Transcription
Don't lose hope on the gold and silver sector just yet. Both the metals and the miners, that's the message of my guest today. Clive Thompson, as he reveals the catalysts he's watching that he believes will send both metals much higher up ahead. He also breaks down his top four picks in the gold and silver mining space, why he thinks they'll perform up ahead, and you're going to want to stick around to the end of the interview where Clive reveals the areas of the market he's watching outside the precious metals space that he thinks will provide the most value as we move [music] forward through this uncertain geopolitical and market environment. All of that up ahead, and guys, the first Commodity Culture Bootcamp is coming up June 27th at 1:00 p.m. Eastern Time. I'm opening up my portfolio, revealing everything I own, why I own it. The link is in the description below. Join.jesseday.ca. And now, let's dive into it. Clive Thompson, it is great to have you back on Commodity Culture. Let's kick things off with the precious metals market, starting with silver. Now, the metal has largely chopped sideways since it dropped after the Iran war began, and along with gold has been rising on prospects of peace and falling when it looked like the war was back on. Now, it looks like peace may actually be on the table. I'm quite skeptical here, but the memorandum of understanding has been signed by President Trump. It looks like peace will prevail. A lot of people talking about how this MOU heavily favors Iran, but nonetheless, um I want to talk about the impact potentially on silver because although peace seems to be in reach, silver fell once again. Starting to slowly recover here now around $68 an ounce. What do you make of this recent price action, and what are your overall thoughts on the silver market as we sit here today?
>> Um, first of all, silver is a byproduct. It's used both for industrial purposes and as a precious metal for savings purposes. So, a bit like gold, it's very sensitive to interest rates. And we've observed over the recent months and over a long period, really, both gold and silver react to changes in interest rate expectations. Um, and we've seen, uh, that it's been swinging both ways. But when we, when they've been talking about, um, peace, that basically means that the oil price should come down, which means that inflation could come down, which means they could cut interest rates. That would be your first knee-jerk reaction. So, on every, over the last three or four months, every time it's been mentioned the war is going to end next tomorrow or next week, we've seen the price of silver and the price of gold come down because people say, "Ah, inflation's coming out of the equation. Therefore, they can cut interest rates perhaps once this year." And the silver price would then go up, um, uh, because of the cut interest. But, likewise, when it seems that the war is not over and it turns out that Iran says, "No, we've got no deal." Um, suddenly the, the oil price is going to stay higher, which means inflation stays high, which means they might have to raise interest rates or not cut them, which means that that's a fall in the silver price. So, the latest news, very latest news is Kevin Walsh came on, um, and talked about the interest rates and the, the future interest. The direction of travel is one rise in rates this year. Uh, so towards the end of the year, people are expecting a rise in interest rates. And that's, that's kind of what is holding down silver in the short run. But, in the long run, it's not going to, if we look at it as a precious metal rather than industrial metal, in the long run, it's going to react more to the, uh, real interest rates. So, if we see inflation being persistent, and I think we will, uh, but if we see inflation being persistent at the higher levels that we're at now, which is, uh, only touching on 4%, um, then I think the, even if they raise the interest rates by a quarter percent, we're still effectively at zero real rates. And that's generally, uh, when you're at zero or better still negative real rates, it's generally very good for precious metals as a whole. Um, the other side of the coin is the precious, uh, the use of silver as an industrial metal. Uh, according to the Silver Institute, the demand for silver in 2026 is likely to exceed the supply by a slightly greater amount than in 2025. That silver has to come from somewhere, and generally somewhere means recycling, cuz it's not coming out of the mines. You know, the mines can't change their output very much. So, [snorts] they're expecting recycled silver this year, and to get recycled silver, you generally need a higher price. Um, but don't forget that I say generally because the price at which people recycle their silver is constantly changing up and down as other things change. Uh, so there's, you know, there's a lot of moving parts. For example, whatever the stock market does is going to affect the price of silver and gold. So, let's say we would have a crash in the stock market, in the early phase, that would be bad for silver because people would be selling their silver for margin calls, but in the longer run, it would be very good for silver because people would be looking at owning silver, uh, as an alternative to the stock market, which has now gone out of favor. Uh, so to say I know the answer, um, as to what's going to happen next week, next month, I don't. But what I think is definitely true, the long-term bull market in silver is fully intact. Um, I don't know how many years it takes, but I think we do go higher and consistently higher, uh, from here, but we'll needless to have lots of swings along the way.
>> Some great insights, and you, you brought up Kevin Warsh in the FOMC meeting. Rates remained unchanged. Uh, how do you think the Fed at this point really does affect financial markets, the economy, and precious metals markets as well? Because so many people are paying attention to whether rates are going up or down or remaining neutral. The job owning that comes out of the Fed chair is, is dissected and every word is, is paid attention to and and disseminated on the internet. How much of an effect does this really have? Should your average retail investor out there be watching the Fed and paying attention?
>> It's difficult to say whether the market is following the Fed or whether the Fed is following the market. Um, certainly under Powell's watch, I was very much under the impression that the Fed was following the market. So, whatever the market expected, that's what the Fed actually did. Uh, we've now got a new watch on the shop, Kevin Warsh, and we'll, we'll just have to wait and see whether this continues, i.e., the Fed does what the market is expecting, or whether there's a new strategy of, let's do what we want and surprise the market. Uh, now, if, if it's the latter case, um, we'll get some very violent moves in the stock market and precious metals. Um, I could go in either direction depending on what words they use. My gut feeling is they'll continue with their policy of doing what the market expects because they don't like surprises, and they don't want to upset the apple cart because, don't forget, while markets are broadly speaking trending higher, and gold and silver still are. I mean, if you look at it on a one-year basis, um, nobody, you know, everybody who's got money is getting rich on the back of higher asset prices, and the rich boys are, of course, the friends of the Fed, friends of the of the of the government, and and the Wall Street influencers. I'm talking about the large, um, large banks on Wall Street who are large contributors to the political candidates and things like that. So, you know, it's in everybody's interest that the gravy train of prices going up continues, and I think that's what they'll do. They'll continue to avoid surprising the market in a negative way.
>> I had Michael Oliver on the show around 3 weeks ago, and he said that based on technical indicators he's watching, silver could go to $300 to $500 this year. Of course, this brought on a lot of heckling in the comments, people saying this guy is crazy. It does seem unlikely if one looks at how it's performed since hitting all-time highs in January. Now, Michael's watching momentum-based analysis, a little bit different than regular technical analysis. Um, do you think that's a realistic proposition, that $300 to $500 target? And do you have a forecast for silver by the end of the year?
>> Many, many decades ago, long before we had computers to do this, I spent about 5 years using a huge amount of my spare time, almost all of my spare time, studying technical analysis, and I was trying to prove that technical analysis does work because I had these books about technical analysis where they, they show various chart patterns and this chart pattern means this and that chart pattern means that. So, I bought from CompuServe or here in America, stacks and stacks of floppy disks with all kinds of data which I then started with pen and paper, really, trying to figure out if this technical analysis would work. After 5 years, the conclusion I gave up because the conclusion I reached was it works about 1/3 of the time, 33% of the time. And 33% of the time it seems to do the opposite of what the technical analysis says it should do. And the other 1/3 of the time it does neither one nor the other. You end up where you started. Um, so I was a bit skeptical about the people who draw charts and lines to try and prove where the future is. Um, it's not to say that they, they're going to be wrong. They're going to be right some of the time, but I think you can't look at it in isolation. You have to look at it with other factors and then use the technical analysis to prove that your, or or help reinforce your idea. Um, so do I think Michael Oliver's prediction of $300 or $500 silver will come true? It's, it's, it's not a probable, um, event. I haven't run a Monte Carlo simulation on the silver price, but I doubt very much that it would produce that kind of number. Um, it might do at the sort of 5% 95% percentile, meaning there's a 5% chance it could get there, but it's not going to give me that result, um, as a 25 or 30% probability. So, um, I wouldn't, if I was a trader, I wouldn't be buying long-dated out-of-the-money calls at that sort of level. Um, if I was going to go for, um, silver higher, the way to play it, I think, is just to keep stacking and not do it all in one day. Buy a little every week, every month, every 2 months, depending on what you can afford. And you'll get, along the way, you'll get an average price. Some of those prices will be higher than today. Some of those prices might be lower than today. You don't know which way it'll go, but at least you've got a nice average. And I think most of those, if you, if you start now and keep going, probably most of your purchases will be below $100. Um, and if it goes above $100 this year, you're going to be a very happy bunny.
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>> Yeah, those are some great thoughts. I, I, I tend to agree. Um, although Michael has been dead on on a few calls on the show before. He called silver going past up past $80. Everybody thought he was crazy when he talked about that. So, who knows?
>> No, you look, he's not, he's not crazy. I'm not, I'm not saying he's crazy or anything like that. Um, what, what he's describing as a price possibility is absolutely within range. It's just not, not a very high probability. Um, you know, the, uh, one of the best tools I use for finding future prices is what's called the Monte Carlo simulation. The way that works is you take, uh, every price movement over a particular period, last 5 years, last 10 years, last 20 years, last 30 years. Uh, every up, every down, every percentage. You jumble it up. And then you throw it at the current price thousands and thousands of times to produce a potential range of chart prices. It will produce you a, a sort of starting at the current rate of produce a sort of fat curve and then it goes out into the distance. Um, but it's good to cluster around what's been the long-term average over the period. So, if we go back 10 years, for example, we've probably gone from, I haven't got the figure here, but let's say $20 to $60, for example. So, over the next 10 years, it might triple again and go to $180, but I don't see that happening this year.
>> Very interesting thoughts. Now, I want to pivot to gold. Similar price action to silver, but of course, less volatility in both directions. What are the main catalysts you currently see driving gold? And although we're down a decent amount since gold also hit all-time highs in January, do you still think the long-term trajectory is higher prices over the long run for the gold market?
>> I think it's almost inevitable that gold will continue to push higher over the coming years. And of course, it could happen very quickly. There's quite a few things which are in favor of gold, and all the ducks seem to be in a row. The one which perhaps we would worry about in the short term is the direction of interest rates, but that's a short-term problem. First of all, we, we have a situation for government debt where across the world, but I'm going to talk mainly the United States, we've reached a point which is somewhere between we can just about manage it and there's absolutely no hope for the government debt. We're going to go into a debt spiral where interest rates spiral out of control, interest rates and yields spiral out of control as debt, as the price of debt goes down. Um, now, what happens there depends on confidence. So, at the moment, we have a lot of confidence in favor of US Treasuries and government bonds around the world. But, but as the level of debt continues to increase relative to the economy, relative GDP, relative to the tax take, cuz it's incre-, the debt, the government debt is increasing faster than they, their increase in tax takes is increasing faster than the economy's expanding. As that happens, the level of confidence amongst investors in that government debt becomes more precarious, and it can slip very easily from confidence, I trust the government, I'm going to get my money back, and I'm going to get money back which I can spend at a reasonable value, including the interest, compared with what I put in, to one of, you know, what, what I get back won't be worth much. So, that, that can slip very, very easily from one side to the other. Now, if that were to happen, uh, then of course, it's game over, and they have to restart the currency with the new currency, and then that means, um, when I say restart the currency, it does not mean default. It basically means the currency you own, you'll find it much harder, if not impossible, to use it, because you're now forced to use something else, like the CBDC, like a stable coin, like a new dollar, whatever it happens to be. And it's, it's not going to be easy to convert your old to the new unless you qualify in some way. And of course, if you're just the man in the street, uh, who's got his salary coming, and you got a few thousand dollars in the bank, there's going to be no problem, you'll, you'll see all your old converted to the new. But, if you're a wealth accumulator, and you have a lot of wealth in fiat assets, you're going to find it much harder to be able to convert those fiat assets into whatever the new currency will be, uh, whether it be a CBDC or a, a stable coin or a new dollar or some sort of capital controls which control the manner in which you can spend your money. So, that's why I think, you know, from that perspective, gold is a very good investment cuz whatever is going to happen, it will get you to the other side. It's still going to be there. If you start with 20 gold coins, you'll still have 20 gold coins on the other side. And if it's a new currency, the price won't have any relationship to the old one that, you know, it can't make any, you can't, I can't say the price will be higher or lower because we don't know what the new currency is going to be worth or how much of it would exist and to what extent people are allowed to convert the old to the new. So, that's the first thing. Now, I think central banks around the world can see what's coming. They don't say it's a certainty. I'm not, I'm, what I'm saying is this is not a certainty it's going to happen. It's just a scenario. Um, another scenario, one which the government would very much like, um, is to continue what they're doing at the moment, which is continuing to borrow to repay the maturing debt, to continue to borrow to pay the interest, and to continue to borrow to finance the spending which exceeds the collection of taxes. That's what they'd like, and they hope that there's no major consequences. They hope that it doesn't feed through to the retail, the consumer price index. Um, in other words, the consumers aren't saying, "Hey, that's not fair. My, the prices of what I'm buying, my pizzas and my sausages and my, uh, eggs are all going up faster than my salary's going up. That's not fair." That would be trouble if that happened. What they're hoping is that they can continue to print money. That money then goes through the system, greasing the wheels of the economy, finds it its way into the hands of the wealth accumulators, business owners, who then take that money and invest it in the stock market or in gold or whatever else, and the price of everything goes up and everybody's a happy bunny cuz there's no losers. That's what they want, but there's no guarantee that's going to happen because out there there are armies of central banks and others who hold these government treasury bonds who at some point risk crying wolf and and saying, oh, crying, the emperor's got no clothes, and they say, "I'm out of here. You know, I'm going to switch into gold." And now we are seeing that because we've got this year, um, just announced by the, uh, I think it was the IMF said it recently, was it the European >> ECB >> ECB, yes, the amount of gold, um, held by central banks is now at record levels, and for the first time ever, it has passed the amount of treasuries. So, I think we got to 25% gold and 22% treasuries is the figure I seem to remember. So, central banks are clearly showing, uh, an inclination to have more gold and let, and not as much treasuries in their portfolios. Now, it doesn't mean to say they're turning into wholesale sellers of treasuries. It doesn't mean to say they're trying to destroy the dollar. They're just diversifying because, especially the non-aligned countries, they're, they're saying, well, what if we for some reason were sanctioned? You know, what if Mr. Trump doesn't like the fact we're exporting too much to the United States and he tries to restrict our dollar dealings? So, perhaps we should have other things as well. So, countries are diversifying so they don't have all their eggs in one basket, and especially not a basket totally beholden to the United States. Um, but it's, it's broadly speaking the countries which are less aligned with the US point of view which are doing that. Um, so that then, of course, we've got, as I said, we've got this ongoing increase in debt. Uh, and we're also seeing an increase in money supply. Money supply is increasing by about 4.8%. That is increasing by about 7 to 8% a year. Um, those figures look like they're going to increase, uh, and that's the real inflation rate. It's the real inflate, you know, as the government borrows money, that's a promise to issue or print money down the line. So, if they increase the debt by 8% a year, and that number has to go up, it can't, it can't unless they change something dramatic. So, that 8% is going to turn into 9% next, uh, few years, and 10%. So, that's the increase of the wealth on the planet, cuz all this debt is a promise to print the money down the line. And where does that money go? It doesn't go into buying more eggs or sausages or pizzas. It goes into tangible assets. Not immediately, it goes up and down with other things, but at the end of the day, it's going to go into tangible assets, whether that be land or, uh, collectibles or gold and silver or equities or anything else which people desire at that particular moment and which are in limited supply. Uh, so, that money will go into those things, uh, ultimately pushing up the price, uh, for as, as far as the eye can see, but it's not like everything will be going up together. You know, these things, you have your bad days for equities, and you have it, and I think we probably will have bad days for equities, by the way, but when, when you have a bad day for one thing, it's generally good for something else.
>> I want to get into the broad market a little bit later, but first, let's talk about gold and silver miners. This is something we really didn't get into last time I had you on the show. I want to get an update because we've seen the miners take a hit, and it seems to be the same old story that's been playing out for the last few years. Gold and silver miners barely outperforming the metals themselves, and more recently, as they're reporting record earnings in the case of the big gold producers, the disconnect is getting frustrating for a lot of investors. Do you see this trend eventually reversing at some point, and in miners providing that levered play on the gold and silver price that people have been expecting?
>> For the time being, and I'm talking about the June results, which will be announced in July and August, those results should show significant increases in the revenue for the my precious metal miners and significant increases in the earnings per share. Of course, I'm talking about the class of miners which are already making profits. So, those which were making profits last year will be making even bigger profits this year. Those which were making losses, you can't tell. They can, you know, it's, there's nothing to, you can't tell if they're going to get to the point where they're making a profit. I mean, you can, but it's, it's more work. But a nice easy thing to know is that companies which were digging up gold, selling it last year, and are still doing it this year will probably have more revenue, even if they dug up a little bit less gold, and they'll probably have more earnings per share. Um, I read, I went through a, a small selection of companies. Um, I was looking at the silver miners the other day, and almost across the board, the forecast, this is the analyst forecast earnings per share, were for much higher earnings per share to be announced in June compared with 1 year ago in June because the precious metals prices were much lower a year ago. In many cases, when the price, when the results were announced, it would have paid off to buy some days before the announcement and to sell some days after the announcement. Uh, and I say many cases, more, a lot more cases than where it went in the other direction. Now, obviously, in all, almost every single case, that those prices since the last results were announced, which would have been in, um, May mostly, April, uh, April, May, since those results were announced, the silver and gold prices have dropped a lot, and those prices, the share prices are much lower than they were after the results were announced. But, if we, if we bought them just before the results, a few days before, and bought them a few, sold them a few days afterwards, there would have been money to be made, albeit that it was at a time when gold and silver were relatively strong as well in that period. Um, so, what I'm expecting when we come to the next round of results, which will be announced in July and August, these will be the results for June. Assuming that the precious metals prices are not falling, well, irrespective whether they're falling, we're going to see very good results. We're going to see very, very good results announced, and assuming the precious metals are at least trending sideways or upwards, um, I would hope, and obviously got to say hope because I can't say it's an investment recommendation, uh, I would hope that the prices are going to react positively to those higher earnings per share announcements.
>> Well, I would like to talk about that, uh, video you posted on your channel called Silver Miners Calendar Investing, these are the top four candidates ahead of the next results, where you shared your approach to analyzing stocks in the space. Can you unpack that for us and let us know which stocks ended up as those top four candidates?
>> I looked at about 36 companies to start with, um, but I had to eliminate all the companies which were not making profits. I had negative price earnings ratios, and I also decided to eliminate all the companies with very high price earnings ratios because they would be much riskier. So, I was looking at a less risky class of shares, a less volatile collection of shares, and out of that collection, across the board, almost every single one produced higher profits as, as per, as per the expectation at the time, and almost every one of them went up in price around the time of the results. Um, the ones which produced the highest increase in earnings per share are broadly speaking the ones which are also expected to produce the highest increase in earnings per share this coming when they announce their June results. Um, and the four companies, I'm going to name them, but this is not investment advice, it's just an observation of what did happen. The four which had the largest increase in earnings per share and also very good increases in the share prices around the results time were Gold GoGold Resources, symbol GGD, McEwen Mining, symbol MUX, SSR Mining, symbol SSRM, and Pan American Silver, PAAS. That was a short list of four from the already shortened list out of the 36 that I had already started with. So, those companies are expected to have large increases in earnings per share as per the analysts' recommendation or forecasts. Uh, they're not my forecasts, but, uh, obviously it makes sense, uh, for the reasons I described, i.e., higher silver price. So, those are four silver companies. Um, so the time to buy them is shortly before the results if you believe that's, uh, if you believe that the prices going to rise. And I can give you the dates of the results. Um, they're mostly clustered, all, all four of those companies are clustered between the 5th of August and the 12th of August. So, if you're thinking of, uh, investing, you might want to look at the days before that, uh, that period. And then of course, I, I don't, I'm not the sort of person to say you should be selling immediately afterwards. It's more a question of, um, uh, well, for me, you, that would be speculation, cuz we don't know what's going to happen. But for the long term, I do think silver miners, uh, represent rather good value. The price earnings ratios are currently quite low. Uh, for example, two of those companies have price earnings ratio at the moment below 10. Now, 10 is a low price earnings ratio. The US stock market as a whole is more like 20 something. It's over 20 if you look at the US market. Um, and these will be companies with much lower price earnings ratio and very high growth prospects. So, usually when you, when you have a high earnings per share growth, uh, but in terms of expectations going forwards, you normally have a higher price earnings ratio than 10. You'd normally have a price earnings ratio up in the 20s or 30s. But, of course, people don't price gold and silver mining companies quite like that because, don't forget, as you dig up the silver, as you dig up the gold, there's less to dig up in the future. It's not like a, a Netflix where you can use, as you can watch the movie as many times as you want. There's still, you can still an unlimited number of times you can watch it. So, they, they do justify mining companies are justified in having a low, lower price earnings ratio than the main market. But I do think that anything, these sort of levels that I'm seeing below 10 look very cheap. And we've got to hope for some sort of reversion to the mean. Um, I haven't sold any of my mining companies which I've owned for some of them for many years, and some of them for more than a year now. I don't, I haven't got many that I've bought in the last 12 months. I mean, occasionally I do when I, when I add one or two, but, uh, I've got no immediate plans to sell any of them cuz I think the prospects for the silver price and the gold price are very good going forwards.
>> I completely agree with you there. Let's talk about the broad market and the mania that appears to be the SpaceX IPO. This is a company that reported over a $4 billion net loss last quarter. Um, and yet it seems like everyone from institutions to Joe Sixpack were piling in. We saw it soar after debuting. We've now seen somewhat of a correction, but I'd love to get your take. Is this peak bubble territory and a sign of the top, or are there real growth prospects behind SpaceX, and maybe I'm missing something?
>> Well, you know, there's two ways of looking at this. You know, there's the Ben Graham way of looking at it, which basically says you buy things when they're worth, when the price is less than they're really worth. And there's the supply and demand way of looking at it when you say, "If the demand exceeds the supply, you're onto a good thing." Now, the float for SpaceX is very small. And the number of fans of Elon Musk and SpaceX and Tesla is very large. Uh, so, we have a lot more people who would like to own SpaceX shares at the moment than there are shares out there. Now, that might change over time, but you only have to look at Tesla to see that we've been in that situation for many, many years where Tesla as a, as a car company has not been producing fantastic profits, yet people still price it as if it was going to produce fantastic profits down the line, and it might do one of these days. Um, but, you know, if you compare say a Volkswagen, which is on a price-to-earnings ratio of six times, for example, seven times maybe, I don't know, something like that, and Tesla, which I don't even know what the price-to-earnings ratio is, but I know it's got to be very, very high, what, what it demonstrates is that if you have enough fanboys out there, the price can stay, um, at a level which is more than it's worth for very long periods. Uh, so, when you're investing in the stock market, you have to try and reconcile the difference between, is there going to be a reversion to fair value? Or are the number of fanboys, the number of people who like this stock, going to increase because there's a good story around it? So, of course, there's a great story about it, you know, SpaceX, you know, it's going to save mankind, we're going to have the greatest air on the planet, we're all going to go and live on Mars, and it's going to be the greatest internet thing in the planet cuz it's, it's beaming internet at us, and of course, it'll solve the world's electricity problem when it collects electricity from the sun and beams it back to somewhere on earth. Who knows what it can do? You know, there's a great, there's lots of possibilities out there. I'm, I'm imagining some things which might never happen. Um, so, you can make up your story and pray for it, but I tend to discount, personally I tend to discount future hope a lot, and rather go with what we do know. So, I, I rather prefer the companies which are selling a product today which is making a profit today rather than one which will make a profit tomorrow because you don't know what's going to happen. Um, and I personally don't think that the, uh, what the AI, XAI, and X are going to be around 5 or 10 years from now. Uh, at the moment, you've got Starlink making a profit and subsidizing those industries, but for how long? I mean, the best thing that SpaceX could do would be to eject those companies as a free distribution to shareholders, and then of course SpaceX will look a lot more attractive.
>> Great thoughts, and and I'm also a Ben Graham guy. That's how I look at things. Um, how do you see markets here playing out in the aftermath of the war in Iran, assuming it really is getting wrapped up? You know, Trump places so much emphasis on the stock market being kind of a barometer of his success as a president and of the economic health of the United States. I think that potentially influenced his decision to sign this MOU and try to wrap things up here. Um, he seems to believe that doing this is going to send oil prices way down and markets way up. I have a sneaking suspicion that perhaps the opposite is actually going to happen in the aftermath of this because in my opinion, the rise in oil prices kind of was emphasized an underlying structural weakness in in the supply demand fundamentals, and I think that oil is, is actually, um, we, we have much less supply than people realize and the demand is also much higher than a lot of these agencies like the IEA, etc., are projecting. But I'm wondering what your thoughts here. Perhaps you could talk about both the energy market and the broad market. How, how do you see things playing out now that that this war is hopefully done?
>> Well, in a way, I, I kind of see we've got multiple markets here. You know, we've got the, um, new world of digital where the, the ought to be no input cost, um, but of course in the AI world, there's a lot of input cost. Um, we, but we've got the world of digital where ultimately the theory is you can deliver unlimited amounts at no cost. I mean, I'm talking about Netflix type approach. Um, and then we've got the real producing side of the world where they're producing all kinds of goods, and they, they will also be a natural beneficiary of artificial intelligence. Perhaps not quite as much as the world is hoping. Um, one of the big problems we've got in the world is there just are too many problems for the AI engineers to solve. You know, if you take a big company with a thousand people or that's not a big company, a small company with a thousand people, um, there's a thousand people who will have their own problem which can be solved by AI, and there's one IT department of 10 or 20 people, and those 10 or 20 people, even if they're very fast at solving AI problems, I producing ways for answer people's emails or look at documents or produce spreadsheets, to do it for a thousand people, it's going to take them many years to do it. So, it'll be a slower rollout, but of course, companies are on this mission now to upgrade their staff to only have staff who are going to be proficient or more proficient because they can use AI. And we've seen already a few accidents in that respect. You may recall a few weeks ago, there was a, a story about a company. I don't think it's even been named which company it was now, but they basically said, we want all our staff to become AI proficient, and we're going to monitor your usage to make sure to see who's actually using it. And then of course, everybody and their brother had the bright idea to run an agent 24 hours a day, 7 days a week, asking what the weather was or solving crossword puzzles, which ran up some mammoth bill for the company in question because the minute you start to monitor things, you know, people start to cheat the system. I mean, it's like when we had the COVID pandemic, everyone was working at home. So, what were the, the bosses were saying, I wonder if these people are really working at home. IT department find out, so the, my IT department started to monitor whether people's mice were moving around. So, what was the biggest selling object on Amazon? Mice jigglers. You got, you got people buying mice jigglers to constantly move their mice around like they were hard at work. So, you know, we're in a world where bosses are saying, we want you to become AI proficient, and there's an army of people looking up recipes because they're using it. No, I am, I'm, "Hey boss, I'm using it." But obviously, we will go, we will get to a point where people use it more professionally. But let's come back to the investment side of these AI companies. We've seen a lot of what's called other income. Other income is where the price of what you own has risen in price, and you're reporting that increase as other income. So, all these companies have been investing in each other in different ways. I, I won't take any specific example, but they're all, it's all going round in circles. It's very incestuous. One company buys another one's shares, another one lends some money to another one, another one says, you can use our micro, you can use our chips if you promise to pay for them in the future. So, there's a whole bunch of things. That's called vendor financing. So, if I, if I sell you the use of my services, but I don't give you the cash, I say, "I'm investing in you, but I'll only invest you, you to the extent that you spend the money on our servers." So, I'll pay you, but you pay me back the same day, more or less. The money's just going round in a circle. But, what that's doing is creating sales, thanks to the vendor financing, and it's creating other income due to the rise in prices of what you've invested in, which makes the numbers that we're looking at when we look at the earnings per share growth of these companies a little bit, um, I wouldn't say suspect, but got to be looked at. You can't just look at the earnings per share. You've got to take a deeper look at things like cash flow and so on. So, the danger we've got is many of these companies are swapping current income for future risk. The problem with this future risk is that it might come to pass because, as we stand, the amount that you and I and everybody's paying for our subscription to OpenAI, to Chat Claude, or anything else, is not covering the electricity costs. We have electricity costs exceeding what we're paying for. And the reason they've got that model, it's a bit like the Uber model. Let's get everybody hooked onto our particular service, uh, and when they're hooked, we can think about some other things like advertising or agents or, uh, we can perhaps put the price up or we can lock them in a better way, or maybe they'll get their company to sign up to us as well. You know, there's a lot of thoughts there that might work. But the trouble is, behind the electricity costs, there's a lot of, um, capital costs, which will have to be depreciated at some time. The capital costs are the training, which is ongoing. And that's not going to go away, the training, even though it's being booked as capital. Then you've got the, uh, data centers, which probably hold their value to some extent, but they definitely need refreshing and renewing, so they're going to depreciate over time. And then you've got the, uh, the chips, the Nvidia chip, Nvidia chips, for example, uh, which are very, very expensive. So, all of that putting into place is something which should be depreciated. Now, if we got, uh, electricity costs of, uh, say 60 billion, the current year costs for capital investment in this, in the sector is eight, uh, according to the SMIC, it's something like 800 billion, next year going to 1 trillion, the year after 1.2 trillion. We're talking more than 10 times as much capital cost as the electricity cost, which is not being paid for. So, whilst they will continue to increase their revenue from users, it's a stretch to see that it's going to get high enough for all of these people, all these companies to recover their capital costs, which will have to be depreciated. I mean, let's face it, if you buy a, uh, Nvidia chip, how long's the life of that chip before you kind of got to refresh it with the latest chip? 1 year, 2 years, 3 years? It won't be very long. Depreciating assets. So, in my opinion, unless they can increase the take from consumers, uh, from the sort of 40, 50, 60 billion they're on at the moment to half a trillion, 10 times, let's say 600 million, 600 billion, 10 times as much. I don't see all the companies recovering their costs. So, some of them are gradually going to go out of business, which means we're going to suffer for those who, those which remain in business. Not only will the end users suffer rationing, they won't be able to use as much as they can at the moment, but they'll also be faced with paying higher prices. So, there'll be few of us, fewer of us using it, and those who are using it will be paying higher prices than they are at the moment. But, what does that mean for the share prices? It means some of the companies will fall by the wayside in terms of that particular project, which means the growth which is being factored into their future earnings per share at the moment won't exist. It'll go away. And if their earnings per share are therefore lower because their AI project is being sold on to somebody else or abandoned or or just not making a profit, you won't have such high earnings per share being forecast, and therefore the multiple, the P ratio will come down. So, I think there's a real chance that we'll see that sector of the market at some point coming off. But, at the moment, you know, you've got the enthusiasm, enthusiasm, enthusiasm massively there. It doesn't look like it's going away at the moment. But, you know, that can turn on a sixpence when you have the first bit of bad news.
>> And energy markets, any thoughts on on where you think those are headed?
>> There's a lot of oil on the planet at the end of the day. We, we've constantly seen over the decades the announcements by the Saudis, for example, that they're increasing or reducing oil production. And they do that to suit themselves. And of course, we've got more oil production coming out of the United States than ever before. So, it's not, it's not like the world is running out of oil. It's rather the amount of oil which is running out which is running out of the out of the out of the holes in the ground is being controlled by those who have control of it. So, they will, they, they are the ones who are going to determine the price. It's not, it's not because the demand increases that the price is going to go up because if the demand increases, they'll decide, they'll make the decision whether they pump more and get the same price for more barrels or whether they pump less and get a higher price for less barrels. That, that's the, they're going to make the choice, not, not you and I and and anybody who says they're an oil analyst unless they've got the inside track on the way the oil companies are.
thinking and what they're planning to do. And of course, don't forget there's many oil companies and there's many countries. It's very hard to know which way the wind will blow. And then of course, there's going to be the political aspect. You know, all you need is a phone call from uh President Trump to the head of Saudi Arabia saying, "Do me a favor and I'll do you a favor." And you can imagine the numbers start to change.
>> Well, given everything we've discussed today, which areas of the market do you think are presenting the greatest opportunity at present and maybe we'll put gold and silver miners aside as we've already discussed that. Anywhere else you're seeing potential value and are there any areas of the market which you'd be avoiding right now?
>> Uh the the small cap area and the medium cap area are on quite reasonable price earnings ratios and they will be net beneficiaries of automation, AI, and so forth in the future. Uh so, I'd definitely focus on smaller companies. I'd definitely focus on uh Asian companies where the price the price earnings multiples are very low and the growth is high. And I would also um look at companies with large numbers of employees, the ones ones which got hundreds of thousands of employees. Those are the companies which can benefit from more automation in different parts. You know, there's a difference between you have a company of a thousand people and your IT department solves a problem for ten of them and a company which has got a hundred thousand where you're solving the problem for hundreds or thousands of people at a time. They Those are the companies which will be able to over time see their costs come down due to whether they decide to get rid of some staff or whether they let the staff retire without replacing them with new new ones. I don't know. But over time, their staff costs, which is typically one of the biggest components of company costs, are going to come down. So, I'd focus on companies with large numbers of employees, broadly speaking. And of course, you're going to be looking at company which has got growth as well. Companies which are in the small cap sector, mid cap sector, and Asian companies. I think all of those areas are reasonably priced. And I'm quite sure that Ben Graham would have been far more interested in those types of companies than buying the S&P 500, which is very heavily dominated today by those very large mega cap companies. Having just to say one caveat on that, Warren Buffett has declared that in his will he would like his heirs to own most of the assets in the S&P 500. But I wonder if he'd still say that today given how high how dominated the company is by those mega cap companies which are overpriced. I don't know if he'd say that today, but that's what he did did write some years ago.
>> Clive, tell us about your wonderful children's books on finance and investing and anywhere else people can follow you online who want to hear more from you.
>> Well, first of all, people can go to my website clivethompson.com and there they will find a nice what's called a gold price predictor. They just have to put in a few parameters and it will predict the future price of gold so they can put in whether they expect a stock market crash or recession or interest rate changes and it will spit out a gold price for you in the future. And you can choose how many years in the future you want to look. Uh, some people might like uh, to tweak it to get the highest gold or it doesn't have the silver price, the highest gold price. Uh, there's also a portfolio um, simulator where you can put in any collection of assets and see what that would have produced from any starting date. Uh, what you will discover is that if you had gold in the portfolio, any amount of gold, it would have improved your returns over any period. It would have improved your sharp ratio, which is the way portfolio managers measure the return you're getting for the risk you take. The higher sharp ratio is the better. Or it would have reduced your drawdowns. The uh, the amount of gold you should have had in your portfolio does vary by the starting date. Uh, there are dates when it would have made sense to have a 40% gold and 60% equities and there are dates when it would have made sense to have just 10% gold, 30% bonds and 60% equities. So, depe- depending on your starting date, um, you can choose the amount of gold but the point is gold in the portfolio at over any period of time worked. And if you had to choose a random date, the amount of gold to put in your portfolio is actually 30% mathematically. That was the optimal amount if you took all the dates as starting dates. Um, all the little Trot books I was going to make a video some months ago, about a year ago, six months ago, about the global financial crisis. I thought let's make it for kids and I started drawing pictures and then the pictures turned into a book. So, the first book actually is uh, a story called Little Trot learns to save money but it it does turn into the Toytan financial crisis. Little Trot deposits his money in the bank. Um then the bank, unfortunately for Little Trot, lends his money to the goblins. And we'll see if he gets his money back, but it does have a happy ending. But uh on the subject of what we're talking about today, your viewers might like the book number four, which is Little Trot and the Great Gold Rush, where Little Trot um there's a discovery of gold in them there mountains, but he starts to learn about what gold is and the history of gold, and he gets excited by the idea of going off to the mountains to go and find out his his if he can find some gold. So, there's more lessons he's having here uh about the gold, and eventually he's up in the mountains, uh but he has lots of adventures um which don't always work out the way he wanted. But, happy ending at the end, and he becomes uh he buys a little bit of gold at the end, so even children who they start to it's all these books are about the vocabulary. So, it's not saying you should invest in gold or stocks or uh rent an apartment or buy an apartment or anything like that. It's all about the words which are used, such as store of value, such as inflation, such as saving, such as compound interest. So, children will, as they come out of school, if they've read these books, already have some knowledge of the meaning of these words, which I personally did not when I left school at 18. I wish I had. But, you know, kids come out of school at 18, and they don't know the difference between a loan and a lease. They they can't figure out the difference between getting a mortgage to buy a house or renting a house. They don't know whether they should take out insurance on their mobile phone and pay for it in monthly installments. And what happens if they break it? What's this thing called a deductible? All these words are mysteries. The sooner you learn them, the better because kids are just not taught money in school. And these books are like starting with just the vocabulary, later on, because they know the vocabulary, they'll go faster than other kids when it comes to saving and investing.
>> Great. And those can be found on Amazon. Is that the best place to purchase them?
>> Yeah, you can buy them on Amazon. Bookshops can get them, too. Uh but probably the fastest place and cheapest place is at Amazon.
>> Great. Well, I'm going to put that link in the description below as well as the link to your website. Clive, as always, thank you so much for coming on the show.
>> Jesse, it's been a real pleasure coming on your show and I hope that things continue well. Thumbs up to all your viewers.
>> Thank you for joining us today. The first Commodity Culture Boot Camp Live is coming up June 27th at 1:00 p.m. Eastern Time. I'm opening my portfolio, revealing everything I own A to Z, what I've been buying, what I've been selling, and my own investment philosophy shaped by years of speaking with some of the top minds in the commodity space. We'll also be doing a Q&A session. I hope you'll join me there June 27th at 1:00 p.m. Eastern Time. Go to join.jessieday.ca or click the link in the description below. And I'll see you guys in the next episode. Commodity Culture is a series on commodities and natural resources. If you would like to see more, be sure to subscribe and hit the bell notification so you're always up to date with the latest episodes.