Strategist: Central Banks Will Let Inflation Run High, Erasing 50% of Cash Value
Summary
Market Outlook: The podcast discusses the current economic uncertainty, highlighting a significant job revision by the US Bureau of Labor Statistics, which suggests a weaker US economy and potential central bank interventions.
Central Bank Strategies: There is an expectation that central banks, particularly the Fed, may resort to aggressive rate cuts, quantitative easing, or yield curve control to manage economic instability and rising inflation.
Investment in Real Assets: The discussion emphasizes the importance of investing in real assets like gold, silver, and real estate as a hedge against inflation and the declining value of cash.
European Political Landscape: The political instability in Europe, particularly in France, is seen as a reflection of broader challenges in the Eurozone, with implications for debt management and economic policy.
Commodity Super Cycle: The podcast highlights a potential commodity super cycle driven by structural inflation, with significant opportunities in gold, silver, copper, and lithium due to supply constraints and increased demand.
China's Role: China's influence on the commodity market is discussed, noting its role as both a driver of demand and a source of volatility, particularly in rare earths and lithium.
Investment Strategies: The conversation suggests a diversified approach to investing in precious metals, combining physical assets, ETFs, and mining stocks to mitigate risks and capitalize on market trends.
Geopolitical Risks: The podcast addresses the risks of resource nationalism and jurisdictional safety, emphasizing the importance of investing in stable regions to protect against political and economic disruptions.
Transcript
[Music] Welcome back. I'm Jeremy Saffron. We begin with a jarring economic reality from the US Bureau of Labor Statistics. Now, this morning's preliminary benchmark revision for the year through March was a record, erasing 911,000 jobs from the official count, a number much higher than expected. And if you look at the chart that we're showing, you can see that that there's been a big decline here since 2023. That's a clear signal that the US economy has been on far shakier ground than previously thought, unless you've been listening to some of our guests right here at Kiko News. Now, this economic uncertainty is also occurring as political foundations in Europe are starting to crack. The government in France, the EU's second largest economy, has officially collapsed after Prime Minister Francois Beeru was forced to resign and defense minister Sebastian Leornu is now France's new prime minister. It's worth noting that this is President Mcronone's seventh prime minister. Now, in this environment, the market is sending a very clear signal. Look at that chart right there. Spot gold is trading at all-time highs again, above $3,600 an ounce. Now, this set of facts aligns with a framework put forward on this program almost a year ago by our next guest, who argued at that time that institutional decay and debt would lead to stagflation and a bull market in real assets. And he was right, even though many called him a permanent bear in that conversation. Now, this raises the critical question, what comes next? And to help us understand that, we're joined again by chief strategy officer at BMP Parabus Fortis, one of Europe's largest and most influential financial institutions, also co-author of the book, The New World Economy and Five Trends, which laid out the very framework of structural inflation that appears to be unfolding in real time. Phipe, it's uh great to see you after almost a year of having you on. You were extremely accurate last year. >> Well, thank you Jeremy for the nice words. in there. Sometimes you get lucky. So that's let's keep it. >> I appreciate I appreciate the humbleness. I mean we can start with some of where you were getting lucky. I mean if we start with that jobs number a 911,000 job downward revision. I mean from your perspective how much does the market's faith in official data matter here? And and what happens to capital allocation when the bedrock economic statistics can be revised so drastically? Well, to be fair, this is one of the numbers that is the least accurate that that we get because this is a number, the job report, where indeed the the standard deviation is probably larger than the mean. So, that's that's already says a lot. And yeah, it's notorious for being downgraded or revised or whatever. Now, this comes on top of a very weak figure that we got last Friday already only 25,000 75,000 expected. But of course, if you you if 10,000 or 20,000 matters and then all of a sudden you get a revision of about a million and this is not the first time, well, yeah, then then you know, first of all, this is not a figure that you can count on. But secondly, and that's probably more important, well, that the job market is is clearly clearly weaker than that most people thought, which argues probably for rate cuts, which argues probably for for interventions of the central banks, and which is also and that that's will eventually come to gold, I guess, is good news for gold and precious metals. >> Yeah. Yeah. And I'm going to get your outlook on that because again, uh, we talked about this. I revisited the tape, Philipe, and in some of these calls, I mean, we're almost right there, but let's get a little bit deeper because what you were talking about on these, you know, these reports on from the BLS, I mean, three huge revisions. I I'm wondering if there's structural issues here, like the the the declining survey response rates and there's problems with their birth death model for new businesses. I mean, is the problem just political that people are talking about or is the problem the way that we measure a 21st century economy? Maybe they're maybe that's broken. >> Well, yeah, that's that's true. And you you use the word it's a survey. So, it's only a very small survey to get a view on on an entire economy, which is extremely once again to be fair, extremely difficult difficult to to read. I've been been looking at markets for 30 40 years now. This is clearly the most complicated economy in the United States, but also worldwide to to read. uh you you have basically an economy that's looks like it's slowing but then you get a massive deficit that props it up and then you get a good figure and then you get a bad figure but I think we should be able to to look a little bit through the noise and when you look through the noise making on the fact how we measure it and how difficult is to measure well this is clearly an economy that's slowing and then the market starts to understand this and yeah in at the end of the day because you mentioned the word speclation that's a hardware to express already. But the point is the economy is slowing but the other hand inflation is still going up. It means that you're going to stimulate an economy that's where inflation rates are probably already too high. Yeah. And that means a lot of money in the system and at the end of the day and that was also one of the main conclusions of our book. You need to own real assets and real assets are commodities are gold as silver. You all see them going up but it's also real estate. It's also equities. So you see all these things going up and you see strange things happening because normally you would say if long-term rates go up like we have seen uh in many countries in Japan but also in the US and other countries around the world typically this would hurt uh yeah stock markets and even gold because if the real interest rate goes up well gold also typically suffers but the point is people have understood in this world cash uh the value of cash will diminish extremely rapidly that's the only way that they can keep uh all these deficits more or less manageable and I use the words more or less because it will be very difficult and that of course means that yeah a lot of real assets will go up and in this way I think a lot of the chaos that we see all the randomness all the figures that go all over the place start to make sense >> yeah and I mean so let's talk about that market you were you were bringing up the stock market I mean Philipe uh the market is now pricing in aggressive rate cuts from the Fed said, you know, these job provisions are pretty severe, but what if rate cuts aren't alone, you know, alone aren't enough to stabilize the economy? I mean, what is what's the probability that the Fed is forced into kind of restarting this largecale quantitative easing or even consider something more drastic like yield curve control? >> Yeah, that is what exactly what they will do. And the first they will talk as they always do then they will cut as they do and if that does not work or is not uh sufficient enough they will take other measures and okay we have not in the United States at the moment yield curve control like we would see in saw in the in Japan for example but what you see is already they're managing the 30 years a bit. So they they're buying a little bit on the long end where interest rates have been going up. They do the financing on the short end of the curve and there they will bring interest rates down. So it's not really if you take textbook definition it's not really a yield curve targeting yet but it start already to look at it. So and there is no doubt in my mind that when push comes to shove they will go there and yeah then of course you know that's what what that's going to do to gold and to real assets that it's going to drive them even higher. >> Yeah. You know, we think about the the last bout of of intense inflation. I mean, which many blame on their previous asset purchases. Would the Fed have any political capital left to restart the printing presses so soon? I mean, wouldn't a return to QE destroy what little credibility they have left in the public and the markets? >> Well, that's a very good question. And then, of course, the independence of the Fed is also already at stake. So, that's something that's in place. So now there are other things that that can potentially happen before you really quue because they can indeed start a little bit with the yield curve control even if they do do not call it that they can stop the quantitative tightening because at the moment they're still tightening a little bit and also they you should we should not forget that they have changed the rules for commercial banks. they're now able to hold and to buy uh more of government paper um without using too much of their capital. So there is also a buffer in the commercial banks that can also start to buy this debt when it really becomes uh a problem. And and that's something I think I'm I'm still optimistic on equity markets. I'm optimistic on real assets. I'm more than ever optimistic on commodities, gold, silver, and so on. But if you look at the risk in the market, well, this is the long end of the curve because you can bring the short end down. Uh but the long end has been going up everywhere. And then the most notable place is Japan, of course, where the the debt is also the highest. So that the risk comes from there. And of course, central bankers and Besset knows financial markets very very well. They know that that risk comes from the long end of the curve and if these things get out of hand, well, they will do whatever it takes. And then we're back with Mario Draghi. whatever it takes in Europe. But that will be what central bankers do everywhere around the world. And then in a world where interest rates and inflation will be structurally higher as we think for many years to come. Well, this kind of action will will be taken and even for a bond investor. Uh we were arguing with with with some colleagues and also colleagues from other banks today because I I think the long end could go up. Uh but there is a limit to that because governments and central banks will not allow it to go too high and then you get to the yield curve control, quantitative easing and and whatever they may dream up but they will not let it go too high. But that's that's the Achilles heel of the entire system. If you have a lot of debt and it long-term interest rates go up too much, you you get into trouble and they will do whatever whatever to avoid that and even allow for inflation. And that's the stlflation story you talk about probably. >> Yeah. And when you talk about those commercial banks too, I mean, you're you're kind of you're you're talking about new regulations that would essentially force commercial banks to hold more government debt at low interest rates, creating kind of a captive market to help finance these massive deficits, this doom loop. Is that what you mean? Well, that that's one point of it, but also that they have the possibility to take on more of the debt, the long end on their books without it eating up more capital because you have the capital requirements. Uh very interestingly, gold know also is in a very much better place to be held by u by commercial banks. That also eats up less capital. So it means that they can take on more risk and more positions with less capital. So it means that they have more buying power and then that's probably one of the the buffers that that yeah the government and the central banks are already building up in anticipation that it may be needed somewhere in the future. >> Yeah. Okay. Well, we got to turn to Europe. I mean a lot of eyeballs have been on what's going there and of course you're joining us from Brussels, the center of the EU. And I mean the government in France obviously has collapsed over its inability to pass a budget among other things. But to what extent is this French political paralysis a blueprint for the challenges facing the entire Euro zone as it grapples with its debt burden? >> Well, uh, the entire Euro zone indeed, even though a lot of countries in the south are probably in better shape than they were before the financial crisis, but I think it's more like a blueprint for a lot of countries around the world. Also, the United States, also Japan, and other places. And that's that's what we really describe in in in our book. And then there's also the the fourth turning. And the fourth turning is a period of a very big um social uh and and political volatility, geopolitical uncertainty, a moment and and that's what you're seeing all over the world that the center gets smaller and smaller, extremist parties win. Uh and the center is not able to take the measures that that's needed to tackle all the deficits. And because if you try to increase uh spend increase taxes or reduce spending, well, you you draw you push the voters even more to the extremes. So this limits very very much uh the the the room of maneuver that a lot of these governments have and that's what you see in France, but that's also what you see in a lot of other a lot of other countries. And point is also I made a lot of bets um and it was not a popular view but I I said Donald Trump is going to win the election and he's not only going to win the election but is also going to take the Senate and the House because in a fourth turning sitting presidents of whatever color or stripe they are leftwing right wing above below wherever they are on the spectrum they typically lose. Modi in in India was the notable exception. Okay, he lost some seats but he was able to cling on to power. But look at all the other elections. Look at Canada. Look at the United States. Look at the UK. Look at France. Look at Belgium. Look and you name any election in the world. Well, the sitting president, the sitting government or the sitting party loses because the people are so unhappy that they vote out whoever is there. And that makes it extremely hard to tackle these budgets. And that means that the deficits go up and that the total debt goes up and that you end up with this inflationary world that we've been describing. And in this way once again everything looks extremely random but if you look at this through the glasses of a for turning a lot of things start to be logic and start to to make sense. I got to ask you, I mean, you know, I want to kind of talk about the scale of the problem in Europe because the first Euro crisis which started in Greece was about what a couple hundred billion in debt and it was it was painful but ultimately the system seemed to manage it. I mean the crisis now brewing in France however is is a matter of trillions. I mean it seems too big to bail out in the traditional sense. is the only realistic endgame here that the ECB will be forced to print and essentially monetize French debt and if so >> that that will be in Europe will be probably more difficult than the United States. I see the United States going more quickly to to QE or or or yeah they have more rates to cut. So they have more room to cut than Europe as well. And in Europe you have of course Germany um which is of course very uh because of its history very averse to to anything that that sounds like inflation. So that will be a hard thing. Now I think Europe and we look now at France and then other places but like I said the south I think got this fiscal house more or less in Italy or Portugal, Spain even in Greece got their house more or less in order. And I'm not so negative on Europe. Um because Germany is has changed totally its policy. It's now spending. It's running deficits. They got rid of what they call over there the or the bramza which means that they cannot run a deficit. Uh and they now can do that. So this will create this will help. But of course this has also driven inflation higher. is going to drive inflation higher and is also going to drive long-term interest rates higher because growth will be higher and inflation expectations will be higher and the debt will be higher. So markets will start to ask a higher premium for the long end of the curve. So it's no free lunch. >> Yeah. >> But Europe I think is in more better shape making a traction of what's happening in France than it was in the crisis back then. But it's no walk in the park. um it will nowhere in the world be a walk in the park because a fork turning is is no walk in the park. >> Let's talk about that you know the the endgame on on this whole debt. I mean you've argued that the global debt super cycle is the primary driver. I mean when you see governments unable to even pass budgets to control their spending. What does that tell you about how this debt crisis ends? Is the only realistic path then as you said to inflate it away over time? >> Well that's the easiest way. You have only three options. First of all, you try to grow and save your way out of this, but in a foring that's extremely complicated. >> You can default and default is of course something very disruptive for financial markets. So that's something you're probably not going to do. Now defaults have many shapes and forms like the US does not necessarily has to default on its uh debt, but of course it can lower the dollar. So there's also a way of of managing the deficit or or the total debt a little bit. But the easiest way, and I'm not saying that is the perfect way because it's it's no time anymore for perfect ways. You you take the least bad of everything that's on the table, but gradually letting inflation run a little bit at 3 or 4%. Well, that's that's probably what they're going to try to do. Uh and if you do that, that's easier to sell to the population. If you cut wages by 2%, uh people will be in the streets. Nobody understands inflation. So if you let inflation run 2% higher, that's exactly the same, but people will not notice it or notice it less. So that's that's in a way what they're going to do. And that's this this inflationary world we talk about. And yeah, the good news is you can hedge yourself against this by buying precious metals, by buying commodities, by buying real assets. Because if you're in cash and assume that inflation is only going to run at 4%. Do that 10 years in a row. Well, you're absolutely sure that you lose about 50% of your purchasing power uh by doing nothing. So, putting money in a savings account and looking at it and saying, "Okay, I'm very sure that's still there." Well, it's still there, but the purchasing power of what's still there will diminish at a very, very rapid pace. And most people are used to a world where inflation okay also ate away a little bit of the purchasing power but at a gradual pace I think that pace will ex accelerate and this is absolutely a moment in time that's what we talk about in our book that fortunes will be lost and fortunes will be made by the ones who have the the right positioning >> before I mean I I want to get into the commodity we got to talk about where to invest in this in this market but before that I mean one of the strongest arguments that against that kind of inflation is Japan, right? I mean, for 30 years they had that massive debt and it led to decades of stagnant prices and a sluggish economy. But with Europe's aging population looking a lot like Japan's, why wouldn't they suffer the same fate? >> Well, that's a very good question and um the co-author of my book Gunders um we discuss this um very often and we have not always the same opinion on this but I I will be give give you my opinion on this. I think that the reason why you were in deflation in Japan for the longest time for for decades as as you mentioned is that you had a balance sheet recession. So at the end of the 80s the the Nikkay was at 40,000 and it took all this time to get back at that level. So when you have a bust you know it can can take a while before you reach again the levels that you were at. But the real estate market crashed and with it the stock market crashed. So then you get a negative wealth effect because people think of feel that they are poor and you get a liquidity trap because they're not going to spend anymore and they're not going to invest anymore. And if the the governments tried to stimulate it the key in in by lowering interest rates well they did that in Japan that did not work because people will not invest will not consume even at interest rates are zero and I'm I'm more a monetarist. I'm more on the side of Freriedman. I'm not a Canadian. Um but the point is that in this environment probably some Canadian spending is the only thing that does the trick and then that is what's pulling Japan a little bit out of their troubles but the point is if you do that you increase that even more and China is today in exactly the same situation as Japan was. This is also balance sheet recession. So they also need some spending. If they spend they will drive commodities even higher. But that's the point I think a lot of economists and a lot of of of of authors of books and so on they say ah Japan is has aged Europe has aged. Uh okay they had deflation over there we will have deflation over here. But I think the reason why Japan had all this deflation for so long and with the low interest rates is because of the balance sheet recession. So I do not think that that we um we can compare Japan with with Europe one-on-one on this but there are different schools of thought on this and there is a lively discussion going on and is a very important point. >> Yeah. Okay. Well well said. Uh you brought up China. I mean we got a discussion about a multi-olar world is incomplete without talking about China right Philipe. I mean we see them consistently buying gold for their reserves. Yet they've also, you know, facing this severe internal property crisis and a mountain of their debt on themselves. I mean, I guess the question is, how do you see China's role in the in the next 5 years? Are they a driver of the commodity super cycle or their own potential instability the biggest risk of it? >> Well, they're a driver certainly. Um they also create a lot of volatility because only today you saw that uh the lithium price for example was was was clearly increasing over the last couple of months. You saw a couple of the lithium miners bouncing from from very low levels uh just because China took out some of its production or or mballed some of its production. Now today there was a rumor that they were going to restart one of their important mines and immediately lithium and also all the lithium mines took a hit of 5 to 10 or even more percent today. So they create also volatility and it's if you look for example at the rare earths well they have created or they've almost a monopoly while the United States was very powerful in rare earths somewhere in the beginning of the 70s they gave it away to China. they have they have a lot of the mining. They have a lot of the refining of these things. So they can drive up rare earth prices um overnight almost if they want. Now this is a massive opportunity because the United States realizes very much that they're losing the trade war or they have a bad hand to play visav China because they can play the rare earth weapon. I think there will be massive investments in the rare earths uh in a lot of places, United States, Canada, other places. So I think this is a massive opportunity. But I think yeah, China will be still be a driver of the of the of the super cycle uh electrical revolution is probably even more important. But what what China will bring above all to the commodity market, I think is is is more volatility in both directions. >> It's interesting. I mean, you know, when you when we say control, it's not just about mining. It's about China's dominance in processing these raw materials into battery grade chemicals like you talked about and and refining them too. I mean, how does this control of a critical mineral supply chain by a single geopolitical rival factor into your fourth turning thesis of a world splitting into these competing blocks as we've seen? >> Yeah, indeed. China is an important block. India will be a block. So, it will be not bipolar. It will at the end of the day become multipolar probably. And then everything starts to to evolve around that. And you see of course the different alliances happening. And then that that's very important because you have to look at it also from an economic point of view. I always compare this this to tectonic plates. >> You have the all the different plates. You have China, you have Europe, you have India, you have the United States, you have Canada. And they're all moving and they tended to move all in the same direction at the same speed. And now we have a world where they all start to move in a different direction at a different speed and of course they will collide and that's what we see in the dollar that's what we see in raids that we what we see in commodities and that's also a source of um of volatility. Now if you think about this we have had a uniolar world United States but if you look at through history that the the point or the fact that one country is dominant is very rare. The United States had about 50 60 years of that. Uh there were still times in history that you had one superpower. Um you had the the Roman Empire at a certain moment in time and we already have to go back this long from 100 before Christ until 100 after Christ. Uh Rome was was the the soul power in the world. And that typically means peace and peace is deflationary. If you get more to conflict, which is sadly more the rule than the exception, well, everybody has to spend on defense. everybody has to to to yeah start to build walls around his own world and then you get a lot of inflation and a lot of volatility and the rare earths I think play a very important role and then the United States knows this and the rest of the world also even Europe starts to realize this that if you give this dominance to uh China and you know that all these railroads are so important for the electrical revolution for solar for all the things that we make but also for defense Well, I think and and Donald Trump and the administrations understood this very well that they have to start to build this as quickly as possible and therefore you see subsidies of the uh the Ministry of Defense or I have to call it the Ministry of War these days uh that they know they will invest in these mines and they subsidize them because they know they need them. And if you want to really start the trade war against China and you want to win it, well, you will have to be independent in in the rare earth space as well. But that's not going to happen overnight. But I think they're going to do whatever they can to build it as quickly as possible. >> Yeah. Well said. Okay. Well, Philipe, this brings us to the strategic implications. Obviously, the analysis our audience at Kiko News expects how to kind of navigate this complex environment. Uh, I guess we'll start with the most fundamental question for our viewers. I mean, with this framework that we've been talking about, what are the distinct advantages and and kind of risks of owning physical gold, a gold ETF versus a basket of senior mining stocks? I mean, where are you catching a bit here? >> Well, it's easy. I would buy all of them depending on on what what what you like. Some people want to hold physical gold or silver or whatever. I'm more an ETF guy, but we propose to our clients, but it depends also from client to client. We typically say take three4s of of what you want to invest in in in an ETF and take 1/4 for example in the miners and and that's what we have also described in the book uh one year and a bit ago uh because yeah miners have been this big deception to a lot of investors for many many years because they they were not really profitable they were not very efficient and then of course the underlying the gold and the silver were not going up enough but Now you have the perfect storm for them because first of all they've become more efficient and if you look at it um at a certain moment in time well if you look at what gold and silver prices are for example and when you see where the average cost is all in cost of these miners are well they're they're just printing money so they that frees up a lot of of potential to to buy back shares to do do M&A and that's what you also start to see because today we had Anglo and tech resources so if your stock price is very very low. You cannot use it as a as as a currency to buy other players. But now the stock price of a lot of the bigger miners have gone up quite substantially and they have still a lot to go I would would say but they can start to use that as currency to fill up their pipelines to buy uh midsized miners to buy even junior miners a certain moment in time. So in my mind this is only the beginning of this cycle and once again if you dig a little bit deeper um it's also logical because up until now up until the beginning of the year but but even a couple of months ago even it were only the central banks were buying gold. So they bought about 1,000 metric tons of gold and the investors were still net sellers of gold and gold mines. So that was very bizarre. Now you see money coming in that perspective is also logical that only gold went up because central banks only bought gold. They did not buy silver. They did not buy the miners and so on. Now the investors are back. They buy everything and now you see at last I would say the miners yeah catching up and catching up in a very violent way because if you look at the big guys they've doubled in price. If you look at the junior miners and the midsize miners, it's times two, times three, times four. And that's also typically something that you see in a cycle. But since the investors have only come on board very recently, this is not a bubble yet because gold and all the mining complex and the silver and so on is still very underowned uh by investors. So if they start to come on board, what we see uh happening as we speak, well, I think this is only the beginning. And we talked about 4,000 on gold. I think this not the end point. I will not say it's five or six or seven, but but I think this is only the beginning or at least the first or the second or the third inning maybe of of what could be a yeah a very big super cycle. >> Interesting. Interesting. Okay. There's two things I want to bring out of what you just said there. The we'll get into this deal with tech and Anglo in a minute because again pretty big 53 billion copper focused giant now. Uh but before we do that, you were talking about mining stocks and you know, we've seen the western investor come back finally some inflows, you know, some of these juniors catching a bid. We know that, you know, printing cash. Uh Beaver Creek's happening right now. But I'm curious, you know, with all that narrative, you represent one of the largest financial institutions in in Europe. I mean, are the European investors coming back? We've seen the buying from Australia. Are is this now a focus there? it starts to be a focus and it starts to to grab some headlines in the newspapers finally. But this is not Belgium is a little bit of an exception because we we had um or history with Africa and so on. So mining companies the harmonies and so on um of this world well they they typically we we have a history in in investing in mining companies. I remember my grandmother, they used to own free gold and they used to own Donten and she used to own Offsil a lot of companies that are no longer there have merged or or morphed in something else. So so it is history in Belgium but if you look at at a lot of Europe well this is not typically a lot of of of the focus of of investors um in the UK probably a lot of of miners are maybe also um quoted on on the London stock exchange. So there is some focus but this is not typically a European investor would look at first. I think it's it's way more popular in Canada or Australia or a number of other countries in the world but it's when I talk to clients and of course I mention it everybody knows I'm I'm a bull on on gold. So then of course that's a subject that we talk about but but that's yeah it's starting to get some traction but but I I would say you see this very well in in the biggest um one of the biggest ETFs the GLD of the the physical gold you saw the price going up but until recently um they lost a number of tons in holding so people have been selling this down even though it has been going up and that's a worldwide phenomena so therefore And now the money is coming back a little bit, but it's nowhere near the maximum in tons that it used to be at its peak. So gold is setting record after record, but still people are not really buying into it. And therefore, I believe this is not a bubble. A bubble is when everybody starts to yell, uh, you you have to own gold. And I see some interest, but I see absolutely no euphoria. And that's good news because as as we can keep going like this without getting too euphoric, well, this means this can can last for a very long time. >> Okay, we got to we got to jump into that that uh news that just broke this morning. The Anglo-Americ resources, they just announced a merger. Uh it'll be about $53 billion copper focused giant. Now, a year ago, I was reviewing the tape, you were here. You said that M&A would be the next step for the miners, and it looks like we're here. But Philipe, I mean the the the deal is structured as a zero premium all share merger and some analysts are already pointing to that interloper risk from rivals like BHP or Glenor. Does does the structure of this deal signal cooperation born from strength or does it signal two companies kind of huddling together for defense because they're worried about the future and can't afford a real cash premium? Well, that's that's a good question. I'm not on on the board of these these companies, so it's it's hard for me to say, but what I said before, it's logical that that the guy who wants to do the buying is initially going to try to use his his his equity because it's been going up and then that that yeah, that's a position that a lot of these bigger guys are in. Uh but I think still a lot of these things are going to happen and sometimes it will also be for cash but but initially I think you always try if if you're a bidder you try to use as much of your own equity as as you can but but a lot of deals will be done and the point is if that that's very important to watch I think uh with a takeover in the resource space but with any takeover also in other sectors it's it's important what happens because if the that's doing the the bidding or is doing the takeover is punished by the investors for doing the takeover. Well, other people are going to say, "Are we going to wait a little bit?" If you're more rewarded for buying back shares, uh if you're more rewarded for increasing the dividend, well, you're not on the lookout for a lot of takeovers. But at the moment, the market starts to reward people who do the takeover. They say that's what absolutely what you need because you have to fill up your pipeline and so on and so forth. Well, then you will see a lot of these things happening and I think we're not too far from that. It's like putting a toe in in the cold water, seeing the temperature a little bit. So therefore, it's very important to follow this one. What's going to happen? Will there be other biders? Will there be a part in cash? And how will the market react to this? But but it will not be and that that's very important as well. I think >> they have a lot of options, the the the the the big guys because they're generating so much cash. It's not an or or or story, but it can be perfectly an end and end end story. They can do end takeovers, fill up their pipeline, and still have enough money to pay dividends and to buy back shares. Because if if at this level each $100 or $200 that gold goes higher and each $5 that silver goes higher, it means massive amount of cash flows that they will start to deploy and then that's going to be interesting and that will eventually but then we will will be five or 10 years down the road stop this cycle because what typically stops the cycle is that a lot of new production comes online. A lot of investment is being done and yeah this super cycle is created by the electrical revolution by China but most of all by the absolute lack of supply. There's not been enough investment in this space for maybe 10 20 years and now of course this investment has come in and at a certain moment in time there will be so much investments that there also will be supply but you know how long it takes to open a new mine. So I'm not not very worried that it will happen in the next five to six years but this is the the very start of this process and as you you mentioned it's following the logical sequence that it always does but the the previous cycle is so far in in the past that most people do not remember it anymore I think. >> Yeah. Hey, I got to ask you. I mean, because some of these miners are also de-risking, right? We're letting where some of them are letting some of their assets go. And in this fourth turning that you talk about, going back to your book, I mean, this world that you described where supply chains or political weapons, how critical is jurisdictional safety now, and are we entering an era of resource nationalism where even safe countries could implement, you know, windfall taxes and and how do you price that risk? >> Yeah. Uh, the last one is the most difficult one. Who how you price it? But for the rest it's I'm absolutely agree with you. It's resource nationalism. They will of course when you have jurisdictions like a lot in Canada for example where you have favorable mining favorable mining laws where you are more or less sure that they will not confiscate your mine and so on. Well that will have even more value. So for for the United States, even though Donald Trump is not always friendly with Canada, um I I think yeah, Canada is fantastically positioned for this. Mexico probably as well, a little bit less, but that's also very close and and some of the mining jurisdictions are still very uh yeah, very positive uh in in this respect. But if you go a little bit further, you go to South America, well, yeah, there you you run into countries where where indeed politics sometimes interfere. And if you look at countries like Chile or Peru, for example, where where each and every time you have a strike against the government, the first thing that they do is start to block uh the roads to the mines and so on where you sometimes uh or very often they try to renegotiate the deals that they made before. So that that makes I think first of all when you have a jurisdiction that you trust more or less and it's always within limits because in this world you're never sure of anything but that will give some added value uh to the places that people trust and then we saw a technical breakout I posted on LinkedIn a couple of yeah already months ago the breakout that you saw on the Toronto venture exchange where a lot of things are are quoted at extremely low levels. Well there I think the turn has also been made. So that would be a jurisdiction that that you trust. Australia would be a part of the world that you trust. And then of course there are places where you have less conviction in the government or the geopolitics. And even when the grades are high, yeah, it's still a very very risky business. So how you price this? Well, that's the reason why we tell clients three4 take the metal, 1/4 take the miners. And when you're real expert or you you feel lucky, you can go out and try to pick one mind or one mining company. But to diminish the risk, I would always advise buy a basket of mines uh when they confiscate one. If you have an accident or whatever can happen to one, well, you are rewarded in the other ones because one mine even when it's a fantastic opportunity with fantastic rates, is always always very risky. And the big advantage of these funds and I'm a stock picker my entire life. So when I can buy an individual stock I will not go necessarily to a fund. But here you have the advantage that you buy the big guys you buy the mid tiers and sometimes they have also some of the smaller players in the portfolio where you would not necessarily want to take the risk on your own. >> Yeah. Well, I mean, being the uh the the chief strategy officer at one of the largest institutions means you can't give our audience any single stocks to buy. I know this, Philipe, but I got to ask you, I mean, we could bring it on a little bit. In October, when we had you on almost a year ago, you said, "Okay, $4,000 gold, $40 silver." I mean, we are almost at $4,000 gold, which some people thought was crazy. We just touched $40 silver. But let's talk about the investors mindset. I mean, people are kind of caught between the fear of missing out on the commodity run and the fear of a much bigger crash. So, what's the biggest mistake an investor can make with their money right now? >> Well, I think being in cash too much because you you your conclusion could be okay, we live in a very volatile world. >> Mhm. >> So, uh things will move violently and we saw that also in the equity markets in in April with liberation day. You took a haircut of 15 20% very rapidly. uh people who sold in in panic. Yeah, they lost out because they missed the entire rally. But these things will happen. This is a world where you will see big shouldn't be surprised to see a correction of two or three or $400 in gold at a certain moment in time that these things can and will happen. But you're still way better off in these these real assets than than in in the cash because you can say gold is going up. But you can also say gold is gold coin or a bar or whatever the lingo what you want to buy is is still physically the same but the price is moving. So you can say gold is going up but you can also say the purchasing power of cash is going down. So after the fall of Breton Woods, gold was $35. Today it's $3,500. It's time 100. But it also means that the purchasing power of of of cash has diminished so much. And I'm I'm uh I'm a little bit uh strange in a sense. I I know most stickers. I know most stock prices. I know uh commodity prices, but I don't do not know what what Miller cost or what bread costs. But in Belgium, we like chips. So that's a national uh food in Belgium and I have have a TV program each and every Friday evening in Belgium and afterwards we I going to buy chips so I know the price of that. Well, after co the price has gone up from from 30 euros and I almost pay 45 or 50 and that's in a couple of years time and when I do not get too too too too big and too too fat and then I still living in 10 15 years well the price will have gone up even more. So I think people do not always understand that it's not really the price of the goods is going up but it's the purchasing power of the money that's going down and just putting it in a saving account is not a good idea. So I think you have to be diversified but above all you need to own real assets and then yeah commodities and then precious metals are certainly part of that. >> I got to ask you too for the audience because I'll get a comment or two. I mean I got to ask you because in a previous conversation you expressed a belief in blockchain technology. today. Obviously, gold at all-time highs. We're also seeing some bids with Bitcoin, you know, still past that $110,000 mark. How do you view Bitcoin in its role in this new environment? I mean, is it truly kind of a competitor to gold as a safe haven asset, or is it simply another risk asset being benefiting from cheap money? What are your thoughts? >> Well, I think I'm going to piss some people off probably. Um, I'm going to tell something. I I I will start with a caveat. I've never made any money in in Bitcoin myself. Um I sometimes invested or or traded in in stocks that that do Bitcoin. So so indirectly, but and my wife always said to you, you're always glued to the screen. This is your job. You do nothing else than than that. Why do we not own Bitcoin? And I always say, well, I do not always understand it. That's one thing. I'm an old fashioned guy. I like gold but I can only assume unless what you say that indeed it's going up. Now in my mind it's going up a bit for the same reason as for gold where where people say I need something else than this cash and more a little bit older people will say I buy gold and silver because I feel comfortable with that. younger people will maybe say I buy some Bitcoin but I also think that is also partly because there are so much money in the system and and and money goes also to Bitcoin and in my mind it's it's not really a safe haven uh it's more like the most speculative part of the the technology space and if you look at it on days it's very often correlated with the NASDAQ so I think if the NASDAQ would take a haircut but we will have to see on the proof of uh the putting is in the eating. But if the NASDAQ takes a correction somewhere down the road, I would assume that Bitcoin will go with it and gold will go the other way. That would be my hypothesis, but it has to be tested. So, we'll have to see. >> I have to ask, I mean, you know, maybe this is the gold thesis then. I mean, to close, let's look over, you know, maybe the next 10 years. What do you see as a grand slam asymmetric kind of investment? the the one theme in the hard asset space that's maybe most under misunderstood today but has the potential for the most explosive returns if your framework for the next decade proves correct here. >> Yeah. Then then you make me choose between the stars in the sky but um it will most of all be be commodities. So I'm I'm a big fan of gold, silver, copper. >> Yeah. Um, if I have to pick one, I would maybe even prefer silver because silver has lag gold uh substantially, it's 50% industrial, it's 50% precious metal. Um, I think the 4,000 in gold will coincide with 50 on silver because 50 has been the top in silver already two times. Once the beginning of the 80s or the 70s even with the Run brothers and then I think once again in 2011. So it would be a triple top reaching 50. We all know technically that triple tops do not really exist. So typically you break out and then the road is free to 100. So I if I were to pick one um I I would even even though it's more volatile I would even prefer silver over gold at this moment. >> Lot of people watching >> Yeah. a lot of people watching silver right now. Philip >> Yeah. And it's been down and it's been disappointing for many many years. it could not get any traction and now it it starts to move. So, so the silver mines and then copper of course is more industrial because that's still the heart of the industrial uh of the electrical revolution. I mean and and well yeah you will need a lot of it and you have not enough supply even though a lot of gold miners are also investing in copper. You see some investing coming in. You see some takeover so people get on board at the fact that you will need a lot of copper coming in but it will take a while. It will take 5 to 10 years be before these new projects come online and and in the meantime it will go up and in the book we wrote that copper is going to double and already it's still doubled but already had a night nice move then people say you're crazy but look at oil in the oil shocks before the oil shocks oil was five then it went to 60 to 100 and to 200 so if a commodity gets into deficit like silver is as well it's not for 10 or 20 or 30% it's times three four five So that's what we're looking at. So I would certainly not forget about gold. I would prefer silver. I love copper. And the most speculative one is probably lithium um because that's down so much. That's a totally different dynamic because in supply there is enough lithium probably, but demand is going to go way higher and maybe if you in for a trade and we said, yeah, if China of course increases production again, the price comes down again. So that's maybe a speculative part, but yeah, for the people who really want to protect their portfolios, it could be probably silver, um, copper, and then gold. >> All right, I like it. Did Did you say $50 top or I know you said when 4,000 hits on the gold front, it'll be a $50. that I think that's going to be coincide a little bit because if you >> no no I'm giving very specific levels which is extremely dangerous because they always told me that if you have give a target don't give a timing and if you give a timing don't give a price but the point is I think the road to 4,000 in gold is is is open that would be 10 something% um and then of course silver is going to move a little bit more and then I think you will touch the 50 and 50 silver, 4,000 gold. I think you will pause a little bit. Uh but that's the levels I'm looking at in the next three to six months, I think. >> Wow. Okay. Well, you heard it here. Uh great to have you. A comprehensive framework, clear perspective, of course. Philip Chisel joining us from Brussels. Thanks for your time and your insights today. Really appreciate that. >> Thank you Jeremy. >> Okay, we'll talk soon. >> Bye-bye. >> Thank you. And for our viewers, this is the kind of deep critical analysis of course that we're committed to. If you value this type of conversation, I encourage you to hit the subscribe button and join the Kitco News community. I'm Jeremy Saffron. Thank you for watching. We'll see you soon. [Music] Heat. Heat. [Music]
Strategist: Central Banks Will Let Inflation Run High, Erasing 50% of Cash Value
Summary
Transcript
[Music] Welcome back. I'm Jeremy Saffron. We begin with a jarring economic reality from the US Bureau of Labor Statistics. Now, this morning's preliminary benchmark revision for the year through March was a record, erasing 911,000 jobs from the official count, a number much higher than expected. And if you look at the chart that we're showing, you can see that that there's been a big decline here since 2023. That's a clear signal that the US economy has been on far shakier ground than previously thought, unless you've been listening to some of our guests right here at Kiko News. Now, this economic uncertainty is also occurring as political foundations in Europe are starting to crack. The government in France, the EU's second largest economy, has officially collapsed after Prime Minister Francois Beeru was forced to resign and defense minister Sebastian Leornu is now France's new prime minister. It's worth noting that this is President Mcronone's seventh prime minister. Now, in this environment, the market is sending a very clear signal. Look at that chart right there. Spot gold is trading at all-time highs again, above $3,600 an ounce. Now, this set of facts aligns with a framework put forward on this program almost a year ago by our next guest, who argued at that time that institutional decay and debt would lead to stagflation and a bull market in real assets. And he was right, even though many called him a permanent bear in that conversation. Now, this raises the critical question, what comes next? And to help us understand that, we're joined again by chief strategy officer at BMP Parabus Fortis, one of Europe's largest and most influential financial institutions, also co-author of the book, The New World Economy and Five Trends, which laid out the very framework of structural inflation that appears to be unfolding in real time. Phipe, it's uh great to see you after almost a year of having you on. You were extremely accurate last year. >> Well, thank you Jeremy for the nice words. in there. Sometimes you get lucky. So that's let's keep it. >> I appreciate I appreciate the humbleness. I mean we can start with some of where you were getting lucky. I mean if we start with that jobs number a 911,000 job downward revision. I mean from your perspective how much does the market's faith in official data matter here? And and what happens to capital allocation when the bedrock economic statistics can be revised so drastically? Well, to be fair, this is one of the numbers that is the least accurate that that we get because this is a number, the job report, where indeed the the standard deviation is probably larger than the mean. So, that's that's already says a lot. And yeah, it's notorious for being downgraded or revised or whatever. Now, this comes on top of a very weak figure that we got last Friday already only 25,000 75,000 expected. But of course, if you you if 10,000 or 20,000 matters and then all of a sudden you get a revision of about a million and this is not the first time, well, yeah, then then you know, first of all, this is not a figure that you can count on. But secondly, and that's probably more important, well, that the job market is is clearly clearly weaker than that most people thought, which argues probably for rate cuts, which argues probably for for interventions of the central banks, and which is also and that that's will eventually come to gold, I guess, is good news for gold and precious metals. >> Yeah. Yeah. And I'm going to get your outlook on that because again, uh, we talked about this. I revisited the tape, Philipe, and in some of these calls, I mean, we're almost right there, but let's get a little bit deeper because what you were talking about on these, you know, these reports on from the BLS, I mean, three huge revisions. I I'm wondering if there's structural issues here, like the the the declining survey response rates and there's problems with their birth death model for new businesses. I mean, is the problem just political that people are talking about or is the problem the way that we measure a 21st century economy? Maybe they're maybe that's broken. >> Well, yeah, that's that's true. And you you use the word it's a survey. So, it's only a very small survey to get a view on on an entire economy, which is extremely once again to be fair, extremely difficult difficult to to read. I've been been looking at markets for 30 40 years now. This is clearly the most complicated economy in the United States, but also worldwide to to read. uh you you have basically an economy that's looks like it's slowing but then you get a massive deficit that props it up and then you get a good figure and then you get a bad figure but I think we should be able to to look a little bit through the noise and when you look through the noise making on the fact how we measure it and how difficult is to measure well this is clearly an economy that's slowing and then the market starts to understand this and yeah in at the end of the day because you mentioned the word speclation that's a hardware to express already. But the point is the economy is slowing but the other hand inflation is still going up. It means that you're going to stimulate an economy that's where inflation rates are probably already too high. Yeah. And that means a lot of money in the system and at the end of the day and that was also one of the main conclusions of our book. You need to own real assets and real assets are commodities are gold as silver. You all see them going up but it's also real estate. It's also equities. So you see all these things going up and you see strange things happening because normally you would say if long-term rates go up like we have seen uh in many countries in Japan but also in the US and other countries around the world typically this would hurt uh yeah stock markets and even gold because if the real interest rate goes up well gold also typically suffers but the point is people have understood in this world cash uh the value of cash will diminish extremely rapidly that's the only way that they can keep uh all these deficits more or less manageable and I use the words more or less because it will be very difficult and that of course means that yeah a lot of real assets will go up and in this way I think a lot of the chaos that we see all the randomness all the figures that go all over the place start to make sense >> yeah and I mean so let's talk about that market you were you were bringing up the stock market I mean Philipe uh the market is now pricing in aggressive rate cuts from the Fed said, you know, these job provisions are pretty severe, but what if rate cuts aren't alone, you know, alone aren't enough to stabilize the economy? I mean, what is what's the probability that the Fed is forced into kind of restarting this largecale quantitative easing or even consider something more drastic like yield curve control? >> Yeah, that is what exactly what they will do. And the first they will talk as they always do then they will cut as they do and if that does not work or is not uh sufficient enough they will take other measures and okay we have not in the United States at the moment yield curve control like we would see in saw in the in Japan for example but what you see is already they're managing the 30 years a bit. So they they're buying a little bit on the long end where interest rates have been going up. They do the financing on the short end of the curve and there they will bring interest rates down. So it's not really if you take textbook definition it's not really a yield curve targeting yet but it start already to look at it. So and there is no doubt in my mind that when push comes to shove they will go there and yeah then of course you know that's what what that's going to do to gold and to real assets that it's going to drive them even higher. >> Yeah. You know, we think about the the last bout of of intense inflation. I mean, which many blame on their previous asset purchases. Would the Fed have any political capital left to restart the printing presses so soon? I mean, wouldn't a return to QE destroy what little credibility they have left in the public and the markets? >> Well, that's a very good question. And then, of course, the independence of the Fed is also already at stake. So, that's something that's in place. So now there are other things that that can potentially happen before you really quue because they can indeed start a little bit with the yield curve control even if they do do not call it that they can stop the quantitative tightening because at the moment they're still tightening a little bit and also they you should we should not forget that they have changed the rules for commercial banks. they're now able to hold and to buy uh more of government paper um without using too much of their capital. So there is also a buffer in the commercial banks that can also start to buy this debt when it really becomes uh a problem. And and that's something I think I'm I'm still optimistic on equity markets. I'm optimistic on real assets. I'm more than ever optimistic on commodities, gold, silver, and so on. But if you look at the risk in the market, well, this is the long end of the curve because you can bring the short end down. Uh but the long end has been going up everywhere. And then the most notable place is Japan, of course, where the the debt is also the highest. So that the risk comes from there. And of course, central bankers and Besset knows financial markets very very well. They know that that risk comes from the long end of the curve and if these things get out of hand, well, they will do whatever it takes. And then we're back with Mario Draghi. whatever it takes in Europe. But that will be what central bankers do everywhere around the world. And then in a world where interest rates and inflation will be structurally higher as we think for many years to come. Well, this kind of action will will be taken and even for a bond investor. Uh we were arguing with with with some colleagues and also colleagues from other banks today because I I think the long end could go up. Uh but there is a limit to that because governments and central banks will not allow it to go too high and then you get to the yield curve control, quantitative easing and and whatever they may dream up but they will not let it go too high. But that's that's the Achilles heel of the entire system. If you have a lot of debt and it long-term interest rates go up too much, you you get into trouble and they will do whatever whatever to avoid that and even allow for inflation. And that's the stlflation story you talk about probably. >> Yeah. And when you talk about those commercial banks too, I mean, you're you're kind of you're you're talking about new regulations that would essentially force commercial banks to hold more government debt at low interest rates, creating kind of a captive market to help finance these massive deficits, this doom loop. Is that what you mean? Well, that that's one point of it, but also that they have the possibility to take on more of the debt, the long end on their books without it eating up more capital because you have the capital requirements. Uh very interestingly, gold know also is in a very much better place to be held by u by commercial banks. That also eats up less capital. So it means that they can take on more risk and more positions with less capital. So it means that they have more buying power and then that's probably one of the the buffers that that yeah the government and the central banks are already building up in anticipation that it may be needed somewhere in the future. >> Yeah. Okay. Well, we got to turn to Europe. I mean a lot of eyeballs have been on what's going there and of course you're joining us from Brussels, the center of the EU. And I mean the government in France obviously has collapsed over its inability to pass a budget among other things. But to what extent is this French political paralysis a blueprint for the challenges facing the entire Euro zone as it grapples with its debt burden? >> Well, uh, the entire Euro zone indeed, even though a lot of countries in the south are probably in better shape than they were before the financial crisis, but I think it's more like a blueprint for a lot of countries around the world. Also, the United States, also Japan, and other places. And that's that's what we really describe in in in our book. And then there's also the the fourth turning. And the fourth turning is a period of a very big um social uh and and political volatility, geopolitical uncertainty, a moment and and that's what you're seeing all over the world that the center gets smaller and smaller, extremist parties win. Uh and the center is not able to take the measures that that's needed to tackle all the deficits. And because if you try to increase uh spend increase taxes or reduce spending, well, you you draw you push the voters even more to the extremes. So this limits very very much uh the the the room of maneuver that a lot of these governments have and that's what you see in France, but that's also what you see in a lot of other a lot of other countries. And point is also I made a lot of bets um and it was not a popular view but I I said Donald Trump is going to win the election and he's not only going to win the election but is also going to take the Senate and the House because in a fourth turning sitting presidents of whatever color or stripe they are leftwing right wing above below wherever they are on the spectrum they typically lose. Modi in in India was the notable exception. Okay, he lost some seats but he was able to cling on to power. But look at all the other elections. Look at Canada. Look at the United States. Look at the UK. Look at France. Look at Belgium. Look and you name any election in the world. Well, the sitting president, the sitting government or the sitting party loses because the people are so unhappy that they vote out whoever is there. And that makes it extremely hard to tackle these budgets. And that means that the deficits go up and that the total debt goes up and that you end up with this inflationary world that we've been describing. And in this way once again everything looks extremely random but if you look at this through the glasses of a for turning a lot of things start to be logic and start to to make sense. I got to ask you, I mean, you know, I want to kind of talk about the scale of the problem in Europe because the first Euro crisis which started in Greece was about what a couple hundred billion in debt and it was it was painful but ultimately the system seemed to manage it. I mean the crisis now brewing in France however is is a matter of trillions. I mean it seems too big to bail out in the traditional sense. is the only realistic endgame here that the ECB will be forced to print and essentially monetize French debt and if so >> that that will be in Europe will be probably more difficult than the United States. I see the United States going more quickly to to QE or or or yeah they have more rates to cut. So they have more room to cut than Europe as well. And in Europe you have of course Germany um which is of course very uh because of its history very averse to to anything that that sounds like inflation. So that will be a hard thing. Now I think Europe and we look now at France and then other places but like I said the south I think got this fiscal house more or less in Italy or Portugal, Spain even in Greece got their house more or less in order. And I'm not so negative on Europe. Um because Germany is has changed totally its policy. It's now spending. It's running deficits. They got rid of what they call over there the or the bramza which means that they cannot run a deficit. Uh and they now can do that. So this will create this will help. But of course this has also driven inflation higher. is going to drive inflation higher and is also going to drive long-term interest rates higher because growth will be higher and inflation expectations will be higher and the debt will be higher. So markets will start to ask a higher premium for the long end of the curve. So it's no free lunch. >> Yeah. >> But Europe I think is in more better shape making a traction of what's happening in France than it was in the crisis back then. But it's no walk in the park. um it will nowhere in the world be a walk in the park because a fork turning is is no walk in the park. >> Let's talk about that you know the the endgame on on this whole debt. I mean you've argued that the global debt super cycle is the primary driver. I mean when you see governments unable to even pass budgets to control their spending. What does that tell you about how this debt crisis ends? Is the only realistic path then as you said to inflate it away over time? >> Well that's the easiest way. You have only three options. First of all, you try to grow and save your way out of this, but in a foring that's extremely complicated. >> You can default and default is of course something very disruptive for financial markets. So that's something you're probably not going to do. Now defaults have many shapes and forms like the US does not necessarily has to default on its uh debt, but of course it can lower the dollar. So there's also a way of of managing the deficit or or the total debt a little bit. But the easiest way, and I'm not saying that is the perfect way because it's it's no time anymore for perfect ways. You you take the least bad of everything that's on the table, but gradually letting inflation run a little bit at 3 or 4%. Well, that's that's probably what they're going to try to do. Uh and if you do that, that's easier to sell to the population. If you cut wages by 2%, uh people will be in the streets. Nobody understands inflation. So if you let inflation run 2% higher, that's exactly the same, but people will not notice it or notice it less. So that's that's in a way what they're going to do. And that's this this inflationary world we talk about. And yeah, the good news is you can hedge yourself against this by buying precious metals, by buying commodities, by buying real assets. Because if you're in cash and assume that inflation is only going to run at 4%. Do that 10 years in a row. Well, you're absolutely sure that you lose about 50% of your purchasing power uh by doing nothing. So, putting money in a savings account and looking at it and saying, "Okay, I'm very sure that's still there." Well, it's still there, but the purchasing power of what's still there will diminish at a very, very rapid pace. And most people are used to a world where inflation okay also ate away a little bit of the purchasing power but at a gradual pace I think that pace will ex accelerate and this is absolutely a moment in time that's what we talk about in our book that fortunes will be lost and fortunes will be made by the ones who have the the right positioning >> before I mean I I want to get into the commodity we got to talk about where to invest in this in this market but before that I mean one of the strongest arguments that against that kind of inflation is Japan, right? I mean, for 30 years they had that massive debt and it led to decades of stagnant prices and a sluggish economy. But with Europe's aging population looking a lot like Japan's, why wouldn't they suffer the same fate? >> Well, that's a very good question and um the co-author of my book Gunders um we discuss this um very often and we have not always the same opinion on this but I I will be give give you my opinion on this. I think that the reason why you were in deflation in Japan for the longest time for for decades as as you mentioned is that you had a balance sheet recession. So at the end of the 80s the the Nikkay was at 40,000 and it took all this time to get back at that level. So when you have a bust you know it can can take a while before you reach again the levels that you were at. But the real estate market crashed and with it the stock market crashed. So then you get a negative wealth effect because people think of feel that they are poor and you get a liquidity trap because they're not going to spend anymore and they're not going to invest anymore. And if the the governments tried to stimulate it the key in in by lowering interest rates well they did that in Japan that did not work because people will not invest will not consume even at interest rates are zero and I'm I'm more a monetarist. I'm more on the side of Freriedman. I'm not a Canadian. Um but the point is that in this environment probably some Canadian spending is the only thing that does the trick and then that is what's pulling Japan a little bit out of their troubles but the point is if you do that you increase that even more and China is today in exactly the same situation as Japan was. This is also balance sheet recession. So they also need some spending. If they spend they will drive commodities even higher. But that's the point I think a lot of economists and a lot of of of of authors of books and so on they say ah Japan is has aged Europe has aged. Uh okay they had deflation over there we will have deflation over here. But I think the reason why Japan had all this deflation for so long and with the low interest rates is because of the balance sheet recession. So I do not think that that we um we can compare Japan with with Europe one-on-one on this but there are different schools of thought on this and there is a lively discussion going on and is a very important point. >> Yeah. Okay. Well well said. Uh you brought up China. I mean we got a discussion about a multi-olar world is incomplete without talking about China right Philipe. I mean we see them consistently buying gold for their reserves. Yet they've also, you know, facing this severe internal property crisis and a mountain of their debt on themselves. I mean, I guess the question is, how do you see China's role in the in the next 5 years? Are they a driver of the commodity super cycle or their own potential instability the biggest risk of it? >> Well, they're a driver certainly. Um they also create a lot of volatility because only today you saw that uh the lithium price for example was was was clearly increasing over the last couple of months. You saw a couple of the lithium miners bouncing from from very low levels uh just because China took out some of its production or or mballed some of its production. Now today there was a rumor that they were going to restart one of their important mines and immediately lithium and also all the lithium mines took a hit of 5 to 10 or even more percent today. So they create also volatility and it's if you look for example at the rare earths well they have created or they've almost a monopoly while the United States was very powerful in rare earths somewhere in the beginning of the 70s they gave it away to China. they have they have a lot of the mining. They have a lot of the refining of these things. So they can drive up rare earth prices um overnight almost if they want. Now this is a massive opportunity because the United States realizes very much that they're losing the trade war or they have a bad hand to play visav China because they can play the rare earth weapon. I think there will be massive investments in the rare earths uh in a lot of places, United States, Canada, other places. So I think this is a massive opportunity. But I think yeah, China will be still be a driver of the of the of the super cycle uh electrical revolution is probably even more important. But what what China will bring above all to the commodity market, I think is is is more volatility in both directions. >> It's interesting. I mean, you know, when you when we say control, it's not just about mining. It's about China's dominance in processing these raw materials into battery grade chemicals like you talked about and and refining them too. I mean, how does this control of a critical mineral supply chain by a single geopolitical rival factor into your fourth turning thesis of a world splitting into these competing blocks as we've seen? >> Yeah, indeed. China is an important block. India will be a block. So, it will be not bipolar. It will at the end of the day become multipolar probably. And then everything starts to to evolve around that. And you see of course the different alliances happening. And then that that's very important because you have to look at it also from an economic point of view. I always compare this this to tectonic plates. >> You have the all the different plates. You have China, you have Europe, you have India, you have the United States, you have Canada. And they're all moving and they tended to move all in the same direction at the same speed. And now we have a world where they all start to move in a different direction at a different speed and of course they will collide and that's what we see in the dollar that's what we see in raids that we what we see in commodities and that's also a source of um of volatility. Now if you think about this we have had a uniolar world United States but if you look at through history that the the point or the fact that one country is dominant is very rare. The United States had about 50 60 years of that. Uh there were still times in history that you had one superpower. Um you had the the Roman Empire at a certain moment in time and we already have to go back this long from 100 before Christ until 100 after Christ. Uh Rome was was the the soul power in the world. And that typically means peace and peace is deflationary. If you get more to conflict, which is sadly more the rule than the exception, well, everybody has to spend on defense. everybody has to to to yeah start to build walls around his own world and then you get a lot of inflation and a lot of volatility and the rare earths I think play a very important role and then the United States knows this and the rest of the world also even Europe starts to realize this that if you give this dominance to uh China and you know that all these railroads are so important for the electrical revolution for solar for all the things that we make but also for defense Well, I think and and Donald Trump and the administrations understood this very well that they have to start to build this as quickly as possible and therefore you see subsidies of the uh the Ministry of Defense or I have to call it the Ministry of War these days uh that they know they will invest in these mines and they subsidize them because they know they need them. And if you want to really start the trade war against China and you want to win it, well, you will have to be independent in in the rare earth space as well. But that's not going to happen overnight. But I think they're going to do whatever they can to build it as quickly as possible. >> Yeah. Well said. Okay. Well, Philipe, this brings us to the strategic implications. Obviously, the analysis our audience at Kiko News expects how to kind of navigate this complex environment. Uh, I guess we'll start with the most fundamental question for our viewers. I mean, with this framework that we've been talking about, what are the distinct advantages and and kind of risks of owning physical gold, a gold ETF versus a basket of senior mining stocks? I mean, where are you catching a bit here? >> Well, it's easy. I would buy all of them depending on on what what what you like. Some people want to hold physical gold or silver or whatever. I'm more an ETF guy, but we propose to our clients, but it depends also from client to client. We typically say take three4s of of what you want to invest in in in an ETF and take 1/4 for example in the miners and and that's what we have also described in the book uh one year and a bit ago uh because yeah miners have been this big deception to a lot of investors for many many years because they they were not really profitable they were not very efficient and then of course the underlying the gold and the silver were not going up enough but Now you have the perfect storm for them because first of all they've become more efficient and if you look at it um at a certain moment in time well if you look at what gold and silver prices are for example and when you see where the average cost is all in cost of these miners are well they're they're just printing money so they that frees up a lot of of potential to to buy back shares to do do M&A and that's what you also start to see because today we had Anglo and tech resources so if your stock price is very very low. You cannot use it as a as as a currency to buy other players. But now the stock price of a lot of the bigger miners have gone up quite substantially and they have still a lot to go I would would say but they can start to use that as currency to fill up their pipelines to buy uh midsized miners to buy even junior miners a certain moment in time. So in my mind this is only the beginning of this cycle and once again if you dig a little bit deeper um it's also logical because up until now up until the beginning of the year but but even a couple of months ago even it were only the central banks were buying gold. So they bought about 1,000 metric tons of gold and the investors were still net sellers of gold and gold mines. So that was very bizarre. Now you see money coming in that perspective is also logical that only gold went up because central banks only bought gold. They did not buy silver. They did not buy the miners and so on. Now the investors are back. They buy everything and now you see at last I would say the miners yeah catching up and catching up in a very violent way because if you look at the big guys they've doubled in price. If you look at the junior miners and the midsize miners, it's times two, times three, times four. And that's also typically something that you see in a cycle. But since the investors have only come on board very recently, this is not a bubble yet because gold and all the mining complex and the silver and so on is still very underowned uh by investors. So if they start to come on board, what we see uh happening as we speak, well, I think this is only the beginning. And we talked about 4,000 on gold. I think this not the end point. I will not say it's five or six or seven, but but I think this is only the beginning or at least the first or the second or the third inning maybe of of what could be a yeah a very big super cycle. >> Interesting. Interesting. Okay. There's two things I want to bring out of what you just said there. The we'll get into this deal with tech and Anglo in a minute because again pretty big 53 billion copper focused giant now. Uh but before we do that, you were talking about mining stocks and you know, we've seen the western investor come back finally some inflows, you know, some of these juniors catching a bid. We know that, you know, printing cash. Uh Beaver Creek's happening right now. But I'm curious, you know, with all that narrative, you represent one of the largest financial institutions in in Europe. I mean, are the European investors coming back? We've seen the buying from Australia. Are is this now a focus there? it starts to be a focus and it starts to to grab some headlines in the newspapers finally. But this is not Belgium is a little bit of an exception because we we had um or history with Africa and so on. So mining companies the harmonies and so on um of this world well they they typically we we have a history in in investing in mining companies. I remember my grandmother, they used to own free gold and they used to own Donten and she used to own Offsil a lot of companies that are no longer there have merged or or morphed in something else. So so it is history in Belgium but if you look at at a lot of Europe well this is not typically a lot of of of the focus of of investors um in the UK probably a lot of of miners are maybe also um quoted on on the London stock exchange. So there is some focus but this is not typically a European investor would look at first. I think it's it's way more popular in Canada or Australia or a number of other countries in the world but it's when I talk to clients and of course I mention it everybody knows I'm I'm a bull on on gold. So then of course that's a subject that we talk about but but that's yeah it's starting to get some traction but but I I would say you see this very well in in the biggest um one of the biggest ETFs the GLD of the the physical gold you saw the price going up but until recently um they lost a number of tons in holding so people have been selling this down even though it has been going up and that's a worldwide phenomena so therefore And now the money is coming back a little bit, but it's nowhere near the maximum in tons that it used to be at its peak. So gold is setting record after record, but still people are not really buying into it. And therefore, I believe this is not a bubble. A bubble is when everybody starts to yell, uh, you you have to own gold. And I see some interest, but I see absolutely no euphoria. And that's good news because as as we can keep going like this without getting too euphoric, well, this means this can can last for a very long time. >> Okay, we got to we got to jump into that that uh news that just broke this morning. The Anglo-Americ resources, they just announced a merger. Uh it'll be about $53 billion copper focused giant. Now, a year ago, I was reviewing the tape, you were here. You said that M&A would be the next step for the miners, and it looks like we're here. But Philipe, I mean the the the deal is structured as a zero premium all share merger and some analysts are already pointing to that interloper risk from rivals like BHP or Glenor. Does does the structure of this deal signal cooperation born from strength or does it signal two companies kind of huddling together for defense because they're worried about the future and can't afford a real cash premium? Well, that's that's a good question. I'm not on on the board of these these companies, so it's it's hard for me to say, but what I said before, it's logical that that the guy who wants to do the buying is initially going to try to use his his his equity because it's been going up and then that that yeah, that's a position that a lot of these bigger guys are in. Uh but I think still a lot of these things are going to happen and sometimes it will also be for cash but but initially I think you always try if if you're a bidder you try to use as much of your own equity as as you can but but a lot of deals will be done and the point is if that that's very important to watch I think uh with a takeover in the resource space but with any takeover also in other sectors it's it's important what happens because if the that's doing the the bidding or is doing the takeover is punished by the investors for doing the takeover. Well, other people are going to say, "Are we going to wait a little bit?" If you're more rewarded for buying back shares, uh if you're more rewarded for increasing the dividend, well, you're not on the lookout for a lot of takeovers. But at the moment, the market starts to reward people who do the takeover. They say that's what absolutely what you need because you have to fill up your pipeline and so on and so forth. Well, then you will see a lot of these things happening and I think we're not too far from that. It's like putting a toe in in the cold water, seeing the temperature a little bit. So therefore, it's very important to follow this one. What's going to happen? Will there be other biders? Will there be a part in cash? And how will the market react to this? But but it will not be and that that's very important as well. I think >> they have a lot of options, the the the the the big guys because they're generating so much cash. It's not an or or or story, but it can be perfectly an end and end end story. They can do end takeovers, fill up their pipeline, and still have enough money to pay dividends and to buy back shares. Because if if at this level each $100 or $200 that gold goes higher and each $5 that silver goes higher, it means massive amount of cash flows that they will start to deploy and then that's going to be interesting and that will eventually but then we will will be five or 10 years down the road stop this cycle because what typically stops the cycle is that a lot of new production comes online. A lot of investment is being done and yeah this super cycle is created by the electrical revolution by China but most of all by the absolute lack of supply. There's not been enough investment in this space for maybe 10 20 years and now of course this investment has come in and at a certain moment in time there will be so much investments that there also will be supply but you know how long it takes to open a new mine. So I'm not not very worried that it will happen in the next five to six years but this is the the very start of this process and as you you mentioned it's following the logical sequence that it always does but the the previous cycle is so far in in the past that most people do not remember it anymore I think. >> Yeah. Hey, I got to ask you. I mean, because some of these miners are also de-risking, right? We're letting where some of them are letting some of their assets go. And in this fourth turning that you talk about, going back to your book, I mean, this world that you described where supply chains or political weapons, how critical is jurisdictional safety now, and are we entering an era of resource nationalism where even safe countries could implement, you know, windfall taxes and and how do you price that risk? >> Yeah. Uh, the last one is the most difficult one. Who how you price it? But for the rest it's I'm absolutely agree with you. It's resource nationalism. They will of course when you have jurisdictions like a lot in Canada for example where you have favorable mining favorable mining laws where you are more or less sure that they will not confiscate your mine and so on. Well that will have even more value. So for for the United States, even though Donald Trump is not always friendly with Canada, um I I think yeah, Canada is fantastically positioned for this. Mexico probably as well, a little bit less, but that's also very close and and some of the mining jurisdictions are still very uh yeah, very positive uh in in this respect. But if you go a little bit further, you go to South America, well, yeah, there you you run into countries where where indeed politics sometimes interfere. And if you look at countries like Chile or Peru, for example, where where each and every time you have a strike against the government, the first thing that they do is start to block uh the roads to the mines and so on where you sometimes uh or very often they try to renegotiate the deals that they made before. So that that makes I think first of all when you have a jurisdiction that you trust more or less and it's always within limits because in this world you're never sure of anything but that will give some added value uh to the places that people trust and then we saw a technical breakout I posted on LinkedIn a couple of yeah already months ago the breakout that you saw on the Toronto venture exchange where a lot of things are are quoted at extremely low levels. Well there I think the turn has also been made. So that would be a jurisdiction that that you trust. Australia would be a part of the world that you trust. And then of course there are places where you have less conviction in the government or the geopolitics. And even when the grades are high, yeah, it's still a very very risky business. So how you price this? Well, that's the reason why we tell clients three4 take the metal, 1/4 take the miners. And when you're real expert or you you feel lucky, you can go out and try to pick one mind or one mining company. But to diminish the risk, I would always advise buy a basket of mines uh when they confiscate one. If you have an accident or whatever can happen to one, well, you are rewarded in the other ones because one mine even when it's a fantastic opportunity with fantastic rates, is always always very risky. And the big advantage of these funds and I'm a stock picker my entire life. So when I can buy an individual stock I will not go necessarily to a fund. But here you have the advantage that you buy the big guys you buy the mid tiers and sometimes they have also some of the smaller players in the portfolio where you would not necessarily want to take the risk on your own. >> Yeah. Well, I mean, being the uh the the chief strategy officer at one of the largest institutions means you can't give our audience any single stocks to buy. I know this, Philipe, but I got to ask you, I mean, we could bring it on a little bit. In October, when we had you on almost a year ago, you said, "Okay, $4,000 gold, $40 silver." I mean, we are almost at $4,000 gold, which some people thought was crazy. We just touched $40 silver. But let's talk about the investors mindset. I mean, people are kind of caught between the fear of missing out on the commodity run and the fear of a much bigger crash. So, what's the biggest mistake an investor can make with their money right now? >> Well, I think being in cash too much because you you your conclusion could be okay, we live in a very volatile world. >> Mhm. >> So, uh things will move violently and we saw that also in the equity markets in in April with liberation day. You took a haircut of 15 20% very rapidly. uh people who sold in in panic. Yeah, they lost out because they missed the entire rally. But these things will happen. This is a world where you will see big shouldn't be surprised to see a correction of two or three or $400 in gold at a certain moment in time that these things can and will happen. But you're still way better off in these these real assets than than in in the cash because you can say gold is going up. But you can also say gold is gold coin or a bar or whatever the lingo what you want to buy is is still physically the same but the price is moving. So you can say gold is going up but you can also say the purchasing power of cash is going down. So after the fall of Breton Woods, gold was $35. Today it's $3,500. It's time 100. But it also means that the purchasing power of of of cash has diminished so much. And I'm I'm uh I'm a little bit uh strange in a sense. I I know most stickers. I know most stock prices. I know uh commodity prices, but I don't do not know what what Miller cost or what bread costs. But in Belgium, we like chips. So that's a national uh food in Belgium and I have have a TV program each and every Friday evening in Belgium and afterwards we I going to buy chips so I know the price of that. Well, after co the price has gone up from from 30 euros and I almost pay 45 or 50 and that's in a couple of years time and when I do not get too too too too big and too too fat and then I still living in 10 15 years well the price will have gone up even more. So I think people do not always understand that it's not really the price of the goods is going up but it's the purchasing power of the money that's going down and just putting it in a saving account is not a good idea. So I think you have to be diversified but above all you need to own real assets and then yeah commodities and then precious metals are certainly part of that. >> I got to ask you too for the audience because I'll get a comment or two. I mean I got to ask you because in a previous conversation you expressed a belief in blockchain technology. today. Obviously, gold at all-time highs. We're also seeing some bids with Bitcoin, you know, still past that $110,000 mark. How do you view Bitcoin in its role in this new environment? I mean, is it truly kind of a competitor to gold as a safe haven asset, or is it simply another risk asset being benefiting from cheap money? What are your thoughts? >> Well, I think I'm going to piss some people off probably. Um, I'm going to tell something. I I I will start with a caveat. I've never made any money in in Bitcoin myself. Um I sometimes invested or or traded in in stocks that that do Bitcoin. So so indirectly, but and my wife always said to you, you're always glued to the screen. This is your job. You do nothing else than than that. Why do we not own Bitcoin? And I always say, well, I do not always understand it. That's one thing. I'm an old fashioned guy. I like gold but I can only assume unless what you say that indeed it's going up. Now in my mind it's going up a bit for the same reason as for gold where where people say I need something else than this cash and more a little bit older people will say I buy gold and silver because I feel comfortable with that. younger people will maybe say I buy some Bitcoin but I also think that is also partly because there are so much money in the system and and and money goes also to Bitcoin and in my mind it's it's not really a safe haven uh it's more like the most speculative part of the the technology space and if you look at it on days it's very often correlated with the NASDAQ so I think if the NASDAQ would take a haircut but we will have to see on the proof of uh the putting is in the eating. But if the NASDAQ takes a correction somewhere down the road, I would assume that Bitcoin will go with it and gold will go the other way. That would be my hypothesis, but it has to be tested. So, we'll have to see. >> I have to ask, I mean, you know, maybe this is the gold thesis then. I mean, to close, let's look over, you know, maybe the next 10 years. What do you see as a grand slam asymmetric kind of investment? the the one theme in the hard asset space that's maybe most under misunderstood today but has the potential for the most explosive returns if your framework for the next decade proves correct here. >> Yeah. Then then you make me choose between the stars in the sky but um it will most of all be be commodities. So I'm I'm a big fan of gold, silver, copper. >> Yeah. Um, if I have to pick one, I would maybe even prefer silver because silver has lag gold uh substantially, it's 50% industrial, it's 50% precious metal. Um, I think the 4,000 in gold will coincide with 50 on silver because 50 has been the top in silver already two times. Once the beginning of the 80s or the 70s even with the Run brothers and then I think once again in 2011. So it would be a triple top reaching 50. We all know technically that triple tops do not really exist. So typically you break out and then the road is free to 100. So I if I were to pick one um I I would even even though it's more volatile I would even prefer silver over gold at this moment. >> Lot of people watching >> Yeah. a lot of people watching silver right now. Philip >> Yeah. And it's been down and it's been disappointing for many many years. it could not get any traction and now it it starts to move. So, so the silver mines and then copper of course is more industrial because that's still the heart of the industrial uh of the electrical revolution. I mean and and well yeah you will need a lot of it and you have not enough supply even though a lot of gold miners are also investing in copper. You see some investing coming in. You see some takeover so people get on board at the fact that you will need a lot of copper coming in but it will take a while. It will take 5 to 10 years be before these new projects come online and and in the meantime it will go up and in the book we wrote that copper is going to double and already it's still doubled but already had a night nice move then people say you're crazy but look at oil in the oil shocks before the oil shocks oil was five then it went to 60 to 100 and to 200 so if a commodity gets into deficit like silver is as well it's not for 10 or 20 or 30% it's times three four five So that's what we're looking at. So I would certainly not forget about gold. I would prefer silver. I love copper. And the most speculative one is probably lithium um because that's down so much. That's a totally different dynamic because in supply there is enough lithium probably, but demand is going to go way higher and maybe if you in for a trade and we said, yeah, if China of course increases production again, the price comes down again. So that's maybe a speculative part, but yeah, for the people who really want to protect their portfolios, it could be probably silver, um, copper, and then gold. >> All right, I like it. Did Did you say $50 top or I know you said when 4,000 hits on the gold front, it'll be a $50. that I think that's going to be coincide a little bit because if you >> no no I'm giving very specific levels which is extremely dangerous because they always told me that if you have give a target don't give a timing and if you give a timing don't give a price but the point is I think the road to 4,000 in gold is is is open that would be 10 something% um and then of course silver is going to move a little bit more and then I think you will touch the 50 and 50 silver, 4,000 gold. I think you will pause a little bit. Uh but that's the levels I'm looking at in the next three to six months, I think. >> Wow. Okay. Well, you heard it here. Uh great to have you. A comprehensive framework, clear perspective, of course. Philip Chisel joining us from Brussels. Thanks for your time and your insights today. Really appreciate that. >> Thank you Jeremy. >> Okay, we'll talk soon. >> Bye-bye. >> Thank you. And for our viewers, this is the kind of deep critical analysis of course that we're committed to. If you value this type of conversation, I encourage you to hit the subscribe button and join the Kitco News community. I'm Jeremy Saffron. Thank you for watching. We'll see you soon. [Music] Heat. Heat. [Music]