s just much, much higher, bigger. And you see that the global indepness is much bigger than, you know, let’s say will be corporate, it’ll be private, it’ll be national nations and so on. It’ll be, so there, the whole thing there. So it’ll be a debt crisis again. And I, you know, I fear What? What? What that will bring about again, the deflationary part of it. This time around, I think they, they kind of solved it last time, they were a little more hesitant. You can see out into Coronavirus, they were not hesitant. It was like, boom, just a lot of stimulus on it. And I think maybe you’ll see that same thing again. What I’m really worried about is the second phase. So it’s not the deflationary part, because I think things will just, you know, fall over the cliff, and, you know, they’ll pump it back up, and they’ll last was for a little while. But what I’m starting to become more afraid of, and it will be the the effects of this, the consequences, the political consequences, the societal consequences. Because if you start to lose your job and you see prices start to rise in the environment we already have in the world right now, I could see some, you know, political effects of that. I could see people losing their seeing their pension funds actually, you know, diminish in value. They that they will not be able to afford setting their houses and so on so forth. And it may look like a bigger, you know, gloomy, doomy kind of picture, but I just think that we have inflation now being reintroduced, which is putting a big limitation on to what central banks can do and and that’s that’s why I’m a bit worried about the stagflation interface, if that’s going to develop, and also if we are not capable of operating cooperating across the Atlantic, also with the US and Europe and so on, because that can also, I guess, as you said, I think it will be best if it’s a combined effort to meet this. But again, we are down the road here, and maybe it’s a little too much overthinking, I don’t know, but I definitely can see the patterns of this, and I could see a very, very severe crisis unfolding if we get into a stagflation period that can last a year, two years, before things get settled because unemployment rising, prices rising at the same time is not something that’s going to make people happy, especially also, if they see the pension funds is, is losing their, you know, their values and they show so what are what are people going to do? How are they going to vote? How are they going to react? Are they going to go out on the streets with pitchforks and the likes that? I mean, I don’t know, but I could see that situation arising in a lot of also, especially also in European
Maggie Lake 39:44
countries. So that’s a very concerning outlook, but I understand why you’re trying to game it out. Because if we’re thinking about capital growth, you know, growth, wealth creation, but also preservation. You’ve got to have a 10 year plan at least, right? You need to be looking out that far. And so you’re looking at this blow off top ultimate greed. We we tip over into a recession, but then the authorities come racing in, stimulate the heck out of stuff, pull it back up. But unfortunately, in that attempt, the growth doesn’t go up, just inflation does. And then you have this very, very terrible period where you have a lot of dislocation, failures, a financial crisis, social unrest, and then we’ve and then you mentioned a reset, some kind of reset. What do you what does that look like to you?
Henrik Zeberg 40:43
So in a situation where you start to have, you know, we already see that there is this mistrust to the US dollar and and in that environment where it starts to see inflation pushing up higher, that will also be in an environment where the dollar is actually losing value. I don’t think that’s what you see right now. Even though the dollar has been declining somewhat, I think we are. We need to see the dollar actually in deflation period moving up quite strongly first. But I think it’s in the face where we start to see the dollar actually losing value or just starting to decline, that you’re going to see this as well. And you will actually start to see a lot of nations around the world starting to complain about that the US will now be exporting inflation to the to the rest of the world also, I think that is normal thing. Also, we see so, so I think we will, and at that point there will be a potentially also political again, I’m theorizing here, and I’m speculating hypothesizing is that’s a, you know, we need to think, what is the next natural thing that can come but, but in that environment, you you probably could see that there will be, you know, thoughts of, you know, can we create something else? Will it be the bricks that starts to do this thing? It can be like in the 60s where it was, it was France, who actually, you know, demanded that we want our gold back, because we don’t think the US is, you know, doesn’t have a fiscal discipline. And, you know, this convertibility of gold, you know, here is all your worthless dollars. Give us our gold back. And then, you know, famously had Nixon, you know, coming off that convertibility back in 71 and I think that will be driving it to some point, because if we see that that’s not a good thing, that will be a very devastating thing to the whole US dollar hegemony and the and actually the potentially, also through the PAC summary that we’ve been living under since the for the last 80 years, that you’ll see that if we do not have the strength of the US dollar, you know, and actually there will be inflation moving up, and money will start to flow into something we do not want. What will then do? What will the nations then do? Will we have a kind of a bretton woods where everybody will sit down and say, Okay, maybe it wasn’t so smart. Maybe this Nobel Prize for Bernanke wasn’t the smartest thing in the world. We, you know, we are now, again destroyed the US currency. There’s certain reserve currency. What do we do in terms of actually regaining that credibility in the to the to the dollar, or whatever it’s going to be? And then I think we’re going to see a new reserve currency of the world started, you know, being put together. It’ll be done that only in the time of, you know, in a real crisis, time where the credibility of the dollar is just plummeting. And I think that will be needed otherwise. And people say, Well, you know, I don’t want all the dollars. Why should I hold the dollars, the debt in the world and all that? And there needed to be some kind of reason. I’m not clever enough to see the structural and how they will do that, but I think I could envision that kind of situation where that happens if inflation starts to push up, and with the kind of debt level that we see in the US at this moment and also in the rest of I mean many places else. I mean also Italy and in Europe and Greece and Portugal and places like that, they also have problems with with their debt levels at this point.
Maggie Lake 43:43
Yeah, so is there a way for investors to protect or hedge against this? I mean, you mentioned that you’re rolling the dice and you’re going to ride the blow off top, both in stocks and crypto, but are Is there a way for people who maybe don’t want to take that gamble to start to protect against a scenario like that, or is there nowhere to hide? If it gets that bad, does? Is there anywhere to preserve wealth?
Henrik Zeberg 44:10
I think there’s a lot of guessing of where to go. And I think that is the problem also when you see crypto and then people say, oh, I need to hide. Into Bitcoin, I need to hide. But I think that’s also back to your question of why gold has been running, been moving up so high as it has. I think that is one of the reasons, I think there are people out there starting to realize that this will be the end game. And this is the end game, as I call it, the end game of this super cycle that I think we’re coming to the end of, where we were talking about the very, you know, the strength of the US dollar. We’re talking about, that debt now becomes the ultimate problem all that. So where do you hide out? I think some people will do well, and actually just, you know, starting to buy gold. But they, I think they can also get hit in the deflationary period, because if cash is king, gold is probably not going to going to do to do so well in that period. But if you hold it for the next and you say, I don’t care about that, it’s more for the next 510, Years, 15 years, well, then gold, silver and so on, will probably be, you know, something to buy again. I’m not encouraging people to go and buy it here, because I still think there can be a pullback or not. It’s pulled back before it happens, but, but that will be a, I think that’s, that’s, that’s the place to go. Some people try to think that it’s, it could be Bitcoin as well. I’m struggling with that for various reasons, because I kind of think that it’s depends on what happens now with the whole preserve currency, and if that the US is starting to then buy up, you know, some holdings of bitcoins and the like. But I also think that it’s something that is more out of the hands of the US and the administrations around the world, and I can see why they will leave it up to something like bit. But if you know, we could be in a situation where Bitcoin potentially also could, could do, could, could fare well and in, that’s it. But again, not in the deflationary period, in a period where money just becomes, you know, something that you throw out the window, because, you know, what is it worth anyway? So, so I think there, there will be a few things that can be, you can hold on to in that period. And again, also, as I said before, I think that can be a commodity cycle starting off. That’s at least what I see. And commodities, commodity companies, miners and the likes, could be something that will will be actually a good place to to be at that point.
Maggie Lake 46:19
So let’s end with with this question, and let’s sort of, you know, put your sort of, you know, pragmatic hat to the side. What’s the craziest or wildcard event that you could think of that would cause you to sit up and say, Wait a minute. Maybe everything I’m thinking about needs to change. Maybe I need to alter my thinking. Like, what would be that really sort of opposite of the Black Swan? What would be that event that you would that would cause you to say, this could be a game changer?
Henrik Zeberg 46:53
I don’t think I can mention just one thing. I think there will be a series of things that events are go for. It developments that we’ll need to see. Okay, so I think the first of all, we’ll need to see a real soft landing. Everybody who talks about a soft landing, we can just look at, you know, the yields, the levels and the the rates, the payments that people are making on on payments on interest. It needs to come down. You need to actually see that people actually do not sit with with a night knife up to their throat in terms of interest payments. If that happens in an environment where you do not see that the labor market starts to to decline, that would be an important step. So if we could start to see that the the Non Farm Payroll stays at 100 and 115,000 200,000 just, you know, going along with that, and you see yields level actually declining. Now, see, that would be a real soft landing. If that happens, then I will start to say, okay, it seems like they actually manufacture what I think would would be. It would have been impossible, but not a lot. You know, there’s not a lot of signs of that right now, I don’t think that is what that they are capable of doing. They can’t do it, honestly, that I don’t see it. But if it happened, that would be the that would be the thing that would make me rethink.
Maggie Lake 48:03
And what do you think the next, the best opportunity is in the next 10 years, based on what you know now. This is not a this is not a forecast, just based on your gut. Your gut call the best, because you must have a part of your portfolio that you’re being safe with. You’re going for it with part with the blow off top and trying to time the the end, which, you know, kudos to you for doing that. Maybe another part where you’re like, hang on. This is for the, this is the safety bit. What do you see the best opportunity for that
Henrik Zeberg 48:33
part? Well, I mean, if, if things were to to go in there, you also think of if the, if they were to go in, the in this kind of more, okay, well, then I would probably be thinking of, where do we see, you know, opportunities in AI and the likes, there will be companies out there right now that are, you know, worth nothing, that are just, you know, popping up these years. I think, I mean, I’m actually very, very optimistic. It may not come out from this interview, but I’m extremely optimistic when it comes to the you know, capabilities of you as humans, as and our ability to to innovate and, you know, and I think the next 20 years, 30 years, is going to see a leap in, you know, our technology capabilities that is going to send a lot of things, you know, just through the roofs, in terms of valuations, in terms of productivity, and so on so forth. But we’re standing right now in a difficult time because of what we have been painting ourselves into the corner, financially, economically and all that, with all the debt we have. But technologically, I think there are something, you know, crazy opportunities out there and for for us to to come so, so that would be my bet, in that kind of, you know, environment where we don’t go into the into the abyss. First,
Maggie Lake 49:40
it’s so interesting, because it’s like people would maybe be very surprised, especially if they sort of cycle through some YouTube titles attached to you to find out that you’re an optimist. Does it feel hard to be warning about difficult times coming? Do you kind of feel like you get the label of Chicken Little or the skies falling? How do you reconcile that? Because I’m surprised. To hear that you’re that optimistic and that bullish on tech?
Henrik Zeberg 50:03
Well, I think it’s when you look at the I think there’s a famous quote in The Big Short whereas nobody’s looking, and I think this is the what we have this time again. And nobody seems to be looking at the things the housing market and all the signs that we kind of say, Yeah, we don’t know. Nobody likes you. Knows anybody who comes with the bad news, the bearer of bad news. So they kind of discard that, yeah. So I probably people will think that I’m, you know, I’m just all, all bearish. I’m not honest. Honestly, I’m not and I think, you know, global warming and all these things, I’m quite certain we’ll find a way of, you know, you know, have handling these things. I think we’re quite, we’re quite clever as a as a species, and we’ll, we’ll make, you know, the best of things. And we are actually, you know, managed to do fantastic over the last many, many years. I think maybe people think that we are not doing so well. But if you look at all the factors in, you know, in terms of how all we get, you know, children’s, you know, Motability, or mortality, increase, life experience. Can see, said, everything is just going the right direction. I think it will continue to see that path. But we just have ups and downs on that and find, you know, so the technology development, technological development over the next many years, I think, is going to be fantastic. And I, you know, coming, come the next 510, years, I’ll be looking into, you know, where is it really that you’ll find these fantastic bits, are the investments into to some of this, into the tech world, biotech and all this. You know, there are great companies out there, great companies that are working on it. And my friend is also working on one that, you know, what he could talk about, you know, talk about the capabilities of that. It’s just amazing. So, so I’m, I’m very optimistic, looking into
Maggie Lake 51:39
that. We just have to get we have to get through this period. You have to be prepared to have the dry powder in order to take advantage of some of those opportunities.
Henrik Zeberg 51:47
Stay alive through that. Yeah, financially, stay alive through that. This period, that’s that will be the hot part.
Maggie Lake 51:51
Fantastic. Henrik, this was gave us so much to think about and so much to try to prepare ourselves for. So thank you so much for this.
Unknown Speaker 52:00
Thank you very much. This was a pleasure to talk to you.
Maggie Lake 52:04
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