This is simply a brilliant interview of Russell Napier with Macrovoices.
Erik: Russell, you are best known as a financial historian, and I want to tap into that knowledge for my final question. Because some of the things that you’ve predicted in this interview, particularly the stage being set for the European Union in particular, but also other developed economies, to seriously consider capital controls because a lot of the macro drivers that you’re describing could potentially encourage large institutions to want to move a lot of their assets out of European markets into US markets. And that creates a self-reinforcing vicious cycle of dollar appreciation and so forth. So there’s good reason to think that capital controls might be in the future. Meanwhile, you just told us that you see that we’re now in the formative stages of a new cold war with China. Certainly in the last cold war, that resulted in the imposition of a lot of rules that would otherwise not have existed, that control who is allowed to invest where in the world. So how different might the financial landscape be in the future than what we’re used to as we get into this new regime where the European Union needs to be worried about these things and we have a cold war developing?
Russell: We do have a historical parallel which is 1945 to let’s say 1980 and probably up to 1989. Realistically, when we talk about the end of the cold war and also liberalization of capital controls in Europe. And kept them much longer than anywhere else. So I think we can all go back and look at that period in history as a sort of guide to what to do and how to invest and where to make money. Maybe I can just leave you with one idea of what some of the real winners of that period of history in equities, were companies with very large fixed assets. And those companies were beneficiaries of higher inflation when interest rates turned low. They were the beneficiaries of that as long as they didn’t have to reinvest a huge amount of the cash flow back into the fixed assets. Those weren’t sustainable fixed assets without high reinvestment. Those are asset-heavy companies. We’ve just had a 40-year bull market in asset-light companies. So it couldn’t be more profound, this turnaround. Not just in the reordering of the terms in financial asset prices. But even within the equity market. The winners and the losers are likely to be very different in this new world. And I think anybody listening to this will begin to realize that this raises many more questions than answers because it is such a profound change in what we’ve known, really, since the late 1970s. So, unfortunately for most of us, it’s back to the future.
full interview below