China vs. America: Geopolitics & The Rise of The Rest

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Emmanuel Daniel.

Emmanuel is an economist and founder of the Asian Banker. His view on geopolitics and the global flow of capital has put him on stages and in boardrooms around the world for companies like Deutsche Bank, JP, Morgan, Bank of America and more.

So what does this mean? Well, this means that Emmanuel understands the impacts of the coming global debt crisis and is about to teach you and I what to do to prepare our assets for it.

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[THE GUEST]: Emmanuel Daniel is an economist and

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Transcript

Ryan Miller  

My name is Ryan Miller, and for the past 15 years, I've helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

Do you remember when the term globalization was the common catch phrase, well, not anymore. Join me on this episode of Making Billions, where I go deep with the global economist on how the world is changing and what you can do to stay safe and protect your assets. All this and more coming right now. Let's get into it. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Emmanuel Daniel. Emmanuel is an economist and founder of the Asian Banker. His view on geopolitics and the global flow of capital has put him on stages and in boardrooms around the world for companies like Deutsche Bank, JP, Morgan, Bank of America and more. So what does this mean? Well, this means that Emmanuel understands the impacts of the coming global debt crisis and is about to teach you and I what to do to prepare our assets for it. So Emmanuel, welcome to the show, man.

Emmanuel Daniel  

Ryan, I've been waiting to do this with you for such a long time and, you know, I've been following the stuff you've been doing with asset managers, fund managers and, you know, alternative assets. And I've always wondered, like, you know, at which point where you're going to fit me in, you know, like, I'm not at the product level. I'm big picture, you know, huge themes that are affecting the world today. So, so I'm really happy that we're doing this today.

Ryan Miller  

Yeah, and I'm happy to have you, and it's been an honor, I love our conversations that we've had even before we hit record. And it's all things on global trends, currencies, geopolitics, east versus west, there's a lot of exciting stuff packed in here that we're going to get into today. I'm really curious, before we get into all of that, maybe you can help us understand how did you get into this industry, what qualifies you even have an opinion on this?

Emmanuel Daniel  

Ryan, 28 years ago, okay, I started something called the Asian Banker and it was, it started as a simple publication, but what it gave me was a front seat view and a reason to get off the plane in almost any city out in the 18, 20 and now probably 24 Asian countries, and meet the top bankers in each of these countries, the Minister of Finance, the central bankers, and so on. And now I've expanded my business into a lot of the other emerging markets, I have an office in Dubai, we cover Africa from there and today, right now, I'm sitting in Armenia. So a lot happening in Central Asia going into the Eurasia region. You know, my specialty really, is understanding how the economy works from the banking and finance perspective. So whenever you read the newspaper headlines, I'm the guy who sees under the hood and see how the actual mechanics of things like payments, interest rates, how governments try to control the economy, how all that works. And so from there, I've graduated into more macroeconomic stuff, and now geopolitics as well. And as I did that, what's interesting is, in the US, I became friends with a number of legislators and chairmans of large banks because they wanted to know more about Asia, about the regions that I cover, and all of that. So like in my first book, The person who wrote, the two people who wrote the forward to my book, was Barney Frank, who wrote the Dodd Frank, who co-authored The Dodd-Frank Act, which governs all of banking in the US, and Richard Sandor, who is like the father of alternative finance, things like climate change and interest rate derivatives, stuff like that. So it's been a very interesting ride. You know, just start with something simple, you know, make friends with everyone in the world, and then get plugged into, you know, how the world actually works.

Ryan Miller  

Brilliant. You know, I've a question for you, and I've been dying to ask you, but we hear about global currencies, Economic Unions, trade wars, and the ascension of all these emerging countries, and somehow you keep seeing the World Bank and the IMF just caught in the middle of all of that. Why do you think that is? 

Emmanuel Daniel  

Well, the World Bank and IMF institutions created from the Bretton Woods era. You know, right after World War II, it was dominated by the United States and in collaboration with, you know, the European countries. And now we live in a world where any number of what used to be emerging market countries, I come from Singapore, which really should be considered a developed country in its own right, you know, we've all grown up. We've all, you know, come up to become peers with the countries that created the IMF and the World Bank, and we'd like to see some of the rules changed in order to reflect the world as it is today. So where we are right now is that the Multilateral agency dominated, and the US dollar dominated economy still continues to try and decay, a global economy that is training to become more multilateral and more south, north, south, rather than north, north. So you know, you're looking at new wine and old wineskin. So you know, something will have to give at some point. Uh, except that how this transition will work out. In fact, the the title of my book was, The Great Transition. You know, all of finance is under a great transition and the second half of that title is The Personalization of Finance is Here, so we can talk about that at some point. But I've given a lot of thought as to how this, you know, this transition is coming about. Like one writer said, you know, it's the rise of the rest, you know. So, so that's where we are, but you know how the US is going to play that, you know, will depend a lot on what it does and how it navigates through, you know, a lot of the geopolitics. And then on top of that is the technology that is transforming finance today, in areas like payments, you know, in areas like internet banking and all of that and, you know, trade finance. A lot is happening in in banking, in banking technology, that are changing the rules, and the rules are coming down to, you know, your neighborhood, right down in the community bank level, in downtown, you know, Midwest America, so, you know, so it's, it's that whole range of developments taking place. Now what's interesting is, and I'll put this little seed in there, that is that we now have an economy called China, which has come up with an alternative model, which is sufficiently, which has sufficient critical mass of its own, to stand as a alternative to what the IMF and the World Bank offers. So that's where we are now, whether it's a real alternative, whether it's a sustainable alternative, is a story to be discussed, it's, you know, we need to drill down on that. So all of these factors, puts the status, goals, status, go as achieved during the Bretton Woods Agreement, you know, up for review, you know. So that's where we are. 

Ryan Miller  

Brilliant, yeah. So the IMF, World Bank, kind of we could look at it in almost like, I feel like I'm Dana White, and in this corner we got the Western IMF and global bank, and in this corner the Challenger China. And so we've got, we've got two competing things, and competition is not bad, it doesn't mean they're enemies, it just means they have different philosophies, maybe, and so. But the one that they both have in common, it seems like, is they're both going to these emerging countries offering to loan them some type of interest based loan or something to help them with their country's economics. And so maybe talk a little bit just briefly about, I know they have the belt and the road program in China that they're issuing, and they're trying to leverage that throughout global politics. And then the World Bank and the IMF have their versions of that, and so they're going to different countries saying, hey, we can help you. There's obviously some strings attached that can only speculate, but there are some now very viable competing forces that are out there. Maybe talk a little bit about the belt and the road program, and what are you seeing China leverage those to do?

Emmanuel Daniel  

You know, a lot of the perceptions and the perspectives on all of the trends emerging right now seems to be, you know, articulated on a competing basis, as if it's the West, you know, versus the rest, or something like that, that's not how I see it. I think that the entire the whole world is in an evolutionary mode. America started as a manufacturing country at some point in its history, and now it is gone past manufacturing. And any country that takes the route that America has taken and evolves will find itself financializing its economy and making the financial structure much larger than its ability to produce and America today has completely lost the ability to manufacture. In fact, it's assigned the ability to manufacture to the rest of the world so that it can export its own cost base to the rest of the world, and, you know, gain on its own productivity gains, and then that shows up in the profits of the corporations, which are then rewarded by the markets. So that's where America is, and that's where China wants to be eventually, and that's where any, any country that wants to, you know, go up the hierarchy, or start by being agricultural, and then go into manufacturing, and then become more services oriented, and then become a highly financialized economy. 

Emmanuel Daniel  

So all that is happening is that the US is way ahead of everyone else, and because it's way ahead, it then becomes the world's largest consumer nation, and because of that, it becomes the target for any manufacturing nation to want to export to the US. Because, you know, the reward of exporting to the US is much higher than exporting to the rest of the world combined almost so China had that equation with the US. It was going very well, China became prosperous as a result of that relationship. In fact, you know, someone called it China America, which is, you know, that intertwined relationship, that siamese twin relationship that China has had with America, with the US. And the US continues to be the world's leading provider of capital, you know, and the world's leading arbitrator of capital. It decides where capital goes, and it decides that on a ruthless basis, it it assigns capital to where the returns are the highest, the you know, and where the risk can be high, the return has to be even higher as a result. And all of that, and no country has taken over the US in terms of being the arbitrator of capital worldwide. China is an arbitrator of manufacturing of production, and no country can match what China is able to do as a result of its, you know, its built infrastructure for manufacturing and the supply chain to, you know, to be able to export to the rest of the world. 

Emmanuel Daniel  

So when you talk about something like Belt and Road, what you're looking at is something that the US has always been doing, which is, you know, all of the corporations, all of the businesses in the US are highly mature, and in order to be able to reduce costs, the US went out to export capital and startup manufacturing in other parts of the world. Singapore, where I come from, is a huge beneficiary of capital from the US. And still is, you know, and so is, so is Africa, you know, except that in the case of Africa, it needed to have some of its basic infrastructure built first before it was able to, you know, produce the manufactured goods that the US would want to eventually buy from. So what China has done is gone, you know, a little bit more upstream and started investing in the infrastructure base of Africa, so that China itself can move up the value chain, so that not all of the manufacturing can take place in China. Now, the people in China who made that transition, or went out on what is now called Belt and Road was not the state, wasn't the government, wasn't the Communist Party of China. And I know some of these people personally, they were business people, they were entrepreneurs, they were even Bucha nurse who, you know, like for the, for the, you know, for the thrill of the chase, just go out and do something in another country, because it's more productive than doing it in China. And it actually speaks well about the Chinese people and their sense of entrepreneurship and adventure. 

Emmanuel Daniel  

Now, what the Chinese state did was that in 2014 when the new leadership came into power, Xi Jinping, he looked at what Chinese individuals were doing, families were doing, Chinese state owned corporations were doing, and then started to realize that a lot of these investments that Chinese companies were doing in all of the other countries in the world amounted to a reconstruction of the Silk Road as it were, you know. So it went through Southeast Asia, it went through Western Asia, and then into Africa. And so the state took over the agenda, clapped it with a label called Belt and Road, which is now called Belt and Road, and then started putting more capital into it. And today, if you look at the total asset size of the China Development Bank alone, this one institution is, like, multiple times larger than the World Bank and the IMF and the Asian Development Bank and the African Development Bank combined. Okay, so then the question is, how is it that the development bank of one country can actually put out so much capital out there that the these multilateral agencies are not able to do anymore. 

Emmanuel Daniel  

Now, part of the reason is, these multilateral agencies are, they work much slower, you know, they're caught by politics between, you know, the respect various owners, the US wouldn't put any more capital into the World Bank and the IMF, all of that. Whereas China is unilateral, it just decides to go out there, and when it pins down on the policy, it makes it make sure that it goes out to get it done. Now the thing is that I've actually watched China build it. I have an office in Beijing. I've been doing business in China since 2000 I know as many of the chairman of banks and the leading economists who contribute working papers to the State Council, all of that. And I've watched how China has matured its down the road program. Initially, when it went out, it just went out unilaterally. It worked with the most corrupt politicians in various countries, Pakistan, Sri Lanka and so on, and just dumped money into it, into them. And then it was so easy to go out there and get a part in all of that, but I think several countries have figured out how to play the game with China so long as countries know how to push back and give structure to the process. Malaysia, for example, had an original deal to build a high speed railway for a few billion dollars and then when there was a change in government, they realized that this whole cost base was way too high, they went back to the Chinese and renegotiated the deal. And so now they're putting in place a much more sustainable deal as a result. So it this whole Belt/Road thing takes two hands to play. 

Emmanuel Daniel  

Now, the difference between the Belt and Road and the original model of the West trying to help the South, meaning third world countries, and especially destitute countries, is that a lot of the West investments were in the form of aid. And the problem with aid is that it dissipates with, you know, in the corrupt political process, and he never gets to the end user. And so, you know, if you take from the time we've had since World War II to today, and go to some of these countries, you'll see that nothing got created. You know, the roads were not built, the railways were not built, the schools were not built. You know, the corrupt politicians just changed government from time to time and all of that. So that was the result of taking the aid approach. 

Emmanuel Daniel  

What the Chinese did was, you want a railway, we'll build a railway, railway for you, you know, we'll lend you the money, and the money will never leave China, because the contractor who's going to do that job for you is going to be Chinese. He's going to bring an army of Chinese workers, and 18 months later, you are going to have a railway running in your country, you know now. So this approach to some Western minds looked like, you know that less draconian. You're not using the local labor, you know, you're getting the countries into debt and all of that. But 18 months later, and this is told to me by an I, you know, I IFC executive who said, 18 months later, the locals actually have a train running in the, you know, from the port city to their capital city. So the thing is that the effectiveness of the Chinese approach has actually raised standards today. You find, you know, people in Ethiopia, for example, putting out photographs of the New York subway with the, you know, the the capital city of Ethiopia subway next to each other and saying, you know, which is the third world country here, you know, and very proud of the fact that Addis Ababa has got a great subway system running now, and kids can take the subway to school and all of that. 

Emmanuel Daniel  

So now the thing is that this debt economy, the interesting thing about the discussions you see on, you know, in the newspapers, in the New York Times, for example, is, is China getting these countries into debt? Whereas someone like me, I'm wondering that, is China going to get into trouble, because it now has such a huge exposure to third world and destitute countries that that money is not coming back. What is the return on investment for China on a number of fronts, I actually think that it is not a long term sustainable policy. And, you know, the US has had that exact same example in the 1970s when JP Morgan, Citibank went out to lend to the, you know, Latin American countries. And I remember very clearly Walter Wriston saying that sovereign countries don't default, and they do, and they did, and it affected all the big investment banks in the US dramatically for at least 10 years after that, you know. So I think that China may well enter a phase where it will need to pull back on this Belt and Road program. So the dimension and the perspective with which I see this development is not one versus the other is one has evolved to become a highly financialized economy. The other is walking up the same, you know, the same path, the same trajectory, the same evolution and it's at a phase where it can make a difference to other players valuable in the in the value, value chain. When you see that way, you you start being able to deal with the substance of the of the business model and the substance of the real outcomes that we might be able to see in the next three to five years.

Ryan Miller  

Awesome. So we're seeing an evolution then in global finance, geopolitical, we always say risk, but just the geopolitical economy and so we've got IMF and World Bank, who've been playing their card for a while, and it's worked the way that it did. Now China's coming around with maybe a little bit of an alternative, but similar. And now I'm seeing something interesting, this has been around for a while called BRICS, but recently it's popped up again as important. So we're starting to see a little more activity on the BRICS side. Maybe you could talk a little bit about who, what's, what's going on with the BRICS, and how does that all tie into this, this whole combination of IMF geopolitics, China, how does that all fit?

Emmanuel Daniel  

When you think of BRICS, the first thing you need to think about is the timeline by which the investment banks, the global investment banks, okay, Goldman Sachs, in this case, comes up with themes that occupy our minds at different phases in the history of the world. Okay, and so BRICS with early 2000 concept brought up by Goldman Sachs saying that the future of the world belongs to the large nations. And he put in an idea, and he randomly selected four countries have very little to do with each other, Russia, China, India, three which actually share borders, you know, Brazil and South Africa and then said that, you know, that the future of the world belongs to these four or five countries. Right at the same time as the idea of BRICS was being promulgated, the platform economy was also evolving. And the platform economy had actually started 10 years earlier with the onset of Yahoo, and then eventually go Google, you know, and then, and at the time of, you know, the idea of BRICS being promulgated the social media players like Facebook, 2007, 2006 something like that. So it's sort of coincided with each other. What has happened is these five countries took the idea seriously, started meeting each other, and then politicized the concept of BRICS, started negotiating and talking with each other as to, what can we make out of this? For a long time, it was just a, you know, talk shop and then, because each of these countries were had issues with the US and for different reasons. You know, China with the US, Russia with the US, India and so on. They thought that they were seeing an opportunity to work together on a combined basis, on a combined response to the US. 

Emmanuel Daniel  

Now, the single most important combined response that needs to be created is the fact that the US dominates global play, payments and the global economy because of the dominance of the US dollar. And we saw what the US has done and you see, the US have been doing this for a while. You know, Standard Chartered Bank got fined by the US for transacting some of its Iranian money to New York, and was fined $300 million a few years ago, right? And then came Ukraine and with the Ukraine war, we all of these BRICS countries, were able to see how the US could weaponize the payment system by, you know, by basically trying to cripple Russian payments that went through the US, because global payments was denominated in the US in the dollar. So finally, the members of BRICS have found a common theme that they want to work on. However, because BRICS is an artificial creation, there is no, you know, necessarily an important common theme before between them, holding them together is really very difficult. And then we found, you know, the issues that each of these countries have with each other. So, you know, China and Russia, they not necessarily pleasant bed fellows, they, you know, they, they keep each other company for as long as it's necessary. China and India have got incredible issues with each other. In fact, right now, there are no direct flights between China and India, you know, since COVID and that's because of their border issues and and their border issues are festering and becoming much more pronounced, and they're pretty serious at the moment. And then now you have Saudi Arabia getting into the BRICS equation. 

Emmanuel Daniel  

So each of these countries, basically, you know, a den of thieves who have to watch out for each other, in as much as they all agree that they have a common enemy, which is the United States. Now with this in the back of my mind when I think about whenever BRICS makes an announcement. So, like they want to, they made an announcement that they are likely to issue a BRICS currency and so on. The way the mechanics of banking works is that in order to issue a common currency, you need a base currency, you need a reserve currency. So then the question is, who among the BRICS members is going to offer its own currency as a base currency, and then there has to be an agreement in terms of unified financial monetary policy, which is that they will not screw up each other by coming up with policies which are very specific to their respective economies. Okay? So if China has to reduce its interest rates in order to increase its export capabilities, for example, you know, will that affect all the other BRICS countries? So the mechanics of it doesn't hold as it is right now. So it is an interesting phenomena, in my view, but the mechanics of BRICS makes it an impossible institution, you know, to carry the themes that they want to carry, the most important of which is, how do we reduce the dominance of the dollar in the global economy.

Ryan Miller  

Okay, very good. So, you know, I saw that both China and the West and its allies are seemingly trying to, we'll say, seduce Africa into taking their money. Why do you think that is why, I call Africa the pretty girl that the dance that all the boys are fighting over? But why do you think that is, in all seriousness, why is there so much, we'll say turf wars, that everyone's trying to get Africa to be their friend. What's going on there? 

Emmanuel Daniel  

Well, when you look at how your own members, Ryan, you know, you you speak to the fund management industry, and the fund management industry starts by looking at where the returns are. So the days of the returns from countries has developed as the US over you know, there is no domestic US institution that can provide good returns if it is not capitalizing on the production capabilities of countries outside the US, or if it doesn't have a market that's much larger than the US because, you know, the profitability in the US is highly strained. And then you go out to Europe, and then you go out to China, and then you go out to India. So when you take that trade trend and you look at where the return on investment is going to be in the future, we all arrive in Africa for the simple reasons that firstly, Africa is has the youngest democratic, demographic profile of any region in the world, even younger than India, and some of these African nationalists have, since the last 20 to 30 years, been talking about a unified Africa. So, so when we think of Africa, we don't think about Nigeria being, you know, 280 million people, Burundi being a few million, like 3 million people, or something like that, we don't, we don't, you know, break them down into their parts. We look at an entire continent that sees itself as 1 billion people having a very young demographics.  And something that, the second is that the rise of the nation states, the maturity of the nation states, nation states that are highly mature. If you go to Europe today, many of the European countries have incredible history and structure and organizations so much that they go down to being able to regulate any form of entrepreneurship to death, you know, and that's what the EU has become, which is that you start a business in the EU zone, the amount of regulations that you will be up against will deter anyone you know, but but the most hardy of entrepreneurs to try and make something work. And for a region that cannot exceed 2% GDP growth a year, you know, so and then, in the same way, China is also maturing. India is a little bit of a story in itself, but Africa is a lot more amiable because of the third reason, in that it is not politically aligned to any part of the world yet, and so it's like a virgin, you know, available to any form of ideology or ideological bend in order to influence all of Africa. So I think those three reasons would make Africa attractive. 

Emmanuel Daniel  

In fact, you know, I've seen in banking, innovations in payments work much faster in Africa than any other part of the world. So there was a point in between 2010 and 2014 where two very important platforms arose in China, Alipay and WeChat Pay. And these two platforms, you know, became a showcase that China had the best payment platform in the world. But after 2014 the regulators were able to organize themselves in such a way that you were able to regulate these two players such that they won't grow any further than they have, and they had a small window to grow. And then came India, which had a new innovation, which is based on an identity program run by the state. So these are countries that are maturing very quickly. Even as we speak, you know, we think of how the state matures in its ability to regulate innovation, you know, in its economy, these countries move very quickly. That means that something that they achieved 10 years ago cannot be achieved today, you know. And so the next 10 years, you're not looking at China for breakthroughs in innovation in payments, for example. But then in Africa, I've seen cross border payment networks grow, proliferate like crazy, and that's because regulators come in after the fact to put in place regulations that makes sense to that part of the world. So if you want to do anything that's innovative, go to Africa, and even with areas like AI and quantum computing, if you start in Africa, the regulator will allow you to play first, and you've got a good critical mass of a population to work with and then, and then build it from there. On these various fronts, Africa really is the future, the frontier.

Ryan Miller  

I love that. So far we've covered a lot of ground. So we talk about the IMF and all the things that they do, and the helps that they're bringing in China, and the helps that they're bringing the rise of this new economic union, which could also be a contender in the currency markets. And so now we're getting into all of this energy seems to be focusing in Africa. It's not the only place, but there's an immense amount of energy on all parties to dance with this pretty girl we call Africa. You mentioned before, rightly so that a lot of my time is addressing the fund manager, the alternative asset managers. So how should a fund manager think about where to invest in this new global economy? 

Emmanuel Daniel  

As in all fund managers, you look for the highest return with the lowest risk, and then work out where you know that the formula is best applied. I think that the advice that I would give is to work out a trend analysis as to where this moving target is heading, this whole idea of profit, highest profit and lowest risk, and then pin down areas in the world which meets the objectives that you have in mind in that some fund managers are, you know, able to high risk and you know, you can go into very difficult countries and still be profitable. In Burundi, for example, I met the owner of the free to air television station. It's a Chinese guy, okay, and he basically has the whole of Burundi all to himself at that time. This is now two years ago. It might have changed, so, you know, by by now, but there are entry level business models that that make sense in the most difficult countries, and maybe only a few fund managers have the appetite for something as high risk as that, you know. So when you look at other parts of the world, within Africa, for example, there are countries that are already putting in place manufacturing infrastructure, and they can become manufacturing hubs, and the politics are a lot more stable and the policies are a lot more transparent and all of that. Tunisia is one, Morocco is another Ghana. So these are countries that have had instabilities in the past, but I've been getting the act together, so you just build a continuum and see where in the continuum you want to play, and depending on your appetite for risk. 

Emmanuel Daniel  

And just going around the world, there's another theme that you need to pay attention to, which is how the supply chains are evolving. There was a time when the best supply chain was China in that because it's the low, highest and the most productive and the lowest cost manufacturer of almost anything in the world. You know, the interesting thing about something like electric vehicles, for example, although China is grabbing all the headlines in around the world today because of the way that EVs are produced, EVs are produced one every three minutes, and Elon Musk perfected the model by making the mole maker to, you know, come up with that, the mole infrastructure that does the entire mole in one hit, you know. And, and because of that, that's been copied by the Chinese players, they've aced it. They made themselves the lowest manufacturer, lowest cost manufacturer of electric vehicles. However, that manufacturing model is easily transposable to anywhere in the world. And so you have new EV players for motorcycles out of Korea, for EV cars out of Vietnam. These are local people, not Chinese companies exporting or moving to these countries to start to push their business model that way. And so it is not inconceivable that an African country will become the largest manufacturer of EV for the African continent, because it's highly automated. You know, it is capital intensive, but the supply chains work well when you're closer to market and all of that. So, so you need to follow the supply chain and how that's evolving. And it might be different for some types of products, but generally, the whole supply chain universe is is transforming dramatically right now.

Ryan Miller  

Yeah, no kidding. So there's a lot of shake up around the world and speaking of that, one of the things that I've noticed is that long running JPY carry trade, then it just unwound, and it caused chaos around the world. I'm being a little dramatic, but yeah, it was painful, no one was expecting that. It's been around for a while but what do you think happened there? 

Emmanuel Daniel  

No, the JPY carry trade has been around for as long as there's been global peace. I mean, since about the 1990s where when the Japanese Yen was the cheapest currency in the world, and Japan, or the Bank of Japan, made low interest rate regime important, partly because it was issuing its own debt, and the country was issuing its own debt, and it needed to keep the cost of its debt as low as possible. So what the Japanese banks ended up doing was to lend Japanese yen to anybody from around the world who needed to borrow. And the two biggest borrowers of Japanese Yen for carry trade were the capital market players out in the US, because you can borrow in yen for about 1% and leverage that to buy and trade on the US stock market as you as much as you want. And it was the second group. Were countries with very high cost of domestic currencies where the interest the domestic interest rates were anything between four to eight to 12% countries like India, for example, so the Indian corporations would buy a borrow in Japanese yen and then convert that to Indian rupees and and benefit from the fact that it's cheaper that way than to borrow in Indian rupees in the country. 

Emmanuel Daniel  

So this has been going on forever. It's just that it just caught the interest of, you know, the global investment community. Because finally, the Bank of Japan is pursuing an alternative policy, which is to start increasing interest rates with the hope that it will introduce inflation in Japan and raise the asset valuation of Japanese yen assets, you know. And so when they did that, a lot of the players who exposed the Japanese yen as a cheap form of currency are now caught in the middle of a musical chair, so you know, and the music has stopped, so they now have to figure out how they're going to unwind that. So will the Japanese yen continue to be very important source of capital, cheap capital, going forward, in all likelihood, no. With the recent election of the new prime minister in Japan, he wants to continue the policies set in place in the last 10 years. So you'll need to see or look for another currency which can facilitate a carry trade. And actually, in terms of currencies that have got deep liquidity around the world, the Japanese Yen was the only currency that qualified. It is conceivable to me that the Chinese renminbi could be a currency for carry trade if it was convertible both on the current in the capital account, but they but it just isn't, you know, because the economy is large enough to have, you know, a good, deep currency pool of renminbi out in the global marketplace, but, but there isn't, at the moment, the EU pursues interest regime similar to the US, so that's not interesting, either. So outside of the Japanese yen. There are no other currencies that can play that role. So the fact that it's just caught attention is just an indication that the game, the game rules are changing right now.

Ryan Miller  

Yeah, so there's carry trade currencies, currently it's JPY, possibly the renminbi, but what about when things go sideways? We're talking about it just did, and there's those flight to safety currencies just really quick. What off the top of your head? Have you seen that a lot of shifts when they happen, the events are triggered, people flight to safety. Where do they go? What currencies represent that? 

Emmanuel Daniel  

Whenever there's an economic crisis in any region, or even a global economic crisis, something that I've seen happening is that countries in a certain economic sphere tend to find their way back to a currency of comfort, and it's usually the currency that is from the country that is the most stable in this region. So in South Africa, in the South African region, the South African ran lends itself that way. So whenever there's a crisis, you will see that South African rand goes up and you want to be invested in it to, you know, to profit in Southeast Asia, the Singapore dollar lends itself that way. And the nice thing about the Singapore dollar is that the exchange rate is based on a basket of currencies, so that it doesn't necessarily follow the dollar, but the dollar is a huge component of the valuation of the Singapore dollar. The Hong Kong dollar, effectively, is the US dollar, so you're not, you know, making any bets or taking, you know, taking a safety measure as a result. The Swiss franc is a country as a currency of safety, you know, and, and the euro, technically, and, and also the Sterling Pound. Now these currencies for investors looking to hedge in terms in terms of in times of uncertainty, as opposed to looking to profit in terms of certainty, which is what a carry trade is meant for. So the purposes are totally different, but you would want to keep your eye on these currencies of safety, because they are also highly volatile, because they move up and down based on any number of you know developments taking place in their respective regions. And if you are a currency trader, that's where you'll be playing to, you know, to make your daily profits. So, you know, they play a totally different role from carry trade currency. 

Ryan Miller  

Yeah, brilliant. So as we round third base, I'm curious, after all of your experience the Asian bank, you've been on stages and boardrooms and traveling the world. You've seen a lot, you've done a lot, and you've certainly helped a lot. So based on all of that, what unfair advantages can you provide to our listeners around the world?

Emmanuel Daniel  

Stop looking at the world in a didactic perspective, I think that's the single most important unfair advantage that I can plant as a seed in the minds of people who need to make decisions, whether in investments or in predicting markets and in geopolitics as well. The didactic mindset is essentially a western mindset, and it insists that there has to be a conflict in order to find a resolution. But from what I've seen, very often, the parties in conflict, if you take the US China conflict for one, are not necessarily in conflict with each other. They both have the same aspirations, you know, and they're both walking the same direction. It's just that one is walked earlier than the other. So you taking a trend analysis is far more useful than to take a didactic analysis. So I think that that would be the one you know idea that I'll plant out there. 

Ryan Miller  

Awesome. So you hear about in traditional economics, leading indicators, lagging indicators, and a lot of these things, because as investors, we do our best to analyze the data and extract a trend on saying we believe, based on what we understand, that the future will do x. What's your opinion on leading indicators, which ones are good, or any trigger events. What would you recommend people do when they're trying to analyze these are global asset managers and they're trying to understand the landscape around the world. What advice can you give them as far as what to look for to predict the future? 

Emmanuel Daniel  

The numbers just give us a perspective, whether they're leading educators or lagging indicators. They just tell us a perspective of what to expect. Sometimes, when I visit the bank, before I visit the bank, I ask my staff to just print up the balance sheet of the bank, and just by looking at what its cost to income ratio is, for example, I can almost decide when I open the door of the bank's office what I'm going to see, but the furniture is old that the chairman takes using consultants. The head of retail is a crazy guy wanting to spend money on top, top of line marketing. I can tell all of that just by looking at balance sheet of an institution even before I visit them, right? But that doesn't tell me where the institution is going, or what are they capable of, you know, or what they'll be up against, and sometimes I'm also surprised that some of the worst institutions turn out to be not bad, and some of the most promising institutions turn out to make huge mistakes. I'd rather that we use the numbers to just create a snapshot in our head of the profile and then look at people who are leading us in terms of perspectives to have a few different models in our head that we can apply to make our decisions. You know, going forward, there are a few thought leaders in this area, right, and some new cons that have decided that there was, there is going to be a war within the US and. Island, for example. And no matter what you want to argue with them, they will not look at the numbers to, you know, come to terms with what you're actually facing. And others useful but we still need to add our own perspective into what we look at, you know. So there are people that I look to to give me different perspectives, and some book writers are good at this better than others.

Ryan Miller  

Brilliant. So as we wrap things up, is there anything else you'd like our fans around the world to know? Ways to reach out to you, ways to contact you? Anything at all?

Emmanuel Daniel  

I'm really happy to have this conversation with you, Ryan, and I think that I'd be very happy to get into a conversation with fund managers, venture capitalists who are looking to make decisions you know, on players from around the world, and we need to make get a perspective on how to evaluate them, right? So to be able to reach me, the best way is my my own blog, emmanueldaniel.com, where I actually put everything in there, you know, my perspectives, my my books, my travel, and my thoughts as they occur, and then from there to find me and to be able to build on this conversation that we've just had.

Ryan Miller  

Brilliant. So just to summarize everything that Emmanuel I have talked about, look under the hood every time, do your independent research and follow the trend lines, not the headlines. And the other thing that he mentioned is leading indicators can help predict the story, but it's the triggers are where it all begins. So just I would say some of those triggered areas are, check out, politics, tech, advances, changes in the workforce, climate, etc, all are a great place to hold your attention. If you want to predict when the change of the economics will win, you do these things, and you too will be well on your way in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better, and make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.