Adam Rozencwajg on Inflation, Energy, and the Future of Real Assets | Global Macro | Ep.90

Summary

• Macro Regime Shift: The guest expects a transition away from carry-friendly conditions toward a stagflationary environment, driven by policy shifts, debt monetization, and rising inflation risks.
• Inflation Outlook: Inflation is seen as likely to re-accelerate due to dovish policy bias, negative real rates, and potential energy price shocks, with psychology acting as a powerful medium-term amplifier.
• Gold and Precious Metals: Strongly bullish on gold and broader precious metals as beneficiaries of monetary regime change, central bank buying, and hard-asset preference; miners still screen cheap on earnings and NAV despite recent gains.
• Silver/Platinum/Palladium: Noted strong catch-up rallies in silver and platinum group metals; historically such periods can mark pauses but current spreads suggest further runway before stretch levels are reached.
• Energy and Oil: Oil is framed as the most hated asset with compelling upside; US shale appears to have peaked on the data while policy attempts to boost supply face geological constraints, increasing odds of an oil rally.
• Offshore Drillers: Offshore drilling assets are highlighted as deeply undervalued (trading near scrap value vs replacement cost) ahead of multi-basin development cycles in Brazil, Guyana, Namibia, and Angola.
• Venezuela Complexity: While Venezuela holds massive heavy-oil reserves and US refineries are configured for such crude, the guest stresses infrastructure has been cannibalized, implying long lead times and significant uncertainty.
• Portfolio Positioning: Preference for hard assets and commodity equities (especially gold miners and offshore drillers) as inflation hedges and beneficiaries of debt monetization, with scope for multi-year rerating from depressed allocations.

Transcript

And and so that's I think what's a little bit of the paradox [music] of inflation is that in the near term it's very formulaic and I can paint a picture that if energy prices go up you're almost sure to [music] get relatively uh sharp inflationary pressures. Uh you have a lot of uh doubbishness. you have a lot of money that's already been printed quite frankly and a lot of doubbishness [music] I think in the future and um psychology right now I think is really uh [music] going down a razor's edge and could very easily tip into inflationary psychology. So I think all those things together [music] means the risk is quite high that you're going to get an inflationary bout. [music] Imagine spending an hour with the world's greatest traders. Imagine learning from their experiences, their successes and their failures. [music] Imagine no more. Welcome to Top Traders Unplugged, the place where you can [music] learn from the best hedge fund managers in the world, so you can take your manager due diligence or investment career to [music] the next level. Before we begin today's conversation, remember to keep two things in mind. All the discussion we will have about investment [music] performance is about the past and past performance does not guarantee or even infer anything about future performance. Also understand that [music] there's a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the [music] investment manager about their product before you make investment decisions. Here's your host, veteran hedge fund manager Neil's Castro [music] Larson. Welcome or welcome back to another edition of the global macro series where today as usual I'm joined by my co-host Jim Kasang as well as a returning and very popular guest to the show namely Adam Rosenwag whom we last spoke to about eight months ago. Adam, it's always a pleasure to have you back. How are you doing? >> Very well. Nice to talk to you both. Happy to be here. >> Yeah. And you, Jim, it I know it seems like so long since we've done one of these global macro uh episodes. It's really wonderful to uh to be back with you in in the seat. >> Amazing to see you, Neils. Uh Adam, great to be back with you and uh beautiful fall here in Chicago. >> Excellent. Well, we've got a lot to cover. I mean, it is a time where things change dramatically and not least in the area of natural resources. Really had an interesting um year so far. Now, Adam, I'd like to start maybe a little bit differently. um you know instead of going deep straight into the big sort of natural resource framework you're thinking of right now um I've heard you talk a little bit and write about something that I think might be useful for for people just to be aware of and that is we often talk about things are unprecedented at the time that this is like things that has never happened before whether it's Fed independence being challenged or whatever and I think you've got a very good historical perspective on these things and I I thought that could be a place to to start the conversation today. Maybe you give us a little bit of a of context to to what is going on um in in a bigger picture before we go straight down to the more niche sort of natural resource area. >> Sure. No, happy to do that. And you know, I've said to other people that, you know, you should always beware a commodity expert talking about macroeconomics and geopolitics because we probably know just enough to be dangerous. But with that caveat, we can certainly talk about some of the longer term historical um developments and and where it sort of fits in because you know while history does not repeat, it certainly does rhyme and uh that's definitely taking place today I think in in global macro. So what do I mean by that? Well, and and I think we actually talked about it here, and I think you're the ones who first put me on to uh the rise of Carrie, which I'm not sure if I should thank you or or be upset because it's basically consumed a lot of my waking hours in the last eight or nine months. Uh but commodity markets move in big cycles. We've also noticed that carry trades, so-called carry trades, move in these big cycles as well. And what is a carry trade? Well, for your listeners in case they they haven't been up on it, you know, a carry trade according to Lely and Cold Iron is when you have a short volatility a lever short volatility trade that gets put on. So effectively, you know, the one that everyone thinks about is you borrow in yen and you invest in Australian higher yielding assets. You make the cost of capital differential and you lever it up to whatever your risk tolerance is. And so long as volatility stays low, so long as the FX rate stays basically in line, uh, and you can hedge some of that out even and get an all but guaranteed uh, risk-free rate of return in excess of the risk-free rate. Um, and and that's a carry trade. That is a leveraged short volatility trade, but it's just one in a whole series of these. And what we see as opposed to let's say value investing or real asset investing where they're naturally they naturally have a modulator to them in the sense that if if all this money flows into value investing then values stop existing and the thesis for the investment goes away. And so it has a natural, you know, negative feedback loop or modulator. And so it can still move in cycles, but it kind of moves around a mean. And carry trades naturally have a positive reflexivity. They have a positive feedback loop that takes place because as more money chases into these leverage short volatility trades, it creates distortions that feed on themselves. What do I mean by that? Well, it means that momentum works. Momentum is literally means what worked yesterday works tomorrow. So that's of course going to work very well in this kind of an environment. Um large cap tends to work well because what has been working continues to work and that means the big gets bigger. There's no natural modulator there regulator. So you know trees grow to the sky so to speak things like that. Uh and growth investing does very very well in that environment and seemingly to no end. And the better it does the more money it attracts. The more capital goes in. the more they can grow, the better the growth, the more they go up. And the thing just just goes and goes and goes uh until eventually obviously the distortions become so big that you can't go any farther. And again, if I'm paraphrasing here, but if the trade works so long as tomorrow looks like yesterday, when does it stop working when tomorrow looks very different than yesterday? And I can't have a simpler, pathier sentence to describe how really the entire world around me feels right now than to say tomorrow is likely to look a little bit different than yesterday. We have administrations notably in the United States, but not exclusively, that seem determined to really change a lot of institutions, change a lot of um longheld beliefs about how things ought to be run and how things uh are set up. at present and that I think will create a sector rotation that that effectively ends the carry trade and begins a rotation back in. Now, one thing that the authors of that book didn't really touch upon was past carry trades because I read all that and I said, "My goodness, that sounds like a lot like the other side of the commodity and resource trade, right? where in that kind of an environment where interest rates are low, volatility and inflation are benign, uh growth is working, values out of favor, you know, why do you want to own a 10-year life of mine copper asset or gold asset or or 20-year uh development oil field where you can pass on price and whatever that has no interest. I'd rather own a 60-year growing stream of cash flows in a hyperscaling tech company uh discounted back at effectively zero, you know. So, I said, I get it now. the resource market is the other side of this carry trade but we know that there's been three or four resource cycles in the past 150 years and have there been three or four carry bubbles and that's where the authors and I don't fault them it just wasn't the topic and scope of their book but they don't go into those old ones we did and we found where we could get the right data that a lot of the symptoms of today's carry bubble were present in the late 1960s in the mid20s and the late 90s and so I think all of these cycles carry on one side, resources on the other, uh, are fairly predictable. They're following the same rules they always have been. And one of the big catalysts and triggers to end them, has always been fairly large discord and eventually shocks and changes in central banking and monetary systems. Uh, and so I think that what we're seeing today is not unprecedented, but rather a very, very important signal. And actually before you jump in, Jim, one thing that because you've spoken a lot about this and and really made people aware of it. Uh but one thing I picked up in in your uh writing, Adam, was that uh even to the point where uh politicians get very um let's call it physical with central bank uh chairmans uh is not unprecedented either. Do you want could you remind us of the history there? >> Yeah. And so this comes by way of uh a book called The Great Society by Amity Schlay, which is a very very interesting I think underappreciated book that you don't hear too many people talk about, but it's excellent and very very uh informative. And one of the things that she talks about was uh an an event that allegedly took place in the late 1960s where uh President Johnson, Lynden Johnson, actually took the Fed chairman, who was William McKinley Martin, and slammed him against a wall at his ranch in Texas and took him by the by the uh collar and slammed him against a wall and said, "You know, my boys are in Vietnam dying and you're not giving me the money I need to finish the job." And you can imagine the huge amount of tension and the huge amount of u you know uh emotion that was in that conversation and you kind of fast forward to today and I don't want to undermine what's happening between President Trump and Chairman Powell but as far as I know um you know the worst that Trump has done is to call him an idiot on Truth Social and things of that nature. Uh and I don't think that he's accosted him. I suspect we'd have heard of that if he had, you know, cold clocked him coming out of the uh the the men's room in the White House or something like that. I don't think that has taken place. And um so not to say that Fed independence isn't nearing an all-time low in terms of risk that it might change, but you know, we have been here before. And and another one that's even less spoken about and far less dramatic, but Benjamin Strong, who is the president of the New York Fed in the 1920s, pursued radical monetary policy through the 20s, uh including the first quantitative easing that the US ever experienced. And and mind you, you know, the US established the the Federal Reserve following the crash of 1907 in the early, you know, I think it was 1913. And it was by 1925 that they had discovered money printing. So, it didn't take them very very long at all. and uh nobody attacked him and we didn't have social media but he just did the you know a much less dramatic thing he just you know died suddenly and so his his policies were reversed that way but there's huge debate and consternation then too. So to address that to add to what you're saying 100% Adam uh William Mcchznney Martin was the Fed governor Fed president for 20 years at that point and was respected by all um as like a steward a responsible steward on uh things and and uh to be clear Nixon who came after LBJ um not only fired him but put in Arthur Burns who was a long sorting standing supporter of his and really uh starting in 71 they did a 4% interest rate reduction granted into a recession but it was a very mild recession and it was a stagflatary recession but where where inflation was very sticky any of this stuff sound familiar to anybody um and and that led to the major spike and eventually a inflation spiral right uh that came in many ways um that is why Federal Reserve ers have two mandates, not just one, which is growth. And if we just favor growth, and we do that uh remove the the politic politization of it and the short-term uh kind of uh incentives, um you know, that is that is more stable. But uh but uh the the short-term incentives are the political incentives are to go for growth in the short term and not worry about the future. So yes, we are these cycles repeat and this is not the first time. And by the way, Arthur Burns, even though he was a political supporter of Nixon and was very close, there are tapes and the Nixon tapes of Burns and Nixon in yelling matches over this. Uh, he was strongarmed into it. And then lastly, you talk about William Mcznney Martin being pinned against the wall. Well, metaphorically, that's what's happening with the Fed governors right now. Um, Cougler uh resigned. Uh, if you think that's a coincidence, I I got news for you. like there's an intent by the administration to get four governors on board so they can pull out and all of a sudden Cougler who's a has a 14-year term resigns for no reason. Uh I'm guessing there's something that was going to come out about Cougler if you know she didn't resign and then all of a sudden following that there is a firing right in this mortgage stuff coming out about Cook. Um so so um you know whether it's pitting them against a wall physically um or metaphorically pitting them against a wall u that is happening again. Um so I couldn't agree with you more. >> I think that's exactly right and I I think you're in the right zip code in history or postal code for the European listeners in history uh for these big dramatic changes and shifts in monetary systems. And you know we had identified that commodity bare markets end and new bull markets begin with shifts in the monetary system. And you know 29 it was the end of the classic gold standard. 6971 was the end of Brenton Woods. 99 was the end of the Asian currency pegs. And as early as 2020 we were out saying to people look if you need a timing on when the commodity mark bull market's really going to get going look to changes in the monetary system. And you know I'll be perfectly honest and we said it at the time that was entirely observational. I didn't have a particularly good explanation for why Bretton Woods ending and commodities rallying needed to go together. Why the British gold standard ending and commodities rallying needed to go together. Um but it was just observational. It had happened every time. It was a perfect predictor of uh the end of the bare market and the beginning of a new bull market. Uh but I think the carry trade begins to explain why. I think that that explains what exactly uh is is taking place. And so we're in that right zip code now. I think you're you have an administration that's telling you that they want to change things sharply and dramatically. And um I think you'd be foolish not to kind of listen to that signal. >> Yeah. And and to pat ourselves on the back, you know, we've come together uh are kind of what the things Neils and I talk about and you and a fortuitous way. And part of the reason we keep doing this and it's been so profitable and uh useful for people out there is because uh I think the ideas of connecting this commodity cycle to the big uh macro um kind of realities um has has been incredibly valuable. Uh you know I think you'll remember I think it was in 22 uh you know we were talking about when gold was really out of favor. We were together talking about how that was going to be a convex move and one of the best performing assets the next decade. So a 3x since then is is pretty good. >> And I just I just want to say one one other thing, you know, about Martin and Burns and then obviously Vulkar, you know, a lot has been written and people that I know that know chairman uh Powell will will confirm that, you know, on some level he he's very aware, as I think all central bankers are, uh that you don't want to be the next Arthur Burns. You want to be vulkar. And I sort of say a little bit, you know, tongue and cheek. They have a picture of Vulkar on the wall that they kind of look up to every day and probably a picture of Burns on the desk that's like, you know, their their warning and their reminder and stuff like that. And and of course, nobody left open the third option. It was a false dicho false choice. And the third option is that he's going to go down as Martin. somebody who tried his best to tow the line and somebody who tried to and and there's lots of reasons to say he's not Martin also but tried his best to keep inflation in check and to do the right thing but ultimately was sort of pressured and eventually pushed aside. So I wrote a paper uh this is about 3 years ago now uh called worshiping false uh prophets and it talks about these different governors uh these different uh Fed presidents. I I recommend if people are interested in this that they read it. Um but one of the things that I I really discovered through my analysis was that um uh Vulkar who is really lauded as this savior right is really no different than William Mesdmore. It was just a function of when they came in to uh to the roles. Um and and Vulkar was the right person at the right time. Um, if you read Arthur Burns, and by the way, Arthur Burns isn't really all that different except that he, you know, cowtowed to the political side, but the pressures that caused Burns to be put in that situation is what's important. Um, that didn't exist while Lee Mcznney Martin was there and by the time Vulkar came in had run their run its course. I think that's the important part. Um, it's it's really that if you uh when and Arthur Burns by the way spoke and wrote, I encourage people read what Arthur Burns is writing. He wasn't the the clown that he's been made made out to be or the political kind of animal he's been made out to be at all. Um uh he he simply was put in a in a situation where the political and fiscal pressures um forced certain outcomes um upon him and and I just think that um you know they tried to control the inflation by the way once it got going. No, listen. Burns got the a real short end of the stick in terms of history to the extent that history is written by the victors and things like that. And Burns was a very very sophisticated guy and and and wrote like you said extensively on the subject and look you know somebody a very uh smart and influential macroeconomist said to me and I don't know maybe for all I know you're going to tell me that he was paraphrasing from your paper. So if I quote your own paper back to you don't uh don't don't don't kill the messenger. But he said that, you know, the path to vulkar has to run through burns. You know, you can't have vulkar without burns because the pressures need to get so bad in order for the economy to be willing to withstand the medicine. And that's the problem, right? Is that we had this first taste of inflation uh but we didn't have the the fire really stoked yet. And so we put today uh policies in place that could help really break inflationary expectations and really kind of put the try to put the genie back in the bottle, but it's intolerable because there's pain associated with that and the pain of the inflation wasn't bad enough that no one's willing to take the medicine yet. Yeah. The the the big idea here for people to simplify it is stagflation and stagflationary policy which becomes inevitable at the end of a a cycle of massive just growth focused you know zero interest rates uh growth focused corporate growth um as a function of inequality going too far. Right? These policies that say okay we need something that's more fair. These types of policies are stagflationary and they're inevitable at some point because the cohesion of society gets to a point where they have to to be addressed. And once you head into a stagflationary policy environment globally, which is where we are, you get to a point where the Fed is stuck because do they deal with inflation or do they deal with growth? And you get to a point where politicians are stuck. And the short-term incentive is to say screw it, we will deal with growth and inflation isn't, you know, we'll deal with inflation tomorrow. But inflation becomes a spiral and that can unlock, you know, make the whole system kind of fall apart basically. And it really is this growth, you know, corporate growth, profits versus fairness, it's really left and right when you start to really think about it that drive these big cycles. And this is also a reason why we make the same mistakes over and over again and why they run 40 to 80 years in you know human life cycles. Uh this is um this is the [clears throat] big picture. >> Maybe we can unpack two things actually. One is inflation because I know Adam I think in your Q2 letter you wrote about inflation and how you think it's actually uh about to show up again uh meaningfully and and I know Jim has lots of thoughts on that as well. So I maybe we should stay with that before we get into you know the markets that I I know people will love to to hear about. But the other thing I was just curious about and I do remember that conversation where you talked about Adam that usually uh the you know the commodity super cycle which we've many people have predicted many times. Um you know that that you found that there was a a link to this change in in monetary policy. Um so I I or not monetary policy but monetary systems essentially. I was just curious whether we think that it's the Bitcoin acceptance even at the highest level of the US administration so to speak um if we call it that or whether it's this new stable coin initiative if we call it that uh to fund the US deficit or whatever they it's going to be be doing that is that trigger or don't we know just yet what what that change in monetary system will look like? I'm just curious to know and then I'd love to hear why you think inflation is coming back and then hear Jim's uh views on on that as well and then go go into the markets. I I think if I'm being truthful, I don't have the foggiest idea of what the new system will look like. And you know, I read recently um what was who wrote it? But it's the book on why uh was it was it Rogoff that wrote, you know, why no other currency is going to take over for for for basis of, you know, global um trade and things like that. Nothing's going to displace the dollar as as the global reserve currency. and he goes, you know, currency by currency and talks about the problems. And I agree with all of those problems and I don't think that the remimi and I don't think that the euro um is going to do it. And I forget he has maybe one other that's in there that could be a possibility. Maybe it's Bitcoin, maybe has gold, but you know, I I think that that is all very true and and good analysis, but it it neglects I I think the un said current through that reasoning is that so the system will stay the way it is today. And I don't think that that last bit is true. True. I think it's going to change dramatically how it changes. I haven't the foggiest idea. Uh, one thing that I think is fairly uh likely and and we're seeing already is that the dollar will devalue relative to gold. Uh, and that's what we're seeing today. Uh, I suspect that that will continue. Does it mean that the US becomes dethroned as the global reserve currency? I suspect not. Uh, and for that I think you just have to look back to the end of Brettonwoods. You know, if you'd canvased all these economists after the US single-handedly ended the entire world's global monetary system, upended it by severing the US convertability into gold, uh you would say, well, what do you think the future for the dollar as a reserve currency looks like? Say pretty bad. By 79, if you canvas them again, it's a really bad. Uh and by, you know, 95, the dollar hegemony was much stronger than it had ever been before. And today, even more so. So, I don't think we can know all the knock-on effects. Uh, does crypto play a role? Look, I'm not a crypto investor and I'm not a huge crypto believer. So, I don't in my heart of hearts think that that is going to be the trigger, but you never know. I reserve the right to, you know, change my mind as the facts change. Um, you know, I think that a couple years ago you thought maybe the BRICS countries would do it. today. I think it's more along the lines of what Bessant uh and um Mirin are talking about when they talk about their Marilago accords. Something in that vein. >> Yeah, I I uh I agree. Another kind of Breton Woods or I'm pinning from gold uh right is is is likely here. Um not just likely, I think it's inevitable. I'll go that far because there's there is a unsustainability to the US debt as it stands. And so quite simply we have to monetize our debt. Um and uh you know there there are a few ways there only a few ways to do that right uh without an actual default. Uh and and so um to your point uh this is why gold is running and and this is why it ran last time and when it did last time it wasn't a 3x it was uh you know a 20 25 50x right I forget what the final number was somewhere between 25 and I think 40. Um, so this is uh it won't be a straight line, but that's what's happening underneath the hood. And uh how that's going to play out, whether it's through crypto, I mean, I think the bringing in of the of stable coins is not a coincidence. Um, I think they need demand from some more some other source and crypto is a great place for that. Um uh but I I agree the the playing out of how crypto performs in this context um is is going to be complicated given that it's become millennial gold. Uh you know the belief which is what gold really you know gold's value is is a matter of belief. Uh you know if if a certain generation believes enough in crypto um it can become gold. Um uh and so I think that's what's happening. Uh but again, hard to tell given a the short timeline relative to gold, right? Um and and so I think that's that's critical um to this picture. But I do believe that we are uh much like we saw last time around uh in a macro commodity cycle because of just whether it's gold or anything else, hard assets, hard assets are going to be in favor. I will say one last thing about this which I think is incredibly important. We talk in generalities and macro. So, I want to put some numbers on something that I think is incredibly valuable, important to think about. Markets operate on supply demand. That's where the rubber meets the road. And if you think about uh the long asset world, if it if you will, not I'm not talking about uh commodities specifically, everything else. We're talking about stocks, we're talking about bonds, we're talking about private equity, private credit. I throw real estate in there. Um even though you could argue hard asset, etc., But u because there's so much financialization in there, you're talking $500 trillion globally. What's Adam? What's the precious metal? What's gold's uh value? Not the underground. I know the number, but not the not underground, but the actually amount in the in the world. >> Oh gosh. >> Six or seven trillion. >> That's exactly right. Six and a half or so trillion dollars. Uh and most of that is in sovereign vaults under the ground. Untouchable. the float on on gold like the actual amount trading hands is two trillion. Um and so you tell me you know if people and this is before these are early adopters these are people before the door you know starts opening you know when people need to get out that door and that door is not very big is the point so you tell me where that $2 trillion in float is going relative to 500 trillion if stuff happens I think that's a big big uh aha uh crypto is now four and a half I think you could argue that's going to benefit as well maybe in different ways uh depending on how you feel about that. Uh there are other non-correlated assets, not many and they're not really assets. I would say strategies. Think about like hedge funds. Hedge funds are only 4.5 trillion. Structured products are 2 trillion. You put these together, it's still 10 to 15 trillion in the context of a $500 trillion correlated world. Um, and so I think once you start putting in that perspective, you start to see the scale and possibilities of what may um, you know, be in the first, second innings. Really, >> I I was about to say that if you look at market moves this year, you would think that gold is the new Bitcoin, but um, maybe we're not quite there yet. >> But it's not a coincidence that in that time frame, in about 3 years, gold has tripled, but Bitcoin has also essentially tripled. And that the assets, by the way, in structured products have quadrupled. and the assets and hedge funds have 2xed after basically fairly stable uh you know uh inflows before that. All those things are correlated because they are non-correlated [music] to the other major pool of assets. [music] Before we dive into all this individual markets, I think people would love to hear about um I think we still have a little bit of time to maybe uh you you already mentioned, you know, how do we deal with uh deficits? Well, one way is inflate and um and and as I said, Adam, you you wrote uh a piece about this a few months ago. Um, and maybe you can give us sort of some of the the highlights as to why you think because I think people have thought about inflation as something that difficult to get rid of, but on the other hand, it's not it's not going it's not going up too badly right now, but but you think it might actually take off at some point. So, can you talk a little bit more about that? Well, yeah. I think that if you look and it gets back to the cycle that we talked about before with Martin and Burns and Vulkar and where we are today, I think, you know, in a very simplistic sense, there's a very strong likelihood of a more dovish uh Federal Reserve in the coming months and and years. Um, and I think that the amount of money that's been printed and the inflationary pressures that still bubble underneath the surface, which mind you, you know, you look at inflation, inflation spiked during COVID, it kind of normalized, came back down, and it's been moving in an upwards fairly insidious trend ever since. So, you know, the people that look at that and say that they've sort of vanquished inflation. I'm not entirely sure what data that they are looking at. Um, you combine that with the potential for a more dovish Fed going forward and more liquidity being put into the system, which I think is an all but foregone conclusion at this point. Uh, and and I think that you have the recipe, the kindling at least for inflation. As far as what could then trigger it, you know, I think one thing uh is that the level of inflation that we have seen in the last 2 or 3 years has been with a very very benign energy tape. Uh and so that could end up actually being the catalyst, the underlying catalyst to to bring back uh at least some of the prints. And here's kind of the the a bit of paradox on inflation. I listened to a gentleman speak a couple years ago and he said, "Look, you know, all you guys, all you traders sit there, you try to predict inflation and it's this like touchyfey thing and he's like, you know, it's very formulaic and I can calculate it in the next month or quarter, whatever it is, uh you know, with really good precision and no one really does that. It's kind of like how people think about GDP growth and they don't they forget their macroeconomics that it's C plus I plus G plus net imports, right? You just look at those line items. You say what could actually drive it? Are we in the right magnitude or expectations off? And inflation in the in the very very near term uh is very very formulaic. But then the paradox is that in the medium and longer term it's entirely psychological because what ends up happening is once inflationary psychology builds in a system and in an economy people actually change their behavior to take advantage of the expected higher prices. And just a very simple example is they pull forward their purchases and what happens when they pull forward their purchases because they figure it's cheaper today than it'll be in a year from now. Uh you end up straining the supply chain which creates more inflation. Yeah. So that's where these and then you know you have wage price spirals and things of that nature and the psychology becomes embedded into the system and and so that's I think what's a little bit of the paradox of inflation is that in the near term it's very formulaic and I can paint a picture that if energy prices go up you're almost sure to get relatively uh sharp inflationary pressures. uh you have a lot of uh doubbishness. You have a lot of money that's already been printed quite frankly and a lot of doubbishness I think in the future and um the psychology right now I think is really uh going down a razor's edge and could very easily tip into inflationary psychology. So I think all those things together means the risk is quite high that you're going to get an inflationary bout. I would add to that too. I you know uh as Adam said well documented the psychological components that drive this kind of spiral but I think that that's the part that's not talked about as much is the important role of negative interest real interest rates. um you know if if we have a uh right now we're at 3% inflation as measured right if it goes to four right and if they're going to lower interest rates which I believe with the tariffs and and whatnot you know uh if we're going to support growth in this stagflationary environment you're going to get an uptick in inflation given the tariff policy um and so if we start to see an uptick even if it's marginal to let's say 3 and a half 4% and now we're going to cut rates down to you know 2 and a half% % you create a situation where it's easy to borrow money to buy anything pinned down. Um, and it's natural for institutional money to start doing that at scale. And the great thing here is like they can try and hold the long-term rate lower. They can try and force it lower. They've been doing that through the stable clone policy, all kinds of they're going to do probably project twist at some point if they have to. But the reason they will lose control ultimately is if you keep negative real interest rates that way then that buying of those assets with leverage starts to push up the assets and drives a more negative real rate which is becomes a spiral. So the actual supply and demand dynamics of negative real interest rates um will drive a spiral if the politization forces a non-biased Fed. That's one of the biggest drivers of um of these loops and I think that's where we're heading because uh at the end of the day the the policy makers are stuck. Well, they're very stuck and I think that's a good way of putting it. I mean, you know, think about this from a totally different perspective and then we can talk all about commodity markets cuz like I said, no one no one's interested in my view on macroeconomics. Um, but listen, you know, I I think if you take a really like 10 steps back, the United States has a very, very big debt problem. And we've always known that they have a big debt problem. And now the big debt problem seems bigger and it seems more of a problem. And it's one of those things that, you know, anyone would look at and say it's not sustainable. But yet that doesn't mean it can't go on another day, week, month, or year. And and we're into year 15 of that now. And some of the numbers that seemed like they were unsustainable after the GFC seem quaint, but it does seem like perhaps now, and at risk of having called this maybe 50 times in the last 15 years, like now it might be too much. And and you know, you remember the old saying where you go broke slowly at first and then very quickly. Um it it it seems like we're really testing the systems ability to even properly function and clear. So I'll give you sort of a simple not simple but a but a clear example um and and this comes this is not my work but you know it is I think very insightful. You go back US debt to GDP crosses 100%. So if you start issuing 10-year bonds with an interest rate that's above nominal growth rates you're going to have a debt spiral. Right? If if your debt to GDP is 10% then you can have higher interest rates. But if it's 100% then the interest aka just what you're paying to service the debt becomes as much as the nominal growth. And so you end up in a debt spiral regardless. Right? So there became a bit of a fascination and fixation on saying well we have to keep the 10ear rate below um long-term growth. And every time it got up to about 5% you started to see Yelen uh freak out and she basically began to move into shorter durations and she stopped issuing 10 years altogether and she moved into bills and the yield curve inverted and everyone said when a recession's coming but it but it wasn't what was happening was that the in a very unusual move the Treasury just stopped issuing 10-year bonds. Someone's going to say well maybe they didn't stop you know they they dramatically shift the term structure into bills. Now, the problem with bills, which nobody, I don't think, fully appreciated. I certainly didn't, uh, is that it's a different buyer than a bond. And a bill is bought by a money market fund. A bond is bought by an asset management company or or an insurance company matching a long-term liability. And money market funds, for clearing reasons, don't buy bills. They buy bill futures. And so on the other side of that, a relative value hedge fund sells them a bill future and buys the bill and for that service collects I don't know some infantestimally small carry return which they then lever up a gazillion times to one to make it worth their while and that is now uh the system that we have in place right so it's like two layers of dis of not disintermediation of intermediation where um you know Treasury auctions these things to JP JP Morgan, JP Morgan sells them to a hedge fund. The hedge fund sells a future to uh to the uh money market fund and then they go and borrow money from JP Morgan to fund the that trade. And you know, do you have any idea how much money is tied up in that right now? You know, estimates are that it's at like $1.2 trillion. So, you have taken by going from 10 years to bills, you have taken over a trillion dollars of liquidity out of the system. It still shows up in the numbers. It's still in the monetary aggregates, but it's no longer productive. It's just tied up, right? And so, you have a problem now. Like, this thing is breaking down. You can't lower rates because of inflation. You can't raise rates or tighten liquidity because you actually don't have that much liquidity out in the system because it's all tied up making sure the 10-year doesn't hit 5%. And that's why the takeover of the Fed is being done so aggressively. They could control it in the short term this year. And by the way, Trump administration is not the first to do this. Yellen at all were also doing it. I want to be clear. But um uh they basically from '08, you know, the creation of reverse repo and all of the liquidity at the front of the curve, overnight lending, which is basically unlocked to banks. You put JP Morgan at the end. JP Morgan at the end of that, the US government does. Um by but by backing the banks and then creating reverse repo and all these other facilities, you've essentially created infinite liquidity. um at the front end of the very very front of the curve or the overnight rate which at some point connects all the way out to 9 months and people will trade that part of the curve because it's very tight. Um which to your point is very different than a long-term asset buyer. Um and so they have to your point um moved about $2 trillion which is just QE essentially by drawing from um you know reverse repo. Well, what's happened to reverse repo had$ two trillion dollars, now it's whoop zero. And uh and so there's a there's a cost to that in in the sense that now that buffer is not there. Um and they've had to slow down the this issuance. Not to mention once you move issuance the short end of the curve, now you just have to start rolling that over much more frequently. And uh at some point that's also demanded weight for the long term because it's presumably at some point you would think you can't do this forever. I mean, you could probably revolve it for many years, but at some point, uh, it becomes a problem and the market has a way of saying, "Well, you guys are stuck. Well, we're going to run this and good luck getting back in." Um, and so I think I think that's a major issue underneath the hood that most people don't understand. Um, can they create more reverse repo and more funding and more facilities and help keep things and so they can Yes, and they will to be clear. Um but the real problem is the long end of the curve and at some point they cannot bring any more issuance to the front of the curve. There is a limit. Um and uh and that means at some point they have to find buyers for the debt. Maybe not today, maybe not next year, but at some point somebody's got to buy the the debt of the United States. And uh and again they're the Federal Reserve by the way is who's going to buy the debt. much like in Japan, you know, we are going to monetize our debt by printing money and making it go away. Um and uh and that's the big the big story and again why gold and precious metals and commodities etc are are due for a nice run. Uh but to your point, let's move on to commodities because we're 40 minutes in and then we could in wonderful conversations and by the way such an important conversation, maybe the most important um uh and again made a lot of people a lot of money I think over the years as as a result of it. Um, uh, Neil, did you want to dive in? I have a couple different commodity a conversations I definitely want to dive into. >> So, yeah. No, I mean, I think we're going to cover the the I mean, obviously the big story this year is is precious metals. I think we're going to get to that. Before we get to that, you mentioned, Adam, uh, energies, and I think you've did as well. Uh, maybe Jim, maybe it was before we pressed record. I'm just want to put it a little bit into perspective here. If inflation indeed is going to uh come back in in with more of a vengeance, Adam, don't we need energy or oil to respond uh in an up uh upward uh market move? And how do you see the clearly active policy of drill drill drill uh in that? because that seems to me to be a little bit of sort of counter forces at play or maybe it's something completely different. I know like a year ago you mentioned uh or maybe it was earlier this year you mentioned that for example shale production in the US uh had peaked and that's probably not going to help. On the other hand, it's not like oil prices have gone up a lot uh in the past uh 8 months. So can you bring all of this in a much more sensible way than I can? So, look, you said, you know, you said if if we're going to have a higher inflation print, do we need to have oil prices uh alongside that? I don't know if you need to. I think you will. Um and and I think that just comes to its own supply and demand fundamentals more than more than anything else. U do I think that'll be a driver of inflation? I do. Uh can you have inflation without it? I suspect you probably can. Um there's lots of ways that you can get to changes in aggregate supply and aggregate demand which ultimately leads to your inflation levels and stuff like that. But I I think that an oil shock is fairly um a high probability event. Uh and and and less than a shock. I think a rally is is an even higher probability event I guess by definition. Um so you know why why why is it that we that we think that? So yeah, we did say that we thought the US shale production was going to roll over and it did last October. And if we spoke eight months ago, it probably was, you know, January or February. So the data was coming in October, November, December with a couple months lag. And it had shown a rollover. And I'd have to go back and listen to the tape, but but probably what we were saying back then, and I know we're seeing it elsewhere, and on this podcast as well, is that it seems as though it's rolled over, but you know, don't discount the ability for it to pop back up again. monthly data can be notoriously volatile. But but going all the way back to 2019, we built these very sophisticated geological models and they predicted 2025 would be the year on a monthly basis it rolled over. October 24 it did and we said we feel confident that it's going to continue although it could change. Um now here we are and we're in October with data out through at least August, maybe September. I have to go and check my models. Uh and and US shell production has continued to fall. So, it's not huge volumes that it's down. It's 150,000 barrels a day off the October 24 peak. Uh, notably through August, it's still up year and that seems to be what energy market watchers are focused on. Uh, but you know, people then say, well, according to your sophisticated models, when does that turn negative year on year? I said, well, absent a big increase in production by October. If last October was the peak, then by this October, you'll be down year on year by definition. I think I'm still trying to figure out if there's any issue with that math. But I think that that's how that works. And um yeah, sorry. Go ahead. No, I just have one question, which is um obviously, you know, you made these models, you know, a couple years ago, you're following them. The big disruptive piece, as Neil's kind of alluded to, is kind of the drill baby drill policy. And psychologically people are really like if he's, you know, it's kind of like don't fight the Fed, don't fight the administration when they, you know, when they decide to do X, right? Um and and so my question to you, um, and this is to be pmical, I'm also broadly an energy bull is what what are the actual policies and how big an effect are they having? And are you concerned about the sub not concerned but is the supply increase that could potentially be coming from that big enough to to change those models? It's an interesting question. We've been very very skeptical about the success of drill baby drill and so far year in we've seen no impact whatsoever. I mean you couldn't point to the production trends and say oh that's built drill baby drill. um when people you know when it was originally best sent with his three arrows which became 3 million barrels of oil equivalent production growth which then became drill baby drill you know that that that's the progression of how that went um you know we said we just don't see it uh happening and we went back and again looking back to history said that in the early 1970s when the US also experienced a rollover then it was conventional production uh and it was a rollover I mean it fell for the next 30 years and conventional production continues to fall. So I mean if if but for the shales um you know that that was a correct call that that production was peaking in the United States in 1971 and as that happened you know in the first year production was down a little bit. It had only gone up since oil was first discovered basically only went up and production is that is and you know the first or second year that production kind of stagnated Nixon got on TV and announced Project Independence which was a huge political realignment towards the US energy industry and the idea was we had just been neglecting this industry for too long and it was the lifeblood of American success and now we're dependent on all this foreign Middle Eastern oil coming from OPEC and they were starting to exert pressures and things of that nature. So, we're going to bring back US energy dominance. It was called Project Independence. And, you know, until the Shales, that was always like uh, you know, bandied about as a really embarrassing name. It was kind of like George Bush's you George W. Bush's you know, mission accomplished banner, project independence, because our reliance on foreign crude only went up and up and up from the minute that he gave that announcement. And the problem was he was trying to fight geological problems and pressures with political solutions. And that's quite difficult to do. And I think you're in the same situation now. So we've, you know, spoken to people and expressed our views and stuff and, you know, the administration at the beginning uh of their of their term was very much of the opinion that they could get production up. And and really there's two sides here, right? Which makes it even more challenging. Production up and prices down. And and certainly, you know, at today's prices, you're not getting production up. And and to get production up, you probably need much higher oil prices. certainly not lower from where they are today. And that's interesting because back in the 70s, Nixon really didn't care about price. If anything, he was willing to raise some uh regulated prices higher to avoid physical shortages, to avoid the gas lines and stuff like that, right? So, he was willing to use price as a lever. The American consumer wasn't worried about the price at the pump. They were worried about waiting in those gas lines. today they they want more production and lower prices that they're trying to solve a geological problem with a political solution and that's been hard. So you've seen the administration you know pivot a little bit frankly away from domestic production growth towards trying to get OPEC on side to raise production and I think part of that's an admission that it's been very challenging to get US production to grow. >> Yeah and I think this leads us right into our next topic which is Venezuela. um talk about trying to find other solutions. Uh it's probably um I don't think it's a coincidence that Machado, who by the way has been at work at what she's doing for decades now, it was suddenly made the the Nobel Prize winner uh in the context of you know the US moving 10,000 troops to Puerto Rico uh flying B2 bombers now uh you know uh into the region um it's like literally extrajudicially bombing uh drug boats without any proof along the coast. Um and so uh what are your thoughts on on Venezuela? Uh you know again uh I think the odds of it are uh something happening there is much bigger. I think it's also tied to the bigger global you know China has obviously created a foothold and it's propping up. Um uh Maduro um there's a lot of back and forth that's increasing between the China and the US been going for a while but starting to heat up a bit. Um also in Russia a bit more heating up right. So I I think Venezuela is another front on that war. And I think if this is a game of risk, I think, you know, you see Russia take Ukraine and you see China uh kind of doing this over Taiwan. Uh what is the biggest asset near our shores? Um that's u you know, so um no matter how you feel about it emotionally, politically, whatever, I think that is what's going through a a Trump administration's head and he's said as much in his last administration. Um so um given that a uh what would an opening up of Venezuela look like? Who would the biggest winners be? Um how much effect would that have on oil and other commodities in the in the short to medium term? How long would it take to I understand that Venezuela oil is much heavier and different? Um talk to me a little bit about uh all that if you don't mind. >> Yeah. Oh, absolutely. look and it and there's a lot of question marks and unknowns to say the absolute least and you know one thing that I would say in general is you look at US foreign policy which a lot of people will talk about in terms of getting control of foreign sources of commodities and oil and stuff like that and I mean we all remember that uh very clearly uh uh Cheney and Bush were going in to Iraq in order to get all the oil out of Iraq and here you are, you know, 25 years later and I'm not sure where these big Iraqi American oil fortunes that have been made are. And of course, you know, just didn't amount to to anything. So, I think you have to have a serious dose of humility when you try to project out. So, I'll talk sort of in more real terms uh and less hypotheticals because I don't claim to know anything about any, you know, plans or or or let alone plans to say nothing of how those plans would eventually play out. But Venezuela is a massive massive oil reserve. Uh it's it's very heavy as you mentioned. It's more akin to the Canadian oil sands and heavy oils than it is to light sweet crude coming out of the Perian or the Bakan or the Eagleford. Uh in fact there was such a prevalent view that the United States would be importing massive amounts of Venezuelan crude that actually most of the refining system in the United States uh is much better suited to process and refined Venezuelan crude than it is our own domestic crude because no one saw the shells coming. Everyone thought Venezuela would be the future and we built the system to reflect that and you know we've been in a in a suboptimal situation really ever since because uh of that swapping out of Venezuelan heavies for shale light tight oil. Um you know and and that's why for those really kind of nerds in the weeds or whatever here that's why there's a long time when we would import a lot of crude oil and export a lot of crude oil. You're like well that just seems silly. Why don't you net those things out and just stop the boats from going back and forth? But it's because we were, you know, importing heavier cruds and exporting lighter, sweeter cruds to make our refinery systems a little bit more efficient. So, there's a huge asset there. We've known about it for a long, long time. It's very real. It's productive and it's heavy. It's fine. Leave that aside. uh as far as the ability to come back online, you know, there was a period of time maybe 15 years ago where Venezuelan production came offline, sanctions were put on, they were lifted and production came back. And so the big question is can you can you kind of do that again now? Because now Venezuelan production is a trickle and if it went back to its peaks would be material number. Uh and the the read that you know most people have said is that that infrastructure has been fully cannibalized at this point. you know, it was not like that last period where it sort of short-lived a reduction in supply and then it came right back online within a year or so after that. Now, um, you know, the vast majority of that steel and copper and whatever has all been stripped out of these facilities and you really would have to rebuild that from scratch and so that's going to be a longer term process. uh and of course you need to have the right frameworks and structures in place to convince western and western US oil companies to take the risk and go back into Venezuela which you know in the right market some some will certainly do that I'm fortunate I don't think I've ever told you this to have I grew up in Texas in Houston which is energy capital USA and my father was a PhD structural engineer designed offshore oil platforms so uh I grew up around the energy industry and 40 some years ago Oh, you know, Venezuela was a big part of the conversation. Um, and um, Kaneko Phillips, who my father worked with, had contracts with PVDSA, uh, that I've been, uh, I don't know if you know this or not, I'm sure you do, but, uh, most people don't, that were that still, uh, hold as good in international courts. Um, uh, you know, if something was to happen in Venezuela, um, those contracts would be either made good or or repaid in the form of new contracts. uh as you know Chevron has a massive foothold in Venezuela and and they're um of course Hallebertton obviously would be uh critical as would Schlumbumberge in that process. All of these names, if you go look at them, trade at relatively low pes. Um, and if something was to happen there, um, which you make your own probability, uh, you know, ChachiBT says 35%, uh, I I think it's that or higher. Um, you know, that could amount to a lot of these names I just said about a a 100 200% revenue growth over the next several years in Venezuela primarily, if not alone. Um, and so I think the market has not yet woken up to this fact. I think there are significant opportunities uh given what we're seeing. >> I think that I mean I'll I'll make it even simpler. Oil is the most hated asset in the whole world. It's the most hated asset in the whole whole whole world. You don't you don't have to go to Venezuela to find cheap oil assets. You know, they're they're abundant. You have offshore drill rigs in these US-raded companies that all went through bankruptcy, have no debt on their balance sheet, and they trade for 10 cents on the dollar, their replacement cost. And that's a hypothetical replacement cost because no shipyard will build you an offshore drill ship. Yeah. And at the same time, we hear talks every day about how, you know, you can't be bullish on oil because the shells might be rolling over, but the offshore industry is about to have this big resurgence in Brazil and Guyana and Namibia and Angola. Uh, but I hate to break it to you, you can buy the assets that go in and drill those things for effectively the value of the scrap steel on their decks. Amen. So, something doesn't really give um doesn't make sense. And it's just a hugely hugely hated asset class. And I, you know, it passes the kind of smell test and stomach test or whatever. You know, I I if I get invited, if I'm lucky enough to get invited to speak at a conference and we'll talk about whatever is they've invited me to speak on and then they say, "What are you excited about now?" And I tell them something else. And you know, for a long time after 2022, Russia invaded Ukraine. People wanted me to talk on oil. And then they said, "What do you really like?" I said, "Gold." And you just hear this groaning from the room. And you know in 2018 again around then it was you know oil had had a good run from 27 and 16 up to 87 by late 171 18 and people said what do you like now? I said uranium and they said what are you talking about? Like we're not using that anymore. It's going to zero. Um and and so today you know they want me to talk about gold and I still think that gold has a bull run ahead of it. I don't think the run's done. But what's the most exciting? What's the most out of favor? What's the cheapest? It's probably oil. And they definitely grown when I say oil. >> Yeah. I think I think like a lot of investments uh you know there was a period where energy was more interesting to people and that and and for good reason doesn't mean the macro picture has changed but people have left it for dead and that's when that's when uh when those two things align uh which doesn't happen often which happened with gold by the way uh uh you know we were talking about nuclear similar I I think I I couldn't agree more I think also chronologically if you look at the 70s and stuff same thing right gold ran first and then eventually geopolitical conflict IC led to uh some other issues and eventually oil ran as well and um I I do think that that stuff rhymes and I think the geopolitical conflict is coming too. So I think I think uh there is um there is definitely especially given pricing there just incredible opportunities and again just to reiterate your last point everybody's focused on the drill baby drill and oil prices and supply but to your point um there are companies that at these prices you know still make tremendous amount of money um and uh you know does that that doesn't even take in consideration the call option on all the potential things that we're talking about um that could come with uh meaningfully higher prices over time and I think I think once the market starts to wake up to that which they will and then it starts to run and then it becomes a mania at some point right um I think there's a tremendous I mean I think there are two three X's out there right now in the energy space easily easily easily and more than that I mean look I think by 1980 slumber was the second largest company in the world by market cap basically number one is kind of tied for number one and uh you know today it has uh 48 billion of market cap >> yeah Re energy was 3% of the S&P 500 in 1968. >> Mhm. >> In 1982 it was 33%. >> That's right. >> Which is a mind-blowing right statistic. Um yeah, >> today two two and a half >> right not a coincidence. >> Mhm. >> Now before we uh wrap up our conversation uh we've spoken a lot about energy. We've touched on uh precious metals mainly gold. A lot of people think that gold is really the the the shiny uh metal of the year up uh about 54% or so at least based on futures. However, uh it has been surpassed by silver up 73% uh palladium up 78% and platinum up 82%. Can you talk to us a little bit Adam about how you view the precious metal space right now? Um and um just to give people a little bit of sort of further details that they may not because everybody's focused on gold but there's obviously other things going on uh clearly. >> Sure. So look, you know, I think that precious metals are not unfollowed or unloved anymore. Uh I don't think they're expensive. Uh you can look at different aggregates like you were talking about all the world's financial assets and all the world's gold and you were talking about you know it being at 6 trillion versus 500 trillion. uh you know I'd be curious to know and we did this a number of years ago uh but I need to update it the data is more sporadic you know how does that track with other periods right before gold had these big rallies and when gold was done their rally you know is that still relatively cheap and I suspect that it is I suspect it follows the trends that we see in other aggregates which is about 1 to one and a half standard deviations below average as opposed to bottoming at two and a half standard deviations below average right so you're still on the right side of that it's not expensive. It's not as cheap as it was. I mean, you don't need to be a PhD in economics to say, "Well, where's gold today?" Well, it's more expensive than it was, but might not be more expensive than where it's going. So, it's somewhere on its trajectory. Um, when when I look at at who's doing the buying and who's doing the selling, I think that speaks to a fairly robust bull market out in front of us. Uh, but there's some signs to be a little bit cautious. Maybe it's near-term, I don't know. uh one is that you know the companies so this is really fascinating you know money invested in gold stocks has been has been I don't know basically flat but of course the gold stocks are up a lot so people have been redeeming assets out of those funds like crazy uh the GDX which is the big ETF that tracks gold shares has redeemed 30% of its shares so far this year and the other active managers that we see it's not dissimilar um so their assets are holding in but it's not because they're seeing flow In fact, it's the opposite. They're they're making it the hard way through performance and and then seeing money go out. But we are starting to see an uptick in gold equity deals. You know, normally I like areas where they're really shut out of capital markets. We're getting a lot of deals. And Zajin Mining, which is the big Chinese SOE gold company, just did a $4 billion IPO last month. And that pushes us on a trailing 12-month basis to basically a new high in terms of gold equity issuance on a trailing 12 months. So, so, you know, capital seems to be coming in. I don't really know who's buying that stuff cuz it's not the gold funds. They're seeing redemptions, but someone's buying it. Um, and and silver is staging a catch-up rally here. It's underperformed gold for a long time. Uh, both both a long time, 3 years, a long time, 30 years, you know, uh, it's been underperforming and it's staging a catch-up. And what we noticed is that historically uh you do get periods where when gold when silver c stages like a fairly large catch-up rally to gold uh that marks kind of a pause in both gold and silver rallies going going forward for sometimes it's shortterm sometimes a little longer term but we saw it in 1980 we saw it in 2011 we saw it in 2021. I don't know that we're quite there yet. you know, the gold silver ratio still says that that that silver's, you know, quite uh uh gold's quite expensive. So, you haven't caught up to the point where I think you're at the end of a rally, but it's it's something to pay attention to. Uh and again, a little historical context could be helpful. Um lots was made this past weekend that silver made an all-time high. Uh they surpassed the Hunt brothers trying to corner the silver market in 1980 and they they surpassed that and they made an all-time high. Uh, you know, in 1980, gold was 800 bucks and today it's 4,000. So, gold has has clearly made a new all-time high and then some. Uh, platinum usually trades at $1,000 premium to gold, $2,000 discount. So, it's caught up this year, but I mean, none of these things have gotten to the stretch levels on the other side that might suggest the bull market's ending. So, we remain very convicted. We think that this has room to run. uh some of our gold stocks have run a lot and some of our gold exposure and aggregate's gotten a bit big. So, you might use it to trim if we wanted to roll into some oil and stuff like that. But I think I think it still has legs. When we talked before uh I think a couple years ago, you were really bullish of the gold miners given the valuation gap uh that has played out. Uh you know, that has been a good trade. My question to you now is is where do you still see the best way to play precious metals uh at this point for the next year or >> No, it's a listen, it's it's an interesting question. I I think so we in the fund, you know, if you want to own gold, you want to own silver physically, that's that's perfectly fine. I think they're going to go up. I think the miners will give you the beta. Uh and and we are equity managers and and we focus on on the equities, right? Um I think there's some good reasons for that, but you know, different people have different preferences. is I don't think owning gold is a bad idea as opposed to gold shares. I think gold shares will go up more, but I don't think you're in a impaired asset class by owning the physical instead of owning uh the equities. Uh and gold stocks, look, you know, in in the past 12 months, they're up a lot, but gold prices up quite a bit on an earnings basis and a price to nav basis. They're still very very cheap and undervalued because they have beta, right? They have a fixed operating cost. Um and so, yeah, they're up more than the gold price, but they lagged a lot the couple years before that. So they're they're they're not expensive by any measure. >> Yeah, I like it after the run now in particular, right? Because they perform they continue to make income, right, in the context of these these prices. We don't need higher prices necessarily for those >> certainly don't need higher prices. And look, you know, a year ago, right, a year ago, you were in the situation where real interest rates were still kind of up and elevated and whatever, a year, 18 months. And that was the sign for western investors to sell everything gold related both bars and shares. And the central banks were buying the bars. So no one was buying the shares. So you developed a big wedge between gold and gold stocks. And into that wedge formed a narrative. And the narrative was that the companies were misallocating capital so badly and their costs were going up so that even if gold prices rise, gold stock profitability goes down and the stocks won't respond. There's never a reason to own them. And that was a very very very prevalent narrative as recently as a year ago. And we didn't agree with that at all. We said, "No, look, you just need someone to step in to buy them. Uh, and if no one buys them, then I mean, I'm a long-term investor. I think of it as owning a business. I mean, I don't really care if anyone comes and buys it. I'll just take the cash. You know, it'll buy itself it share count down to zero or whatever." Um, and and that was correct. You know, that narrative that the company's profitability was somehow impaired was was nonsense. Now they're generating a ton of cash and um I mean some cases yes there's always going to be stock specific stories but in general the industry has not lost its profitability uh and and I think gold remain gold stocks remain a good a good viable asset class. >> Yeah I couldn't agree more. Yeah. Which would you rather own the hard asset you know in my opinion or a company that makes money owns the hard asset and makes some money on on selling it in a margin? And I think at the end of the day it's nice to have both right both. I agree. >> I think we covered a lot of ground. Not as much as we uh possibly could. Um and maybe before we wrap up, I'll just uh give all of us a little bit of homework because uh one of the previous guests uh on uh on on our show that Jim and I spoke to a few years ago, Dr. Pipper Melmrren who she wrote a blog post um very recently um talking about another and I guess you could call it a natural resource um it's and it was about the race for helium 3. I don't know if you ever heard about helium 3. Helium 4 is apparently what makes your voice funny if you inhale it. But helium 3 um you know is like a superpower uh type um you know gas and it it's lighter, it's non radioactive and it can fuel nucle nuclear fusion. So apparently if we're going to find um really cheap uh clean energy, uh helium 3 is the one. And apparently there's lots of it on the moon. So if we do see a race to the moon suddenly showing up, we all know why. And I want to give credit to uh Pippa for uh for bringing that to uh our attention. Um but lots more to talk about. Uh no doubt. Any final words, Adam? Any final words, Jim? >> No, I just that I like to go on um site visits whenever I can. So if they offer a site visit to the moon, I'll be the first to go. [laughter] Um I will say that the to the helium note just one point there um uh not just helium 3 but helium in general has been a major uh lever for the US that's not talked about. uh China had its uh equivalent of uh project warp speed to help uh control helium production for themselves which many are saying has been a major lever against the rare earth's issue um and has put that off as long as it has but that that production and that opening of helium production for their for themselves has now allowed them geopolitically to now flex this rare earth muscle And so there's some interesting dynamics going on there with with helium um that that connects to some of this geopolitical global conflict as well. And you know what it's also useful as far as I understand uh cooling down magnetis when you do an MRI scan and cooling down AI servers. So that's why it's so important I guess. Anyways guys, this was fantastic. Adam, as usual, uh super delightful, insightful. You as well, Jim. Uh it's really great that we can uh come together a couple of times a year to discuss all these major issues. Make sure you follow, subscribe to Adams and Jim's work because of course uh you can tell from this episode, these are some of the really important uh drivers of the global macro world right now. You can find links in the show notes uh for this episode. Of course, from Jim, Adam, me, thanks so much for listening. We look forward to being back with you as we continue our global macro series. And in the meantime, as usual, take care of yourself and take care [music] of each other. Thanks for listening to Top Traders Unplugged. If [music] you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe [music] to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you. 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