Transcription
Gareth, how are you?
I'm doing well. How are you?
Good, man. Good. Good to speak to you again. I know you're an incredible talker. You're incredible at explaining things. So, my job is going to be pretty easy here. It's just a couple of quick questions and I'm sure we'll get incredible content out of it. Um, let's start with a broad question. First time we speak in in years. Um, what do you make of what we're seeing right now in Iran? What impact is it have having on on the global economy? What do you make of the energy markets? Are they factoring in the the the risk of the war prolonging? And what do you make of inflation? You just kind of a full brain dump.
Yeah, I think for me, you know, there's definitely less impact by what's going on at least on the financial markets than what we've seen in past situations. Like if you go back to previous like you know situations where there was oil disruption oil was much more concentrated in terms of coming out of the Middle East and that created a scenario where oil went much much higher. The independence that the US has gotten in terms of its energy production has really lessened that and also I think a lot of the lack of upside in oil and again we're back in that $80 range but it's mainly because the market really thinks it's understands President Trump and his lack of conviction for pushing forward on the Iranian side to anything more than just bombing. Right? So midterms are coming. It's not popular here in the US and the markets are saying we don't think it's going to go any further than this and there's enough oil out there that prices don't need to rise.
Now on the inflation side, you have two situations. You have the ultra wealthy who were invested in the market or are invested in the market. They couldn't care less about the price of oil. It's not affecting them. Then you have the other 80 plus percent maybe 90% of the US and globally where this is a real tax on people and you throw in food inflation and inflation everywhere else and there's a large group that are suffering but in the financial markets it comes down to the wealthy and that's I think what's keeping this market up. I also think that the AI narrative has really been the top thing that investors have cared about and therefore oil has kind of fallen to the wayside and not looked at as being as big of a deal.
But isn't the overlap between what's happening in the shadow of hummus and AI? Helium comes out of the shred of hummus for example and that's necessary for the chips being made in Taiwan. Um, and if there's shortages there, wouldn't that impact pretty much everything? You know, I've had guests talk about sulfur, obviously, oil, refined diesel fuel, jet fuel, etc. They have an impact across the entire economy. That's where inflation gets impacted. And you're talking about the US being um self-reliant, but I'm not the experts. I'm giving my thoughts, and correct me if I get anything wrong, but the global energy market is all intertwined with globalization. So if oil prices go up, whether the US is self-sufficient or not, doesn't mean oil prices, gas prices won't also go up in the US as they have. Plus, the US does import from what I understand that the the the what is it the not the sweet, the sour crude,
the sour crude, right?
Yeah, exactly. And I think that's what you're making is a great point, but I think what we also have to recognize is that part of the AI trade has been the fact that prices are extremely high and that there is a shortage, right? Right. And so if you look at these memory chips right now where they're carrying these 80 plus% margins or this other stuff, is it really hurting the stocks per se that drive the stock market higher when prices see continued pressure because there is disruption via the straight of horm with helium and other things? And so I think you could argue that that's actually been a contributor to how hot the AI trade has been. And I also think that it's almost been an kind of a an alternative. People get nervous about oil and how it's going to impact consumer cyclicals and they say, "Well, what's not going to be impacted here?" Oh, well, is Google going to spend any less money on their capex because oil is at 80 or 85 or $90 a barrel? And I would say they're not. That it has literally no impact on the capex from these mega players. And so, I think that's been the divergence here where we've really seen those stocks outperform. Now, we have seen a massive correction. It was a bubble. things have come down sizably, but again, I think that's what's been driving the market for the last year or so, even in spite of what's going on between the US and Iran.
So, you're talking about how um shortages in helium makes it more expensive for these chips to be manufactured, but that doesn't really impact the companies because, you know, they'll still be able to do what they're doing. It'll just cost more. But investors are willing to pay more to achieve the to to achieve that growth because they know the potential
of Yeah. Yeah, and arguably the profit margins remain high that way, which is actually beneficial to many of these names out there like uh Taiwan Semi because if they can only make let's say, you know, in a in a in a different world, let's say 100 chips because of the shortage, then the price of those 100 chips goes up and their margins remain higher and their profits go up. And that's really what the stock market cares about is well, what is the PE of the S&P? How much is is are these companies making?
But also, wouldn't it put a ceiling on their growth if the chips are limited? They need X number of chips to achieve Y growth to meet X target, but they don't have those chips. That means the target they put in their quarterly reports cannot be met. Is that a scenario as well?
Not necessarily.
Or we need a lot more we need a lot bigger shortages for that to happen. And the markets hasn't priced in that level of shortages.
And I think the market, you know, what's interesting about the market is it's it's only forward looking a short amount of time. So what you're talking about is very true is that, you know, you could argue that shortages allow them to sell less chips and that eventually more factories will come online the longer it takes and then there'll be a bigger supply down the line that crushes margins and that is going to happen. There's no doubt about it. But the market has not looked that far ahead. We only look about 6 to 12 months out which still has the shortages with the massive demand and a lot of these plants won't come online until 2028 or after just like nuclear energy and such. And I think that is keeping the investor focused right now just on high margins. PE ratios are relatively reasonable. Therefore, buy stocks.
Okay. So, the issues I'm talking about are very long-term potential issues and the markets believe that by then those issues would have been resolved. They're transitory. Is that
Yeah, I believe that's that is true. Correct. as well as I think the fact that that investors are almost like well we're conditioned at this point to buy every dip and to just pile in. It's like a it's almost like the poly market is the stock market now where it's gambling and it's just like hey listen every dip we get of 10% we're at all-time highs a month later. So why would you even care about it when you just just keep piling in the market now? That's a recipe for an absolute disaster. And let's be fair, SanDisk has already dropped 50% 60% off of its highs in a month and you're seeing little bubbles burst
the chip companies. Yeah.
Yeah, The chips companies have now just a little scare out of North South Korea. the Cosby collapsed 45% in just a matter of a few weeks as well. So investors are getting a taste of what can happen, but they still don't believe it's longlasting. And I think that's a big issue because the other thing to point out, and I don't mean to get off track here, but it's fascinating is that we had so many investors come into the market around COVID, young investors. They never went through a.com bubble. They didn't go through the 2008 2009 financial crisis. All they know is that you have these V drops, these 10 20% drops and then we get these V-bottom recoveries. And so they have this false sense of security like, oh well, even if I'm wrong here, in a year I'll be in the money and I'll be making money. And that going back to many past times is very it's a mentality that is unbelievably scary to have.
Yeah. Um, you mentioned South Korea. Again, I'm too deep in obviously the Iran war, the politics of it, the Ukraine war. Um, but I, you know, what happened there? Is it just a whole bunch of retail investors getting margin called as the market started collapsing just a lot of leverage and just kind of collapsing because of that and is that does that indicate a similar risk in other countries? So just explain it to us what happened and why it matters why everyone is freaking out about it.
Yeah and it's a fascinating situation. So essentially what you had is you have two stocks you have SKH highix and Samsung out of South Korea. Those two stocks make up 50 plus% of their entire stock market. Right? So essentially it is I mean we talk about how the mag 7 here in the US it's concentrated well it's way more concentrated there and those stocks are up 400% in the last year until this recent collapse. The other issue that came up and this is driving me nuts is that the officials over there they allowed double and triple ETFs where you get basically additional margin on on these stocks or on the market to be sold and to be open to the public. And so the public, they were saying, "Well, these stocks keep going up, so let me buy a double or triple." Well, when you buy a double ETF, the underlying ETF has to buy two shares for every single share that you get. Now, that is great on the way up. It allows the market to go up incredibly. But now you see the negative is that if someone has a three times ETF, one share, and they sell it, the underlying ETF has to dump three shares of that stock, and it creates these collapses. And so now you have the officials over there freaking out and apologizing. And you'd never see that in the US, but you you have them apologizing for enabling these ETFs that now people are getting absolutely crushed on as they collapse.
Interesting. Okay. Um, now why should we care? Why should we care about something happening in South Korea?
I would say the main reason is it's a a more concentrated situation of what's going on here in the US. So you have again double and triple ETFs here. You have the mentality that again you just buy no matter what and you'll make money. That's very very risky. And you have this kind of this new class of investor that is just always buying ETFs. ETF don't worry just you know tuck it away. And so you have all this money flooding into the market here in the US which is again so much bigger than the Cosby right so the amount of concentration of liquidity here in the US is 100x a thousandx what the concentration is over there granted those two stocks make up that index but when you look at the amount of money in the US market if we ever got in a situation where liquidity actually exited in mass you would be looking at another 1929 financial collapse and potential great depression.
Holy So, putting the Iran war completely aside, the amount of leverage there is in the US worries you to that level.
It does. It does. And and I'm a cycles guy, too. And it concerns me greatly that, you know, you see the same risk takingaking. I mean, you go back to 1920s and you had bucket shops where people, it was basically like the poly market. People were just betting on in these bucket shops. Um, they were just winning and it was it was this gamblers mentality. The leverage was very similar back then as well. And you also had life-changing technologies. I mean, this was the roaring 20s. Cars were beginning to be developed. And you ultimately had the same scenario back then that you are starting to see here with other issues again that led up to the Great Depression, but now here now. Again, I don't think the Great Depression's on the horizon in the next few years, but if you're a cycles guy, you do know about the hundredyear cycle, just like with COVID, right? Again, if you go back, we had around the 1917 Spanish flu and then in 2020, a 100red-year cycle, we had another scenario like that. So, I am concerned and I am preparing myself for a potential massive collapse in the financial markets. And this would be a global collapse now. Um, that should take place in the early 2030s.
So,
sorry, sorry to I don't mean to,
I love it because everyone's f No, I love it. So cuz we and I love the roller coaster you took me on cuz we started the Iran where everyone's freaking about freaking out about the Iran. You're like Mario no this is transit.
That's like this to me that's like such a minor thing compared to everything else.
Exactly. Okay. So the economy must be doing well. Gareth is not worried about the Iran war. That's nice. Um nice you know for a change someone not too worried about the Iran war. It's been like two weeks I had a guest not worried about it and saying how it's transitory. It's a guest you know I forgot the name. And then we're gonna get into South Korea. And then we talk about the leverage, which by the way, you haven't met my business partner. Um, he always he's been warning me about the amount of leverage there is, how leveraged the global econom the the the global economy is for what, four years now. He's bringing ring ringing the alarm and talking about hard assets, hard assets, hard assets. Um, he he's sometimes reminds me of Michael Bur in the Big Short. Um, and um, yeah, and like you're you're kind of ringing that same alarm bell. You're talking about the 100 year cycle, and I like that. I like, you know, for me to understand what could happen. I'm not, you know, an economic expert, but the way as someone with someone with my limited experience in the field to try to understand what could happen next. The easiest way I learned to do it is you just look at history and see how it rhymes or how it repeats itself. You know, we knew each other from crypto. So in crypto I'm like look I can't go into or they do what Scott Melker does go all into all these different indicators all this chart analysis I'm like all right cool the fourear cycle every four years like clockwork the same thing repeats itself let me just stick to that it's a simple way of looking at it and you kind of and Ray Dalio does a great job of explaining how the same mindset applies to the global economy and you've just explained it here very briefly let's dig into it further the hundred years cycle what is it and how could it end and is there a way to avert is there a way to avoid that end or we're just heading there and you can prepare for it, but you can't avoid it.
Yeah, it's one of those things where I I'm a believer that some of the fiscal and financial tools that the Fed has and that the government has developed can slightly delay it. But what that ends up doing is it essentially makes what ends up happening even worse. And just to give you an idea about this is that, you know, we've been in this cycle where we haven't had a real recession in the US for a long long time. I mean, you had bare markets, but really in 2022, after the bull market of 2021, it wasn't a recession. It was just a little downturn. The markets pulled back 20 30% and then they went right back to all-time highs. And the key here is understanding that the economy and and cycles are like waves coming in and waves coming out or a gentle rolling hill. That's when the normal cycle is taking place. So, it's normal to have downturns and we've gotten in this fiscal scenario or this financial state where it's the boogeyman to have a recession and the Fed has to come out with their bazookas to fight it when it's a natural occurrence. Think about this. So, a drug addict always taking drugs to get that high and you have to get you have to take more and more. And so, what it's taking is we've seen our US debt in insane increase now under $40 trillion. The Federal Reserve is more hands-on than ever. Yeah. how they talk a tough game right now, but you know, as soon as we slip a little in the economy, they'll come out and lower rates and start raising their balance sheet and all that stuff. And it essentially keeps the patient alive via drug infusions until what's the inevitable scenario here is that that the patient flatlines, right? The patient dies. And that is the problem. So, just to summarize, cycles and you know, expansionary periods and and contractions are normal and they should be a gentle rolling hill. What we've done now is we've basically put the patient on steroids, which is great in the near term because no politician, by the way, because they want to be reelected in four years. They, God forbid, they they are in a recession and they get blamed because they won't get reelected. So, there's this inherent always put the foot on the gas pedal, drive things higher. The problem is at some point you're going to flatline the patient and that's where that hundred-year cycle comes in and we see that collapse.
I love that. Um, yeah look I I can give an example of it like recent something you know it applies to everything you know I'm dealing with something inconvenient okay so I'm like let me check how do people deal with things like this you know when you have to go through whether there's something business or personal you have to go through the suffering that comes with it so I'm like well how do people deal with it just for the sake of it it's like oh you can you know alcohol these supplements drugs etc but all it does is it just delays the inevitable and makes it worse it applies to the human body it applies to the to the to the economy and to recessions. Recessions are normal part of the cycle that applies to drugs. There you go. That's the human body. And recessions are part of the normal economic cycle. But for some reason, because of the money printing, that's become our drug as a species. It become the drug to the global economy and we've just become addicted to it. It's like every time there's talks about a recession, instead of oh, we're going to go through the recession, a recession, let's brace oursel for the next two to three years. It's like we're going to go through a depression. How do we get out of it? What do we do? We can't go through a depression. The world's going to end. Print print print. We're out. But eventually that recession is going to come, but it's going to smack the hell out of us.
That's right. And and that's what I do think is going to happen. And that's that's one of the reasons why I mean you see debasement of currencies. You see dolization slowly. Remember dolization is like a 30-year process or 50-year process. But it is starting. There's no doubt about it. Central banks are being more uh aggressive on buying metals like precious metals like gold. they're they're not wanting to rely as much on the US dollar. Um, and these type of things are just normal parts of the smart money, if you will, slowly preparing for the inevitable. And I and you can't you look at China. China's been buying massive amounts of gold. They know the outcome. The smart players know what's coming. You know who doesn't? The retail folk who are just jumping in. And I and just to caveat this, I I don't want to get anyone super scared. Like, I don't actually think the stock market's about to collapse like today or tomorrow. This is now multiple years out. But as a as a citizen, someone who runs who's who's the head of the household of my family, I need to at least start preparing and understanding so that I don't get caught off guard.
How do you know it's a few years out? How do you know it's not going to happen next week? Isn't it impossible to time or there's reasons why you you are you saying it's going to be a few years out just to kind of not sound like a feeonger and you're just saying it to kind of be more balanced like we don't know when it's going to happen or you genuinely don't think it could happen? it could get triggered next week.
So, you know, I genuinely don't think it will happen in the near term. And it doesn't mean we won't have like a 10 or I mean, I think the NASDAQ from the top is down about 10%. But if you look at the levers, right? So, the Fed has introduced so many new levers and so has the US government and we're not at a point yet where if they pull those levers, it's going to essentially cause a collapse. So, the dollar is still the reserve currency. The Fed has interest rates where they are. They're even talking about hiking. If they really needed to, they could drop interest rates to 2% or 1% which would push money back into the system again. Um the government, if we saw what happened during CO, they they printed a ton of money. Um because the dollar still has value out there and these other currencies do. There should be a window where things will still I mean they'll be deteriorating but not collapsing. It's once you lose total fa faith in the fiat system, that's when it all goes south. And I still think there's room before that happens.
All right. So, I got a good example. It's perfect. Another perfect timing. So, this is a spray called otine. I'm sure you know what that is for the nose. Have you used it before?
I haven't used it.
So, it's it's magic. Um, so I got I use it just cuz I have interviews. I don't usually use it, but I got sick yesterday. A tiny bit of fluid. My nose started getting blocked. I used it. Now I love it when you have a major flu. It is incredible. It opens up your nose instantly. You can fall asleep. You operate normally like all the symptoms disappeared. And then I'm you know my partner tells me she goes Mario like if you spray it more than three four times. What happens is once the flu or you can check chat GPT once the flu ends the symptoms are going to still be there. They're going to hit you hard. So it helps you in the short term but it delays an inevitable symptom that you have to go through. That's another good example. And what you're saying to kind of link it to what you're saying is that the drug that we have for the economy, all these different tools that the that the um that the government has that the federal that the Fed has is like otine. You can spray it a few times. They can still use it a few times before they reach the limit of when they can't use it anymore. It doesn't have the impact or the system breaks. And you're saying that that, you know, we can still do what we're doing. You know, interest rates, we got a lot of room to use to play around with interest rates. That could delay the inevitable for a few years. Is that the am I understanding it correctly?
Yeah, you are. And and you you bring up with with that that medicine there that it's it's a great example. So I mean just to give an anecdotal kind of like situation with my life is that you know I grew up where unless I had a super high fever, I wouldn't take Tylenol, right? Or my parents didn't let me. And I do the same thing with my kid. The idea is that the fever is your body's natural way of fighting and killing off, right? It's raising the temperature of your body so that the virus dies within your body. And so when you take Tylenol to lower your fever. Now listen, if you get a certain if it gets up to a certain level, you got to do it for for risks of of worse. But the idea is your flu may be shorter if you don't take a bunch of medications to lower the symptoms in the near term. Yes, it stinks during while you're doing it, but the idea is let the body do the natural course of action.
Okay. Interesting. Um, what else worries you right now? and give me your thoughts on um you know the treasury yields for example, you know they're getting higher and higher are they getting through a territory that really concerns you and more importantly what are ways to hedge against this are you still a big believer in Bitcoin you seem to be a believer of gold you've mentioned it a couple of times so what are other ways for people to hedge against um what you consider a big risk or inevitable
yeah and so so I think in the near term um treasuries are interesting uh at least until you get within a couple years from now where you start to really lose the faith of the government. And I think that's kind of happening with the 30-year, right? So, we we saw Kevin Worse come out and he kind of was talking hawkish yesterday in the Fed statement, but then he didn't give any examples. And the first thing that popped in my mind is he's talking a tough game, but he's got no backbone. And what confirmed that is the 30-year, which is the longdated bond, right? The longest one, the interest rate actually went up quite substantially. In fact, we're at highs we haven't seen on the 30-year yield since 2007, which was just before the financial crisis. And the key here is this is that the 30-year is the longest dated that we have right now. And that tells us that people don't want to buy the long bonds because the financial stability of the US in 30 years. They may not get all their money back. Sure, you'll make interest rates in the near term, but eventually they're not going to to get their money back. And the reason so like it's just to understand. So it's they don't have faith in the economy long term. 30-year treasury. It's the longest treasury there is. It matures in 30 years. That means someone buying it has to have faith in the American government being able to pay back its debt in 30 years time. And when that spikes, that could be an indicator that people are losing their trust long-term, very long-term in the US economy. Is that correct?
That is absolutely correct. And and just to put it in bad perspective, it's that that think about if you're buying something for 30 years and right now it's paying I'm looking here it's paying about 5.2%. So we know inflation is you know 3% let's say 3.5%. So you're making a small amount of money but if you're buying the 30-year bond you have to think that in 30 years where is the US debt if it's already almost at 40 trillion and remember you know in in 2011 or so it was around 14. So, it's it's it's literally exponentially getting worse and worse. Interest payments are already over a trillion dollars, and there's literally no one in the government at this point that's willing to clamp down on spending because they all want to get reelected, right? Got to keep the Republicans or the Democrats in. And so, there's no fiscal restraint, which means the people that are buying 30 years are going to demand a higher interest rate to hold it that risk to take that risk that they're not going to get their full money back. And that's exactly what's going on here. What would um what would a yield um what would what would an interest rate on the 30-year bond be a red flag for you that holy the you know trust is starting to collapse in the US economy long term? I mean if for me you you get above 10% and that to me would be cataclysmic not only because 10% is a major level but also because remember these are bonds that the government is selling to raise money to spend and we have to pay interest on this and so if you're already paying 1 trillion and I think there's another seven 7 trillion in in rollover bonds that are going to be sold in the next 12 months at these higher interest rates think about where the interest payment alone could if these interest rates keep going up. Now, the Fed will try to keep them down. The government will try to keep them down, but they're going to try to do it artificially by other methods than actually fiscally getting the house in order, which means that eventually those will break. And that's again that cataclysmic downturn that probably comes in 5 years or so.
That's the the great debasement. Um, the highest
Sorry, I was going to say I was just going to say you mentioned about Bitcoin and I still am a believer. Listen, I mean, Bitcoin is is tough because it totally diverged from the tech sector. It's usually has. The tech sector was at its highs. Bitcoin's been at 52- week lows. But I still am a believer that, you know, when the dust settles, we are going to look at gold and Bitcoin as the two hedges against that. And I think we just have to be honest that there is still a four-year cycle. People can disagree, but so far it's held up for its short lifespan. And that eventually people will turn back as the tech trade fades. I think you do see people turning back to Bitcoin.
What's the highest 30-year yields that the US has had?
Um, going on my chart here going back to 1987, which was the the crash, it was at 10%. But I do know that in the 80s before that interest rates, I mean, Vulkar rate, we had interest rates near 18%, 20%. But again, guess what the US debt was back then? It was4 trillion. So, like if you have low debt, interest rates can be high because you're not paying, the government's not paying that. Now, at 40 trillion almost, I mean, could you imagine 20% interest on that every single year? I mean, we would be bankrupt in a split second in this economy.
And uh your thoughts on gold as a hedge? Maybe you can compare gold to Bitcoin, the great debate.
Yeah, so I'm a big fan of of gold as well. I really am. I think I think gold is having its pullback after people jumped in thinking it was a get-rich quick scenario. And so and and this is a this is again going back to our cycle discussion. You have the hating on something, then it starts to be in the neutral range and then it has that blowoff top where people are jumping in just because it is the hot thing to play and they think that oh if I buy it today I can get out for a huge gain tomorrow. And that's usually the top signal and it was on gold. Now gold has real value because for thousands of years in human history it has been a store of safety and it's also not dependent right the amount of gold being mined per year is about 1.7% uh additional versus if you look at the printing of money global money supply is going up 7% a year so it it automatically has that ability that it should go up over time because it is is it is essentially being printed or mined at a slower rate than global money supply. So, I do think it's a great hedge. It's actually nearing buy levels for me where I'm going to start accumulating. And I and again, same thing with Bitcoin. Bitcoin, I do think it's more volatile. So, I think investors have to be willing. If you're in Bitcoin, you got to be used to the 50% declines. It's just that's part of the deal. Um, but I do think if you just a slow and steady dollar cost average with a a smart allocation, obviously, I think that's the other play.
Is it just me? I'm just around people that love gold or is it really difficult to find someone who's bearish gold long term?
Yeah,
long term.
I think I think long term it's hard to find. And again, you know, you look at assets that are are have I mean, how many assets have been around for thousands of years and been of value, right? So, so really we just go with history and and that makes it tough on Bitcoin because historically Bitcoin's been around since 2009. So, we don't have a lot of data. But I love the idea behind Bitcoin. And I think the more fear that comes in as we see our governments go back to the old playbook whenever we have our next recession or downturn, they start printing or lowering rates, it just is going to degrade the trust in fiat more and more, which will drive more people to say, "Okay, well, where can I go that's going to protect me?" I
agree. Gareth, really enjoyed our conversation. Good to see you again, man. Appreciate your time.
So good to see you, Mario. It's been amazing. Thank you so much for having me.
Thank you, Gareth. All right, guys. We'll be live again in 19 minutes. I'm going to go through the comments for the first time today. Let me know what you think of the conversation with Gareth. Um, he's been on my spaces a while ago. Um, first time on this show. So, let me know what you think of this conversation. Um, and more importantly, actually, the first conversation I had today with a guest that surprised me. Um, theories way out there, Michael Yon. Um, but you guys seem to love it. um and love his way of looking at things and connecting all these dots. Um it was interesting for me to look at the world through his lens, but I'd love to get your thoughts on the first interview I did today, a very unusual guest. Um the next interview will be in 18 minutes with my co-host Brendan Wer to go through today's news recap. See you guys in 18 minutes.