Transcription
We have a Banana Republic balance sheet. We have a Banana Republic reaction. China is stacking gold in a fire sale right now. As we're all looking at the right-hand magic trick of tech, the stock market, the DXY, the dollar, positive reals, negative woozy fagazi, there's absolutely not positive real yields. It's negative real yields. And we are debasing our dollar and we are debasing our currency to sustain our bond market.
Many people forget is during that period we saw five 20% or greater corrections in the gold price. And in fact between 74 and 76 the gold price halved from 200 to 100 and we all know what happened after that. It went up 8x to 850.
>> Special coverage from the floor of the rule symposium is brought to you by Palisades gold. >> I'm here with Matthew Peepenberg partner at Montgre's AG. We're at the rule symposium here in Booker Ron Florida and kicking off the coverage is a discussion about why gold may or may not still be relevant in today's investing world. Spoiler alert, it still is. Kathy, welcome back to the show. >> It's great to be back, Dave. Thanks. >> But gold investors are looking at the price and saying, "Well, yes, maybe it has relevance from a macro thematic point of view, but the price hasn't done anything for me in the last 3 months. I needed gold to hedge against volatility when there was a lot of chaos in the Middle East, and it wasn't there doing what it was supposed to do."
>> I think let's start there. The last time I spoke with you was late January after it had just run up to its all-time highs around $5,500. It's come down from its peak then and ever since then it's just been trailing sideways and slightly down and gold investors are a little bit disappointed and in fact sentiment in the gold mining index has been at multi-year lows despite the fact that the price itself is still higher than it was a year ago.
>> Sure. No, it's these are important questions. We get them every day and and and they're obvious. We always of course have an answer and that can be cynical on the buy side because these guys selling the book are always going to have an excuse or an explanation for gold. For us it's been a fantastic time to buy more and of course everyone says that but I want to put it into some context because these are these are critical questions. Um, it is important to remember that when we met in Vancouver in January, that was at the apex of the euphoria. Even I thought the price was too high too fast. But remember, even the the the fall was really from the highs in January. When you look at the gold price today, it's only about 5% down from its all-time high close in 25. So, it's a 5% correction. The real correction was the January blood bath on Black Friday. Uh it's also again before we get into the details of the war and what gold and why gold did what it did. It's important to keep it in mind too there's a couple things. Um, you know gold's been up 128% in the last 5 years over 1500% since 2000. So aren't you not entertained by gold? We're not apologizing. Gold's been behaving extremely well. And I also think it's important before we start looking at the current details just to keep things in perspective because we do think this is an extraordinary moment for gold and it it's a secular bull market. I think we're just in chapter 2. And I've been saying that for years because there's so much more to come.
>> But in the 1970s, we saw a massive move from 35 to 850. Everyone in the gold space understands that. What many people forget is during that period, we saw five 20% or greater corrections in the gold price. And in fact, between 74 and 76, the gold price halved from 200 to 100. And we all know what happened after that. It went up 8x to 850. So, it's just a reminder that as I said in January and we said in Vancouver, gold doesn't move in a straight line. And even in a secular bull market, there's a lot of shakeouts. Some, I think, are very deliberate because it's important to get into that. And and in terms of the war, why didn't gold behave in chaos? Why didn't it act the way it should have been? Uh I've talked about this too in the meantime. We you and I haven't had a chance to speak in the interim but there was a number of incredible factors in this particular type of war because of the oil and the dollar relationships we can get into but there was a force selloff at so many levels. First you had a lot of the tourists and triple levered ETFs who were just joining the trade and and as soon as those daily margin calls came in the daily rebalancing they had to sell on a single on a signal. A lot of the hedge funds were algo driven they sold on a signal. When you had Black Friday come in, sell off in silver, sell off in gold. They're not in it for wealth preservation. They're not in it for the macros. They're in it for the trend and the momentum. They're CTA driven. So, they sold off. That's a lot of selling pressure on the gold price and silver. What was also extraordinary in addition to the ALOS and the ETFs was the sovereigns themselves. Uh countries like Turkey that absolutely high conviction in gold, but they import more than 90% of their oil and gas through external parties and a lot of that was coming through Hormones. So they needed to actually sell their best, most liquid and valuable asset to come up with cash to buy oil in US dollars.
>> Right? >> You also saw countries that certainly had no shortage of oil, but needed to buy everything else. And so that was like Saudi Arabia, massive amount of sell-offs. And again, I've said many times, Turkey didn't just sell their gold, they swapped it in Switzerland. They're going to get it back. They sold their treasuries, too, but they don't want the treasuries back. They just want their gold.
>> So during the war, there's a lot of force selloffs. Prior to the war, there was Black Friday after we met. There was the algo driven trade. So those explain it. Um, but I think really what's so extraordinary right now and it's it's like a magic trick, David. I mean, you know, the the trick to being a magician is look at my left hand while I'm doing the trick with the right hand. Keep you focused here. I think there's so much focus on the price action in gold, understandably, but the real story is the bond market. And the bond market is not sexy. It's not as sexy as SpaceX trading 100 times earnings. I get it. But the, you know, it's a 145 trillion global market, the bond market. It's 20 trillion more than the stock market. It is the basis of everything. It's not that complicated, but it's absolutely essential. And I think what when we can just spend a couple seconds on this, there's a sea change happening right now is well beyond the gold bug argument or gold allocation or the gold debate with the DXY.
>> Gold is the new trusted collateral. And I think that has to sink in and really be understood. And without getting complex, trust is a very hard metric to quantify and qualify and measure. When you have a country that's the home of the world reserve currency and the sacred cow US 10-year Treasury, when that country is 40 trillion in public debt, that's a problem. When you weaponize that currency and that US Treasury in 2022, that's a problem. When the world is 360 trillion in debt, IUS in general are distrust. That's why we're seeing decade decade highs in yields going up because bond prices are going down. Whether it's in Canada, whether it's in Germany or France or Italy, certainly in the US, Japan, yields are decadel long highs. Yields are boring. Again, not as sexy as SpaceX or Palanteer or Nvidia or data centers. But when yields rise, that means trust and demand for bonds is falling. And trust and demands and bonds is falling because there's so much debt. And therefore, the world moves on collateral. everything intrabank lending crossber transactions for decades for 50 years that collateral was the 10-year US Treasury that was the key of the banking system the derivative system the everything system and what is so misunderstood right now is that this isn't a gold bug case from an executive in Switzerland the new collateral isn't sovereign bonds in general or 10-year US treasuries in particular the new collateral is gold I'm not saying that again as a Swiss gold executive I'm saying that Because look at the flows and look at the math. Central banks hold more gold than do US treasuries. That's something that would be unheard of 5 years ago. Since we weaponized the US Treasury and the dollar in 22, whatever you think of that Ukrainian debacle, central banks have been stacking gold at 5x levels, five times in this period since the Ukrainian war started. The BIS has made gold a tier one asset. Um, so and you have this ddollarization meme which is a reality, Mbridge, etc. There is a clear preference for gold as the new collateral. So, central banks have been stacking not just at record levels since 2022. In the last 11 quarters, we've seen 10 quarters of over 200 tons of central bank buying. It's extraordinary. And you've also seen China in May by 160 tons. Now, China, whatever you think of it, they're not stupid and they're very patient and they're playing the long game. The head of the Shanghai exchange said in 2014 in front of a bunch of Western bankers when China wasn't taken seriously, he said, "Very soon, China will be setting the gold price." And what's happening is China is stacking gold in a fire sale right now as we're all looking at the right-hand magic trick of tech, the stock market, the DXY, the dollar, positive, reals, negative, fugzi, fagazi. These central banks are stacking gold and and they're reststacking gold and they force it down in a fire sale thanks to the help of the COMX and the London exchange is doing these tricks in January and February. The bottom line is this is extraordinary when a precious metal is now becoming the new collateral. Doesn't mean a gold back yuan or a gold back bricks currency. It means gold is trusted now more than government debt. That's not a gold case. It's a reality. And I think what no one is noticing as well is just in just last month the June 24th becomes effective July 24th and I'll stop on this but it's critical to understand when the the largest ICBC the largest bank in China just stopped paper trading of gold in their banks. The the margin levels 140% made it impossible to trade paper gold that becomes effective in July at the end of this month. But what it really is a setup for is this. China, Shanghai is in a deal now, a clearing settlement deal with Hong Kong. Because of the capital controls in China, they need a free door to bring the the settlements. That's Hong Kong as a the settlement partner for this. Hong Kong's vaults have increased by 10x. Because what this all means, all the fuguzi fagazi means is China is going to create a gold settlement exchange with fair pricing and less paper manipulation, less leverage, less futures contracts because they want to win the game. They want to move the flow of gold and the gold pricing from paper claims to physical gold.
>> Right? >> That means fair price discovery in gold. That doesn't mean gold goes to 10,000 on July 24th, but you have to follow the direction of the puck. China, love them or hate them, are playing the long game. Well, we're debating stable coin or Nvidia or SpaceX valuations or Tether and what this really means and maybe a Judy Shelton long-term long duration gold back US Treasury. China's going to repric gold fairly without all the paper nonsense we see in London and New York.
>> Before we continue with the video, let me tell you about one of your most important personal assets, which is your personal privacy online. If you've never Googled your name, do it now. You might be surprised at what comes up. Data broker sites and people search sites are quietly collecting your personal details such as your name, home address, and phone number, making it very easy to find. Delete Me, today's sponsor, is what I use to fight back against that. After a quick setup, they scan for where your personal information appears, verify those listings, and submit removal requests to hundreds of broker websites. They also continue monitoring over time since this information can reappear over time. I've personally been using it for over a year now and has removed 204 of my listings and my latest report showed 335 listings were reviewed last month. So, if that bothers you as much as it bothers me, then use my link in the description down below or scan the QR code here. That's jointdeme.com/davidin and use my code davidalin to get 20% off. take control of your privacy today.
>> What do you mean by repric? How would they do that?
>> Well, when you have if I have a car that's worth a million dollars, it's a unique car from the 1920s, and I give everyone in this room a claim says this this million- dollar car, you have 100% claim to it. If I give it to 10 people, I say, I hold the car in my garage, but the 10 of you all have the same claim for that car. As long as nobody asks for the car, I can keep making this. I can sell these paper claims to 10 different people. But that's not a real ownership of my car, is it? You don't really have it. You have a paper claim to it. Well, we do that same trick in the ComX. You have 10 times more contracts for the same bar of gold or silver than is actually available. And what China is saying is we're not going to play this fuguzi fagazi with leverage and paper claims. It's going to be a physical goldbased exchange. And the first signal that came out in June, just again, unnoticed by everyone because we're all chasing SpaceX and IPOs. The fundamental trick here is that gold is the new collateral. It's going to be priced based on physical supply and demand, not leveraged paper claims, which is the whole basis since 1973 of the ComX, CME, and the London markets. It's absolute legalized price fixing in London and New York, which has been the game for years. China saw this in 73. They knew it was happening. It actually happened at the US embassy in London. There were cables. It was top secret, but it was a deliberate game to price fix legally, gold and silver that has been slowly dying in the comx since 2024 because of all the deliveries and the exodus of the medals out of the COMX, but it's all boring. It's all complex, but it's all very simple. We're not going to have leverage in games and card tricks. We're going to have physical supply and demand, and it's going to be based on the East, not the West. This is a seismic shift in how gold operates as trusted collateral, not just as a debate or an allocation or insurance hedge or relative pricing. So again, headlines are on the price moves right now as gold is being stacked at record levels by central banks 19 straight months by China. China is not buying gold at these levels for dentistry or making golden monkeys. They're thinking years ahead. And as the world distrusts all these IUs from these broken and broke sovereigns, including the ECB banks and the central bank, including the home world reserve currency, they're watching us shoot ourselves in the foot with our currency, debating relative strength. Well, they're basically saying this is the new collateral. It's the new system of money that is far bigger than my views just on the gold price this quarter or next week. And I think it's very misunderstood. Um, and we're playing games with stable coin. playing games with a hawkish Fed and all this. It's just noise. Fed isn't hawkish. It's totally doubbish. It has no choice. The ECB is going to be doubbish. It has no choice. The Bank of Japan has no choice. They're going to debase the currencies. Well, China's stacking real money while we play with paper money. And I think again, it's it can be far more complex than that, but it's very simple. Gold is distrusted more than paper currencies. And that's not sensational. That's not fable. That's a fact now. And that's why the the the short-term price movement in gold is actually for us fantastic because you can get more of it on sale like the Chinese and everyone else. But the longer term implications and direction for this price as trusted store of value is way past the dollar debate or the Bitcoin debate. It's really gold is emerging as central to the new system.
>> So the longer term case aside, let's talk about the medium-term price movement. Now, let me give you two bare cases that I'd like you to respond to, please. The first is simply um looking at historical precedents and how gold has performed in prior gold's bull cycles. It's peaked very dramatically and then doesn't stay at the peak for very long, right? Double top in 2011, double top in 1980, and then comes down at least 40 to 50% in both cases. M um gold's already fallen about 25 to 30% since the top in late January when I spoke with you last um arguably it has a little bit more room to climb just based on historical precedence. That's number one.
>> Number two is what you brought up earlier which is a seismic shift happening in the bond market. Yields have been going up but it has been going up recently. It's been a on an upward trend ever since 2020 basically when it dropped. Uh we're no longer in a zero interest rate environment. The Fed is no longer doubbish. When we spoke last, the Fed was doubbish. Now we have Kevin Worsh. And this Fed is less doubbish given current inflation expectations. So with those two forces combined, higher interest rates and the possibility of a secular uh bond bare market for the coming years. We have here a situation where gold faces higher rates which it doesn't do or it doesn't like and a situation where gold may repeat what it's done previously which is to go down 40 to 50% from its top every single time it has topped.
>> No, those are excellent points and they're so fun to talk about. The first one when you look at the peaks and then it retraces and stays there forever and you use an example like 1980 during the Reagan era. Remember US total debt during the Reagan era was a trillion dollars. Today our interest expense alone is a trillion dollar. So it's a very different world in terms of currencies and trust and debasement in 2026 than 1980. It's a very yes we had we were coming out of the stagflation of the 70s there was a big spike because of rising yields the second point but I'm saying the macro condition the debt conditions the monetary conditions and the strength of our dollar in general and paper currencies in particular was different in 1980 than today. the trust is very different than today. So that's the first point I'll make. When you're looking at 40 trillion versus a trillion in debt, your currency has nowhere to go but to be debased. But you're saying, Matt, you've got higher yields now. Pet rocks like gold and silver offer no yield. Rising yields are historically obvious headwind for gold and silver. Isn't this obvious? And again, I think that is true for traditional investors who don't look to second derivative thinking. look under the hood a little bit deeper because yes, of course, if you're getting if you're getting a yield on the 10-year on any country, it's higher than the inflation rate. Well, you're getting a positive, you know, you're getting positive real yield. Gold gives me nothing but negative price action and pain and stress. But again, that's a misunderstanding because I'm not the first or the last you've interviewed John Williams. You know about the real CPI scale. Everyone knows that inflation is a joke. We'll get into that with Wars in a second, but I think like Michael Green and Groman and many others that the real inflation rate is correlated to the, you know, the debt, the growth of debt every year. We're looking, I think, at an the CPI scale aside, which is comical, just comical.
>> But if you're looking conservatively at 10% inflation compounding per year, I think it's closer to 12. Some say it's could be as low as eight, but if you're being generous and we have a 10% actual inflation, not the Misfit Island of Misfit toys at the BLS telling us it's 4.2. That's a joke.
>> Yeah. >> So, if you're looking at 10% actual inflation, not the official lie, the BLS, you take the L out of the BLS and then you get the real inflation number. If you get 10% inflation, you're getting 4% 4.4 uh yield on the 10-year, 4.48 today. you're actually losing six, five to six% the moment you make your bid on a treasury. In other words, you're getting negative real yield. You're not getting positive yield. So, these rising yields aren't really a headwind for gold. They're they're a sign of dishonesty. That may sound sensational, but it's basic math if you trust the real inflation number as opposed to the official one. So, again, rising yield argument is a traditional headman. If you look deeper, you're not getting positive yield today. You're getting robbed. you're getting lied to and you're getting robbed on your bond market and a 10-year anything further out all along the yield curve, you're losing money. But the narrative is, and this is the trick again, left hand versus right-hand, if I'm a Federal Reserve chairman or I'm a central banker in Europe or the US or I'm a politician, left or right, or certainly if I'm in the White House, left or right, I need to do what Russell Napier says, pretend you're running positive real rates when you need to run negative real rates. Other words, boring stuff, financial repression they call it. You need inflation to be higher than the yields. So you can basease, you can inflate away your debt by inflating away your currency. That is exactly what they're doing. It is literally the oldest trick in the book of history of all broken bankrupt countries, whether they were oligarchies, monarchies, democracies, whether it was ancient Rome, 1990s Yoslavia, Banana Republic South America. We have a Banana Republic balance sheet. We have a Banana Republic reaction. Now, we're not Weimar or Zimbabwe because we're home in the world reserve currency. So, we have we can do this game longer. We can lie better. But there's absolutely not positive real yields. It's negative real yields. And we are debasing our dollar and we are debasing our currency to sustain our bond market to buy bonds and keep those yields fictionally lower or controlled. And yet, think about this. P will talk about Wars. He hasn't done anything yet in rates this year. I'm going to explain why he's a dove, not a hawk, but he hasn't raised rates yet. and he may in October, but the bond, the 10-year went up 75 basis points on its own with him doing nothing. And and again, and the DXY didn't rip on that. The strong dollar case isn't correlated to the to the rising yields the way it should if it was a legitimate currency. All I'm saying is we don't have positive real yields. We have negative real yields. Most investors don't realize that. The street sells you that. The registered investment adviser down the road sells you that. Consensus sells you that. If you actually trust the official CPI scale, fine. You're getting very little yield, but you're getting some. If you don't, and I start from the premise, maybe it's a bias. I don't trust the BLS. I don't trust the government, left or right, in either part of the Atlantic Ocean on either side of the stream. And the actual inflation numbers I'm looking at and the rest of us on the street who are worried about wealth preservation, we know that we're losing money the moment we buy a government bond.
>> So, if inflation is much higher than it's purported to be, then why is Wars still a dove? like you said.
>> Well, Wars is he's he's fascinating. I mean, Wars is fascinating. He's he's bringing regime change. He has all he's got five different projects now or task force. Task forces. Yeah. One is the information task force, which is very Orwellian. Uh the other is the inflation task force and balance sheet task force. Okay. Take all the fuguzi fagazi out of wars. He's a maven. He's a political careerist. He's also a clever banker and a lawyer. And take about and talk about regime change. He was just in Portugal in Europe where I'm coming from and he was talking to European central bankers. He we have to get price stability and 2% inflation. Well, first of all, we haven't been at 2% target for decades before and years after. It was a race. We were there for 20 seconds in 2020. So, they failed at that. So, he's talking very hawkish. He says we're going to get to 2% price stability. We're going to control this is for our country. Meanwhile, the Fed's own projections for inflation is 3.6 CPI and right now it's at 4.2. too. So, he's not even close as usual, but again, it's kind of like Gerbles. They'll tell the lie long enough, you'll believe it. It's I hate to say it, but what War is is like like Yellen, like Powell. In fact, mathematically and quantifiably, he's already more dovish than Powell was after he pivoted from higher for longer in 20 in 25. And what Wars is doing is is is classic. Again, Faguzi Fagazi, look at this hand, I'll lie with the other. So what he's doing first of all even before wars you have to understand there's always backdoor QE or backdoor liquidity not just QE money printing or mouse clicking you can take money from the Treasury general account you can put in hundreds of billions from the repo markets you can issue bonds from the short end of the yield curve you can guarantee the 70 cents on the dollar bonds are in the banking crisis at par for the big banks as we did in 23. Uh so he there's all kinds of tricks to put trillions of backdoor liquidity to keep banks liquid because the Fed's mandate is not unemployment and inflation. The Fed's mandate is to keep banks liquid in lending because the Fed is owned by shareholders and those shareholders are banks. Sorry, everyone on Wall Street knows this. It's important for your listeners to figure this out. Many of them already do. So the key is to keep banks liquid to make more bad loans in places like private credit. But so what War is doing is like well we're going to we're going to be a regime change. Meanwhile, just last month, again, boring, off the headlines, and I hate to be the bear of boring news. It's not that complicated, but he does things that are so boring, no one notices. Well, he's talking hawkish. And what he did, and again, this is fact check yourself. This is the Bank Policy Institute. Boring. But a few years ago in 23, Basel out of Switzerland, the Basel 3 reggg said, "Hey, you banks, all of you need to be a little more careful with your leverage. You need an airbag to protect us from another uh-oh moment." And what many things were happening in that very boring fine print of Basel 3 again boring but one thing is about 89 billion 88.7 billion in fact are is required for banks to have capital reserves that means money they can't lend has to sit there.
>> well needless to say American banks don't like having capital sitting there doing nothing because every dollar that sits there they can't leverage 10 to 12x for new lending and new profits and new risk. So what did Wars and the bankers get together and do last month and fasttracking through is they're simply not going to comply with Basel 3. Again, so boring. But get rid of all the noise, all the fog. All that means is that 89 billion, 88.7 billion in capital reserves can now be levered 10 to1. So that's roughly a trillion dollars in new liquidity.
>> So you think money supply will still expand under war?
>> It's off the balance sheet, off the Fed liquidity into the big banks. It's still supporting liquidity. It's still a debasement trade that's off the balance sheet that is too boring and too complex for the average very smart citizen to keep track of. We have to I have to I look at the bond market and the central banks and yields and backdoor liquidity because it really is the skunk in the wood pile. He has a very hawkish tone but a very the skunk in the wood pile is he's hawkish talk with liquidity through the back door and again trillions through the repo markets the TGA accounts. There's always ways to keep those banks liquid so that they can make more dangerous loans and have another potential banking crisis that we'll have to bail out with more debaseed money. At some point, all the nonQE QE like we saw at the end of December becomes just outright QE to monetize the debt unless stable coin absorbs all our.
>> Wouldn't the banks make more loans right now with interest rates climbing and debt accumulating and everyone's already overstretched?
>> Sure. Yeah.
>> But what people don't realize is, you know, the banks seem to be free of this private credit fiasco. Remember 2008 wasn't a mortgage crisis. It was a bad loan crisis. You're just making bad loans.
>> Yeah.
>> And it and we and we should know that the private credit is just bad loans. Now, that's private issuers. They're not federally in matured banks making those private credit loans that are now in default or gated. But who do you think lent the money to those private private credit. The big banks? So, they're indirectly tied into this morass, this mess. They make bad loans. uh and they're gonna they're going to get bailed out of that again because they just got a big chunk of liquidity coming their way through the BPI, the bank policy. It's just another one of these little boring examples of how banks feed themselves more liquidity without talking about the Fed. Eventually, that will become QE. But again, for the 2008 scenario, people talk about this huge mortgage crisis in America. It's a very fragile system, bad loans, whether it's mortgages or private credit. In 2008, 25% of all loans or mortgages were subprime.
>> Yeah.
>> Only 13% of those actually defaulted outright. And so, and when you take back all the news and all the noise and the big short, 5% of mortgages defaulted in '08. And that was enough to create a global financial crisis. That's how fragile the system is when you have defaults. So is as much headline legitimate headline as the '08 crisis deserve because of subprime mortgages dog crap packaged as solid gold wrapped in you know whatever and given AAA ratings by S&P and Moody's that was a disastrous dishonest crash. Private credit is no different in terms of what it can do to credit and liquidity and create a contagion effect. So that's not again fable but fact. it whether it's subprime mortgages or bad private credit to subprime borrowers across the country whether they're car dealerships or small businesses as they default it doesn't take a whole wave of defaults to create a credit event and I think.
>> do you know do you know how big the perpetuals futures market is Matthew remind me 90 trillion I think the producer yeah as reminded me the other day $90 trillion.
>> in in perpetuals.
>> perpetual futures which are basically just leverage.
>> leverage it's just leverage the marginal levels that are highest in history right now. It's like they learned nothing from DoddFrank. They learned nothing from 2008. Derivatives are now four times all global financial assets. That's a whole other ticking time bomb.
>> Create a different product altogether. You you can circumvent the regulations.
>> You can create different products, but still horse crap is still horse crap. You can wrap it in a Tiffany scarf or you can wrap it in a nice Hermes tie, but it's still horse crap. And so that's all they're doing. And they're taking profits and then they'll blame it on an extraneous event when it all goes to hell, which none of us can time. By the way, did you see that Jeremy Grantham video interview on CNBC? He was on CNBC a couple days ago and he was getting roasted. Anyway, he he's calling for the tech bubble to burst. He's correctly called the last tech bubble burst in 2000.
>> And he's saying this is the most overvalued market in history that he's ever seen.
>> And then one of the reporters asked him, well, >> yeah, but >> just just cuz something's expensive doesn't mean it can't go up. And he said, yeah, but this is the most expensive. and he's calling for a crash within the next two years it's going to get repriced. And then another reporter called him out and said, "Look, um, you're a broken clock and one of these days you're going to be right a second time." [laughter]
>> I thought that was an amusing exchange.
>> I I wish I watch him a lot. I've invested with Double Line years ago. Uh, Jeremy Granthm since Bill Gross is the bond king. He has been because the bond market is everything. And I've said this so many times when I was a former risk asset trader. The smartest equity traders are bond traders, guys who traded the usually the prop test at the big banks. Jeremy Grantham is extremely bright and he knows the bond market better than anything. And whether it's me or Ray Dolly or Jerry Grant, we all agree on this. The bond market is the thing. It's everything. And he called private credit well ahead of everybody else. Way ahead of everybody else. He wasn't a broken clock. He just understands that rising yields mean rising debt costs. and the rising debt costs because debt is the wind beneath the wings of everything that we do in this country and in our business and our markets. If debt costs get too high, that's that's where the skunk lies in the wood pile.
>> I think you were thinking of Gunlock, right?
>> Yeah. Good luck. I'm sorry. Oh my god, I was Jeremy Grantham. No, Jeremy Grantham. My god, I'm so sorry.
>> That's okay. That's okay. He's not here in the room right now.
>> No, I'm thinking of Jeremy. I'm thinking of Jeremy Jeffrey Goodlack.
>> Good luck has also been kind of.
>> No, the same thing. He's been also.
>> You should know this because the irony is and I'm not name dropping I invested with GMO and Jeremy Grantham as well. So they're both I just wanted to talk about Jeffrey Goodland.
>> I I knew who you were referring to but I Anyway, um yeah, good luck.
>> That's a Freudian slip. But again, Jeremy Grantham, he has been crying wolf for years on overvaluation. It's actually good to talk about Goodlack and Granthm because they're both.
>> Okay, you mentioned Good Luck. I have another quote from Goodlack. He's been on he's been on the media calling for uh the sell America trade and I'll look it up and I'll let you respond. He's been saying pretty much what you've been saying.
>> Sell America trade right now which is to There we go. Business insider Jeffrey Goodlock. Uh at the core of his comments is growing concern over America's swelling debt load which is expected to get even bigger if Trump's big beautiful bill eventually passes. there's an awareness now that the long-term Treasury bond is not a a legitimate flight to quality asset. Um he warns that a reckoning is coming. He's uh he's advising his clients to go long on non-treasury and US denominated assets.
>> Yeah. Well, again confusing Granthm and Gunlock because they're both relevant. What Gunlock is saying is yes, they're not looking to US treasuries as a safe haven anymore. That goes to the original point I was saying about the new collateral from is moving west to east towards physical precious metals. It just is towards gold in particular. US treasuries, German boons, JGBs out of Japan, the guilts out of the UK, they're not trusted. But the US treasury which is the key tenure is the key treasur the key IOU is even less trusted. So I think what Gunlack is saying there is absolutely relevant. What Grantham Jeremy Grantham from GMO is saying and he has been saying this for years but he's been very modest. He says, "Look, I like Warren Buffett, another name. I hope I don't confuse." Like Bergkshire is 400 billion in cash. They're not trying to time this overvalued market. They just know that it is. Jeremy Grantham, a GMO, is saying the same things. So when he looks at price to book, price to sales, price to earnings, they're at all-time highs. And when he looks at the monthly dividend yields, they're at all-time lows. And when he looks at the overvaluations, he's basically saying, "I can't time a bubble. I can just see one." And some bubbles can go longer than I predict. He's saying two years out, one year out. Um he's retired now, Granthm, but he's been saying this for a while and he's cautious when what what Buffett and Grantham, not Goodlack, have in common is they are ti they can recognize overvaluation. This is way past just SpaceX and the amount of capex it's is plateauing in these data centers and this the fabulous 7 and the amount of money they're wasting which is symbolic of the end of a credit cycle by the way. um the the overvaluations, the M&A deals and the overvaluations on book sales, etc. All the metrics they would look at in Jeremy Grantham's time as a value investor. There's no value there. He's saying, "I don't know how this thing ends. I don't know what needle pops this balloon. I rather get out of the kitchen before Thanksgiving if I'm a turkey. I just want out. I don't know what day is Thanksgiving. I just don't want to be caught in it."
>> That was my question and my thought is what do we do when everything is expensive? get out of the kitchen or pick something. It's difficult to pick something that's undervalued. Everything's undervalued in retrospect after gold's up, but gold's up. Bitcoin's come down a little bit. Um, you know, the stock market's expensive. And if I'm if I'm a long-term buy and hold investor, it's it's difficult to pick where to go when everything's already gone up.
>> Well, again, it's like sell at a top. Well, that's easy advice. If you're a buy and hold investor and you bought value stacks 20 years ago, you're not going to pick the top, but this is a good time if you've bought really low. Again, when I'm looking at longer term, and I can't help, it's in my DNA. I come from a risk asset background. I still think what is value, what is overvalued, what is an opportunity, what is something I have to avoid missing. If if you're coming in now looking at these markets, you're chasing tops. That doesn't mean they can't go for two more years. If the Fed is supportive or if there's liquidity at the banks or if there's backdoor QE that keeps these bond markets and these yields compressed, they don't get above 5%. It's risk on. The markets are Pavlovian. They're totally fed ccentric. There's no supply and demand forces anymore. There's no valuation anymore in these markets. I've been saying that for a long time. It's deformed as David Stockman said, the great deformation. If I were looking at the world today trying to think, how do I invest then? Where do I I don't want to come in now. Well, if you and you have to make this decision. I know if you think stagflation is the future and that's what I see. There will be deflationary forces. A market mean reversion is deflationary. A recession is deflationary. But the debasement trade necessary to fill the gap in our accounting our account deficits are debt to GDP. The the misconstrued debasement where we say it's positive real yields but it's negative where we lie about inflation. If you believe the inflation is is here, the S&P can inflate too. Remember, since the S&P spiked in Q4 of 2021 to today, the S&P is up 60%. It's down 40% in gold terms. In other words, it's up since 2021, but been valued about gold and not the dollar. When you value it in gold, it's actually down because gold is a better measure of wealth than paper currencies. [snorts] But if I were looking to invest today and I have an inflationary long-term outlook, which Graham and Gonac and Buffett have, I would invest in assets that do well in an inflationary scenario. Even if we have intermediary disinflationary forces, which we can easily have, deflation, inflation isn't a debate, it's a cycle. But if I'm seeing inflation as the endgame to monetize our debt, assuming again stable coin doesn't save us all, which is a whole other conversation. That's the argument. Stablecoin will absorb all this US Treasury unloved US treasury. stable coin will save us. I don't think it will, but we can talk about it. But the point is, if I'm looking at an inflationary endgame, I want assets that behave well. Hard assets in general, of course. Precious metals in particular, of course. Certain types of real estate, certain not types of real. I certainly want commercial residential. I mean, commercial real estate. I'd like multif family residential. I'd like farmland. And I'd like stocks with pricing power that can handle mean reversions. They can they can fix their price even in a recession. Coca-Cola and Pepsi are examples, but healthcare is an example. Defense is an example. So, there are other sectors you can get into if you are throwing your tail into the argument that this is going to be an inflationary endgame regardless of how inflation is reported by the BLS.
>> What happens to gold if oil continues to go up?
>> I mean, old gold is is becoming uncorrelated from everything. Gold can go up when rates are going up. Gold can go up when rates are going down. gold go up, you know, when when oil is going up and going going down. I think the real question with oil isn't what will the gold price do. The real question with oil to me is how will gold be purchased in the future? Will it be purchased in US dollars? Will the petro dollar which seems to have gone through some girrations in the last few years 20% of US I mean 20% of all global oil purchases were outside of the US dollar. That was unheard of 10 years ago. The reason and you can get debates of the reason we were in Venezuela and the reason we were in Iran wasn't democracy and safety and drug-free streets in New York and freedom and democracy in Iran. The reason was both Venezuela and the Ayatollah wanted to sell oil to China outside the US dollar and they were. If that were to continue at that pace, then who would buy our US treasuries and US dollars? Because the oil was that sponge. Stable coin is the news.
>> How important is the petro dollar to the everyday average American? To the average every American, it's very important because it's absolutely essential to the hedgeimonyy of the US dollar and the US Treasury. There's no coincidence that we created the petro dollar right after we decoupled from the gold standard because we now had a nothing back dollar. The gold price should have ripped. So we need to make demand for the US Treasury and demand for the dollar forced and so we basically at knife point forced OPEC to to do the deal the petro dollar deal.
>> Is the is the link here if the petro dollar breaks demand for treasuries becomes lower? uh yields go up, interest rates go up and living costly and then we have to debase the dollar to to pay for rich interest rates. And by the way, it's a deadly serious game. Ayatini, Muhammad Gaffi, Saddam Hussein, it was a fatal game to try and sell oil outside of the dollar. They all tried and and you know, certainly Venezuela tried. He wasn't killed. He was whisked away by the Delta forces. But you know, we take it very seriously. We need to sell oil in US dollars. and and then by the way the producers of that oil they have to buy our US treasuries. It is a sponge for an otherwise completely inflated and debased and untrusted dollar. It's the bully. Now what's happening now is is going to be interesting because why did just a year ago this month why did we create this genius act and why did Trump call it the new oil? Because what is stable coin to do with oil? No, it's the new oil because stablecoin forces issuers of stablecoin are forced to take your dollar and buy US treasuries. It is creating synthetic demand for US treasuries. It is a new kind of oil. In other words, no one else wants our US treasuries. American citizens don't want our US treasuries. But hey.
If we get them to buy stable coins, we give them a trackable, programmable, centralized dollar. They give us e-dollar. They give us a buck. We then, by law, invest that dollar into US treasuries and we get the yield. So we get your dollar, and you get we get your yield, and you get a programmable, trackable, centralized, basically central bank digital currency issued by a private issuer. And again, just this month, 140 companies, from Blackstone to Door Dash to Visa and Mastercard, just agreed to the dollar unit or the $1. It's the new digital currency, new e-coming from 140 countries. It's a major corporate cooperative act to create more stable coin-like demand for US treasuries. That business, the market for stable coin, is $320 billion. They think it's going to be $2 trillion by 2028. That is a major sponge for an otherwise unloved, weaponized, over-indebted US treasury. Again, very boring. But if nobody buys those US treasuries, and if the oil market slowly moves east, and China definitely wants a non-dollar energy solution, they're definitely going to get one. If we've lost the petro dollar, or at least some of the bullets in that six-shooter, we need something else. And that's where stable coin comes in. Anyone listening to here should know that you'd be far better off buying a two-year US Treasury than a stable coin because at least you're getting yield. You're giving your yield to Tether or BlackRock or Blackstone or, you know, Door Dash when they start giving you this nice, super-fast, transparent e-dollar, but you're getting nothing. You're getting suckered, and you're getting a programmably trackable dollar or digital dollar. So, the centralization is slow dripping in. You know, you've got guys like Bren Johnson saying this, this could save, you know, this could be the solution to the strong dollar and save this otherwise bankrupt US Treasury. I think an e-dollar is still a bankrupt, worthless, debased dollar, but if it creates synthetic demand for the US Treasury, that buys the government some time. It's a very desperate act. It is somewhat genius. It's somewhat devious, but it is absolutely desperate because the real reason we had to create stable coin is no one else would buy our treasuries unless we force the issuers of these stable coins to buy them by law.
>> It's fascinating. I >> want to end on how the investing world changes following the Iran war. I've heard commentary on this. Yeah. >> The critics of the Iran war say this is the biggest foreign policy blunder in the last 50 years, >> and that this was the first proxy war that the US fought with China, >> and the US has lost because Trump has conceded to pay war reparations to the Iranians, and the form is still closed. >> I mean, they can't even militarily force it to open. >> Yeah. >> And so now they're backing up all the bases around the region. The US bases were damaged or destroyed. >> Yeah. >> And now we have satellite imagery showing that probably 70% of Iran's >> missile capability is still intact despite what the Trump administration told us in the early days of the war. Anyway, that's my preamble. Um, >> you've answered your own question. >> I Well, I wonder if you agree with that viewpoint. >> Look, I'm fascinated by military history. I'm a geek for military thinking, but I'm certainly no military expert, and nobody listening wants my opinion left or right on the war. >> I just wonder how you think hedge money has now been >> I think I think that the economics and what you said, this was of course a proxy war with China, just like the Ukraine is a proxy war with Russia, on the backs of a lot of dead Ukrainian and Russians right now. And and and you can take that or leave that. This war in Iran was a direct proxy war with China. It's a financial war. You got to give Jim Rickards credit. You know, he talked about a currency war becoming a trade war, currency war, and a hot war. We had a hot war, but it wasn't directly with China. We used the narrative of Iran and nuclear weapons. Buy it or leave it, I don't know. That's for everyone to determine their own. But for me, the economics of it were very obvious. That's neither left nor right. Pro-Trump, anti-Trump, it doesn't matter. Any citizen of the White House is going to have the same problem. We can't lose the petro dollar. We don't want China having a non-dollar oil solution. China is absolutely going to get that. They have the power to do that. Yeah. The question of whether this was a failure, you can look at missiles, you can look at nuclear, you can look at reparations. That's accounting. Probably is a failure. Some will disagree. They're very I'm very patriotic, but I don't think it was a very smart war. That's just my personal opinion. But financially, the way to test whether this was a successful war or not is to see what China does with its buying of oil, and whether it's in a some gold-backed, embbridge-type kind of net settlement, whether it's Russian oil with with rubles in yuan swapped in Shanghai for gold. That's the real test of whether this was a successful war because the whole point of this war was to force a new regime in Iran to sell oil only in dollars to everyone, including China. I don't think that's going to happen. I don't think China will allow that to happen. That's still to be determined. But the real measure of the success because this is a petro dollar war. This is a US Treasury war. It is not an Iranian freedom war. If you look at it economically, that will be the test. Where will and how will China buy its oil? It's a net importer of oil. It can get it from Iran. It got a little bit from Venezuela. It can get it from Russia. Iran and Russia are happy, very happy to sell their oil outside of the US dollar. And the question is, how much power? Can America just kill or fight everyone who wants to leave the petro dollar? There were years where it could. China is very different today than it was in '73, '74 when we created the petro dollar. Russia is very different today. Iran is very different today, and we thought we could poke the bear with Iran. Um, and uh, apparently it was a little harder than we thought. And again, that's just the economics of this war.
>> You mentioned military history. So how do you think the military is going to evolve now? The US military. So Trump wants to expand the budget to $1.5 trillion dollars in defense budget. As an American taxpayer, aren't you curious? Yeah. >> How your money is going to be spent? >> Well, yeah. We simp again, it's just another example. I mean, you can you can say the same thing under Biden. He put a $650 billion bill in right before he left. He didn't seem to care where we were getting the money from. >> I mean, you can literally >> mathematically show that we can't afford it. We don't have the tax receipts or the GDP, and we have this debt-to-GDP ratio. We've got this deficit. We're spending three trillion a year. Half of our tax revenues just pay interest. How do we pay for that? Technically, you can have a two trillion, $3 trillion military budget. You can bail out every bank and you can support the S&P at infinite items and never have a draw down. >> But the only way to do that, to pay for these expenses, to pay for a more technical, drone-like, dystopian military. >> Uh, the only way to do that is to deficit spend and then fill that gap with money that you have to mouse-click out of thin air. You have to debase. There are no revenues to pay for that. It's very hard for people to understand that because the top 10, 20% who listen to these things have some income. A lot of them are baby boomers. They've lived through the great American dream. It's hard to imagine that we are going to be unable to pay without debasing the currency. And the question is, how fast and how transparent is that debasement? If you're compounding annual rate of debasement is 10%, which is the real inflation. That's what I'm strongly, and John Williams strongly agrees. You're losing 10% just on inflation. That's an invisible tax. That's an invisible theft. You're losing that right now. But now, if you add another 1.2, 3 trillion, uh, in 3.2 trillion in spending for military, etc. >> Yeah. >> Where's that money coming from? Is it going to come from stable coin? Is it going to come from SpaceX? >> Again, that's for everyone to determine on their own. It has nothing to do with being anti-American. Again, it's it's it's math. It's not patriotism or non-patriotism. In fact, if you're a patriot, you should call out your country to balance its budget. You should call out your country to live within its means and to be transparent about what it's spending and what it's taking in. That's actually very patriotic. That's not revolutionary. I don't want a revolution in America. I want an evolution of all the things that we stand for. Three branches of government, true judiciary, a true legislative, a true executive. I don't like insider trading from the House to the White House to the Senate. I think our judges should be impartial. I think what we set up was great. The the system we set up is great. What's devolved are the people making the decisions and the insider politics and the insider economics. The fact that you can go from [snorts] a major defense contractor to the Treasury to the Defense Department or back and forth, or you can go from big pharma to making policy on pharma. That's something very corrupt in our system. That's neither left nor right. Our system is a fantastic system. It's just devolved because
>> question. So how do I demand my government to do what's right? Cuz on the one hand, look, you've got deficit spending that's propping up social welfare, >> uh, social security, pensions, infrastructure, all that. >> There are people out there who don't want those >> dollars to decline. >> At the same time, if we keep printing money, like you said, inflation's going to go up, and everybody gets taxed through inflation. >> So, what's the middle ground here? Well, this is what the Van Mises, the Austrian school, uh, this is what history has taught us over and over. And this is what you learn in a business or a family. Whether you're a marriage or a young couple or living together, or whether you're fourth-generation patriarchy, or whether you're a corporation, or whether you're Von Greer's AG in Switzerland, you have to balance your budget. You have to live within your means. You can't you can't spend four times your revenue. You can't have GDP three times your incoming port. And so what the Austrian school reminds is eventually you will destroy debt destroys. David Hume said that in the 1500s. You know, that was Thomas Gresham. David Hume said that in the 1700s. Von Mises said that in the 1900s. It's as simple as you will have constructive destruction. Markets are meant to correct. Dollars and debt are supposed to be debased to a point where you have to rethink your spending. You have to be transparent about austerity. The problem is, it is politically impossible to get elected by saying, we have been living beyond our means for a generation. We have to cut spending. We have to raise taxes. We have to live through a recession, some constructive destruction. That's impossible to get elected on. Impossible. So if you're mad at your politicians, you have a right to be. But and and it's not necessarily the citizens' fault, but the citizens also like to drink the Kool-Aid. They still want to believe left or right these promises. So how do you change it? I don't want revolution. I want an evolution of the system, and I want austerity and I want transparency. >> Yeah. Maybe increase the presidential term to I don't know, 20 years so that people think we're long-term on that. >> I [laughter] don't know. I think there are some simples. Get rid of lobbying completely. Get rid of K Street lobbying. >> That's ridiculous. That's bribery. Legalized bribery, and and start talking about balanced budgets and start talking about sound spending. But again, very boring, and it does hurt the man on the street. But the man on the street has been getting gut-punched for almost a generation now. There is no middle class in America. There's the working poor, and the statistics show it. There was no growth in jobs last year. There's net negative growth. Yeah. >> And the Michigan University of Michigan sentiment indicator is the lowest in its history in five decades. The actual Main Street America, the backbone, what Walt Whitman called the true America, is hurting. Well, you've got massive insider deals in DC. Left or right, red or blue, it's so corrupt. I know a lot of politicians. I know a lot of agency people. They're mavens to a system. It's self-serving. >> They're not doing it for the people. They're usually just looking to build their resume and find a better post-private sector when they get out. That's it. And that's very cynical. Uh, and in in Switzerland, I talked to a lot of very cynical investors, too. But we have a lot of American investors. Uh, they don't trust the system. They don't trust the currency, which is a part of that system, and they want to store value. They're not looking at the gold price month-to-month, week-to-week. They just know it holds its value better than this greenback, which is nothing backed. And you can stable coin back it for a while to buy some time, but you're not going to save the system of the dollar or the US Treasury that way. In my opinion, that's not anti-American. I think that's very patriotic. We need accountability. We need transparency. And we need less lobbying, less bribery, and less insider trading. Left or right, that's been going on for decades. This is nothing new. But there's a lot of billionaires being made right now on insider deals. Again, that's nothing new either.
>> Matthew. Excellent talk. Thank you. Where can we learn more from you? >> Uh, you can find me at jeffreylac.com. Jeremy [laughter] Granth. I'm at VG. Gold or Vongers. Gold. Um, and all our articles and interviews like this are there. And um, you know, we're pretty boring, pretty conservative. It's very simple. We can't solve every problem with gold. We're just trying to preserve wealth. We're not, it's not a get-rich-quick asset. It's just a store of value. We've known this for decades. Egon was way ahead of me on this. And uh, all our articles and interviews are there. And um, you know, you can certainly find me on vaners.com. >> All right. Pleasure speaking with you. Pleasure, buddy. Thank you very much. Thank you for watching. Don't forget to like, subscribe, follow Van Greers and Matthew Peepenberg there.