How to surf turbulent markets

Katie Martin (0:06)

Pushkin.

The Unhedged podcast is on the road, and we have a live audience. Live audience, say hello. Hooray. We have been allowed out of our sad, gray audio studios and come here instead to a fancy kind of loft space in New York City for the FT Weekend Festival. Behind us is a huge window with a skyline of New York and patches of sky as blue as the Lincoln Memorial Pool was before the Antifa Algae turned up. I am Katie Martin. I'm a markets columnist at the FT in London. I'm joined by Mr. Robert Armstrong. Rob, say hello.

Robert Armstrong (0:47)

Hello. I want to say a special thank you to everyone in the audience for not going to the wine tasting.

Katie Martin (0:53)

Yeah. I don't know what it says about us that our colleagues who I previously thought were friends put us for this session alongside the wine tasting.

Anyway, we'll quiz them about that later. Luckily, we've got some brains on board. FT readers will be familiar with him. It's Ruchir Sharma, who is chair of Rockefeller International and author of What Went Wrong with Capitalism. It's a long book. Ruchir, it's so great for you to come and do this. Thanks so much for joining us.

Ruchir Sharma (1:22)

Well, thanks, Katie. Rob's been obsessed with how many people we'll have in the room.

Robert Armstrong (1:27)

We've done okay.

Ruchir Sharma (1:27)

It's been a pretty good turnout.

Robert Armstrong (1:28)

Yeah, this is good.

Ruchir Sharma (1:29)

So far, so good.

Katie Martin (1:30)

This is the hard core. So look, this is an opportunity, I think, this session to kind of step back and take the temperature of what is going on in markets. It's a mistake to think of markets as people. They don't want to do anything. They just do what they do, but they really wanna go up at the moment. Stock markets really wanna go up. There's a kind of feeding frenzy vibe in stocks at the moment. There's almost a kind of last days of Rome sort of feeling about stocks.

You know, like that kind of crypto mindset that it just seems to have settled in across sort of traditional markets. So like Ruchir, you've been bobbing around markets for a long time. How weird is this current environment to you?

Ruchir Sharma (2:15)

Well, I'd say it's not that weird because of the fact that we have seen bubbles in the past, and this has all the trademarks of one. And if you look at the long history of markets, which I love studying, is that the bigger the technological breakthrough, the bigger tends to be the financial bubble, which is that because there's so much excitement around that. So the whole idea that bubbles are based on nothing is obviously not true. They're based on something very real. So the real thing is that this is a huge technological breakthrough that we have seen. So the technology is for real, but every time we see something like this happen for the last 300 years, you end up seeing a very big financial bubble which accompanies that.

And the thing about problem for us in markets is that there is no science behind these things, which is that how do you define a bubble? What is a bubble? And I think that what you can do, I mean, I've tried to come up with a framework that how do you define a bubble using four O's, which is you typically get overvaluation, you get over investment, you get over ownership, and you get over leverage. Those are four defining three levels of bubble.

Robert Armstrong (3:22)

Too much debt in the market on that last one. Yeah.

Ruchir Sharma (3:24)

That's right.

Robert Armstrong (3:24)

But can I just interrupt you for a second? One thing that is strange or maybe it's not strange about this particular bubble for me is that everybody has been worried about it being a bubble from the very beginning.

I think so many people in financial markets are like myself, in that the 2007-2008 crash was like a formative experience in my life. It's one of the major things. It's like get married, have kids, 2008 bubble. Those are the big things in my life.

So can you have a bubble in the classic sense when everybody's like, is this a bubble? Is this a bubble? Is this a bubble?

Because usually a bubble is something supposed to sneak up on you, but this will be the most predicted one in the history of bubbles maybe. Maybe I'm wrong.

Ruchir Sharma (4:13)

Exactly. I mean, if I can say so, because I looked at all the literature going back to 1999, and what were people saying in 1999 as an example.