Fed To Cut ‘In A Big Way’: Will Market ‘Breakdown’ Follow? | Tavi Costa
Summary
Market Outlook: The podcast predicts a significant rate cut by the Fed, which could lead to a surge in asset prices, particularly in the resource sector.
Precious Metals: Gold and silver prices are soaring, with gold reaching $3,600 and silver $40 an ounce, driven by inflationary pressures and a weaker dollar.
Investment Cycle: The mining industry is transitioning from a "stealth phase" to an "awareness phase," with institutions beginning to invest, suggesting the start of a new bull market cycle.
Technology Sector: The tech sector is seen as overvalued, with concerns about frothy valuations, while AI and infrastructure are expected to drive significant investment.
Emerging Markets: A weaker dollar is expected to benefit emerging markets, particularly in Latin America, due to their commodity-based economies and lower leverage.
Fiscal and Monetary Policy: The podcast highlights the intertwining of fiscal and monetary policy, with expectations of continued liquidity and lower rates to manage debt, potentially fueling inflation.
Investment Strategy: The focus is on "earners" like energy, infrastructure, and materials, with a bullish outlook on commodities and a cautious stance on tech stocks.
Long-term Trends: The discussion emphasizes the long-term potential for mining and emerging markets, driven by structural shifts in global capital flows and economic policies.
Transcript
I think we're going to lower rates in a big way. I don't think silver prices would be here at $40 an ounce in that environment. Mark my words on this. The biggest risk for an investor in the space is going to be how to hold on to your shares in the middle of a bull market because I think we are using perspective from prior cycles into this and saying, well, these things are getting frothy compared to what we saw in prior cycles. This is a very different cycle. Does it look like a bubble to you right now? No, no, not a bubble at all. I I would argue very much against that. I'm I'll probably be one of the first guys to admit if we are in a bubble. Uh I don't think that's the case at all. [Music] Right now, pretty much every single asset class that we can think of except maybe oil has been ripping higher. stocks, gold, precious metals, gold mining stocks, which we'll talk about in detail, Bitcoin and cryptos, probably probably the biggest bull phase right now since early 2021. We'll talk about why and we'll talk about what's next with our next guest, Tavi Costa, portfolio manager at Crescat Capital, and he's predicting a huge surge in the resource sector. He's been right. Welcome to the show, Tavi. It's good to see you here at the Precious Metal Summit in Beaver Creek. Thanks for having me, David. Yeah, I want to start with one of these slides here. You've got in your presentation at crescat.net. Stages in a bubble and you've got here the timeline. We can show this on the screen for the audience here. Valuation timeline. Um, despair is the latest point in this particular chart followed by a return to the mean. What stage are we in right now? We're definitely at transitioning from the stealth phase into the awareness phase and that's exactly where institutions are starting to ask questions. They're starting to deploy some capital. I think that what is interesting about the mining industry overall is the complexity of this industry uh makes it very difficult for institutions to deploy capital. So it takes a little time. We've been in this uh smart money phase for the last 3 four years of people accumulating. I would include myself in the data accumulating in those assets over time and now we're starting to see the movements. Uh but the leverage relative to metals is still um a long ways from from a peak level. We're we're really at the very beginning of a cycle in my view. It's extremely exciting if you've been investing in the space. We finally see some validation. Companies are making money. Uh most of the mining companies are seeing cash flows like we've never seen before. um especially given where gold to oil ratio is and most of gold to or any metal even silver relative to energy cost is what is causing this this huge uh run up in in their margins and so I suspect that u as a mining company you want to hedge that energy uh risk in my view as well uh but there's a probably another two to three years of of very interesting performance for this this whole industry does it look like a bubble to you right now no not a bubble at all I I argue very much against that. I'm I'll probably be one of the first guys to admit if we are in a bubble. Uh I don't think that's the case at all. I think uh we're coming off such depressed valuations that people have just not made money and and everyone is just excited about making some money um that that excitement may be uh sometimes uh uh you know confused with potentially a bubble, but that's that's not the case. I mean we're we're still in the beginning. What about tech stocks? So, we've got a slide here showing how the Mac 7 stocks have been increasing in terms of their median enterprise value to free cash flow on the top panel of the chart versus their aggregate net cash balance which has been going down. Yeah. I wonder if that signifies an overvaluation or an extension of valuations. Yeah. No, that's that's a frothy environment right there. Um that side of the market and the tech space is certainly very uh expensive different from uh the mining industry. I would I would argue that that's one of the the reasons for it. Certainly AI has been changing and attracting a lot of the money into that part of the market. Uh what I would say is that the valuation of these companies as they see some deterioration of the balance sheets I think would be the big question how market will treat it. I also think that this is going to unleash what I call a world of spenders versus losers uh versus earners. uh the spenders are likely to be the max 7 econ uh companies and the other technology companies. This the earners are going to fall into three categories in my opinion. Uh probably energy uh number two infrastructure and three materials uh mining being one of them. And so the big question for the the size of the technology space is how will this uh frothy valuations behave when you start seeing these companies really leverage their balance sheets. They actually don't have any debt in their balance sheets yet uh on an aggregate standpoint. They actually have net cash in their balance sheet. So imagine that turning into debt. Let's say 30 40% of of their balance sheet in debt. um that's trillions of dollars entering in this other areas of the earners and so spenders are going to spend earners are going to compound earnings and so I'm I'm super excited about the other side of it 40 and slip earlier spenders versus losers if you don't spend on investments right now you're probably going to lose out on an opportunity well let's talk about that people have been asking me both here at the conference and personally offline hey is it time to sell my holdings especially in the precious metals No, I I don't think that's the case. There's some real big forces happening in the space. Um AI, just to touch on that again, is very different that what we've seen in with the internet or the real world um revolution in a huge way just because the amount of infrastructure development we're going to see here is comparable to some of those other parts in history. What is not comparable is this arms race. This need for somebody, a country or a company to get there first. And that race is what will catalyze the spending on construction. In my opinion, construction is running at about 7% of GDP. We could see double of that amount. Construction for what? Data centers. Construction spending overall. That's including residential and non-residential is at about 7% of GDP. And I would suspect that looking at history on that data alone, we can probably see a double of that amount, 14% of so that what used to be in the 60s. And so very plausible. And so you have to think about all right, well those are trillions of dollars coming into all sort of industries. Um and so and a lot of people are questioning can the can the tech industry or the tech sector really finance that? I I certainly think it's possible. I mean on their free cash flow alone about 85% of what they generate in free cash flow is going back to shareholders. It's going through buybacks and dividends uh that alone could be about half a trillion dollars every year that could be coming into all sorts of infrastructure spending. So that's going to be very very exciting. And then then industrialization that is happening um uh I would say that the mining industry will benefit tremendously from that and what's happening with the government also you know trying to infuse capital and certain companies MP materials and others the engagement of the government which I think is very negative from a macro standpoint but we have to see as well that that cash is coming into this industry in a large way and will will have an impact on valuations too. So certainly not a bubble in the mining industry in my opinion. We're speaking today on the 9th of September. Over the last week and a half, stocks have ripped higher. Gold is hitting new all-time highs, $3,600. Silver $40 an ounce for the first time since 2011. Everything is just soaring higher. Bitcoin now above 110,000. So, uh the question is why? Why? What happened in the last 2 3 weeks? One interpretation is that the expectation for the Fed to cut rates by September, the next meeting, which is next week, is higher now, especially after Jackson Hole. Is that the only reason? I mean, we're in a funny world. you know, inflation is reacelerating. Everything you said is very inflationary, especially if you look at the hard asset space. Gold is obviously in my at least in my my view is is probably leading inflation data in a big way. Uh maybe a year out. And so I suspect we're in a world where inflation needs to run hotter than expected. Scott Basson has said many times, we got to, you know, grow our way out of this debt problem. That's just a code word for inflation. we're going to inflate our way out and we're going to have to suppress rates. And so what is basically becoming a policy uh unavoidably is the devaluation of the dollar versus other fiat currencies. What I think people are missing here is that this dollar movement, we've seen one of the biggest declines of the DXY index since the 70s, uh specifically 1973. And the question is, is this a beginning of a big downward movement or uh an exhausted move? And I certainly think this is a long-term problem. And as we see that becoming more uh pronounced in markets, I believe that that's going to catalyze other ideas such as emerging markets that no one is positioned for. That to me is one of the most asymmetric opportunities in markets right now. Energy as well. I think you said it well. Energy has been lagging everything. And so I have, you know, I happen to have a very constructive view on energy right now. I mean, if you if you like um energy companies and you're you're not bullish right now, I'm not I'm not sure exactly what type of analysis you're running cuz it's it's you know, they're making money. These companies um are certainly one of the cheapest levels we've seen in history. And uh I I I would suspect that that's also going to be become a big part of the onshoring and AI story as well. I want to come back to emerging markets. Um, but going back to what you talked about it earlier with inflation, you have a chart here showing inflation then versus now. Yeah, inflation has come and gone in cycles and waves. And then you're drawing a parallel here between 2015 to today versus 1967 to 83. And it looks like it's about to repeat, if you overlay those two lines, it's about to repeat a third wave of inflation. Is there a fundamental story as to why that third wave could come back? Yeah, by the way, that chart looks um you know, I think looks great, but uh it it makes you think that we're into the the very last third phase of inflation. That's not my view either. Um I think inflation is reacelerating. The Fed is forced to lower rates and allowing inflation to run hotter. That's going to reaccelerate inflation uh normally and I think that that's um going to be very positive for hard assets. We're in a world where, you know, although we're comparing with the 1970s, the world back then was very different than now. we were not running for instance a very uh steep current account problem. So there was no deficit uh on the fiscal side or not a severe deficit on the on the trade balance side. There was no debt problem. You know we we have those three issues now and those three issues uh eventually cause what is called uh fiscal dominance and which is essentially lowering rates to allow your government to pay down your debt. And you don't do that with the strong dollar. You have to devalue the dollar. And so that's where emerging markets come from. If you think about from a from an investment uh standpoint, the two largest risks of investing in emerging markets are higher yields and higher dollar, we may see the opposite of that in this next 5 to 10 years. And so I firmly believe that while a lot of folks are f are paying attention to the corruption and all the differences we have in emerging markets, you know, those structural problems are not going to change. What's going to happen is the capital flows that are exhausted already into the US markets is likely to start uh uh switching and and coming into especially Latin America where I think it's going to be one of the biggest beneficiaries. So you you said that the dollar going down would be beneficial for emerging markets because most their debt I'm guessing is predominated in in in dollars and so their interest expenses will go down. They're they're not as levered as as a lot of the other developed economies are. uh they're going to be forced, meaning the US will be likely forced to lower uh the valuation of the dollar. In other words, the value of the dollar versus other fiat currencies, not just not just gold. Now, that's already happening. And I think it's important to pay attention to the gold trends historically. They usually uh lead emerging markets as well, early 2000s, 1970s. So, I think this is just the beginning. Uh gold has done the green light. uh and you know it it's all about an acceptance of risk um exercise. You know gold is much easier to understand. It's it's a large market. It it has volume. Central banks are buying and so it's it's it's easy to get behind that. Um the second other derivatives of gold are starting to move. You're seeing silver copper miners. It started with the royalties coming down to the seniors now going down to the juniors. Well that acceptance of risk is naturally taking place. And the next step of that is going to be emerging markets in my view. Which sectors, equity sectors of emerging uh markets would you prefer right now? Well, I like Latin America for many reasons. They have very heavy commodity based economies um from a energy to mining uh even agricultural commodities as well. Um but I think you're probably if you look at most let's just use a Brazil as an example um you can look at the banks Brazilian banks are trading at one of their lowest multiples we've seen in history and you know indirectly or directly those companies are going to benefit from this trend and so I am you know I don't think you need to go down uh with volatility uh liquidity risk as I've been deploying more capital into the mining space and and lower liquidity instrument struments. I think emerging markets, you can go into the liquid names and potentially have major uplifts when it comes to valuations. Um, the valuation disparity between uh Brazil or any other Latin American economy versus our business relative to the US is is is is one of the worst we've seen in history. And remember I mean all these changes we used to talk about about stateowned companies uh and all the issues about uh the the engagement of the government in those areas uh with privates with the private sector u is also happening in the US. So what's the big difference between these two economies now it's I all I'm saying is this the spread between the two in terms of the political involvement in the private sector is definitely shrinking substantially. You know MP materials receiving capital from the government. um those are things we usually see during war times and uh you know that type of equity uh uh deployment uh into into the private markets and so I think that's um you know that's that's going to change and people are not thinking about it these equity investments administrations come and go like four years from now we may see a change or three years from now a change in administration in the US well that equity position of the government is staying so what does that mean you know as we see you know a a more socialist uh agenda in the future. How is that going to be impacting the decisions of those companies with the government owning 10 20% 30% of of their companies? I think that's an important question. This is all predicated on the assumption that the dollar index is about to decline. You have a chart actually showing the DXY index making higher lows and higher highs ever since the beginning of the 2010s. And there's a white arrow pointing down in the latest data point. Why? Uh because I think that, you know, I learned this from um uh watching P Twitter Jones many times that the real money is made on um understanding and uh predicting the breakouts or breakdowns rather than waiting for them to occur and then piling on the trade. And I think there's a very plausible case to be made that the dollar needs to go a lot lower in the next 3 to 5 years. And if that's the case, that's going to mark a major breakdown in this chart and potentially the beginning of a long-term trend on the downside. And I think that people are just not uh expecting that at all. I mean, some of the dollar trades have been a little more crowded on the short side, but uh emerging markets remain extremely underowned. So um you can kind of see where you can express that view in markets. And once people realize that the dollar cannot get stronger and yields cannot go higher because if government cannot afford higher yields then that's that's where emerging markets going to become more and more clear. One bullish narrative for the dollar is that this is from Scott Ascent himself US Treasury Secretary stable coins the emergence of uh stable coins is going to put a lot of tremendous pressure on dollar demand. Stable coins are going to be backed by treasuries. So there's going to be more treasury demand, more dollar demand. Um, and the future of payment rails is going to be on stable coins. Look, I agree there's going to be they're going to find ways of funneling capital into the treasury market. What the issue I have with that view is that if you look at what's been happening with global yields, let's just use the 10-year yields across the globe. Sure. Year to date. Yeah. We talk about the Mara Lago. What is the Mara Lago? I mean, why is the US yields basically stagnant year today, 10-year yield, and every other yield across the globe is going higher? I think that's the Mara Lago right there. It's allowing the yields to go higher and supporting those currencies because the differential of of those interest rates, Japan, uh any place in Europe, Canada, uh Australia, Brazil, if they are higher than the interest rates in the US or at least in a relative basis moving higher, that supports their currency. And that's exactly what we're seeing. There's a reason why there's a correlation between this uh this movement on divergence between yields and the weakness of the dollar and I think that's only getting started. I don't think that's the end of it. What we're seeing what you're describing supports the Trump administration's agenda for a weaker dollar during his term and so we're seeing that playing out exactly as they expected. Does that mean a stronger export sector for the US? That that means what? Sorry. Does that mean a stronger export sector for the US? Yeah. I mean if you think about it um a lot has been said about the fiscal problem but not a lot has been said about the trade balance issue and structurally speaking um I think is the first chart in my letter actually um structurally speaking we're facing one of the worst trade balances uh in history. Uh I think the only time we've seen this was in the 19 it was in the 1800s but the US was an emerging market at that time and so there was a reason for that uh and we were receiving a bunch of capital. we were importing so much at that time as well uh in order to grow the economy and now we're in a very different more mature stage than back then. That's not the end of the US, nothing like that. All I'm saying is uh these these uh capital flows come and go and we're probably on to uh the beginning of a cycle where uh elsewhere outside of the US are probably going to outperform the US itself. And so I'm very bullish on particularly emerging markets for that reason. The US current account as a percentage GP is the first chart you're referencing. It's currently at negative 5%. Uh this is the worst since the early 2000s. What does this mean for markets? Well, it means that we're you know and by the way that time was actually the the chart is labeled although it looks like it's early 2000 that happened in the global financial crisis. Oh 2008. Yeah. But in global financial crisis what is interesting about that chart is that that was because the GDP was collapsing and and and you had that uh deficit becoming more uh extreme. Today it's much more structural. there's no recession and we're still seeing the decline. People don't think about it, but a government or a country works just like uh very similar to a company. If you think about as a company, your your streams of of revenues from a government standpoint or from a country standpoint are two things. You either bring in more taxes than what you spend from a fiscal front or you either export more than you import. We have a twin deficit problem. So, we have a deficit on the trade side, we're losing money on the fiscal side. And so that is basically exponentially growing the debt. And so and at the same time you have the dollar at its at its most overvalued levels we've seen in the last decades. And so those things don't go together. Something's got to give. In terms of portfolio positioning, you told me offline you're structurally bearish. Although you're not playing it like that right now. You're still long a lot of the resource equities, right? A lot of these charts on your slide deck support possibly a bullish thesis if you want to call it that. The US money supply going up for example is one such chart. If we have more liquidity doesn't it stand to reason that we'll have higher equities prices and valuations. Um higher inflation all things be equal should also be good for equities. Equities are direct hedge to inflation. So structurally speaking why are you bearish right now? Well, you know it's funny because when we talk about equity going higher equity markets but look the gold market has by far outperformed any other sector of the economy year to date. And to me that's much more compelling as a case than focusing on trying to find the other side of that market in terms of the outflows from the very frothy parts of the market. I I feel very uh with very high conviction that uh the risk doesn't justify uh these valuations in the tax space at all. I think that's extremely expensive and the capital that they have built over the years is probably going to rotate into other parts of the market. And so I rather focus on the earners. As I said, there's spenders and earners. I rather focus on the earners in a huge way. And I don't want to I don't want to bet against liquidity. I mean, liquidity is going to be here for a while most likely. And um you know, I don't think there's a way around it. And as we see liquidity continue to come into the space, it's going to probably going to look for ways that have been very neglected. What are those those parts? You know, mining is one place. That's why when people ask me, are we in a bubble? I'm like, we haven't even seen anything, guys. So, I mean, this is just a first year of good performance relative to gold. We we need to see multiple years like that in order to get into a bubble environment. We're not there. So, does it frighten you how fast the GDX has run year-to- date 90% and you have a chart showing gold miners year-to- date performance outperforming every other S&P 500 sector? That wasn't the case last year, by the way. Yeah. No, I agree. Um, no, I think it it I mean shocking. Yeah. I mean, it's it's nice to see that occurring. It's it gives you more more conviction. As a portfolio manager, do you see that to yourself and say, "Whoa, it's time to take profits." No, I don't think so. I think people are here. I think the biggest mark my words on this, I I it's my view on this. Okay. I I I think that the biggest challenge for investors in the next decade, if you believe we're in a mining cycle, and this is getting started, where you see mining companies is starting to outperform gold, which is just at the beginning. If you look at that chart of GDX relative to gold, we're like 60% lower than we were back in 2011. I mean, we're nowhere close to that level and I think we're going to break out. But I think the biggest risk for an investor in the space is going to be how to hold on to your shares in the middle of a bull market because I think we are using perspective from prior cycles into this and saying, well, these things are getting frothy compared to what we saw in prior cycles. This is a very different cycle. Uh capital spending is extremely depressed. There's no major mining uh projects coming online to change the supply curve. We know that there's a lot of capital starting to come into the space. There's a need for this given that onshoring and AI. AI is an arms race. It's not an option to spend. They need to spend. It's it's almost like a threat nationally u you know between China, US and other economies. And so yeah, this is a to me this is just the beginning. This is going to be a very exciting next uh decade in the space. The uh the last time we had a huge bull run in the gold space was 2020, right after the pandemic, right after QE. Before that it was 2011 and then you knew what happened after that. We had a multi-year low flat line in the gold sector kind of just you know trucking along for eight years or so. What's different between now and 2012? this everyone asking that question like why are we in a bubble or why we're close to the end it's like not to be disrespectful at all but like honestly I think that the whole industry is asking those questions as well and it's it's normal natural all of us have uh in the space uh although we've we've done very well in the last few years and we're we're blessed on on performance but I know that the whole space has been very um uh in the hopes of of performance and now finally we're seeing the the this uh excitement coming into this whole industry and I think it's just the beginning. I really think that that we're just you know look at the you know the fact that no one is is really pounding the table on silver. Yeah. Then go the silver is is trading at 40 above $40 an ounce and the gold to silver ratio is at 80. Yeah. I mean that's one of the most bullish greens you know lights I've seen in my in my probably in my career uh for the metal. And so you know this is outstanding. While a lot of people are saying, well, you know, silver is not really moving as it's supposed to be moving like gold is, it's normal. Just, you know, let the thing take its place and it's it's absolutely normal. So, I'm very I'm very excited about this whole space. What are some common questions you've been getting at this conference so far? I know it's only been 3 hours in. Yeah. No, I mean, look, I think there's been a lot of questions about positioning, about the fact that we're maybe seeing um, you know, a lot of excitement and valuations are starting to creep up and there's a lot of people asking for money and there's a lot of capital raises. Um, but the at the end of the day, if you look at the indices, major indices, how much how many mining companies are in the S&P 500 today? How many gold companies are in the S&P 500? You know, I mean, can we have 10 of them in in one day? I mean, why not? No, I I think we're we're selling ourselves short here. Is there interest from institutional players for uh to add gold mining companies to their portfolio? When are we going to see, you know, a mid-tier in a pension fund for example? Oh, I think it's going to happen very very uh soon. Um and um I think I think all these places struggle with the complexity of the industry uh to to come up with reasons justification to really invest in in this industry. the the fact if you look at the most of these uh projections for gold prices at the end of the day when you value a gold company you're looking at projections for gold majority of the projections for gold are still 2500 long term that's not my view I think we can see double that in in the next uh in the next 5 years 2500 2500 is is where the the projections are I think we can see why not 5,000 gold prices in 5 years from now and what 3600 uh $3,600 $5,000 doesn't seem so crazy. Well, I think if you look at valuations, majority of the mining companies are still trading like gold prices are at, like I said, maybe even at 1500. And so, look at look at the cost curve of these companies. All in sustaining costs in average is still sub, you know, 1300 for most of these companies. And they're producing at $3,600 gold prices on the top line. And so, these margins are insane. And look, it's it's wonderful. And then people are going to start seeing the cash flowing side of it and that's when institutions start to really deploy capital. Um we're we haven't seen the M&A the real M&A excitement yet. I mean that's still coming. Um the juniors are still really cheap. Um and so yeah this is a this is a world that is only getting started. Notice the behavior of some of the junior companies beginning to perform better especially when gold prices are down. uh that means that the institutional capital is finding its way into some of the the places that again accepting more risk. They're taking more risk uh and they're being okay with that because they think gold prices will be here uh at these levels for the long term. And so look this is very you know when you buy a mine today when you go buy a car for instance you buy a car a new car next day that you bought that car the value of that car is down what 30% or so normal right everybody faces that issue today you buy a mine it's the opposite you buy a mine at the price that is being the valuation of these mines are still at 25 $2200 gold prices the day you buy that you got a huge uplift on your valuation just because gold prices are actually at 3,600. And so here's a longer term issue that I don't know if we've thought about yet. So right now, people are telling me it's a little bit harder to make discoveries, peak gold and all that. It's a little bit more difficult to drill, more costly to drill. All right. So a typical mine life 10, 15 years. What happens in 20 years, Tavi, when most of the mines right now are near depletion and it's being it's getting more and more difficult to find the replacement. Well, let's 20 years. Let's think this through, right? I mean, there's some outstanding companies. There's too many companies in the mining industry. Sure. 95% of them are should probably be worth zero. And the other 5% have high quality assets. Your job as an investor in this industry, if you're in this part of the Lone curve, the left side of the Lone curve, is to figure out which ones are those 5%. Now, I would say that 75 80% of them are probably very easy to figure out that they shouldn't be you shouldn't be investing. And then the other 10 15% are probably a little more tricky 20%. And so that's where your your challenge really is. Those companies that you just mentioned, not not that you mention any names, but that that part of the industry that has high quality assets and exploration side are probably going to be beat up and it's, you know, it's it's an end game for those companies most likely. So 3 years ago, we decided to start deploying capital into that 5% that we thought were the high quality assets. And you know things are starting to turn uh in a huge way. Um another another aspect that I would I would go back to as an analog of the 1970s. Uh the 60s was also a period where we didn't see a lot of discoveries. There's a lot of issues there. Um and in the 70s we saw gold prices rise. Mining companies did very well. But the 70s we didn't see a lot of discoveries. That's why we saw this kind of 10-year period of of you know bull market in in gold prices too. Now subsequently 1980s and 90s. So after the bull market, we saw so much money coming into this industry. Market peaked and then we saw an age of discovery. Capital was still there and so companies went chase new discoveries and they found a bunch of new discoveries in the 80s and the '90s. So I think we're maybe a decade out or or maybe 5 years out of another discovery phase. Uh that's going to happen too. It's going to be natural part of the process here. Okay, I'm going to finish off in a we have two minutes left. I'll finish off in a two-part question. So, what do you think the Fed's going to do with 2026? And second part of the question, is monetary policy, aka what the Fed does, more important or less important than fiscal policy for your investment decisions? Um, I I think monetary policy has become fiscal policy. Um, you know, you have to lower rates to allow the government to pay its debt. And so, it's it's going to be a very tricky game to allow rates to ever rise. And if you're in that environment, you're probably going to let inflation to continue to run hotter and and liquidity will continue to come in and market and and money is going to find its way in things that I I believe are neglected and cheap and and uh that are starting to move. Um as far as the the Fed, look, I think that there's, you know, uh reason to believe that um they may not lower rates this uh this next meeting. Uh and the main reason for that is Fed could take the political route or it could just say that inflation is running hotter. We're seeing data that inflation is running hotter than prior months. And um that could be justification to maybe not lower rates like the market is expecting. Now 2026, as you asked me the question, I think we're going to um you know, unavoidably lower rates in a big way. And and that's going to be I don't think silver prices would be here at $40 an ounce in that environment. So, I know that's a long-term uh or you know, more medium-term long-term view. Uh very very short term, we may see a little um you know, I'm not trying to make a lot of money in this types of predictions, but I I'm very open-minded to that. I think that's how investors need to approach this. If we see a pullback caused by that, I'm going to be a buyer because I think that they're going to go back and lower rates. Lower rates in a big way. Is that bullish or bearish for uh for markets? So, I've heard the opinion that it could be both. It depends if they lower rates in a in an economy that is hot and and you know inflation then it's it's a different story. Um we're a a little bit stackflationary right now. You know it's it's I think the jury is out on on where labor markets are. The data is difficult to judge. Um you know there's maybe some issues with the data as as Trump has pointed out and and maybe even more issues now with a new uh person coming in and and readjusting the data. Do we believe in that or not? I mean it's it's difficult um but at the end of the day you know liquidity is coming in and and inflation is coming back. You can see um I think copper is you know had a huge pullback looks extremely cheap. You have other uh uh commodities doing very well. Uh energy looks very cheap. I I like people to remind people about the dynamic that is very usual of a commodity cycle. It's a rotation. we rotate into things and I think we're yet to see the rotation uh start to become the spotlight for energy and agricultural. Well, I think people should rotate to your social media and your website and see what else is you've got. So, where can people follow you? They can follow me at Tavio Kosa on uh X and uh our website is cresca.net as well and you can find our letters there and they can rotate back into your YouTube. Awesome. All right. Well, we look forward to that. Thank you very much, Tommy. Thank you for your time. Thank you for watching.
Fed To Cut ‘In A Big Way’: Will Market ‘Breakdown’ Follow? | Tavi Costa
Summary
Transcript
I think we're going to lower rates in a big way. I don't think silver prices would be here at $40 an ounce in that environment. Mark my words on this. The biggest risk for an investor in the space is going to be how to hold on to your shares in the middle of a bull market because I think we are using perspective from prior cycles into this and saying, well, these things are getting frothy compared to what we saw in prior cycles. This is a very different cycle. Does it look like a bubble to you right now? No, no, not a bubble at all. I I would argue very much against that. I'm I'll probably be one of the first guys to admit if we are in a bubble. Uh I don't think that's the case at all. [Music] Right now, pretty much every single asset class that we can think of except maybe oil has been ripping higher. stocks, gold, precious metals, gold mining stocks, which we'll talk about in detail, Bitcoin and cryptos, probably probably the biggest bull phase right now since early 2021. We'll talk about why and we'll talk about what's next with our next guest, Tavi Costa, portfolio manager at Crescat Capital, and he's predicting a huge surge in the resource sector. He's been right. Welcome to the show, Tavi. It's good to see you here at the Precious Metal Summit in Beaver Creek. Thanks for having me, David. Yeah, I want to start with one of these slides here. You've got in your presentation at crescat.net. Stages in a bubble and you've got here the timeline. We can show this on the screen for the audience here. Valuation timeline. Um, despair is the latest point in this particular chart followed by a return to the mean. What stage are we in right now? We're definitely at transitioning from the stealth phase into the awareness phase and that's exactly where institutions are starting to ask questions. They're starting to deploy some capital. I think that what is interesting about the mining industry overall is the complexity of this industry uh makes it very difficult for institutions to deploy capital. So it takes a little time. We've been in this uh smart money phase for the last 3 four years of people accumulating. I would include myself in the data accumulating in those assets over time and now we're starting to see the movements. Uh but the leverage relative to metals is still um a long ways from from a peak level. We're we're really at the very beginning of a cycle in my view. It's extremely exciting if you've been investing in the space. We finally see some validation. Companies are making money. Uh most of the mining companies are seeing cash flows like we've never seen before. um especially given where gold to oil ratio is and most of gold to or any metal even silver relative to energy cost is what is causing this this huge uh run up in in their margins and so I suspect that u as a mining company you want to hedge that energy uh risk in my view as well uh but there's a probably another two to three years of of very interesting performance for this this whole industry does it look like a bubble to you right now no not a bubble at all I I argue very much against that. I'm I'll probably be one of the first guys to admit if we are in a bubble. Uh I don't think that's the case at all. I think uh we're coming off such depressed valuations that people have just not made money and and everyone is just excited about making some money um that that excitement may be uh sometimes uh uh you know confused with potentially a bubble, but that's that's not the case. I mean we're we're still in the beginning. What about tech stocks? So, we've got a slide here showing how the Mac 7 stocks have been increasing in terms of their median enterprise value to free cash flow on the top panel of the chart versus their aggregate net cash balance which has been going down. Yeah. I wonder if that signifies an overvaluation or an extension of valuations. Yeah. No, that's that's a frothy environment right there. Um that side of the market and the tech space is certainly very uh expensive different from uh the mining industry. I would I would argue that that's one of the the reasons for it. Certainly AI has been changing and attracting a lot of the money into that part of the market. Uh what I would say is that the valuation of these companies as they see some deterioration of the balance sheets I think would be the big question how market will treat it. I also think that this is going to unleash what I call a world of spenders versus losers uh versus earners. uh the spenders are likely to be the max 7 econ uh companies and the other technology companies. This the earners are going to fall into three categories in my opinion. Uh probably energy uh number two infrastructure and three materials uh mining being one of them. And so the big question for the the size of the technology space is how will this uh frothy valuations behave when you start seeing these companies really leverage their balance sheets. They actually don't have any debt in their balance sheets yet uh on an aggregate standpoint. They actually have net cash in their balance sheet. So imagine that turning into debt. Let's say 30 40% of of their balance sheet in debt. um that's trillions of dollars entering in this other areas of the earners and so spenders are going to spend earners are going to compound earnings and so I'm I'm super excited about the other side of it 40 and slip earlier spenders versus losers if you don't spend on investments right now you're probably going to lose out on an opportunity well let's talk about that people have been asking me both here at the conference and personally offline hey is it time to sell my holdings especially in the precious metals No, I I don't think that's the case. There's some real big forces happening in the space. Um AI, just to touch on that again, is very different that what we've seen in with the internet or the real world um revolution in a huge way just because the amount of infrastructure development we're going to see here is comparable to some of those other parts in history. What is not comparable is this arms race. This need for somebody, a country or a company to get there first. And that race is what will catalyze the spending on construction. In my opinion, construction is running at about 7% of GDP. We could see double of that amount. Construction for what? Data centers. Construction spending overall. That's including residential and non-residential is at about 7% of GDP. And I would suspect that looking at history on that data alone, we can probably see a double of that amount, 14% of so that what used to be in the 60s. And so very plausible. And so you have to think about all right, well those are trillions of dollars coming into all sort of industries. Um and so and a lot of people are questioning can the can the tech industry or the tech sector really finance that? I I certainly think it's possible. I mean on their free cash flow alone about 85% of what they generate in free cash flow is going back to shareholders. It's going through buybacks and dividends uh that alone could be about half a trillion dollars every year that could be coming into all sorts of infrastructure spending. So that's going to be very very exciting. And then then industrialization that is happening um uh I would say that the mining industry will benefit tremendously from that and what's happening with the government also you know trying to infuse capital and certain companies MP materials and others the engagement of the government which I think is very negative from a macro standpoint but we have to see as well that that cash is coming into this industry in a large way and will will have an impact on valuations too. So certainly not a bubble in the mining industry in my opinion. We're speaking today on the 9th of September. Over the last week and a half, stocks have ripped higher. Gold is hitting new all-time highs, $3,600. Silver $40 an ounce for the first time since 2011. Everything is just soaring higher. Bitcoin now above 110,000. So, uh the question is why? Why? What happened in the last 2 3 weeks? One interpretation is that the expectation for the Fed to cut rates by September, the next meeting, which is next week, is higher now, especially after Jackson Hole. Is that the only reason? I mean, we're in a funny world. you know, inflation is reacelerating. Everything you said is very inflationary, especially if you look at the hard asset space. Gold is obviously in my at least in my my view is is probably leading inflation data in a big way. Uh maybe a year out. And so I suspect we're in a world where inflation needs to run hotter than expected. Scott Basson has said many times, we got to, you know, grow our way out of this debt problem. That's just a code word for inflation. we're going to inflate our way out and we're going to have to suppress rates. And so what is basically becoming a policy uh unavoidably is the devaluation of the dollar versus other fiat currencies. What I think people are missing here is that this dollar movement, we've seen one of the biggest declines of the DXY index since the 70s, uh specifically 1973. And the question is, is this a beginning of a big downward movement or uh an exhausted move? And I certainly think this is a long-term problem. And as we see that becoming more uh pronounced in markets, I believe that that's going to catalyze other ideas such as emerging markets that no one is positioned for. That to me is one of the most asymmetric opportunities in markets right now. Energy as well. I think you said it well. Energy has been lagging everything. And so I have, you know, I happen to have a very constructive view on energy right now. I mean, if you if you like um energy companies and you're you're not bullish right now, I'm not I'm not sure exactly what type of analysis you're running cuz it's it's you know, they're making money. These companies um are certainly one of the cheapest levels we've seen in history. And uh I I I would suspect that that's also going to be become a big part of the onshoring and AI story as well. I want to come back to emerging markets. Um, but going back to what you talked about it earlier with inflation, you have a chart here showing inflation then versus now. Yeah, inflation has come and gone in cycles and waves. And then you're drawing a parallel here between 2015 to today versus 1967 to 83. And it looks like it's about to repeat, if you overlay those two lines, it's about to repeat a third wave of inflation. Is there a fundamental story as to why that third wave could come back? Yeah, by the way, that chart looks um you know, I think looks great, but uh it it makes you think that we're into the the very last third phase of inflation. That's not my view either. Um I think inflation is reacelerating. The Fed is forced to lower rates and allowing inflation to run hotter. That's going to reaccelerate inflation uh normally and I think that that's um going to be very positive for hard assets. We're in a world where, you know, although we're comparing with the 1970s, the world back then was very different than now. we were not running for instance a very uh steep current account problem. So there was no deficit uh on the fiscal side or not a severe deficit on the on the trade balance side. There was no debt problem. You know we we have those three issues now and those three issues uh eventually cause what is called uh fiscal dominance and which is essentially lowering rates to allow your government to pay down your debt. And you don't do that with the strong dollar. You have to devalue the dollar. And so that's where emerging markets come from. If you think about from a from an investment uh standpoint, the two largest risks of investing in emerging markets are higher yields and higher dollar, we may see the opposite of that in this next 5 to 10 years. And so I firmly believe that while a lot of folks are f are paying attention to the corruption and all the differences we have in emerging markets, you know, those structural problems are not going to change. What's going to happen is the capital flows that are exhausted already into the US markets is likely to start uh uh switching and and coming into especially Latin America where I think it's going to be one of the biggest beneficiaries. So you you said that the dollar going down would be beneficial for emerging markets because most their debt I'm guessing is predominated in in in dollars and so their interest expenses will go down. They're they're not as levered as as a lot of the other developed economies are. uh they're going to be forced, meaning the US will be likely forced to lower uh the valuation of the dollar. In other words, the value of the dollar versus other fiat currencies, not just not just gold. Now, that's already happening. And I think it's important to pay attention to the gold trends historically. They usually uh lead emerging markets as well, early 2000s, 1970s. So, I think this is just the beginning. Uh gold has done the green light. uh and you know it it's all about an acceptance of risk um exercise. You know gold is much easier to understand. It's it's a large market. It it has volume. Central banks are buying and so it's it's it's easy to get behind that. Um the second other derivatives of gold are starting to move. You're seeing silver copper miners. It started with the royalties coming down to the seniors now going down to the juniors. Well that acceptance of risk is naturally taking place. And the next step of that is going to be emerging markets in my view. Which sectors, equity sectors of emerging uh markets would you prefer right now? Well, I like Latin America for many reasons. They have very heavy commodity based economies um from a energy to mining uh even agricultural commodities as well. Um but I think you're probably if you look at most let's just use a Brazil as an example um you can look at the banks Brazilian banks are trading at one of their lowest multiples we've seen in history and you know indirectly or directly those companies are going to benefit from this trend and so I am you know I don't think you need to go down uh with volatility uh liquidity risk as I've been deploying more capital into the mining space and and lower liquidity instrument struments. I think emerging markets, you can go into the liquid names and potentially have major uplifts when it comes to valuations. Um, the valuation disparity between uh Brazil or any other Latin American economy versus our business relative to the US is is is is one of the worst we've seen in history. And remember I mean all these changes we used to talk about about stateowned companies uh and all the issues about uh the the engagement of the government in those areas uh with privates with the private sector u is also happening in the US. So what's the big difference between these two economies now it's I all I'm saying is this the spread between the two in terms of the political involvement in the private sector is definitely shrinking substantially. You know MP materials receiving capital from the government. um those are things we usually see during war times and uh you know that type of equity uh uh deployment uh into into the private markets and so I think that's um you know that's that's going to change and people are not thinking about it these equity investments administrations come and go like four years from now we may see a change or three years from now a change in administration in the US well that equity position of the government is staying so what does that mean you know as we see you know a a more socialist uh agenda in the future. How is that going to be impacting the decisions of those companies with the government owning 10 20% 30% of of their companies? I think that's an important question. This is all predicated on the assumption that the dollar index is about to decline. You have a chart actually showing the DXY index making higher lows and higher highs ever since the beginning of the 2010s. And there's a white arrow pointing down in the latest data point. Why? Uh because I think that, you know, I learned this from um uh watching P Twitter Jones many times that the real money is made on um understanding and uh predicting the breakouts or breakdowns rather than waiting for them to occur and then piling on the trade. And I think there's a very plausible case to be made that the dollar needs to go a lot lower in the next 3 to 5 years. And if that's the case, that's going to mark a major breakdown in this chart and potentially the beginning of a long-term trend on the downside. And I think that people are just not uh expecting that at all. I mean, some of the dollar trades have been a little more crowded on the short side, but uh emerging markets remain extremely underowned. So um you can kind of see where you can express that view in markets. And once people realize that the dollar cannot get stronger and yields cannot go higher because if government cannot afford higher yields then that's that's where emerging markets going to become more and more clear. One bullish narrative for the dollar is that this is from Scott Ascent himself US Treasury Secretary stable coins the emergence of uh stable coins is going to put a lot of tremendous pressure on dollar demand. Stable coins are going to be backed by treasuries. So there's going to be more treasury demand, more dollar demand. Um, and the future of payment rails is going to be on stable coins. Look, I agree there's going to be they're going to find ways of funneling capital into the treasury market. What the issue I have with that view is that if you look at what's been happening with global yields, let's just use the 10-year yields across the globe. Sure. Year to date. Yeah. We talk about the Mara Lago. What is the Mara Lago? I mean, why is the US yields basically stagnant year today, 10-year yield, and every other yield across the globe is going higher? I think that's the Mara Lago right there. It's allowing the yields to go higher and supporting those currencies because the differential of of those interest rates, Japan, uh any place in Europe, Canada, uh Australia, Brazil, if they are higher than the interest rates in the US or at least in a relative basis moving higher, that supports their currency. And that's exactly what we're seeing. There's a reason why there's a correlation between this uh this movement on divergence between yields and the weakness of the dollar and I think that's only getting started. I don't think that's the end of it. What we're seeing what you're describing supports the Trump administration's agenda for a weaker dollar during his term and so we're seeing that playing out exactly as they expected. Does that mean a stronger export sector for the US? That that means what? Sorry. Does that mean a stronger export sector for the US? Yeah. I mean if you think about it um a lot has been said about the fiscal problem but not a lot has been said about the trade balance issue and structurally speaking um I think is the first chart in my letter actually um structurally speaking we're facing one of the worst trade balances uh in history. Uh I think the only time we've seen this was in the 19 it was in the 1800s but the US was an emerging market at that time and so there was a reason for that uh and we were receiving a bunch of capital. we were importing so much at that time as well uh in order to grow the economy and now we're in a very different more mature stage than back then. That's not the end of the US, nothing like that. All I'm saying is uh these these uh capital flows come and go and we're probably on to uh the beginning of a cycle where uh elsewhere outside of the US are probably going to outperform the US itself. And so I'm very bullish on particularly emerging markets for that reason. The US current account as a percentage GP is the first chart you're referencing. It's currently at negative 5%. Uh this is the worst since the early 2000s. What does this mean for markets? Well, it means that we're you know and by the way that time was actually the the chart is labeled although it looks like it's early 2000 that happened in the global financial crisis. Oh 2008. Yeah. But in global financial crisis what is interesting about that chart is that that was because the GDP was collapsing and and and you had that uh deficit becoming more uh extreme. Today it's much more structural. there's no recession and we're still seeing the decline. People don't think about it, but a government or a country works just like uh very similar to a company. If you think about as a company, your your streams of of revenues from a government standpoint or from a country standpoint are two things. You either bring in more taxes than what you spend from a fiscal front or you either export more than you import. We have a twin deficit problem. So, we have a deficit on the trade side, we're losing money on the fiscal side. And so that is basically exponentially growing the debt. And so and at the same time you have the dollar at its at its most overvalued levels we've seen in the last decades. And so those things don't go together. Something's got to give. In terms of portfolio positioning, you told me offline you're structurally bearish. Although you're not playing it like that right now. You're still long a lot of the resource equities, right? A lot of these charts on your slide deck support possibly a bullish thesis if you want to call it that. The US money supply going up for example is one such chart. If we have more liquidity doesn't it stand to reason that we'll have higher equities prices and valuations. Um higher inflation all things be equal should also be good for equities. Equities are direct hedge to inflation. So structurally speaking why are you bearish right now? Well, you know it's funny because when we talk about equity going higher equity markets but look the gold market has by far outperformed any other sector of the economy year to date. And to me that's much more compelling as a case than focusing on trying to find the other side of that market in terms of the outflows from the very frothy parts of the market. I I feel very uh with very high conviction that uh the risk doesn't justify uh these valuations in the tax space at all. I think that's extremely expensive and the capital that they have built over the years is probably going to rotate into other parts of the market. And so I rather focus on the earners. As I said, there's spenders and earners. I rather focus on the earners in a huge way. And I don't want to I don't want to bet against liquidity. I mean, liquidity is going to be here for a while most likely. And um you know, I don't think there's a way around it. And as we see liquidity continue to come into the space, it's going to probably going to look for ways that have been very neglected. What are those those parts? You know, mining is one place. That's why when people ask me, are we in a bubble? I'm like, we haven't even seen anything, guys. So, I mean, this is just a first year of good performance relative to gold. We we need to see multiple years like that in order to get into a bubble environment. We're not there. So, does it frighten you how fast the GDX has run year-to- date 90% and you have a chart showing gold miners year-to- date performance outperforming every other S&P 500 sector? That wasn't the case last year, by the way. Yeah. No, I agree. Um, no, I think it it I mean shocking. Yeah. I mean, it's it's nice to see that occurring. It's it gives you more more conviction. As a portfolio manager, do you see that to yourself and say, "Whoa, it's time to take profits." No, I don't think so. I think people are here. I think the biggest mark my words on this, I I it's my view on this. Okay. I I I think that the biggest challenge for investors in the next decade, if you believe we're in a mining cycle, and this is getting started, where you see mining companies is starting to outperform gold, which is just at the beginning. If you look at that chart of GDX relative to gold, we're like 60% lower than we were back in 2011. I mean, we're nowhere close to that level and I think we're going to break out. But I think the biggest risk for an investor in the space is going to be how to hold on to your shares in the middle of a bull market because I think we are using perspective from prior cycles into this and saying, well, these things are getting frothy compared to what we saw in prior cycles. This is a very different cycle. Uh capital spending is extremely depressed. There's no major mining uh projects coming online to change the supply curve. We know that there's a lot of capital starting to come into the space. There's a need for this given that onshoring and AI. AI is an arms race. It's not an option to spend. They need to spend. It's it's almost like a threat nationally u you know between China, US and other economies. And so yeah, this is a to me this is just the beginning. This is going to be a very exciting next uh decade in the space. The uh the last time we had a huge bull run in the gold space was 2020, right after the pandemic, right after QE. Before that it was 2011 and then you knew what happened after that. We had a multi-year low flat line in the gold sector kind of just you know trucking along for eight years or so. What's different between now and 2012? this everyone asking that question like why are we in a bubble or why we're close to the end it's like not to be disrespectful at all but like honestly I think that the whole industry is asking those questions as well and it's it's normal natural all of us have uh in the space uh although we've we've done very well in the last few years and we're we're blessed on on performance but I know that the whole space has been very um uh in the hopes of of performance and now finally we're seeing the the this uh excitement coming into this whole industry and I think it's just the beginning. I really think that that we're just you know look at the you know the fact that no one is is really pounding the table on silver. Yeah. Then go the silver is is trading at 40 above $40 an ounce and the gold to silver ratio is at 80. Yeah. I mean that's one of the most bullish greens you know lights I've seen in my in my probably in my career uh for the metal. And so you know this is outstanding. While a lot of people are saying, well, you know, silver is not really moving as it's supposed to be moving like gold is, it's normal. Just, you know, let the thing take its place and it's it's absolutely normal. So, I'm very I'm very excited about this whole space. What are some common questions you've been getting at this conference so far? I know it's only been 3 hours in. Yeah. No, I mean, look, I think there's been a lot of questions about positioning, about the fact that we're maybe seeing um, you know, a lot of excitement and valuations are starting to creep up and there's a lot of people asking for money and there's a lot of capital raises. Um, but the at the end of the day, if you look at the indices, major indices, how much how many mining companies are in the S&P 500 today? How many gold companies are in the S&P 500? You know, I mean, can we have 10 of them in in one day? I mean, why not? No, I I think we're we're selling ourselves short here. Is there interest from institutional players for uh to add gold mining companies to their portfolio? When are we going to see, you know, a mid-tier in a pension fund for example? Oh, I think it's going to happen very very uh soon. Um and um I think I think all these places struggle with the complexity of the industry uh to to come up with reasons justification to really invest in in this industry. the the fact if you look at the most of these uh projections for gold prices at the end of the day when you value a gold company you're looking at projections for gold majority of the projections for gold are still 2500 long term that's not my view I think we can see double that in in the next uh in the next 5 years 2500 2500 is is where the the projections are I think we can see why not 5,000 gold prices in 5 years from now and what 3600 uh $3,600 $5,000 doesn't seem so crazy. Well, I think if you look at valuations, majority of the mining companies are still trading like gold prices are at, like I said, maybe even at 1500. And so, look at look at the cost curve of these companies. All in sustaining costs in average is still sub, you know, 1300 for most of these companies. And they're producing at $3,600 gold prices on the top line. And so, these margins are insane. And look, it's it's wonderful. And then people are going to start seeing the cash flowing side of it and that's when institutions start to really deploy capital. Um we're we haven't seen the M&A the real M&A excitement yet. I mean that's still coming. Um the juniors are still really cheap. Um and so yeah this is a this is a world that is only getting started. Notice the behavior of some of the junior companies beginning to perform better especially when gold prices are down. uh that means that the institutional capital is finding its way into some of the the places that again accepting more risk. They're taking more risk uh and they're being okay with that because they think gold prices will be here uh at these levels for the long term. And so look this is very you know when you buy a mine today when you go buy a car for instance you buy a car a new car next day that you bought that car the value of that car is down what 30% or so normal right everybody faces that issue today you buy a mine it's the opposite you buy a mine at the price that is being the valuation of these mines are still at 25 $2200 gold prices the day you buy that you got a huge uplift on your valuation just because gold prices are actually at 3,600. And so here's a longer term issue that I don't know if we've thought about yet. So right now, people are telling me it's a little bit harder to make discoveries, peak gold and all that. It's a little bit more difficult to drill, more costly to drill. All right. So a typical mine life 10, 15 years. What happens in 20 years, Tavi, when most of the mines right now are near depletion and it's being it's getting more and more difficult to find the replacement. Well, let's 20 years. Let's think this through, right? I mean, there's some outstanding companies. There's too many companies in the mining industry. Sure. 95% of them are should probably be worth zero. And the other 5% have high quality assets. Your job as an investor in this industry, if you're in this part of the Lone curve, the left side of the Lone curve, is to figure out which ones are those 5%. Now, I would say that 75 80% of them are probably very easy to figure out that they shouldn't be you shouldn't be investing. And then the other 10 15% are probably a little more tricky 20%. And so that's where your your challenge really is. Those companies that you just mentioned, not not that you mention any names, but that that part of the industry that has high quality assets and exploration side are probably going to be beat up and it's, you know, it's it's an end game for those companies most likely. So 3 years ago, we decided to start deploying capital into that 5% that we thought were the high quality assets. And you know things are starting to turn uh in a huge way. Um another another aspect that I would I would go back to as an analog of the 1970s. Uh the 60s was also a period where we didn't see a lot of discoveries. There's a lot of issues there. Um and in the 70s we saw gold prices rise. Mining companies did very well. But the 70s we didn't see a lot of discoveries. That's why we saw this kind of 10-year period of of you know bull market in in gold prices too. Now subsequently 1980s and 90s. So after the bull market, we saw so much money coming into this industry. Market peaked and then we saw an age of discovery. Capital was still there and so companies went chase new discoveries and they found a bunch of new discoveries in the 80s and the '90s. So I think we're maybe a decade out or or maybe 5 years out of another discovery phase. Uh that's going to happen too. It's going to be natural part of the process here. Okay, I'm going to finish off in a we have two minutes left. I'll finish off in a two-part question. So, what do you think the Fed's going to do with 2026? And second part of the question, is monetary policy, aka what the Fed does, more important or less important than fiscal policy for your investment decisions? Um, I I think monetary policy has become fiscal policy. Um, you know, you have to lower rates to allow the government to pay its debt. And so, it's it's going to be a very tricky game to allow rates to ever rise. And if you're in that environment, you're probably going to let inflation to continue to run hotter and and liquidity will continue to come in and market and and money is going to find its way in things that I I believe are neglected and cheap and and uh that are starting to move. Um as far as the the Fed, look, I think that there's, you know, uh reason to believe that um they may not lower rates this uh this next meeting. Uh and the main reason for that is Fed could take the political route or it could just say that inflation is running hotter. We're seeing data that inflation is running hotter than prior months. And um that could be justification to maybe not lower rates like the market is expecting. Now 2026, as you asked me the question, I think we're going to um you know, unavoidably lower rates in a big way. And and that's going to be I don't think silver prices would be here at $40 an ounce in that environment. So, I know that's a long-term uh or you know, more medium-term long-term view. Uh very very short term, we may see a little um you know, I'm not trying to make a lot of money in this types of predictions, but I I'm very open-minded to that. I think that's how investors need to approach this. If we see a pullback caused by that, I'm going to be a buyer because I think that they're going to go back and lower rates. Lower rates in a big way. Is that bullish or bearish for uh for markets? So, I've heard the opinion that it could be both. It depends if they lower rates in a in an economy that is hot and and you know inflation then it's it's a different story. Um we're a a little bit stackflationary right now. You know it's it's I think the jury is out on on where labor markets are. The data is difficult to judge. Um you know there's maybe some issues with the data as as Trump has pointed out and and maybe even more issues now with a new uh person coming in and and readjusting the data. Do we believe in that or not? I mean it's it's difficult um but at the end of the day you know liquidity is coming in and and inflation is coming back. You can see um I think copper is you know had a huge pullback looks extremely cheap. You have other uh uh commodities doing very well. Uh energy looks very cheap. I I like people to remind people about the dynamic that is very usual of a commodity cycle. It's a rotation. we rotate into things and I think we're yet to see the rotation uh start to become the spotlight for energy and agricultural. Well, I think people should rotate to your social media and your website and see what else is you've got. So, where can people follow you? They can follow me at Tavio Kosa on uh X and uh our website is cresca.net as well and you can find our letters there and they can rotate back into your YouTube. Awesome. All right. Well, we look forward to that. Thank you very much, Tommy. Thank you for your time. Thank you for watching.