Transcription
Japan's in their fourth lost decade. It's really a depression. It's a long depression. Velocity has been declining [music] for 26 years. It was around 10 or 11 in around 2000. Today, it's down to you know, barely over one.
What happens when the energy demands are so great that it can't keep up with the growth of the system. The answer is the system collapses. [music]
In fractal mathematics, there's something called scale invariance. No commodity [music] goes to the moon without a 50% drawdown along the way.
A lot of Trump supporters would be glad to see the US get out of this war. Here's the problem. Iran won't let them.
>> Okay, ladies and gentlemen. So, today we have Jim Rickards on our show for the first time, who is an economist, former Pentagon advisor, New York Times best-selling author, and an editor of Strategic Intelligence newsletter. And today we will cover a whole range of different topics. We will look at the stock market, whether the stock market will correct, or could we have a certain crash, or could the stock market continuously go higher. We will look at precious metals in great, great detail, AI, portfolio structure in the current environment, and many other very interesting topics. So, Jim, thank you so much for being here.
>> Thank you, Vasili. Great to Great to be with you.
>> It's a pleasure to have you on the show, Jim. So, if we could start with the big topic. So, of course, the stock markets. And some people believe that, well, the stock markets are overvalued. They need to The valuations need to correct. But then, some people believe, Jim, that because the Fed always have have their back, they will print the currency, and everything will be good, and happiness and joy ahead. And I know, Jim, that you look at things from a complexity theory, and you pay particular attention to velocity of money, velocity, is pretty much how often money changes hands. So, if we could talk about that, but but um keep in mind the stock market.
>> Sure, I'd be glad to. Let's uh Let's start with the stock market. That's the big picture. That's where uh for better or worse, most people have most of their assets. Actually, everyday Americans, at least maybe people around the world have uh a lot of their assets in in their home, uh their real estate. But in terms of investable assets, uh the stock market's probably uh probably number one. So, um I don't think of stock markets as being right or wrong. I just say they are what they are. Uh you know, it's important to understand them and uh know the history and think about what could what could come next, but uh you don't you don't fight them. You don't get upset about it. You just kind of analyze it. Uh there's very little doubt that the stock market's in a bubble. I think that's crystal clear. And the Federal Reserve, going back to Alan Greenspan, but but others, you know, Bernanke and Yellen, they sort of took the attitude that um well, we're the Fed. We We don't know about We don't know if it's a bubble or not. You know, it's going up a lot. Is that a bubble or is that solid fundamentals? Is that the way things are supposed to go? We can't tell. So, we're going to keep out of it. But if it crashes, we'll come in and clean up the mess, you know, like a janitor crew in a supermarket. Yeah, yeah, yeah. You you uh you clean up the spilled milk. Um that That's what the Fed says. That's what they do. And they're completely wrong as usual cuz the Fed's uh wrong about most things. But there's nothing easier to see than a bubble. You can spot it a mile away. Just look at a chart. And I'm not a I'm not a technical analyst, but I do look at charts and I get you know, there is they do have good informational content. Uh look at the uh the Nikkei Index in 1989. Look at the Nasdaq Index in 1999. Um you know, look at other indices at various times. Um you can you can see the bubble. Actually, look at the US stock market today. Um you can see the bubble. Now, that's the easy part. The hard part is when is it going to break? When is it going to crash? That is very, very difficult. So, when the stock market is going up the way it has been recently, I don't tell people, you know, like, "Hey, why don't you just go buy puts on the S&P 500 index? Why don't you just short the market?" I I don't recommend that because um because it could go up more. I mean, in other words, just because it's in a bubble doesn't mean the bubble won't get bigger. And if you're short, you could lose a lot. I you could lose money. Basically, I say, "You can lose money being right." You can You can be right about the bubble, but you can lose money if you short it and it's still going up. So, what do you do? Well, what you can do when you see this is lighten up your allocation. Just don't Don't be, you know, 80 70 80 90% in stocks. Lighten it up. You don't have to get out of the stock stock market completely, but lighten up to maybe something more like, you know, I'll say 30% or so. Um and then diversify your portfolio. When When I talk about diversification, people roll their eyes. They go, "Oh, Jim, everyone knows diversification. What's What's the big deal?" They actually don't because I I run into people all the time and they say, "Well, I'm highly diversified. I've got 50 stocks in 10 different sectors. I've got telecommunications, semiconductors, minerals and mining, et cetera." I say, "Well, you're not diversified. You may have 50 stocks in 10 sectors, but you have one asset class, which is stocks. When they go down, they're all going to go down together. Not all of them, but almost all of them. So, you're actually not diversified even though your wealth manager is probably telling you you are." Real diversification would be, yes, slice of stocks, gold, I recommend 10%, uh Treasury notes. Interest rates are going to come down a lot when this thing breaks. Uh they may go up a little bit in the short run, but they're going to come down a lot in the intermediate run, so you have large capital gains there. Big slug of cash, maybe 30%. People go, "Oh, you know, cash doesn't have much yield." Well, it has more than it did a couple years ago, but the point is um it it has embedded optionality. When you have cash, in effect, that's a call option at the money call option on every asset class in the world. When things crash, you're the one who can go shopping. Everyone else would be like selling things, fire sale, trying to get some cash or preserve wealth. You'll be the one who can go out and buy the bargains. Um real estate, I I don't recommend commercial real estate at this stage, but uh in companies in real estate, farms, um you know, uh housing, uh yes, uh you know, always good area, good quality, but but that will serve you well. So, gold and and then for the stock market, if you have some stocks, I like um defense, um obviously that's going to go up. Uh health care, just because of demographics, um and natural resources, you know, oil, um you know, uh agricultural companies, you know, Cargill and so forth. Uh so, uh uh so so defense, uh oil, natural resources, and health care are all, you know, minerals and mining, those are all good sectors. I'd uh for just speaking for myself, I'd get the heck out of uh um you know, AI and the uh hyperscalers and and all that. And and just to be clear, AI is not going to go away. It's powerful. I get it. I wrote a book about it, Money GPT. It's here to stay. But that doesn't mean that every single uh hyperscaler, every single um uh semiconductor manufacturer, you know, etc. is going to survive. Uh some of them are just way, way over indebted. It's kind of like the railroads. I mean, we built the transcontinental railroad in 1869. We the railroad boom lasted throughout the entire second half of the uh 19th century, and it was very, very successful, but a lot of railroad bondholders went bankrupt because the the went bankrupt, particularly railroads did. So, the sector can be fine in terms of technology and being around, but the stocks can still go to zero. So, that's really I'm not saying this is the end of AI, but it might very well be the end of some of these big um big AI companies or at least, you know, they don't have to go to zero, but if the valuations go down 30, 50%, that's that's not a lot of fun. So, I I would be definitely out of those sectors even though I think again the technology is going to be around. So, so short answer is stocks are in a bubble, very clear. Don't know when it's going to break, it will, but uh you know, not necessarily tomorrow or or next week. Um when it does, uh if you're in if you've got gold, cash, real estate, treasuries, and you've lightened up on equities and diversified your portfolio, uh you'll do fine. If you're 70, 80, 90% in uh um what they call the you know, the Magnificent Seven or uh some of these companies aren't even public yet, Anthropic uh uh and Open AI are working on their IPOs, but um uh if you're in that, then you you may take a beating.
>> Yes, uh and the reason I mentioned velocity of money, Jim, is because many people believe that if the stock market, if we have this crash, the Fed will come in, they will print tons of money, and you know, that money will go to the wealthy, they own the means of production, and they will have to invest that money, and markets will go much higher. And so, from what I understand, you don't necessarily agree with that.
>> That's right. Now, everything you said is the narrative, and that is what people believe, but it's all wrong. But, let me explain why. I don't like to say things like that without giving an explanation. Uh first of all, right now there's a global dollar shortage. And people go, "Wait a second, the Fed has printed, you know, tens of trillions of dollars. How could there be a dollar shortage?" Well, you have to understand how monetary policy actually works, the what I you the plumbing. So, how does the Fed the Fed does print money, there's no question about that, but what kind of money? And how does the Fed print the money? Well, the way they do it, they have an open market desk at the Federal Reserve Bank of New York. And they deal with certain banks, and only certain one, there's a list. The names on the list are called the primary dealers. But it's not even a license, it's a it's a relationship. But if you're a primary dealer, what it means is that you can act as a dealer to the Fed. When they want to buy or sell securities, they call you. There are only about 20 names on the list, it's not like you know, 200 banks or whatever. Uh I was on the executive committee of one of the primary dealers uh for over a decade. I I talked to the Fed every day um at that time. But what it means is that when they when the open market desk at the Federal Reserve Bank of New York wants to buy or sell securities, they call your firm or one of these other firms. So, what do they do? So, when they want to print money, basically they expand the money supply. When we say money supply, we're talking about M0. I always point out there's M0, M1, M2. The Fed doesn't even know what money is cuz they've got like, you know, vanilla, chocolate, and strawberry, they got three flavors, so they're not even quite sure. But what the Fed prints is is M0, so-called base money. So, how do they do it? They call up Goldman Sachs and Morgan Stanley or Citi, and they say, you know, offer me five-year notes. And the trading desk at Goldman says, okay, here's our offer. If that's is done, uh shoot them in. So, Goldman will deliver the five-year notes to the Fed, and the Fed will pay for them with cash, and the cash does come out of thin air. That is money that the Fed just says, hey, here it is. But what does go my example what does Goldman Sachs do with the money? They give it back to the Fed in the form of excess deposits. Remember, the Fed is a bank at the end of the day. So, when the Fed prints money, they buy securities, so they're increasing the asset side of the balance sheet, but the dealers are giving the money back to the Fed as a bank deposit at the Fed, and so they're increasing the liability side. So, they're expanding the balance sheet, but that money is what we call sterilized. It doesn't actually go anywhere. That money does not get lent, it does not get spent, it doesn't drive the economy. The idea that it's stimulus is nonsense, that's just not true. If If somehow in an alternate world there were a shortage of reserves, maybe, but but the fact that the reserves tell you all you tells you all you need to know. There are trillions of dollars, trillions, of excess reserves on deposit at the Fed. So, does the Fed print M0? Yes, but it goes back to the Fed as excess reserves and doesn't do the economy any good. There's no stimulus, there's no inflation coming from it. It's just it's an accounting exercise. Okay. Where does the money come from that does drive the economy? That does not come from the Fed. It comes from commercial banks, because City Bank or uh you know, JP Morgan and Bank of America can can do the same thing as the Fed. And how do they do it? Well, I go in and say I want to take out a loan. And they say, "Okay, here's a loan agreement, you're approved. Sign the promissory note." I give them the note, and they put the money in my account. Where does that money come from? It also comes out of thin air. In other words, the commercial banks can print money the same as the Fed by just crediting my debiting my bank account. But um but that money uh that's M1, a different kind of money, different flavor, if you will. Now, that money actually can drive the economy, cuz I sign the note, I get the loan, the money's in my account. Now, I can hire people, I can invest in fixed assets, I can do development, I can uh uh you know, do whatever I want with the money. But the point the point being that that money printing counts. So, Fed money printing is irrelevant. Stop. The Fed's The Fed's almost irrelevant as an institution. They They get They have the worst forecasting record. They get everything wrong in terms of modeling and their money doesn't count. So, we Everyone likes to talk about it on CNBC or whatever, but you can almost skip the Fed. Commercial banks, no. Commercial banks, they create the money that actually drives the economy. Now, and the By the way, there's another source of money that does drive the economy. It's not monetary policy, it's fiscal policy. In other words, when the Congress says, "We're going to have a $1 trillion you know, COVID stimulus package or $1 trillion build back better, you know, and you know, Trump did a trillion dollars in his first term." And then Biden and Pelosi did $2 trillion. It's like, "I'll see your trillion and raise you a trillion." Spending deficit spending over and above the baseline deficit. We had a baseline deficit of a trillion. And then Biden and Pelosi put a trillion on top of that in 2021, and then another trillion in 2022. Remember the August 2022 Inflation Reduction Act? All it did was cause It caused inflation. It didn't reduce anything. It was really the green new scam in in the in disguise. But the point is, when the federal when the when the government, the Congress, and the White House do that, and they push a trillion dollars of spending, government spending, into an economy that's already overheating, that can cause inflation. Uh it can be stimulus up to capacity, but once you see capacity, it's just pure inflation. So, the Fed doesn't matter, but deficit spending does, and bank money creation does. So, uh and that bank money creation, as I say, is in M1. So, that's the money to watch, um if you're trying to figure things out. Now, to your point, Vladislav, you talked about velocity. Well, what what is velocity? It's the turnover money. Uh basically, it's um GDP divided by the money supply. Meaning uh how many dollars of GDP do you get for each dollar of money in the system? And again, we're we're talking about M1 or you maybe M2. So, let me give uh not to get too geeky with the math, let me give you a very simple example. So, let's say the bank gives me a dollar. And I go with you know, 100,000 dollars whatever. And I go and I buy gold and I put it in the vault. That money has velocity of zero. It didn't do anything. I I converted it into gold and I sit on it. I don't do anything. Let's say the bank gives you money and I go out and I hire somebody. And I pay the person and then that person goes out to a restaurant and buys dinner. And then on the way home from dinner, um you know, the the waiter takes an Uber to get home. Well, that money has velocity of three cuz you got the uh the the wage, the dinner, and the Uber. And again, on and on and on. Obviously, it's more complicated than that. So, the point is um if I just put the money in gold for I'm not against gold, by the way. I recommend having some gold, but just to be clear, but if I put it in gold or just sit on it, velocity is at or near zero. If I spend it or invest it and then the recipient spends it, invests it, etc., then that can have a multiplier of two or three or four or it can be uh it can be quite high. So, that's that's really what counts. Now, um velocity has been declining for 26 years. It It was around 10 or 11 in around 2000. Today, uh it's down to uh you know, barely over one. It's It's kind of What's about two, actually. Um but the point is um all the money printing in the world doesn't do any good unless it gets unless the turnover is there. And this is what Milton Friedman missed, you know, the quantity theory of money is you know, MV equals PQ where sorry PY rather where M is the money supply, V is the velocity, P is the price index which can be inflation deflation and Y is real GDP. So, real GDP times inflation is nominal GDP. So, that's what the PY is. Money supply times velocity um equals nominal GDP. So, how much money is there? How much is it turning over? That equals nominal GDP. But each side of the equation has two parts. So, Friedman said, well, mature economy mature industrialized economy like the United States can only grow about 3.5% in real terms. That's about right. You mean you can debate it, but that that's about right. The only time it grow more is coming out of a recession when you have unused capacity. So, let's just say 3.5%. Um Friedman said, we want P to be one. If P is one, that means no inflation, no deflation. P equals one equals price stability. In other words, nominal GDP equals real GDP. There's no inflation or deflation. Then he went over to the other side of the equation and he said V is constant. So, we'll treat M like a thermostat. We can dial it up or dial it down. And if we dial it up, we'll get try to get real real GDP to 3.5% and then stop because we don't want to get we don't want inflation or dial it down if the economy is getting too hot. Almost like getting a dashboard and you control things. What's wrong with that theory? Well, the by the way, the equation is true. Irving Fisher, you know, understood it and Anna Schwartz and a few others understood it. Not very many people by the way. What's wrong with the with with Friedman's approach is that uh velocity is not constant. Now, it was from 1950 to 1980 during the main part of Freeman's career, it was pretty flat pretty constant. So, his assumption was not a bad pragmatic working assumption, but it's not true in theory. The truth is velocity can go way up or way down. So, your thermostat idea completely falls down because you're controlling one variable, but you're not controlling the other variable. The problem with velocity is behavioral. It's not about money supply. It's not about so-called printing. It's not about fiscal policy or anything else. It's about psychology. And this is where inflation can run away. You can You can actually hold the money supply constant. Just say, we're not going to print any more money. Make that constant. But if you double or triple velocity, you're going to blow nominal GDP through the roof, and you're going to be into inflation before you know it. So, um So, inflation is a risk. It's a real danger, but it doesn't come from the Fed. It doesn't come from Fed money printing or M0. And it wouldn't even come from fiscal policy unless there was a change in psychology. So, that's what you actually have to look for if you're if you're worried about inflation.
>> That's very interesting, Jim. So, just one more question on the markets. We have seen with Japan and China that well, markets have these periods of lost decades. And of course, not many people believe that we could have something similar in the US at the moment, but do you think that's a possibility?
>> I I would say not only a possibility, it's already happened. So, first of all, I remember that in the late '90s, you know, Ben Bernanke, even before he was Fed chair and then after, just bashing Japan. He said, you have a lost decade. You know, they the Nikkei peaked at like 40,000 in 1989. It was almost like New Year's Eve, 1989 going into 1990. It peaked around 40,000. It crashed to like 7,000. It didn't It's back to 40 now, but that took like 25 years just to get back to where it was 45 years ago. Um so So that was um uh that that was one of those um you know, one of those crashes, but the the point is the '90s were lost decade. So were the 2000s. So were the 2010s. So were the 2020s so far. Japan's in their fourth lost decade. Now, they've had So I don't even think of it as a lost I mean, call it a lost decade or four times four, whatever you like, but it's really a depression. It's a long depression. Now, they've had some growth in some years, and but they've had nine recessions. Uh they've had nine technical recessions in the last 35 years. So Yeah, 35 years. They've had nine technical recessions, but what it really is is just one long depression. And the United States had this from from 1873 to 18 93. Uh and then and then economists economic historians call it the long depression. Now, there were ups and downs. There was some growth and crashes and deflation and bubbles and all that along the way, but basically it was mostly a deflationary period, and we call it the 20-year long depression. But Japan has had a now a 36-year long depression. Now, the United States um started the same thing in 2007 going into 2008. And um my my last book was Money GPT. It's about the impact of artificial intelligence on capital markets. But prior to that in Um, I had a book called the the new Great Depression. And it came out in early 2021, but I wrote most of it in 2020. I was in the middle of the COVID pandemic. And I was talking about the the impact of COVID on the economy. So, I'm not a doctor, but I did read about 100 peer-reviewed papers. I figured out where the virus came from, you know, uh 30 years before the mainstream media obviously came. I've been to Wuhan, actually. It came from the lab in Wuhan. It was a bioweapon. It was funded by Fauci. Uh you know, Anthony Fauci is my view the greatest medical uh you know, perpetrator of crimes against humanity since Joseph Mengele, but you know, we'll we'll let uh we'll let history sort that out. But um But I I and I also talked about this in my first book, Currency Wars, which came out in uh 2011. Uh but I at least raised the question, are we in a depression? Uh and I think the answer is yes. The United States has been in a depression since 2007. Now, that doesn't mean zero growth. People don't understand what a depression is. And what I mean by that is um they think of, you know, GDP goes up, that's growth. GDP goes down, that's a recession. Okay. And that, you know, two consecutive quarters of declining GDP, that's the standard definition of a recession. Uh and they say, "Well, if two quarter two or more quarters of declining GDP is a recession, and depressions are worse than recessions, that must mean 10 declining quarters of GDP." And no, that doesn't mean that. And we wouldn't get 10. Um What it means, and I use John Maynard Keynes' definition, a depression is a sustained period of below-trend growth with neither a tendency to get back to trend nor collapse. Meaning, it's a kind of in-between, middling. There's a little growth here, but it's you're not at potential, but you're not falling off a cliff, either. That's what a depression is, and using that definition, we are in a depression, and just to kind of back that up empirically, from 2009 to 2019, that's 10 years. Average annual real growth in the US economy was 2.2%. Now, if our potential is about 3.5%, which it is, and if long-term trend was, you know, 3.1, 3.2, which it was, and you're growing at 2.2, that is below trend growth. That is depressed growth. It doesn't mean you're shrinking. It doesn't mean you're falling off a cliff, but if this is the trend line for for long-term growth, and this is the actual trend line, that delta, that gap between potential and actual, that's depressed growth. And that is what we've seen, uh and that continues. I mean, the um uh Atlanta Atlanta Federal Reserve Bank, which has a GDP forecaster, which is, you know, pretty good, uh subject to a lot of interpretation, but they just lowered their um second quarter estimate. Uh we won't we won't have the the the number until the end of July, but uh they just lowered their second quarter estimate to about 1.2%. So, again, that is depressed growth. So, I would say Yes, to answer your question, Lars. Uh uh Japan has had four lost decades going on four. The United States is in its uh What would this be? In its second lost decade, and the whole world's kind of in a long a long depression.
>> Yes, and I recently read a book, Jim, and the entropy uh trap, uh and it's very interesting. It very elegantly connects pretty much all the things that we talked about, and as I was reading it, you actually wrote a forward to that book, right?
>> Yes, it's called the the entropy trap by Mickey Fain. Uh excellent book, and I did write the forward to it. Um and uh you know, obviously, you you could read the book. It is a really really interesting book. Now just to describe what he does and why it's relevant to what we're talking about because I you know we've in this you know interview we've talked a lot about you know analytics and theories and trying to get too geeky but threw a few questions out there. But the science behind what I do is comes from a number of areas. One is complexity theory. The other one is fractal mathematics. The other one is Bayes' theorem which is a Bayes' theorem which she used to use this at the CIA. It's I always say if you have all the information a smart high school kid can solve the problem. What do you do when you don't have all the information? How do you solve problems when you don't have all the information? That's where Bayes' theorem comes in because it allows you to basically make a smart guess but then update the guess as new information comes in and which will increase or decrease the probability of being right and then based on how far that goes you can either reject the thesis or or you know put some money put some money down on the table um as your probability goes up. So I and I used to behave psychology and history and a lot of other tools. So what what Mickey's doing in the entropy trap he's focused on the second law of thermody thermodynamics second law of thermodynamics. And before you know viewers like throw up their hands and forget it sounds too scientific. It is not a textbook. It has of course there's science in it but it's very well written. But the second law of thermodynamics is actually pretty simple. It says a complex dynamic system runs on energy. You need energy of some form to run a complex dynamic system. Now as the system grows you need more energy. That sounds a common sense but the key is you need exponentially more energy. Meaning if you double the system you do not double the energy requirement. You you may increase it by a factor of five or 10 depending on some other variables. And then if you double it again, again, you increase the energy component by factor of 10 or more. The point is it takes more and more and more energy to run a system. Well, what happens when you run out of energy? What happens when the energy demands are so great that it can't keep up with the growth of the system. The answer is the system collapses. Now, it could it could slow, you know, kind of tap in the brakes on ice and you know, maybe some more energy comes along. There are other there are various outcomes, but in simplest terms, we're talking about civilization level collapses. When you run out of energy, the system collapses. And energy can take many forms. We think of, you know, oil, natural gas, diesel fuel, sunlight, solar energy, etc. Sure. But money is a form of energy. You know, you we work hard and we make money and we we sit on the money. The but the money's like a battery. It it is the a store value for all the work we did. And then when we spend it, we hire people, we consume stuff, we do stuff. We're releasing the battery and we're getting goods and services. So, you can think of money as an energy battery. Energy, work in other words, goes into getting the money and then it you can hire other people or do things to release the energy. Um so, it this translates very easily into capital markets. And what Mickey's doing, what I do, and you know, we have they're slightly different approaches, but we do is called econophysics. It's basically understanding economics and in my case geopolitics using physics, fractal mathematics, complexity theory, you know, and other branches of of uh science to understand those things. And it works extremely well. You're the predictive analytics that come out of it are amazing. And even better for for our viewers and listeners, Wall Street doesn't do this. They're they're stuck with bell curves and uh mean regression, you know, etc. And that's why their forecasting record is so bad because that's not how the real economy works. When whenever I hear people talk about a fat tail, I'm like if you have to stick a fat tail on the donkey, you know, if you have to stick a fat tail on a bell curve for it to make sense, it's not a bell curve. It's actually a power curve which is a different degree distribution. So So Mickey Zany that does a great job. It is It's scientific yet but it's not a textbook. It's very readable and it does three personal vignettes. One for you for color one on Jesse Livermore, one on Bernard Baruch and one on Joseph P. Kennedy. Yeah, three of the most legendary investors of the 20th century and he makes the point that Jesse Livermore shorted the stock market in 1929 and made a fortune one of the biggest fortunes in American history. But he got back in too early. He He started investing when the market was down about 30%. Well, it went down 80%. So he lost everything he made kind of a sad ending. Baruch got out in time like Jesse Livermore but his mistake was he didn't get back in at the bottom. So the market went up a lot and he he didn't lose money but he missed the opportunity to make more. The guy who got it exactly right was Joseph P. Kennedy. Shorted the market in 29, got back in in 1933 and made another fortune on the way up. So the point is if you can have the toolkit to see markets the way I mean Kennedy did intuitively. I'm not saying at a digital dashboard, he didn't but he had a very good grasp of what we're talking about and Mickey is it you know is very big Mickey's book The Entropy Trap is a very big step in that direction. So I highly recommend it. I again I he invited me to write the forward. Of course I read the book and I was quite impressed and the forward itself is a good summary of everything we're talking about before you get to the rest of the book. So, yeah, it's available on Amazon, but the entropy trap excellent book and and very pertinent to everything we've been discussing today.
>> Yes, 100% Jim, and it's probably my favorite book of 2026 so far. I also highly highly recommend it. I will have the link in the description below for those who are interested. So, Jim, of course, we need to cover precious metals as well. We have seen gold being of course they had a great performance over the past 2 years. Now, they're sort of being stuck in this wide range. I know some people, Jim, they're trying to find some similarities with 2011 where we had this big run and now well, we could have a lost decade for precious metals. Where do you stand here?
>> Yeah, I great question. I I hear the same question from a lot of lot of investors and interested parties. So, let's let's start with the facts. That's always a good place to start. So, gold peaked at the end of January 2026 around $5,355 an ounce. Some people that was that was a closing price on the COMEX. Some people pick a higher intraday price. That's fine. They're different different tickers, but that's about where it was. So, you have call it 5,400 an ounce for a round number if you like. It then went down in just a little over 6 months to $4,000 an ounce. It was a little actually there was a three handle there for a little bit it ticked down to around 3950 or whatever, but about $4,000 an ounce maybe I mean obviously moves around. It could be 4,100 today. Um So, that is a that is well over a 20% decline. That is a full Pardon me, that's a full-scale bear market if you want to use that expression. So, the question is, okay, was the 53-55 that peak? Was that Was that a bubble? Is this the end of gold? Should I get out? Is it going to go down more? Etc. Or uh is where we are kind of finding a floor, a good entry point if you don't have a full gold allocation, or if you want more, is this a good place to get in? Um and the answer is yes, it is a good place to get in. I definitely recommend that. Now, having said that, let me offer a little explanation behind that because I don't want to just, you know, kind of throw that out there. First of all, uh the the fundamentals have not changed. Central banks are still net buyers. Market uncertainty is still huge because of the war in Iran and the war in Ukraine and other factors. Um inflation is still a concern. And there are a couple other drivers, but the mining output is still flat. I'm not saying I'm not saying mining output is declining or it's or peak gold, uh but it's been flat for 7 years. So, when you have flat output and increasing demand from central banks, and that by itself is a recipe for uh for higher prices. So, so and that has not changed. So, so what happened? Well, the one big thing [clears throat] that happened is that uh is the war in Iran. And you know, the the war in Iran started at the end of February, gold peaked around the end of January, but you know, you can kind of kind of see it coming. But here's here's the basic dynamic. So, uh oil prices went from about $60 a barrel to 110 or 120 dollars a barrel, depending on whether you're looking at Brent or WTI. Um wet cargos, like forget the cuz Brent is is a futures contract that settles about 2 months forward. A wet cargo, you know, a tanker full of oil, you want there's there's a market in that. There are you know, the some of the brokers in it. You want a a vessel full of oil, you say I want this oil at my refinery in 10 days. I want to actually buy the cargo. You can do that. That was up to 140 150 dollars a barrel, which was not reflected in the futures price. That was like I said, that's the spot price of physical. So, that's how bad things got. Now, I don't have to recite all the statistics for what comes out of the Persian Gulf. I think most people know them, but 20% of the world's oil supply, 20% of liquid natural gas, higher percentages of things like sulfur, people like what the heck sulfur? Well, what do you use it for? Sulfur is a precursor chemical in just about every important chemical process you can think of. So, you start shutting down major chemical companies. Uh uh nitrates, uh what are they for? Fertilizer. Feeds the world. A billion people could starve if they don't get fertilizer in planting season. Helium, what is that for? You know, party balloons. Well, yeah, but it's also indispensable to semiconductor production. You literally would shut down semiconductor fabs if you don't have helium. So, and more, aluminum and and other uh inputs and refined product, also gasoline. So, what is coming out of the Persian Gulf is basically the lifeblood of the global economy, if you will. Now, um uh but everything I just mentioned, oil, natural gas, refined product, gasoline, etc., it's all priced in dollars. So, when you increase the price to that extent, you know, 50 to 100% and it's in dollars, you need more dollars. Where are you going to get the dollars? Well, you sell gold to get the dollars to buy the oil. Yeah, you might like to go all in on people selling gold don't the big hands or strong hands anyway. They don't hate gold, but they need the dollars to buy oil to keep the lights on. So, that is a very simple explanation for why gold started to go down. If you look at an oil chart and a gold chart, you'll see they're inversely correlated over the last 6 months. So, So, the beginning of the decline was not that people hate gold, it was that they They selling gold to get dollars to buy the oil. Okay, so now once that begins, what happens? Well, you've got leverage traders. They hit stop losses. So, they got they've got to close out their positions. So, they're selling more gold on the futures market to cut their losses. That puts more downward pressure. Now, here come the commodity trading advisors. They're just trend followers. They don't care if it's soybeans or gold. They're like, "Hey, I'm going to jump on the bandwagon." So, they start selling gold because it's going down. And then you hit more stop losses. So, it feeds on itself. So, it's a very um a very easy to explain dynamic. So, you needed a trigger, which was sell gold to get dollars to buy oil, but then everything else just almost happens automatically. Like uh you know, start a small avalanche next thing you know, the whole mountains collapsing. So, we are where we are. Now, what does that mean for the future? Well, about um let me see. Uh it was a while ago, a good uh about 14 years ago. I was in the Dominican Republic. And I was talking to uh Jim Rogers. Uh Jim is you know, probably the greatest commodities trader in history. He's legendary. Um co-founder of the Quantum Fund with George Soros. Um and at the time, uh I'm sorry. It was a little It was a little bit later than that. It was around 2014, but gold uh gold peaked at uh $1,900 an ounce in August 2011. It bottomed at 1050, $1,050 an ounce in December 2015. So, you had a four-plus year bear market. And I was talking to Jim kind of in the middle of that decline. And I just said, you know, we were having drinks down in the Casa de Campo. I said, "Jim, what do you think?" He said, uh he said, "Well, I own gold. I'm not selling. Um I'm going to just going to sit tight." Uh but then he said something I'll never forget. He said, "No commodity goes to the moon without a 50% drawdown along the way. And if you're not prepared for that, you're in the wrong market cuz that's how that's how commodities trade and that's how gold trades. Well, I said, "Okay." I So, I took that and I said, "Cuz you got to pick a base if you're going to do percentage increase and decline." So, I took a base of $250 an ounce in December 1999. That was the the end of the long bear market from January 1980 to 1999. I said, "$250 an ounce." I took $250 an ounce up to $1,900 an ounce. That was August 2011. I took half of that, subtracted it from the peak to get the bottom according to Jim Rogers and I came out with 1070 and it bottomed at 1050. I mean, he was like right on the money. But he told me this in advance before it happened. So, I saw it. I was like, "Okay. Nice going, Mr. Rogers. You You got it right." But it was a 50% drawdown and then it turned around and then it went up to over $5,000 an ounce just a couple months ago. Now, in fractal mathematics, there's something called scale invariance. And what that means is that if I give you a one-week chart of the stock market and I give you a 10-year chart of the stock market and I take away the dates and just show you the the charts, they look the same. Meaning, patterns repeat themselves at different scales, different indices, different time frames, but the pattern repeats. So, let's take Jim Rogers' rule, which he was spot-on and apply it to today. Well, we got to pick a base. I picked I think around 1850, which is a few years ago, up to 5355. So, there's my base. Here's my peak. Take half the difference, subtract it, comes out around $3,600 an ounce. Now, I'm not saying gold's going to go to $3,600 an ounce, but seeing it go to $3,900 an ounce and now around 4,000, like, yeah, that's that's how it goes and if you don't like it, you know, you're in the wrong place. But but what it also means is that we're at the bottom of that cycle, at or near the bottom of that cycle, and we're paused for as Jim Rogers put it, going to the moon. So, I'm standing by my $10,000 announce forecast, you know, late this year, you know, sometime in 2027. Uh we'll see as the exact timing, but uh you know, kind of intermediate term forecast. But that would be completely consistent with a drawdown and then a major bounce back as Jim Rogers described as the data supports. So, yeah, this is a very good entry point.
>> Thank you so much for that, Jim. Um so, if you could talk a little bit about silver and mining stocks, you know, people usually, if they want some leverage on gold, they look at silver and mining stocks. Would you expect during this this next next run gold-to-silver ratio to narrow, to get narrower? And if you look at mining stocks, Jim, I mean, with the current um with the current commodity prices, they look very comfortable. We have seen some financial reports come out recently, and they're gushing cash right now. Do you find them attractive, so?
>> Yes, so to talk about silver briefly, I don't I By the way, I also I own gold, but I also own silver. I don't spend as much time analyzing silver as I do gold for two reasons. Number one, silver's a little more complicated cuz it is a precious metal, and it responds to the trends we've been talking about, but it's also an industrial input. Uh a big one uh in terms of, you know, catalytic converters, electronics, and and a lot else. So, if you're trying to analyze silver, you have to look
at both, and you can be in a world where, um, they're both going up. Precious metals are rallying, and the demand is enormous, or one's up and one's down, or vice versa, or they're both down. So, it's just a little more complicated in that sense.
Although, I will say that I, um, silver follows gold with a lag. So, if gold performs the way I just described, and I believe it will, then silver's going to do just fine, whether it gets to $150 or $200 an ounce, we'll see. I don't focus on the ratio too much. I look at percentage gains in the individual, uh, asset class.
Um, the, the, the ratio's almost a relic from the late 19th century when the Western silver miners lobbied Washington for a 16:1 ratio, but it was just, it was just political graft and trying to prop up the silver industry. It doesn't really mean very much, but, but the fundamentals do. And so, uh, uh, if gold performs the way I described, which I expect, and I would then go, then silver will be along for the ride, and we'll see silver making its way up to $200 an ounce.
Um, but the industrial side of it is also there. I mean, we all know what's going on in electronics. I mean, we, we may see individual failures of some of these hyperscalers and data center builders as companies, but, uh, but AI and electronics and that buildout is not going away. Uh, so, silver will be, it will be very much in demand.
Miners are basically leverage bets on the underlying. Now, uh, the reason is just, it's kind of almost like corporate finance. A lot of miners, and I, I invest in gold and silver mines, so I'm, I'm on the board of some companies. I'm familiar with the, uh, with, with the industry. Um, they have inputs and outputs. So, the output is, you know, what's the price of gold or silver that you're selling, or maybe copper or something else. Um, but the inputs are electricity's a big one, and, uh, you know, transportation costs, uh, you got to rent drilling rigs, uh, land rights, you know, etcetera. Royalties, if you're, if you're doing streaming transactions, etcetera.
Well, a lot of that was put in place for the mines currently past the exploratory phase, getting into production. Uh, a lot of those put in place when gold was, um, below $2,000 an ounce. So, even at four, I understand four is down from five or more, but even at four, it's still double where they thought it was when they committed their cost. Now, the energy prices have gone up. I'm not saying those costs are all constant, but the ratio of, of the margin, you know, it's the margin that you're going to get from today's prices, even with the drawdown relative to your input cost, has greatly expanded, number one. And I, and since these are stocks and not, uh, physical bullion, um, there's a multiple. So, uh, when that, when the margin goes up, which it has, it all goes to the bottom line because you, you, you have fixed costs, and some variable costs, but they haven't gone up as much. So, the cost side is under control and the revenue side is going up, the margin, the, the increase in margin goes straight to the bottom line, and the market will give you a multiple of 10 or 20 or sometimes more. So, um, this is just, it's financial accounting, but the point being, uh, uh, uh, a gold or silver mining company is a leverage bet on the underlying.
Now, there is a variable, uh, very hard to account for, which is management. Meaning, the math works, and the financial accounting works the way I just described, but you have to, as an investor, you have to ask yourself, is this a world-mine company? Has the CEO done it before? Do they have a track record? Uh, are they in a place that's going to get expropriated by a foreign government, or are they in a good place like Alaska or Nevada or someplace? I'm not saying it's easy. There are a lot of things you have to look at, but the fundamental economics of, uh, fixed costs versus variable revenue and revenue going up and, um, increased margins and market multiples, that's a given. So, yeah, I do like the sector a lot.
>> Thank you so much, Jim. Um, also, I was doing my research, I noticed that there's a company called Call forward that you, um, invested into. And, um, I went a little bit deeper into it and it actually looks very interesting because I personally get a lot of these bot calls, you know, or robo calls every single day and that company Call forward, they actually, well, help people to protect them against that. So I got very curious. Could you talk a little bit more about that if you can?
>> Sure, yeah. Sure, thanks for asking. So, the company is Call forward. It's spelled the way it sounds, C-A-L-L-F-O-R-W-A-R-D, one word. It's an application. You can download it from the iStore for, for Apple, Apple phones, for that system. So, it's real. It's not like, actually, we're past the pitch book stage. This is a real product you can download today. Very inexpensive, couple bucks a month. This is unbelievable. Now, just be clear, I was an early investor in the company. And when I invested in the company, I said to the CEO, I'll tell you what, I'll make the investment on one condition, which is I want to be your first customer, 'cause I hate these spam calls. They make my life miserable. And he said, yeah, I was actually the second customer, 'cause I think his wife was the first one to, to do it. But, but yeah, the best recommendation I can give it is, it has basically improved the quality of life.
Now, we all get these spam calls and the big phone companies, and I've got a couple different cell phones, and I'm on Verizon and AT&T, and I've got a Samsung and an and an Apple. So, I'm, I'm on a couple different systems. They do have a call spam notification. So, a call comes up, there might be something on the screen that says, you know, light spam or likely spam or something like that. Give you a little bit of warning, but it still rings. And that's, that's the problem. I have personal reasons, I'm not to get into where I really can't blow up my phone. I have to answer the call. If it's in the next two minutes ringing, I got to go and answer it 'cause I have other things to take care of. That being the case, when I race from one room to the other and I grab the phone and it's like spam, I'm like, I just want to break the phone. So, so they, they do, the big phone companies do give you a little bit of heads up, but not more than that. They don't actually block the call. Call forward does, and it does it using AI, and that's really important because they say, "Hey, if you block all my calls, I want some of these calls." Like, of course you do. So, it has a white list, meaning the call comes through. All of your contacts are on the white list, so that's easy. If you're calling people, that'll go on the white list, 'cause like, why would you call a spammer? You wouldn't. So, if you're calling somebody, that's somebody you want to talk to.
But, here's where the AI comes in, 'cause they can look across their user base. And if they see a spam call for somebody else over here, and you get a call from that number, they're going to block it because they know it's spam. You don't have to wait for, you know, it kind of for you to figure that out. They'll figure it out for you. They also go on offense. They penetrate the spam producing networks. So, you know, 'cause they, these people have 100,000 phone numbers. So, if you, you can't, they do it by phone number, but you can't just do it by phone number. You have to penetrate the networks, look at the, you know, the, the area codes and the, the exchanges and a lot of other, and the traffic flow and a lot of other information, and they do. So, it works brilliantly. I, I have it, um, and so, so the calls that are come through, which is great, they get blocked, and, and they'll give you a log of the calls that got blocked, and I look at it all the time, and there's never one that like, oh, I, I, gee, I wanted that call. That was a mistake. No, they really get it right.
There are some calls that are not on the white list to begin with. They come through. They're not blocked 'cause they look like they might be okay. And there's a little simple challenge algorithm which your human hit two notes and you, you get through, but a robot can't do it. So, but it will still go to voicemail. So, it's not that the call is lost. It's like, okay, we're not going to, this is going to go through even though we don't know you, but you passed the challenge. This one is going to go to voicemail, so you can answer because it's a robot, but it doesn't look like a bad guy. The bad guys get blocked, the good guys get through. The best endorsement I can get, first of all, it works, but the best endorsement I can give it is that it's actually made my life better. Uh, so, I don't know what more I can say about a product, but yeah, Call forward. Uh, one word, uh, iStore, just get it and try it, you'll love it.
>> If I found something I definitely need in my life, Jim. Um, so, we covered a lot. Unfortunately, we are running out of time, Jim. Is there anything else that maybe you would like to mention that you believe is important that we haven't, we haven't talked about yet?
>> Yeah, I do a lot of, um, a lot of interviews and quite a bit of conversation about the war in Iran. And, uh, you know, I don't want to dwell on it, but the one thing I will say is Trump, um, I, I would say Trump boxed himself in. The, he really only had three choices, and they were all bad. Surrender, uh, stalemate, or escalation. Um, stalemate doesn't work 'cause it's not a stable stalemate. If you block the Strait of Hormuz, the, the industrial economy is going to shut down. So, it's on my list, but it's not one that you can do very long because the consequences are too great. So, you can be in a stalemate or ceasefire, but you really, it's a choice between surrender, uh, retreat, you know, if you want a better word, and escalation. Escalation won't work. You know, we, uh, I was around for the war in Vietnam. We bombed North Vietnam for 10 years, and we lost the war. So, bombing and escalation, you can do it. Has a kind of feel-good quality for a short period of time, but it doesn't really work. Uh, it would ruin Trump's legacy the way it ruined the legacy of Lyndon Johnson. Um, so, you kind of got to get out of this thing. And, uh, yeah, it might be embarrassing, or, but, you know, we've seen worse. You know, we lost the war in Vietnam. The Afghanistan withdrawal was a, a tragedy and a disaster. So, the US has been through this before, and national support is weak. MAGA support is, is like 50/50. I'm not saying it's Trump's losing the base. I'm saying that there's a, a lot of, a lot of Trump supporters would be glad to see the US get out of this war. But, here's the problem. Iran won't let them. So, yeah, does Trump want to get out? Yes, he heard that what I, the message I just described. I just heard that from J.D. Vance and Susie Wiles in the White House. Yes, but Iran won't let them. They'll just keep blocking the strait, and then he's got to bomb something, and they bomb something. So, I expect that this is going to persist whether Trump likes it or not because Iran is winning, and why should they cut Trump a break? So, my caution to investors would be, yeah, price of oil has come down, that's a good thing. Some vessels are getting through, that's a good thing, but this is, this is just not over.
>> Yes, it definitely looks that way. Um, so, Jim, if people would like to follow your work, where can they find you?
>> Uh, thanks, Paweł Sub. They can go on X, you know, it used to be Twitter, but now it's X, @RealJimRickards, one word, @RealJimRickards. Um, also, I have a flagship newsletter, Strategic Intelligence. My publisher is Paradigm Press, but if you just go to your browser, type in Paradigm Press, Jim Rickards Strategic Intelligence, it'll come up, and we put a lot of work into it, monthly issue where we put out 7 or 8,000 words a month with analysis and recommendations, and we hope people enjoy it.
>> Yes, and I will have the link in the description below for those who are interested. So, Jim, it was an honor. I really enjoyed the conversation. Thank you so much for your time.
>> Thank you. Thanks.