00:00Axel, we're going to talk about, broadly speaking, your commentary around the late 90s.
00:05You're out there in Silicon Valley, so I want to hear what you have to say about that.
00:08Before we do that, just talk a little bit about the decline of gold that we've seen,
00:14close to 17% since late January.
00:17Why, in your view, has that happened?
00:20So great to be with you.
00:22First, just to be clear, gold is up about 4% year to date.
00:25And so, yes, it's off its high, but it's still up year to date.
00:30And it's been moving somewhat in tandem with the equity markets.
00:35Gold has a correlation that's near zero in the long run, and it morphs in and out.
00:42And the reason, in my assessment anyway, why it has been moving in tandem with the equity market,
00:48because the equity markets have been hostage in some ways to the bond market.
00:53What's been happening with the war in Iran is that bond yields have been moving higher,
00:58but because the market is taking this as a shock rather than a structural change,
01:04inflation expectations in the long run as priced into the markets haven't changed much.
01:09And gold ultimately competes with cash in the long run.
01:13If your purchasing power of the currency is held in the long run, why do you hold gold?
01:18If you think it's going to erode, then, well, then you might want old gold or something else.
01:23And so when real yields move higher, long-term real yields move higher, it's a headwind to the price of
01:29gold.
01:30And that's precisely what's been happening.
01:32Of course, in the run-up, in addition to geopolitical factors, there had been a bit of a speculative push
01:41into that.
01:41And so the Iran war increased risk, and with that, people reduced leverage.
01:49That's been another driver here.
01:50Axel, I feel so manic when I think about kind of our environment.
01:56You know, it's the AI spend and all the money, and, you know, it pushes certainly the equity trade higher.
02:02And you look at, you know, various names.
02:04But then you've got geopolitics, the war, higher energy prices.
02:08I'm not quite sure what this environment really is.
02:12I'm not quite sure what the underlying fundamentals.
02:14We came off of earnings, and everybody's like, this was a pretty good quarter, you know.
02:18And so how do you see it?
02:20Remind us how you see the underlying fundamentals.
02:25Well, if you're not confused, you haven't been paying attention.
02:28I suppose that's one way to frame this.
02:31The one thing I like to remind people is that gold, in particular, has not changed.
02:36It's the world around it that changes.
02:39So if you're looking for calm, then look at gold in terms of ounces, not in terms of how the
02:44market prices it every millisecond.
02:46And so that might get you to sleep a little bit better.
02:50But clearly, we have a lot of cross-currents happening.
02:54The investments in AI are real.
02:57Deregulation is real.
02:59The policy uncertainty layered on top of that is real.
03:03The tweet coming out of the right house that's changing the narrative every five seconds is also real.
03:09And so what I try to encourage people is have a process.
03:13It doesn't need to be a good process, but have any process.
03:16That's one way to keep your sanity.
03:18And then the one best test to see whether you're overexposed to anything is whether you can sleep at night
03:23or whether you have a sleepless night.
03:24That's probably a much better metric than looking at the beta or some abstract Greek alpha term as to whether
03:33your portfolio is good or not.
03:35You've just got to be okay with what you've got.
03:38And at the end of the day, if you spend less than you're making, then you'll be all right.
03:44And so then you can handle all this volatility.
03:46It's probably more than you wanted to hear as an answer, but I'm sticking to it.
03:50I do, but I like that.
03:51I like that way of thinking about things.
03:54Axel, I promised we'd talk a little bit about your view on the macroeconomic conditions.
04:00And in the notes that you sent our producer, Talia, ahead of time, I was really struck by what you
04:05said.
04:05I'm just going to read right from it and have you expand on it a little bit.
04:08You say it feels like a variation of 1999, but it feels difficult to say whether we are in 1997,
04:141998, or 1999.
04:17A key difference is that the late 90s boom was mostly driven by risk capital, chasing the dot-com story.
04:23Many people, and we're going to talk to one of them in the 4 o'clock hour, Ed Zitron, who's
04:27very skeptical of AI.
04:29People would argue that what we're seeing now, maybe there are some corollaries to the late 90s.
04:36Instead of dot-com, it's AI.
04:38Maybe people would push back and say, well, these companies are profitable, some of them.
04:42What's your view and sort of like why do you think we're there?
04:45Do you find any – can I just throw in that what Alphabet did today as an equity raise and
04:50not debt, which seemed to put some comfort in the debt markets because they were using equity this time around.
04:58So I'm just – yes.
04:59So, yes, so definitely.
05:01And the one thing you guys didn't finish earlier is, right, the difference is nowadays a lot of debt is
05:06being used.
05:07And, of course, it's somewhat of a – everybody is feeding on itself.
05:10And so if that music stops, then there could be an issue.
05:14When there is an enthusiasm and it's equity financed, that's risk-friendly capital.
05:21If that were to come to an end, well, it will be sad, but it's not the so-called systemic
05:26risk that regulators should be at least concerned about.
05:30Whereas in 2008, of course, it was a debt binge in housing that caused an issue.
05:35And so the question is, are we going to cause some sort of systemic risk with too much debt in
05:40the bond market?
05:42And in that sense, yes, absolutely, when capital is being raised, massive capital on the equity side, that's a very
05:49positive sign.
05:50And so – and then, of course, yes, some of these things are profitable.
05:54That said, one big difference, maybe not to 1999, but to 2011 when Marc Andreessen came out with his talk
06:02about software eating the world.
06:04And I think I said this last time I was on your program, is that nowadays AI is eating software.
06:10Huge investments are needed.
06:12Margins aren't certain.
06:13And because I'm a precious metals guy, I got to add that, well, on the precious metals side, investments are
06:18also very significant, but margins are very good.
06:21And so in that sense, I think you guys had the story out earlier today that all the money is
06:26moving to AI.
06:27Well, a lot of money is making it to industrial investments as well, in part to support the AI boom,
06:33but that is very different from a market just focused on software in the late 90s or in 2011.
06:41Okay, interesting.
06:43So should I say it?
06:46This time is different?
06:49Well, there is still the enthusiasm that investors have, and that will work until it doesn't.
06:55And I'm an optimist of the AI boom, but at some point, there will be an awakening because not everything
07:04is going to be profitable.
07:06At some point, valuations will be perceived to be too high.
07:09And because we've gone up so much, well, on the way down, you can go also down quite a bit.
07:13What I tell people on the precious metals side, and it's the same on the AI side, if something goes
07:17up 100%, well, let's say 50%, well, it can get over 50%.
07:21I mean, usually 100% down is, of course, down to zero, but the volatility is there on both sides.
07:29And so what people may want to do is diversify on the way up.
07:33Now, what do you diversify to is, of course, another question when, quote, unquote, everything is up.
07:36Yeah, I mean, look, I'm just saying Hewlett-Packard Enterprise up 19% today.
07:41It's up 132% so far this year.
07:44It's only June.
07:45And, you know, you look at the chart, and it looks like a hockey stick.
07:50Yeah, it looks like everybody is a gold mining investor these days.
07:54I'm used to those swings, and on the equity side and the junior miners, it's not so common that the
08:02traditional equity investor gets to experience that.
08:06And, of course, the difference is that the gold mining investor tends to attract more the speculator.
08:12They should at least be used to the volatility, whereas on the S&P 500, people have just been blindly
08:18buying it.
08:18And if their portfolio is suddenly much more volatile than what they sign up for, they're not going to complain
08:24on the way up.
08:25But on the way down, they're going to cry foul, hey, nobody told me about this.
08:29Hey, one thing we want to ask you before we go, we've just got about 40 or 45 seconds, and
08:34it came up in your notes about Bill Pulte being named as acting director of national intelligence.
08:39Why do you think it was important to include in your note?
08:42And we've just got about 30, 40 seconds here.
08:44Well, because the Fed is, Mr. Walsh is in a pickle somewhat, that you have every Fed governor speaking out
08:54what they want.
08:54Walsh said, hey, talk less.
08:56And then also there are some internal tensions going on with Chris Waller trying to reform how the regional Feds
09:03work.
09:04And so Pulte is the one who has been antagonist at the Fed, both going after Powell and after Cook.
09:10And so he is certainly not being sidelined, but maybe his disruption is needed elsewhere now.
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