David Collum on gold, inflation, the Fed, rates, valuation, Shiller PE, deficits, platinum | S07 E22
Summary
Market Overvaluation: Guest argues U.S. equities are profoundly overvalued (e.g., CAPE near high-30s) with poor mean-reversion dynamics and rising-rate headwinds.
Precious Metals: Bullish stance on gold and platinum as core allocations; gold’s long-term outperformance since 2000 and a recent technical breakout in platinum cited.
Gold vs. Bitcoin: Prefers gold over Bitcoin due to Lindy effect, regulatory and operational risks for crypto, and skepticism of corporate balance-sheet BTC strategies.
Rates and Bonds: Views long-duration bonds as mispriced given inflation risk; believes bond vigilantes and rising yields will pressure equities.
Passive Flows: Notes Michael Green’s flows thesis reducing price discovery; sees potential rollover as boomers draw down assets.
Tech Moats: Questions durability of elevated profit margins and highlights AI as a threat to incumbents like Google’s search moat.
Real Estate & Shadow Banking: Warns commercial real estate stress and opaque private credit/shadow banking could catalyze a broader crisis.
Investment Stance: Favors hard assets (gold/platinum) and maintains caution on equities and duration, expecting choppy, unrewarding markets akin to Japan’s Nikkei path.
Transcript
Yeah, it's always hard to tell whether we're live or not because Zoom tells me it's still setting it up. But I think that we probably are live. I think we're live. There we go. Red reserecting. Hey, I'm Tobias Carlile. This is Value After Hours. I'm joined as always by my co-host Jake Taylor. Our special guest today is Professor Dr. David B. Colum, organic chemistry professor. uh notable finit personality and uh author of a year in review which I've read every year to escape from the family at Christmas. Yeah, I was going to say it almost almost breaks up my marriage every year when I'm reading it on the couch and supposed to be participating with the family. How are you Dave? Welcome to the podcast. What? Wait a minute. What are you doing? My wife's talking to me. You can't talk to me while I'm on a podcast. Yeah, great. Um, she wants me to open the window so we can hear what she's listening to out on the porch. Are you Are you on break, Dave? Uh, yeah. Kevin, I'm in my cabin and, uh, and then I go home in a couple days. Uh, but before that, Mike Ferris is coming up to visit me. And so, uh, so maybe we'll do a podcast from here. Who knows? Nice. It's not just a backdrop. Yeah, Dave, I was looking and uh I realized that you and I have been internet email friends for 12 years at this point, if you can imagine. Is that right? Is that right? You know, I lose track of everything at this point. I think it's a senior moment thing, but um one time I was I was I was um um I was I was searching a famous podcaster uh Mark, what's his name? God, I'm drawing blanks on everyone today. um the famous international expert Mark, come on. God damn it. Very contankerous. In any event, um to see more and I found a podcast I done with him and I go, "What? What? I don't remember that." So, any Yeah. So, how are things? How's things? It's It's hotter than here. You cannot believe how hot it is here. You guys are in California, right? I I am, but JT's in New York. He's similarly he's struggling a little bit at the moment. And being in a cabin, no AC, that's the problem I'm suffering from. Oh man, brutal. The heat the heat dome is in full effect right now. That's right. I feel like I'm in the middle of some nuclear weapon site in Iran right now. So, Dave, we had Rudy Havenstein on last a few weeks ago and we had a I saw that. I saw that. We had a a good podcast with him. We just threw it open at the start and said, "What's wrong with the markets?" So, we might do the same thing with you. What is wrong with the markets? Um, besides the fact they're all up. um they they do not respond to anything. They're they're they're it's like um it's like they're they're driving without shock absorbers and at some point we're going to break an axle, right? So you it's like skyscrapers, you know, they they blow in the breeze to respond to the wind and things like that. And they were they're made too rigid. At some point you just hear a snapping noise. And so uh so they don't respond to anything, right? We we we we we started World War II a couple days ago and the markets went up, right? How how does that work? Bullish. And and on top of it, they're profoundly overvalued. So, so um like any system displaced from equilibrium, when it finally when it's way far from equilibrium, when it returns, it's a violent return. So, that's what a bomb is. That's what an avalanche is. That's what an earthquake is. Um, and that's what a market problem is. And so I think we're going to see some violence, although I don't think violent crashes fix anything. So I think the dip buyers will show up and they'll think everything's okay. It'll be like Red and um in in Pearl Harbor where he sticks his head up and he's, "Hey, guys, it's a dud and then gets his his redheaded ass blown to bits." Um, what what makes you think that it's it's overvalued? What are you what are you looking at to to make that determination? Well, I I I watch 25 metrics and they all seem to tell the same story unless it comes from some Wall Street sell cellside analyst who then makes up stuff. Um the one I like the best for some reason is is the K Schiller PE. It goes back to 1880. And if you uh if you look at the average K Schiller PE from 1880 to 1990, which I am willing to call a baseline, okay, I'm willing to say 110 years sets a baseline for historical returns. It was around 12 or 13 and it just moved in a channel, you know, goes up in the 20s, goes down in the single digits, but it it channeled for about 110 years in 1990s and curiously 1994. And I've been trying to figure out why. Um, it left the channel. All the metrics all left the channel and and really never looked back. And so, uh, it is now parked at a at a cozy, uh, 38. And so, if you're sitting there with a K shil of 38 when historical fair value or should we say average value is is 12 to 13, it means that you're ballpark 200% over historical average valuation. So people will say, "Now we're in a different era." You know, I said, "Look, here's the deal. If you want to let the markets be three-fold over fair value, then you have to assume that you're going to get a one-third the cash flow out of these supposed stocks representing revenue flow." So uh so so you can't win. Um people say, "Well, we'll inflate our way out." But you can't inflate away valuations. If you think of a valuation, price to book, price to revenue, price to earnings price, you name it. It's always a numerator, the stock market, and it's always a denominator that ought to track it, meaning they both adjust for inflation. So, if you try to inflate your way out, you'll inflate the numerator and the denominator, and you'll still be 200% over historical average valuation. And so, inflation doesn't solve the problem. I think Jake Jake and I are sympathetic to that view and I think that it's backed up by Tobin's Q and any other number of Tobin's Q is another that's exactly right. In fact, that was Mark Spitzagel's favorite when I had dinner with him one night and he said, "Yeah, Tobin's Q." I just think that case Schiller is easier to calculate and it and it makes sort of more intuitive sense to me. One of the criticisms of that though has been that we've never seen tech companies that are as consistently profitable and have margins like they do. And I I saw Jeff Wneer posted a chart today that said that the return on equity of tech is like nearing 30%. Which is, you know, more than two times the average for the rest of the S&P 500, which trades around 13 times, something like that. And it's showing no signs of sort of mean reverting. it doesn't seem to be cyclical. So like is it possible that we've we have entered a new sort of regime and we're not going to see those sort that mean reversion that we have seen in the past. Well, I have seen people smarter than me say that that that um that profit margins are the most mean reverting of all the metrics. And so the fact that it hasn't mean reverted is back to the original statement that the markets aren't responding to things. And so uh Google, here's a good example. Google um was a market that appeared to have a complete mode around it, right? Google looked insurmount. One time a colleague said that to me and I said, "Well, what gives it a mode?" And he said, "Well, they have two million servers." I said, "Well, $2,000 per server, 2 million servers, $4 billion. Uh that's a hedge fund. So what uh you could build another Google." What actually happened is is that AI showed up. Now all of a sudden, Google's scrambling to to retain search. They're at risk of being Yahoo, right? They're at risk of So, so these things happen. Mean mean reversion is forced upon the market. The other thing I like to point out is that there's not a single market in the history of markets that ever got way overvalued that didn't eventually become cheap again. There isn't one, right? They don't do that. They don't, you know, there there's there's a great statement in flight manual that says you will have enough gas to get to the crash site. Um, and uh, and so I really do believe that that that is that that a a 30-year recency bias doesn't mean that it's not a bias. And so for 30 years, we've had this luxury. We've So, here's the here's here's the bullcase that got us here, and I and I'll tell you the bare case that gets us out. Um, the bull case was in 81 to that zone. markets had a PE of six back when you might actually be able to believe the E part. Um, now I don't believe the E part so readily, but um, so they were dirt cheap. They were priced to return what's at 15%. Now inflation was scary, which is why they were so cheap, but but they were priced to return a 15% cash flow. Um, Russia, uh, Russia was star for cash and sold us resources cheaply. We helped them. Exon Mobile, these guys got in there and helped. Um uh China was coming out of the dark ages and sold slave labor um for pennies on the dollar and they did it for decades. They they sold us uh their their wages and and sent us their smartest people and everything was just perfect for us and and when we paid them they bought treasuries and things like that. So So these are phenomenal tailwinds. The boomers hit the marketplace. Demographics are said by some economists to be uh important. I hesitate to say that because I'm in within the next two minutes I undoubtedly will assault the economists for being stupid. So um so sort of quote them selectively as is disingenuous but they do believe uh demographics is important and they they brought their wives and so we had a workforce participation rate that soared over those those decades. Um Warren Buffett wrote an article in 99 saying that the only thing that really matters is the direction of long-term rates. He said from 67 to81 when the markets treaded water for 14 years which is a long time to wait and lost 75% if you inflation correct which is a long time nominally treaded water. That's right. Nominally treaded water which which mean if it takes you 14 years I mean it's one thing to take a beating. It's another thing to take a beating for 14 years. Um, I'd rather lose Toby. Toby, how is that? I can talk to I can tell you about that. There's a story there. Um, and so he said, look, during that period, the GDP, the the the real GDP grew faster than from 1981 to to 1999 when he wrote the article. He said the only thing that was different was rates were going up when when when during the the bare market, rates were going down during the bull market. and and he says that's it. That's the the entire story. So it basically drives valuations is another way of putting it, right? If you're competing against a 15% bond, you got to have you got to be cheap. The stocks have got to be cheap. And um so we drove interest rates from what 17 18% down to zero down to negative, right? Talk about negative. What kind of idiots were running this operation, right? Negative. Uh, the Swiss National Bank just dropped their yields to zero again without telling anyone. Oh, by the way, we just dropped them to zero. Um, Wall Street turn that into low rates are bullish. The average joker on the street, which includes me, um, concluded therefore that when the rates were low, the equities are the buy. And I go, no, when rates are low, essentially zero, it's over. The rates have now dropped from 17 to zero. So the party's over. You you you got to sober up now and and there's only one direction to go and and that's up and we started up and and so I think the ultimate bare case is is um rising bond yields and and dropping equity prices. I think that that will be a bone crusher because bonds always saved equity investors during the 30-year recency bias and now they can't do it right. We've got inflation problems now that are real to the extent that we always had them, but we somehow were able to pretend we didn't. And and now they're real to the point where I think when the Fed hints at doing some of their old playbook crap, the inflation's going to take off. The inflation expectations are going to take off and people going to have a cow and the Fed's going to go, "Ah, we can't do it now." We we've been called out. I think the bond vigilantes will eventually pull out of their grave and do something. So the gist is we had these unprecedented tailwinds never to be repeated, right? There's no chance we're going to get another China. There's no chance we're going to get another demographic like we got. Not not in your lifetime, not in my lifetime. Um, and so what if the next uh it turns out during that 30-year period from well 40-year period from 81 to the present valuations which should not move. They should wiggle around but they should not trend um compounded 4% a year for 40 years. What happens if the next 40 years they compound 4% a year negative 4% a year for 40 years to just undo that? And the answer is we're hosed. Now you say, well, we'll block and tackle our way out. So let's say the GDP grows two and a half percent. Let's say stocks nominally do whatever they want to do, but inflation adjusts to do zero, right? We'll do a 1967 to 81ish. At 2 and a half% growth rate, it will take us 45 years to get out. And so if you want to tread water for 45 years, you're welcome to try. Um, there's an old Bill Cosby skit where God's trying to get him to build an ark and he doesn't want to do it and God says, "Noah, how long can you tread water?" Um, and uh, so that's the story. And and I think if we have a crash, the buyers will show up. So that's not going to fix it. I think we have another sort of bad moment, the buyers will show up, but maybe with a little less enthusiasm. And I think over the next 30 years, we're probably going to have a lot of beatings in which um unlike the last 30 years, you will not be rewarded for jumping in on the dips. And there's historical precedent for this. So if you own the uh ' 06 top, it took you 40 years not to go up and down and get even, but rather it took 40 years to end up at exactly the same place for the last time. Not the first time, the last time. So which which 06 top? Just the ' 06 top. Two 1906. 1906. Yeah. Thank you. So So if you look at an inflation, anyone can do this at home. This is your assignment. Turn off this podcast briefly. Boot up an inflation adjusted an inflationadjusted plot of the S&P. And what you'll see is if you draw a line across from the major peaks and don't don't extend the line to where you break even. Extend the line to where you break you get to that same value for the last time, not the first time. because to me that's really relevant. And and it turns out that there are about four really badl looking lines that you can draw. One of which is 75 years long. If you own the 29 top, you broke you broke even around 1984, I think, something like that. Um what are the there there are several possible causes for this sort of level of overvaluation. one, Michael Green has proposed that it's sort of flows hammering the the biggest companies. Um, demographics is another possibility. Rates being too low for too long. Although now we've sort of seen rates come back up again. We haven't really too long for too long too many times. I add the third parameter. Too many times. Yeah. Or deficits. But let's let's just take those take those one at a time. What do you think of Michael Green's flows thesis? Well, at first I thought his model was simple, and the more I've gotten to know Michael and his model, the more I realized that he really does have a profoundly deep understanding of what the hell he's talking about. Now, not that I thought he was wrong, but I thought that it was just kind of a bumper sticker bit of thinking, and it's not. Michael's really, really beyond sharp. Um, and he's correct. And so, it it removed price discovery for a huge percentage of the buyers. And that's how that's how the market becomes unresponsive because there's a steady flow. Now, Michael used to talk and I maybe I didn't like him in the earlier days his model because he kind of had this nothing's going to stop it attitude and I just I I didn't buy that. Um but but now he's now he's starting to say here I can see things that are stopping it right now. So, he's gotten uh much more dire in his uh near-term warnings, not some long-term someday it'll stop, but rather saying, "Look, if you look at the flows, they're kind of rolling over right now because the ret the boomers are retiring." Is that the Well, I think Boomers are drawing down. It's possible that there are some smart people with big money who are who are who are going, "Holy I got to get out of these markets." Like Buffett. Let's start with Buffett, right? He is he is not only in cash equivalence, but he he's not long duration either. He doesn't think the 30-year bond is the place to be. And um he's never well, you know, but but the 30-year bonds is stupider than a brick, right? So So I get in arguments and I got into I I don't want to name him. I can remember his name. This one I can remember, but I I asked him I I said, "Okay, if if I were going to sell you a 30-year bond, we're going to put in some rules and some artificial rules, but here's the rules. You got to buy it. You can't sell it. You can't hedge it. You're just buying a revenue stream. It's like an annuity or something. Um and and and you got to put it away for 30 years. How much interest rate would you demand given where we're at, what we know, what we don't know? And no one has ever guessed 5 percent. Not Not a single person has ever said 5%. I said, "Therefore," and but people are say, "Well, you don't buy them to own them." I said, "Someone did. Someone's someone's going to own those all the way to the finish, right?" And and so if you think you're a bond trader, have a nice day, but I'm not a bond trader. And I bet you guys may not be bond traders, too. So, um so someone's got to own them. and and the answers that come up of a lot of people say eight or nine could be 12 I I don't know what it is 30 years is a long time to commit given that uh we don't even know if the dollar is going to exist in 30 years we know it's going to be a reserve currency you got to have a lot of risk premium in that thing and therefore it means that the bonds aren't priced right and Dave what would that mean then if a lot of people say that equities are like a 50-year bond equivalent yeah paying 2% Right. Right. I mean, I've been I've been tweeting about every six months I do this. I went out um it turns out um Apple's revenues in the last 10 years are up 65%. Their their their I used to say their their uh stock price I used to refer to their stock price being much higher than that. And then people say, "Oh, you're ignoring buyback." So I so I said screw that. So now I say market cap. I don't care. The market cap is market cap. That's the value of the company. Their market cap is up 900%. So someone explain to me why that makes sense. Yeah. Even up even more because they've taken on some debt to do those buybacks. Right. Right. Well, Apple also they burned down a fortress balance sheet. They had a phenomenal balance sheet and they didn't, you know, and and the here's here's the low interest rate. The insidiousness of the low rates. It it forced first of all it inspired people to use debt to do stupid stuff like buy you know like buy bonds you know you you buy you borrow cheap you buy you you you you get some two basis point spread and you think that's a good idea um the the um the second thing is is that I if you're a company and you have you're trying to maintain a balance sheet let's say you want a fortress balance sheet what do you put in it if interest rates are if if the best you can put in it safely is 2% return. You're getting slaughtered. You relative to inflation, you're losing money year after year after year. And so the most responsible corporate execs could not take the pain of having a balance sheet. And so what did they do? They bought, you know, I love it. They returned capital to investors. I go, "Dude, the only guys you return capital to sold your sold your equity." So uh so so you didn't really return capital to investors. and you did get a nice bonus that year for cranking up the price, not giving a dividend because that doesn't help you any. So, I'm not a big buyback then. If you if you're Philip Morris, you got a ton of cash, you don't want people to see the cash and you're you can crank out 9% a year, buy the stock. That's a that's a great idea. Buy the stock. But but if if you if you're sitting at a price earnings ratio of 15, you're buying your stock, you're you're you're buying at 2% cash flow, you're an idiot. This is a little bit of a non-secur, but I'm kind of interested in what you think about as a as a treasury strategy. What do you think about micro strategy buying Bitcoin? Yeah, the coin strategy uh is strategy. Now, you guys are trying to destroy my Twitter feed now. Um I'm sympathetic to the Bitcoiners. I'm I'm um I I believe in the Lindy effect, and that is basically it says the longer something's been around, the more likely it is to be around for longer. And Bitcoin fails that test pretty quickly, right? So Bitcoin is is a a fresh idea. Uh it's revolutionary. So anyone who's paid attention to revolutions know they're not done by 50-y old guys or done by youngsters. And so uh so it is understandable that Bitcoin got adopted by, you know, cell phone wielding kids who can type with their thumbs for some reason that I don't understand. Um and and and and so in that sense, it all makes sense. The problem is that um it also means that the Bitcoin community is loaded with people who don't understand market structure, don't understand history, don't understand that that things like this have happened in the past. This one might not be one of those, but they talk about how they're they're they're undefeable. They're, you know, and I'm going the hubris is is ridiculous. Now, I know Bitcoiners who are real smart guys and and they're much more circumspect, but um but would you be totally shocked if at some point the authorities in the world who let's say you're a Rockefeller and you you you control the the big chunk of global global net worth and all of a sudden Bitcoin looks like it's going to control like I saw I saw a sailor project the price of Bitcoin and and he went out I don't know 10 years and had it as something like you know $4.5 million and then it ended up at $88 million some number of years out and I go, "That's just horseshit, Michael. I mean, that's horshit. That that's complete and utter horseshit. That that's just you could be dead right about Bitcoin being a good idea, but that you're just blowing hot air." Which means, by the way, that there you you want to get anointed shyer of the year. That that would be it right there. Um, I'm much more sympathetic than someone like um Max Kaiser and Stacy Herbert who were humping Bitcoin at at for pennies. So, they obviously saw the future way way more than anyone else. And unless they sold, they must be stinking rich. Um, but I don't I don't trust Sailor. I I think that I think he's running a great scheme. And to that, I tip my hat to him. Um the the idea of you know the president setting up a sovereign wealth fund with Bitcoin that is bananas. It's bananas at several level. One of which is let's start with you don't set up a sovereign wealth fund unless you have excess earnings. Right. To set up a sovereign wealth fund while being what 37 trillion in debt. That's what we call leverage. Yeah. Right. That's just stupid. So, so the even at the top echelon of society, there's a lot of dumbness. And again, guys who are Bitcoiners, don't give me right? I I just It's not It's not a game. I turned it down at 10. And And you say, "Okay, well, that you should still get it." I go, "No, I tell you, I don't regret it either because if id bought it at 10, I would have sold it at 50 and said, "Wow, I'm taking it. That's it. I don't believe it." and and and and and then spent the proceeds for therapy for the rest of my life. So, um so so so no, I don't mind missing you. You can't lose sleep over what you missed. You know, I should have bet black 35 at the roulette wheel, too, but you just can't do that. I looked at I looked at eBay as the only.com I considered buying. By the way, I made a fortune in the tech boom. Uh people have trouble believing that, but I own Dell. I made 700% on WorldCom and got out before it all went to pumpkins and ice. That's right. So, I've seen it and I I it was just dumb luck. It was the blind nut finding a squirrel. I mean, it was it was u it I I it was Well, I fell for another grift. I I fell for the Y2K grift. I was I was convinced. I didn't know the probability, but the risk was real. And and if you look at the co lockdown, we kind of saw hints of what could have happened in in 2000, right? The not getting supplies and things. I went through all the gymnastics and understood the whole supply chain problem. Now, the reason I called a grift is because nothing happened. Nothing. I'm not talking they fixed it. I'm talking nothing. I'm talking there were not even computers in Venezuela that stopped working. So, I am now convinced that Joerger worked for Wall Street and he he screamed about the risk of Y2K and Wall Street loved it because then they could sell software and hardware and the Silicon Valley got rich and then we had a recession because the whole thing blew off and and that funded the dot and and then that was the end of that. And so, um so I I Bitcoin might win, Bitcoin might lose. If I were the power structure, I'd be looking longterm for ways to put it into a shallow grave. Dave, how do you contrast that with um you know, other than the lendy of call it what now uh 17 years of for Bitcoin versus 5,000 years for gold? What's what's how do you like think about those two things? Gold versus Bitcoin. Well, one of the great advantages of Bitcoin is the ability to move it, right? So, so if we end up in an authoritarian world, so when I talk about, you know, what happens if they outlaw us? So, I'll say to uh someone, I'll say, "What if they outlaw it?" They say, "Well, I'll move to blah blah blah." And I go, "Well, I don't want to move to blah blah blah." You know, I mean, I don't really want to have to move to some place where they have snakes that can kill you, you know? And uh and um and and and so but but that is a big advantage, the mobility. You don't have to sew it into the seam of your clothes. You don't have to. It's a lot easier to to kester Bitcoin, isn't it? It is a lot easier. But but um I also thumb drive is a lot easier than the gold uh bar. Well, I I but I you know how many times you've been told your password doesn't work, right? I'm a lite, right? So I'll go to log into something. I'll say that password's not it. And I go I know that password's it. And what is the number to call the Bitcoin help desk? That's exact That's exactly right. That's exactly right. So, I just don't trust myself and and when my my password doesn't work or I call some help desk, whatever, I just get so frustrated that that the idea of tying my a significant amount of my wealth into something that is so obtuse for me. Again, I don't I don't understand why I'm such a lite. I had DOS 1.0.1, right? I mean, I was at ground zero of of this thing. I had there's a thing called Chemraw which is probably sold 20 million copies for drawing chemical structures. I had no I my my my copy of Chem serial number is 376. So so I'm not averse to being early into attack but no that Bitcoin doesn't do it. I I do believe the authorities are if I were it should trouble people that the first paper written about it was by three NSA guys. That that should bother you, right? that to really get in into your head and say, "Wait a minute, wait a minute, who's Satoshi?" And the mystery of Satashi, you know, um, and and and if I wanted to set up a central bank digital currency, which we all agree is a disaster, putting out Bitcoin, letting the smartest guys in the world debug it and set up networks and acclimate and stuff, that would be a great way to do it. So, Trojan horse. Trojan horse. Yeah, let me let me uh just digress for a moment. Go back to the overvaluation of the the stock market. One of the possibilities was this direction of rates, you know, from 82 to whatever it was, call it 20 2020, early 2020s, uh went in one direction, stock market went in the other direction. We've now kind of after Beni and Yellen have moved on, we've we now got Pal who seems to be like we're trending back towards long-term rates of like let's call it 6% or something like that. We're not there yet, but we're sort of directionally going there. Stock markets all-time highs, real estate market all-time highs. Like what what how do you reconcile those two ideas? Well, the real estate market's breaking. I mean, you can hear it shattering right now, right? the fact that the real estate market has a terrible lag effect because the buyers and sellers that they they when the buyers and sellers can't meet that that means there's no price discovery there but there has to be price discovery there right and so you follow uh my my great source of plots and cackles is from Darth Powell who's just constantly posting posting real estate plots and the real estate market's really breaking right in front of our eyes and so the fact that the real estate market appears to be okay to some people I think um is is and it's commercial real estate's a disaster a complete disaster and and hidden the the real problem I we're going to have another crisis of course because we always do the next crisis every article written 99.9% of the articles are going to have the word private in it okay so the private's going to show up in terms of private capital where by the way you're addicted to that I just you see that Jake you're addicted Aren't you? I was addicted. I love chapstick. Yeah. Yeah. You know what? Addicted. Yeah. I like crack, too. So, um um You break it, you cold turkey. Um so, so, so um so, so private capital is what bought up all the housing inventory after 089. So, they built all these houses. Where' the inventory go? Private capital. So, Black Rockck. So, our Black Rockck was buying housing at 0.15% leverage the rates, right? That's how they scooped up all the house. They uh single family dwellings are a lousy business, but if you can if you can buy them for almost no cost of capital, raise within margin and leverage the out of it, you can make money. And that's what they've done. Well, that's not going to work forever. Um, then you got the private debt market where when you buy that Barkco lounger and you get four easy payments. Um, or you or you get the Door Dash. That's the one that's gotten the most press like Door Dash. A burrito on buy a burrito on layaway. And I'm going, you know, maybe you should skip the burrito and eat a hot dog, buddy. Um, if you got to pay four easy payments. Um, so the private debt market is is comp considered completely opaque. Who was it? William White the other day said that the the shadow banking system is now bigger than the banking system and the shadow banking system is a disaster waiting to happen. And so so let's say there's $5 trillion in the private debt market which is where that debt's being held. So when Metro Mattress sells you a mattress and you pay over a year they don't hold on to that cost. they sell it off into the market just like you know you know bill collectors right and uh and if you're looking at paying your heating bill or your your car insurance or your bark lounger payment which one are you going to skip right and so the private debt market which serves the great role of getting it off your 27% credit card right so now your credit card so so it's so obvious to use the private debt market to use the layaways instead of putting it on a credit card and letting that grow build. It'd be $5 trillion of really zeroing out a ton of stuff. And then um on top of that, you got private private equity. Um and and private equity is is probably the worst invention in the history of mankind right there. Um and and so you got all these guys who were charging huge fees and and buying bad and buying other private equities. There's fees upon fees upon fees and offloading the entire risk onto the Kentucky pension plan where a bunch of Hatfields and McCoys are running it, right? So, Wall Street knows are you going to be when when we have to bail out Blackstone and Apollo and uh it's going to piss me off, right? We don't have we don't have to bail them out, but we will bail them out. And and um and then we'll have an inflation problem because now people are aware of the inflation problem. inflation expectations are no longer a a a a hidden by recency bias because now recency bias shows that inflation can pop up very quickly. So I think the Fed's cornered. I think the Fed's not going to be able to use its old tricks. I think they're going to be um I think they're going to be cornered. I think the bond market's going to corner them. I think rates are going to go up against their will. I would not want to be the next Fed chair. I'd take a pass. Um, I'm already hearing the people who want to be the next Fed chair because they're the ones spouting off about how we should drop rates today. They're the ones who are trying to get into Trump's head and say, "Make me your Fed chair and I will lick your balls." I I think that financial where Yeah, those them too. I I tend to agree and and I but I'm playing devil's advocate a little bit here because I rates were zero and now rates are they're not 6% but they're fat. The 30 years coming in on five the the 10 the 10's at four the three months is a little bit north of that kind of below average. I mean if you it is but look at any kind of history. Oh we had Bananki and Yellen at zero for a very long period of time. the rest of the world negative and here we are like are we talking their IQ's are we talking about the interest rates now I think they're smart I I think they're I think they're too too smart for their own failing I think it's a different failing right um which I'll probably be too polite to mention on this but the the how do how do we reconcile like rates are up now we've still got I mean I I I think that you're probably right about the real estate market too but the fact of the matter is that quesilla just printed its highest number ever and the stock market topped out in February 2025, but we're within, you know, we could you get a big enough rally like someone drops a big enough bomb somewhere, we'll probably rally to new alltime highs like it's well within spitting distance. Well, so that's an interesting point you make and that is here's what happens. This we get a crisis. we got some little mini thing that ought to move the markets and the last three guys willing to try to short it try to short it and they sort of tiptoe their they tiptoe their way in and then the crisis subsides and gazillions of people try to catch the bounce. Yeah. So there's a total asymmetry. So it doesn't just recover, it soarses because it says, "Oh, oh, we're not going to have World War II. Oh, by these markets, right?" But they didn't get sold when we were heading into World War II. And so every crisis seems to be a reason to buy and not a reason to sell because the guys who sold every time there's a crisis are dead. There Jim Chenos who's basically on Twitter just telling us, you know, he's a broken man at this point. And I family office. Yeah. Family office, right? That means he's retired. Um and uh and and and I'm not being critical of Jim. I mean, he's he was, you know, he's he's the guy who sort of sat there with the standard and fought off the last of last of the marauding the vandals and uh and and then he and then he lost, right? And and so um you you listen to someone like David Einhorn get interviewed and he says it just doesn't work anymore. Now he sounds like he's conceded it's not going to work. That's not what he's saying. He's just saying it's not working right now. And he knows. He knows. He knows. I guarantee you he knows. I had dinner with him and a bunch of hedge fund managers one night. And I was sitting there thinking first and foremost, I don't remember starting a hedge fund, so I'm not sure why I'm sitting at this table. Um, and we went around the table. This is a real funny story. This is right before the the Ukraine war really kicked into gear. And we went around the table at one point and said, "What what do you want to buy?" Some techie was ranting and raving about tech. And Einhorn lost his He doesn't do that often. He says, "Do you know what it's like to ride something down 95%." He says, "You know what 95% down is?" He says, "It's a 90% loss that then cuts in half." He says, "You ever been on one of those? You ever seen one of those?" Right. Einhorn's top choice, his choice was uh gold. And and he and I talked about gold for many years. He talked about his grandfather and stuff. Um, I didn't go with my top choice. In fact, it was trivial. He said, 'You're supposed to actually say something that you're in. You've sized it. Well, I said, 'Well, I didn't know that. I didn't know that was a rule. I said RSX. And I was watching RSX gets sold off. Russian ETF, right? Yeah, the Russian ETF. And I'm going, you know, the things the thing selling at bargain basement price. I've been watching it. I owned a little bit of it for years thinking, you know, these Russian oil companies are printing money somehow. Um, and Grant Williams actually said that too. So, you can't be a contrarian to the point where you're the only guy in the world. I believe something because then you go psychotic fast. But if there's a couple other smart guys saying, "No, Dave, I agree with you." Like I I went long I was watching Platinum for several years and I ran ran into Bookvar in the fall and I said, "I'm watching Platinum." and he said, "I just bought platinum for the first time." And Einhorn, I know, is looking at platinum. And then and so so I I reached out to Peter Brandt, who's a trader, and I said, "Peter, here's the plot of platinum. What what would uh what would you consider a breakout?" And and he did some quick squiggling on the page and he said, "Here's here's the breakout I'd look for." And so in platinum, which has been dead money, flatlined as though someone was pegging the price. So maybe a month ago, um it it it reached what I considered to be my breakout. Now I was buying gold at 290 and 280 and 270 and then I'm going I can't take the pain. And I waited. Then it climbed back up past those. I started buying again up to around 450 or something just like early 2000s. uh 1999 up through 2000 oh boy so long ago maybe 2003 or something. Yeah. And um that's four years but but in these markets if platinum becomes a good buy it's going to last 15 minutes because of the speed with which people jump in. And so I started hitting the buy button. There's no way I'm going to get a full position to platinum on the time scales that I work. And I face a boomer dilemma where I've got enough wealth where to take a what I'd call a a decent size position in terms of percentage allocation. When I look at how much I have to invest to do that, I go that's too much goddamn money. And so I've got this paradox where I go, this many thousand dollar is is a lot of money. And I go, but it's 0.1% of my net worth. going, "Okay, how do I how do I how do I deal with this problem?" So, I started hitting the buy button from about 95 96 somewhere up. And I've hit it about four or five times. And and the way I'll get up to a full position is if I'm right and platinum ends up in some meme phase, then I'll be up to a full position. There's no I'm going to buy my way up. Um I was surprised to see the run that gold has had. Gold has now outperformed the S&P 500 since some date. I forget which one it is, but it's like 20 25 years. Year 2000. Yeah. Is it 2000? Yeah. Yeah. It's it's outperformed it by 2% annualized. That's very material. Well, so so again, I was in all bonds in the 80s and then in 87 the crash occurred and I was sitting in the faculty lounge. One of my older colleagues said, you know, Dave really should own some equities. And I wasn't paying attention. I'm going to go to Wall Street when I was high school. But I completely lost that thread and went my own way and didn't pay attention. I said, "Ah, maybe you're right." So, I started going aggressively into equities. And by the mid9s, I was the guy at the cocktail party saying, "Oh, I just bought this. I just bought that." You know, the the the complete idiot. So, the bubble was fully intact at that point, right? I I had been suckered in and I owned Dell. I made a ton of Dell and I weird companies that were just you if you couldn't make money in the 90s you really were an idiot or or a short seller which I repeat myself maybe. Um and then Y2K got me out of everything in 98 I jumped out and the market cut way way back and I thought okay you're half smart half stupid if it comes back I'm getting the rest out and I got the rest out. So, I I went into the year 2000 with zero equities, 0.0. I had gold, cash, and you're not going to believe this, a short fund, David Ty's short fund, and I made 30% on the short. And then to try to hedge inflation, I try I I talked to Jimmy Rogers partner, guy named Clyde Harrison. I was trying to buy commodities. I couldn't figure out how to do it because they were not popular. And I didn't like what I was hearing. I talked to one of the money market makers and I didn't like what he told me and so I said screw this. I'm not touching this Um, and so I bought six Fidelity funds that were basically commodity benefits. So, you know, Fidelity Energy and Materials and things like that. So, I bought six of them. I started buying them pretty aggressively um around 01. And so it turns out the knots the knots when people were getting their butts kicked them made 13% a year compounded which was extraordinary and then that continued until around 13 and then the teens just kicked my ass. So the teens I compounded around 4% while most people were hired in kites making double digit returns. So the teens were the the decade I'd like to forget. Um we'll see what happens going forward. I need one good decade. I'm looking for one more good decade. Me too, Dave. Yeah. Yeah. Yeah. Yeah. Well, so so so year to date to total assets of risk ignoring fixed income. I'm up 28%. Is that gold, right? A lot of gold. Yeah. A lot of gold. A lot of gold miner. Not a lot of gold miners. I The miners I don't trust. Those guys don't know how to make money. I'm convinced. Yeah. Yeah. Um the the the uh the salaries go up and the the the buyer the takeovers go up at the same time. Yeah. They just get stupid and it's it's you know and then if it really gets good some Banana Republic dictator takes the mines from you and you know it just I buy some stuff Fleenstein says to buy and and but it my entire go gold m gold mining portfolio could go to zero and I wouldn't lose a lot of sleep. So it's it's really not big. What do you think about the possibility that it's uh deficits driving the the overvaluation? We've sort of seemed to Yeah, I think it is. And and and then the question is what does that mean? Right. So that's just inflation. So I argue with Milton Freriedman. Takes some balls to do that, right? Um I have a superpower. It comes from my chemistry career where I went into a field that was complicated and some said you couldn't figure it out and others thought they understood it. Neither was correct. But it was really complicated and and for 45 years almost every paper ever published showed someone was full of And and I realized these are experts who were trying to get it right who got it wrong. Some case profoundly. And it it developed the the ability to look at say a dozen experts just to pick a random Fed number who all agree and say I think you're all full of And and that's my superpower is to not to to have no problems looking right into the face of the crowd and saying, "I think you're all full of shit." Now, sometimes being contrarian is just being a just being wrong. But if you can't do that, you will never be contrarian, right? So, so that's a minimum requirement. And so, you know, I was laughing with Chris Martinson one day where when we were buying gold, he was buying gold about the same I've known Chris for 25 years. He was at David Ty's chat board and his prudent bear fund, right? Along with Adam Tagert, some guys from Fidelity and Goldman. Yeah. Menlo Bear. That's where the name come from. And uh and uh and there were some guys there who were really quite prominent who had stupid names. And um and we were we're laughing where someone said to Chris when they said, "Well, it was easy to buy gold back then because it was so cheap." And it was cheap because there were five of us who wanted it. I mean that was it. There there was five of us. Yeah. One was Bill, one was one was one was Chris Martinson. You know, it just no one wanted gold. When gold hit 300, all the guys on the Putin bear checkboard said sell, right? That's how bad it was. And and and I held on. I just somehow white knuckled it all the way to $3,400 and and that worked out well. Um, but a lot of this is it really is blind nut finding squirrels and avoiding the real I wrote about the subprime crisis. I know the date May 6, 2002 where I got an email from a friend of mine named Rick Sherlin at Goldman prompted by an email I sent him. He said, "We have problems all the time. What's got you especially jumpy?" And I wrote about the subprime crisis coming. And I nailed it. I mean, I really nailed it. And it wasn't because I was seeing it myself. I was just reading guys like Bill Gross and stuff who were who were talking about Josh Rosen was talking about the subprime crisis in the late 90s and um and and how General Electric was was was supposedly cleaning up their balance sheet but then was using the derivatives market to take the risk back on and stuff like that. So I wrote all about that. The thing I got dead wrong was I thought JP Morgan would become a smudge and that was wrong. Um, but I said GM, GE, I they were all gonna get crushed. Took five years. Yeah. So, so the fact that it hasn't happened doesn't mean it's not going to happen. It just means that it takes I saw Gunlock the other day just say that say it, it just takes so much longer. He said he said the valuations are ridiculous. When Jeff Gunlock says the valuation ridiculous, you ought to sit up and say, maybe I shouldn't be 90% equities right now, right? What do you think is the problem with the Federal Reserve? Is it the fact that they all the PhDs are all teaching the PhDs and so it's one school of thought becomes predominant or or is there something else going on? Well, it's part of the problem. Um the echo chamber is very big. Um the the other problem they're all academics in many ways, right? They're they're all using just theoretical constructs and there's you know they said Paul was supposed to be good now I can't say he's been terrible I I remember when he finally um flinched he was on stage and he made some reference they were watching the markets carefully and I remember Danielle D Martino Booth in a couple of DMs on Twitter was just catatonic she could she had so much hope for Paul then she said I can't believe it she was almost in tears right he hasn't been horrible hole. Um, and he he got handed a bad hand to play, right? So, so, um, he he was not yelling or yelling. I called the I was on Danielle Danielle Cambon's podcast. I referred to as the flatheaded hobbit, which I'm not sure whether she understood the flathead where you put your beer joke. Um, but um, but Bernanki is the unforgivable one. Bernanki talks about the Great Depression like it was a failure in the 30s, but it was a failure in the 20s. And I think he must know that. I think he and therefore must just be a pathological liar because the the 20s was this huge credit bubble. It was a consumer credit bubble. It was all sorts of credit bubble. The roaring 20s, right? Roaring 20s was foreshadowing. The name the roaring 20s tells you that it was a problem. and uh and the 30s, you know, they might have been able to mitigate some of the damage um intervene, but they forgot to all these bailouts, they forget Badget's rule about, you know, basically punishing people who have to be bailed out. I'd like to steal law that basically says that if your bank has to get bailed out, the seauiteers all lose 5 years of their compensation. They would pay attention more carefully. Right now, here's what would happen is they would actually start acting like bankers and we'd go into a deep recession immediately, right? And and and and because there's too much leverage in the system and so um so in any case, the next one will be a complete brain deadad person in my opinion. Uh my fearsome like Brainard. Um although although although the one that would cause me to just slice my wrists and down some Valium um would be someone like Stephanie Kelton. Wouldn't that be just beyond comprehension and funny? Um MMT. Yeah. Yeah. Exactly. So um the other problem so so Milton Friedman talks about how inflation is always monetary but I I I think he's not looking at the cause. I think he's looking at the effect and that is I think inflation is always government spending and that produces the monetary expansion and so the the Fed supposedly has some mandates. It used to be stable currency, right? Stable banking system. And so, um, those two are not necessarily full employment and No, no. See, I don't agree with that. I don't think that's it is one of their mandates, right? But I agree. But well, it's a mandate they want, they ask for. Okay. Right. So, it's their own personal mandate. And you can't you can't have full employment and stable currency. Those two fly in each other's face. And so so what what if if they had said look you know they should encourage full employment but it's not a mandate. I I like Rudy. Rudy says you know mandate is you know he's got something where he talks about their mandate being to bail out the banks right and that is their mandate right then that that's the realistically what their mandate is is to just make sure the banks never suffer. I mean, when they were first created, it was supposed to be if you can't have bank runs. You can't have someone showing up to a bank and pulling all the assets out and causing the panic in that sense. So, you have a collection of banks together and they all bail each other out. But, it's turned into this. Like, it's crazy giving them the currency. It's crazy giving them that second, you know, full employment. I think there's some you can find some data series that'll show you that full employment's the other side of inflation or something like that. Well, yeah. and and it's I just don't think it's their job. I think the business cycle's in charge of, you know, and we haven't had we haven't had a downturn in the business cycle that the Fed didn't treat as an emergency for 30 years. Yeah. And and so that's bailing out that that's keeping rates too low for too long, too many times. That's why I asked offer the too many times. Yeah. So Greensban got addicted to the results from 87. He really liked it. He went from being an Austrian economist to a narcissist real fast. And um and then he just decided every chance he could gone, he would just be the hero and ride in on the white stallion. And then it that became the norm. And so so then the question is, you know, how did it go on for so long? And I go, well, how do you define long? 30 years, the blink of an eye, 100 years from now, the textbooks, well, how long was the Great Depression? Right? I've I've argu I've argued with a Berkeley economist on this one. He said it World War II got us out of the Great Depression. I said, "No, it didn't." I said, "We're still austere. We're we're on rations. You know, the economy blah blah blah." And he says, "No, the GDP numbers show that that that the GDP grew." And I said, "Yeah, let's take Well, that's what I thought about." And then I wrote about this some number of years later where I said, you know, when you when you build something and then blow it up in a microscond, I wouldn't call that GDP. Just like now, we're about to see the boomers. We are seeing the boomers. H how many health care buildings have been built in your hometown? You can't drive anywhere without the word health being on the front of some building. The memory care centers everywhere. Health care is not the health care in this form is not GDP. It is the cost of a rapidly depreciating asset. If we were all healthy and not needing health care, wouldn't we be better off? It's not like building computers. Yeah. So, so the GDP is just the it's like you're driving a 20-y old Corvair and it's in the shop every week. Dave, we've got a couple of minutes left. Do you want to speculate on what causes the House of Cards to come down? Do you want to give us a date? No. Uh, yeah. Date. Um, yeah, I will give you a date. 2026 to 2046. Okay, there you go. I I I think there's going to be I think we're gonna go whips Nik. If you bought the NIKK, if you own the NIKK in ' 89, you're still underwater without adjusting for inflation. If you started buying the NIK at zero, no commitment in ' 89. So, you graduate from Tokyo University and you get your job and you put the equivalent of $1,000 a month in the Nikk podcast with a Twitter space with George Noble. And I said, you couldn't invest in the NIK. He said, oh, you could do this. I said, no, it took too long. You couldn't have done that. If you bought the Nikkay all the way down, it took you 18 years to break even. 18 years if you just started averaging in as it went down. That's that's an uninvestable market and I believe that's where we're headed. Do you What about the catalyst? Uh I think the catalyst is uh Richard Russell said, "Why?" Someone said to him, "Why can't this go on forever?" and he said, "Go into your kids' room, start stacking their blocks, keep stacking." What happens? And what you end up with is the taller the stack, which is displacement from equilibrium, which I talked about, the more shock sensitive and the more destructive the return trip to equilibrium, which is a pile of blocks in the floor. So, you reach a height where the tiniest little shock like a a Russian bond default, remember that one? Um, will trigger a cascading failure and the markets will go emergent. We we've had a few though. We had that Silicon Valley Bank. We've had And how many trillion did we put in to bail that one? Yeah. Yeah. Well, that's true. I don't even know. That was done quietly in my opinion. That was not we we didn't bail them out by you know someone marching out into in front of a microphone and saying we're going to do everything that it takes. That one I think they realize it was embarrassing. They were able to stem that. But you got all these insolvent regional banks that have commercial real estate on their books. Let me ask you a Silicon Valley bank goes down. If I had told you 10 years ago that a bank would go down and become insolvent because it bought too many treasuries. What's wrong with that picture? Yeah. Right? That means that the Treasury market is broken. And so, so now you've got you've got commercial real estate that was priced at 200 million which is now priced at 6 million. That was one I just saw the other day and it's on some private equity balance sheet at 200 million because they don't have to mark to market and at some point like Harvard and its $50 billion endowment which everyone has been focusing on lately. First and let's start with the what if it's worth only 20 billion? Let's start with that. Forget about and now people say, "I still don't care." And I I understand that, too. But but but you've got pension funds that are underfunded and not marked to market, right? Big- time underfunded and not marked to market. Kentucky pension fun was down, I don't know, 20% funded. And you got to figure those those Kentucky boys own some dog in there, too. Dave, on that note, that's full time. Thanks so much for joining us today. If folks want to follow along with what you're doing, you're on Twitter. What's your Twitter handle? Uh, David B column, C O L L U M. Um, I write it I write the most poorly marketed blog in history. Uh, uh, a year in review. I I I publish it once a year at the end of the year. And uh and uh I was told recently it gets it got this year 500,000 clicks which is pretty good for a for a 300page review. Now could be it got 490,000 who clicked and said this. I'm out of here. Um um but I know it's been read by some very important people. So I'll take that. They're the only ones who matter. Well, everyone matters. I was looking up I I've read it every year. I've read it since 2015. Really? It's being bound by Bob Morardi. It's been it's it's being they're all being bound by Bob Morardi right now. We're up to 2015, I think, and we've done 22, three, and four. And then I'm going to have this anthology, which you know, I'll probably sell, I don't know, 40 or 50 of them at least. How long have you been writing that for? Since 09. Okay. Okay. Yeah. That's what kind of put me on the map. Yeah. Yeah. That's that's how I found you. Yeah. Well, thank you very much for joining us. We appreciate it. We'll get you back in the future if you if you're willing. Oh, yeah. It's always fun. I can talk. Folks, uh, thanks JT. JT's got to run. He's got an early tea time today. I'm just I'm joking. Jake's moderating a p panel for the CFA. That's why we're a little bit early today, folks. We're an hour early. We'll be back next week. Same same bat time, same bat channel. Send me a link to this when when it goes up. We will. We will. Uh Dave
David Collum on gold, inflation, the Fed, rates, valuation, Shiller PE, deficits, platinum | S07 E22
Summary
Transcript
Yeah, it's always hard to tell whether we're live or not because Zoom tells me it's still setting it up. But I think that we probably are live. I think we're live. There we go. Red reserecting. Hey, I'm Tobias Carlile. This is Value After Hours. I'm joined as always by my co-host Jake Taylor. Our special guest today is Professor Dr. David B. Colum, organic chemistry professor. uh notable finit personality and uh author of a year in review which I've read every year to escape from the family at Christmas. Yeah, I was going to say it almost almost breaks up my marriage every year when I'm reading it on the couch and supposed to be participating with the family. How are you Dave? Welcome to the podcast. What? Wait a minute. What are you doing? My wife's talking to me. You can't talk to me while I'm on a podcast. Yeah, great. Um, she wants me to open the window so we can hear what she's listening to out on the porch. Are you Are you on break, Dave? Uh, yeah. Kevin, I'm in my cabin and, uh, and then I go home in a couple days. Uh, but before that, Mike Ferris is coming up to visit me. And so, uh, so maybe we'll do a podcast from here. Who knows? Nice. It's not just a backdrop. Yeah, Dave, I was looking and uh I realized that you and I have been internet email friends for 12 years at this point, if you can imagine. Is that right? Is that right? You know, I lose track of everything at this point. I think it's a senior moment thing, but um one time I was I was I was um um I was I was searching a famous podcaster uh Mark, what's his name? God, I'm drawing blanks on everyone today. um the famous international expert Mark, come on. God damn it. Very contankerous. In any event, um to see more and I found a podcast I done with him and I go, "What? What? I don't remember that." So, any Yeah. So, how are things? How's things? It's It's hotter than here. You cannot believe how hot it is here. You guys are in California, right? I I am, but JT's in New York. He's similarly he's struggling a little bit at the moment. And being in a cabin, no AC, that's the problem I'm suffering from. Oh man, brutal. The heat the heat dome is in full effect right now. That's right. I feel like I'm in the middle of some nuclear weapon site in Iran right now. So, Dave, we had Rudy Havenstein on last a few weeks ago and we had a I saw that. I saw that. We had a a good podcast with him. We just threw it open at the start and said, "What's wrong with the markets?" So, we might do the same thing with you. What is wrong with the markets? Um, besides the fact they're all up. um they they do not respond to anything. They're they're they're it's like um it's like they're they're driving without shock absorbers and at some point we're going to break an axle, right? So you it's like skyscrapers, you know, they they blow in the breeze to respond to the wind and things like that. And they were they're made too rigid. At some point you just hear a snapping noise. And so uh so they don't respond to anything, right? We we we we we started World War II a couple days ago and the markets went up, right? How how does that work? Bullish. And and on top of it, they're profoundly overvalued. So, so um like any system displaced from equilibrium, when it finally when it's way far from equilibrium, when it returns, it's a violent return. So, that's what a bomb is. That's what an avalanche is. That's what an earthquake is. Um, and that's what a market problem is. And so I think we're going to see some violence, although I don't think violent crashes fix anything. So I think the dip buyers will show up and they'll think everything's okay. It'll be like Red and um in in Pearl Harbor where he sticks his head up and he's, "Hey, guys, it's a dud and then gets his his redheaded ass blown to bits." Um, what what makes you think that it's it's overvalued? What are you what are you looking at to to make that determination? Well, I I I watch 25 metrics and they all seem to tell the same story unless it comes from some Wall Street sell cellside analyst who then makes up stuff. Um the one I like the best for some reason is is the K Schiller PE. It goes back to 1880. And if you uh if you look at the average K Schiller PE from 1880 to 1990, which I am willing to call a baseline, okay, I'm willing to say 110 years sets a baseline for historical returns. It was around 12 or 13 and it just moved in a channel, you know, goes up in the 20s, goes down in the single digits, but it it channeled for about 110 years in 1990s and curiously 1994. And I've been trying to figure out why. Um, it left the channel. All the metrics all left the channel and and really never looked back. And so, uh, it is now parked at a at a cozy, uh, 38. And so, if you're sitting there with a K shil of 38 when historical fair value or should we say average value is is 12 to 13, it means that you're ballpark 200% over historical average valuation. So people will say, "Now we're in a different era." You know, I said, "Look, here's the deal. If you want to let the markets be three-fold over fair value, then you have to assume that you're going to get a one-third the cash flow out of these supposed stocks representing revenue flow." So uh so so you can't win. Um people say, "Well, we'll inflate our way out." But you can't inflate away valuations. If you think of a valuation, price to book, price to revenue, price to earnings price, you name it. It's always a numerator, the stock market, and it's always a denominator that ought to track it, meaning they both adjust for inflation. So, if you try to inflate your way out, you'll inflate the numerator and the denominator, and you'll still be 200% over historical average valuation. And so, inflation doesn't solve the problem. I think Jake Jake and I are sympathetic to that view and I think that it's backed up by Tobin's Q and any other number of Tobin's Q is another that's exactly right. In fact, that was Mark Spitzagel's favorite when I had dinner with him one night and he said, "Yeah, Tobin's Q." I just think that case Schiller is easier to calculate and it and it makes sort of more intuitive sense to me. One of the criticisms of that though has been that we've never seen tech companies that are as consistently profitable and have margins like they do. And I I saw Jeff Wneer posted a chart today that said that the return on equity of tech is like nearing 30%. Which is, you know, more than two times the average for the rest of the S&P 500, which trades around 13 times, something like that. And it's showing no signs of sort of mean reverting. it doesn't seem to be cyclical. So like is it possible that we've we have entered a new sort of regime and we're not going to see those sort that mean reversion that we have seen in the past. Well, I have seen people smarter than me say that that that um that profit margins are the most mean reverting of all the metrics. And so the fact that it hasn't mean reverted is back to the original statement that the markets aren't responding to things. And so uh Google, here's a good example. Google um was a market that appeared to have a complete mode around it, right? Google looked insurmount. One time a colleague said that to me and I said, "Well, what gives it a mode?" And he said, "Well, they have two million servers." I said, "Well, $2,000 per server, 2 million servers, $4 billion. Uh that's a hedge fund. So what uh you could build another Google." What actually happened is is that AI showed up. Now all of a sudden, Google's scrambling to to retain search. They're at risk of being Yahoo, right? They're at risk of So, so these things happen. Mean mean reversion is forced upon the market. The other thing I like to point out is that there's not a single market in the history of markets that ever got way overvalued that didn't eventually become cheap again. There isn't one, right? They don't do that. They don't, you know, there there's there's a great statement in flight manual that says you will have enough gas to get to the crash site. Um, and uh, and so I really do believe that that that is that that a a 30-year recency bias doesn't mean that it's not a bias. And so for 30 years, we've had this luxury. We've So, here's the here's here's the bullcase that got us here, and I and I'll tell you the bare case that gets us out. Um, the bull case was in 81 to that zone. markets had a PE of six back when you might actually be able to believe the E part. Um, now I don't believe the E part so readily, but um, so they were dirt cheap. They were priced to return what's at 15%. Now inflation was scary, which is why they were so cheap, but but they were priced to return a 15% cash flow. Um, Russia, uh, Russia was star for cash and sold us resources cheaply. We helped them. Exon Mobile, these guys got in there and helped. Um uh China was coming out of the dark ages and sold slave labor um for pennies on the dollar and they did it for decades. They they sold us uh their their wages and and sent us their smartest people and everything was just perfect for us and and when we paid them they bought treasuries and things like that. So So these are phenomenal tailwinds. The boomers hit the marketplace. Demographics are said by some economists to be uh important. I hesitate to say that because I'm in within the next two minutes I undoubtedly will assault the economists for being stupid. So um so sort of quote them selectively as is disingenuous but they do believe uh demographics is important and they they brought their wives and so we had a workforce participation rate that soared over those those decades. Um Warren Buffett wrote an article in 99 saying that the only thing that really matters is the direction of long-term rates. He said from 67 to81 when the markets treaded water for 14 years which is a long time to wait and lost 75% if you inflation correct which is a long time nominally treaded water. That's right. Nominally treaded water which which mean if it takes you 14 years I mean it's one thing to take a beating. It's another thing to take a beating for 14 years. Um, I'd rather lose Toby. Toby, how is that? I can talk to I can tell you about that. There's a story there. Um, and so he said, look, during that period, the GDP, the the the real GDP grew faster than from 1981 to to 1999 when he wrote the article. He said the only thing that was different was rates were going up when when when during the the bare market, rates were going down during the bull market. and and he says that's it. That's the the entire story. So it basically drives valuations is another way of putting it, right? If you're competing against a 15% bond, you got to have you got to be cheap. The stocks have got to be cheap. And um so we drove interest rates from what 17 18% down to zero down to negative, right? Talk about negative. What kind of idiots were running this operation, right? Negative. Uh, the Swiss National Bank just dropped their yields to zero again without telling anyone. Oh, by the way, we just dropped them to zero. Um, Wall Street turn that into low rates are bullish. The average joker on the street, which includes me, um, concluded therefore that when the rates were low, the equities are the buy. And I go, no, when rates are low, essentially zero, it's over. The rates have now dropped from 17 to zero. So the party's over. You you you got to sober up now and and there's only one direction to go and and that's up and we started up and and so I think the ultimate bare case is is um rising bond yields and and dropping equity prices. I think that that will be a bone crusher because bonds always saved equity investors during the 30-year recency bias and now they can't do it right. We've got inflation problems now that are real to the extent that we always had them, but we somehow were able to pretend we didn't. And and now they're real to the point where I think when the Fed hints at doing some of their old playbook crap, the inflation's going to take off. The inflation expectations are going to take off and people going to have a cow and the Fed's going to go, "Ah, we can't do it now." We we've been called out. I think the bond vigilantes will eventually pull out of their grave and do something. So the gist is we had these unprecedented tailwinds never to be repeated, right? There's no chance we're going to get another China. There's no chance we're going to get another demographic like we got. Not not in your lifetime, not in my lifetime. Um, and so what if the next uh it turns out during that 30-year period from well 40-year period from 81 to the present valuations which should not move. They should wiggle around but they should not trend um compounded 4% a year for 40 years. What happens if the next 40 years they compound 4% a year negative 4% a year for 40 years to just undo that? And the answer is we're hosed. Now you say, well, we'll block and tackle our way out. So let's say the GDP grows two and a half percent. Let's say stocks nominally do whatever they want to do, but inflation adjusts to do zero, right? We'll do a 1967 to 81ish. At 2 and a half% growth rate, it will take us 45 years to get out. And so if you want to tread water for 45 years, you're welcome to try. Um, there's an old Bill Cosby skit where God's trying to get him to build an ark and he doesn't want to do it and God says, "Noah, how long can you tread water?" Um, and uh, so that's the story. And and I think if we have a crash, the buyers will show up. So that's not going to fix it. I think we have another sort of bad moment, the buyers will show up, but maybe with a little less enthusiasm. And I think over the next 30 years, we're probably going to have a lot of beatings in which um unlike the last 30 years, you will not be rewarded for jumping in on the dips. And there's historical precedent for this. So if you own the uh ' 06 top, it took you 40 years not to go up and down and get even, but rather it took 40 years to end up at exactly the same place for the last time. Not the first time, the last time. So which which 06 top? Just the ' 06 top. Two 1906. 1906. Yeah. Thank you. So So if you look at an inflation, anyone can do this at home. This is your assignment. Turn off this podcast briefly. Boot up an inflation adjusted an inflationadjusted plot of the S&P. And what you'll see is if you draw a line across from the major peaks and don't don't extend the line to where you break even. Extend the line to where you break you get to that same value for the last time, not the first time. because to me that's really relevant. And and it turns out that there are about four really badl looking lines that you can draw. One of which is 75 years long. If you own the 29 top, you broke you broke even around 1984, I think, something like that. Um what are the there there are several possible causes for this sort of level of overvaluation. one, Michael Green has proposed that it's sort of flows hammering the the biggest companies. Um, demographics is another possibility. Rates being too low for too long. Although now we've sort of seen rates come back up again. We haven't really too long for too long too many times. I add the third parameter. Too many times. Yeah. Or deficits. But let's let's just take those take those one at a time. What do you think of Michael Green's flows thesis? Well, at first I thought his model was simple, and the more I've gotten to know Michael and his model, the more I realized that he really does have a profoundly deep understanding of what the hell he's talking about. Now, not that I thought he was wrong, but I thought that it was just kind of a bumper sticker bit of thinking, and it's not. Michael's really, really beyond sharp. Um, and he's correct. And so, it it removed price discovery for a huge percentage of the buyers. And that's how that's how the market becomes unresponsive because there's a steady flow. Now, Michael used to talk and I maybe I didn't like him in the earlier days his model because he kind of had this nothing's going to stop it attitude and I just I I didn't buy that. Um but but now he's now he's starting to say here I can see things that are stopping it right now. So, he's gotten uh much more dire in his uh near-term warnings, not some long-term someday it'll stop, but rather saying, "Look, if you look at the flows, they're kind of rolling over right now because the ret the boomers are retiring." Is that the Well, I think Boomers are drawing down. It's possible that there are some smart people with big money who are who are who are going, "Holy I got to get out of these markets." Like Buffett. Let's start with Buffett, right? He is he is not only in cash equivalence, but he he's not long duration either. He doesn't think the 30-year bond is the place to be. And um he's never well, you know, but but the 30-year bonds is stupider than a brick, right? So So I get in arguments and I got into I I don't want to name him. I can remember his name. This one I can remember, but I I asked him I I said, "Okay, if if I were going to sell you a 30-year bond, we're going to put in some rules and some artificial rules, but here's the rules. You got to buy it. You can't sell it. You can't hedge it. You're just buying a revenue stream. It's like an annuity or something. Um and and and you got to put it away for 30 years. How much interest rate would you demand given where we're at, what we know, what we don't know? And no one has ever guessed 5 percent. Not Not a single person has ever said 5%. I said, "Therefore," and but people are say, "Well, you don't buy them to own them." I said, "Someone did. Someone's someone's going to own those all the way to the finish, right?" And and so if you think you're a bond trader, have a nice day, but I'm not a bond trader. And I bet you guys may not be bond traders, too. So, um so someone's got to own them. and and the answers that come up of a lot of people say eight or nine could be 12 I I don't know what it is 30 years is a long time to commit given that uh we don't even know if the dollar is going to exist in 30 years we know it's going to be a reserve currency you got to have a lot of risk premium in that thing and therefore it means that the bonds aren't priced right and Dave what would that mean then if a lot of people say that equities are like a 50-year bond equivalent yeah paying 2% Right. Right. I mean, I've been I've been tweeting about every six months I do this. I went out um it turns out um Apple's revenues in the last 10 years are up 65%. Their their their I used to say their their uh stock price I used to refer to their stock price being much higher than that. And then people say, "Oh, you're ignoring buyback." So I so I said screw that. So now I say market cap. I don't care. The market cap is market cap. That's the value of the company. Their market cap is up 900%. So someone explain to me why that makes sense. Yeah. Even up even more because they've taken on some debt to do those buybacks. Right. Right. Well, Apple also they burned down a fortress balance sheet. They had a phenomenal balance sheet and they didn't, you know, and and the here's here's the low interest rate. The insidiousness of the low rates. It it forced first of all it inspired people to use debt to do stupid stuff like buy you know like buy bonds you know you you buy you borrow cheap you buy you you you you get some two basis point spread and you think that's a good idea um the the um the second thing is is that I if you're a company and you have you're trying to maintain a balance sheet let's say you want a fortress balance sheet what do you put in it if interest rates are if if the best you can put in it safely is 2% return. You're getting slaughtered. You relative to inflation, you're losing money year after year after year. And so the most responsible corporate execs could not take the pain of having a balance sheet. And so what did they do? They bought, you know, I love it. They returned capital to investors. I go, "Dude, the only guys you return capital to sold your sold your equity." So uh so so you didn't really return capital to investors. and you did get a nice bonus that year for cranking up the price, not giving a dividend because that doesn't help you any. So, I'm not a big buyback then. If you if you're Philip Morris, you got a ton of cash, you don't want people to see the cash and you're you can crank out 9% a year, buy the stock. That's a that's a great idea. Buy the stock. But but if if you if you're sitting at a price earnings ratio of 15, you're buying your stock, you're you're you're buying at 2% cash flow, you're an idiot. This is a little bit of a non-secur, but I'm kind of interested in what you think about as a as a treasury strategy. What do you think about micro strategy buying Bitcoin? Yeah, the coin strategy uh is strategy. Now, you guys are trying to destroy my Twitter feed now. Um I'm sympathetic to the Bitcoiners. I'm I'm um I I believe in the Lindy effect, and that is basically it says the longer something's been around, the more likely it is to be around for longer. And Bitcoin fails that test pretty quickly, right? So Bitcoin is is a a fresh idea. Uh it's revolutionary. So anyone who's paid attention to revolutions know they're not done by 50-y old guys or done by youngsters. And so uh so it is understandable that Bitcoin got adopted by, you know, cell phone wielding kids who can type with their thumbs for some reason that I don't understand. Um and and and and so in that sense, it all makes sense. The problem is that um it also means that the Bitcoin community is loaded with people who don't understand market structure, don't understand history, don't understand that that things like this have happened in the past. This one might not be one of those, but they talk about how they're they're they're undefeable. They're, you know, and I'm going the hubris is is ridiculous. Now, I know Bitcoiners who are real smart guys and and they're much more circumspect, but um but would you be totally shocked if at some point the authorities in the world who let's say you're a Rockefeller and you you you control the the big chunk of global global net worth and all of a sudden Bitcoin looks like it's going to control like I saw I saw a sailor project the price of Bitcoin and and he went out I don't know 10 years and had it as something like you know $4.5 million and then it ended up at $88 million some number of years out and I go, "That's just horseshit, Michael. I mean, that's horshit. That that's complete and utter horseshit. That that's just you could be dead right about Bitcoin being a good idea, but that you're just blowing hot air." Which means, by the way, that there you you want to get anointed shyer of the year. That that would be it right there. Um, I'm much more sympathetic than someone like um Max Kaiser and Stacy Herbert who were humping Bitcoin at at for pennies. So, they obviously saw the future way way more than anyone else. And unless they sold, they must be stinking rich. Um, but I don't I don't trust Sailor. I I think that I think he's running a great scheme. And to that, I tip my hat to him. Um the the idea of you know the president setting up a sovereign wealth fund with Bitcoin that is bananas. It's bananas at several level. One of which is let's start with you don't set up a sovereign wealth fund unless you have excess earnings. Right. To set up a sovereign wealth fund while being what 37 trillion in debt. That's what we call leverage. Yeah. Right. That's just stupid. So, so the even at the top echelon of society, there's a lot of dumbness. And again, guys who are Bitcoiners, don't give me right? I I just It's not It's not a game. I turned it down at 10. And And you say, "Okay, well, that you should still get it." I go, "No, I tell you, I don't regret it either because if id bought it at 10, I would have sold it at 50 and said, "Wow, I'm taking it. That's it. I don't believe it." and and and and and then spent the proceeds for therapy for the rest of my life. So, um so so so no, I don't mind missing you. You can't lose sleep over what you missed. You know, I should have bet black 35 at the roulette wheel, too, but you just can't do that. I looked at I looked at eBay as the only.com I considered buying. By the way, I made a fortune in the tech boom. Uh people have trouble believing that, but I own Dell. I made 700% on WorldCom and got out before it all went to pumpkins and ice. That's right. So, I've seen it and I I it was just dumb luck. It was the blind nut finding a squirrel. I mean, it was it was u it I I it was Well, I fell for another grift. I I fell for the Y2K grift. I was I was convinced. I didn't know the probability, but the risk was real. And and if you look at the co lockdown, we kind of saw hints of what could have happened in in 2000, right? The not getting supplies and things. I went through all the gymnastics and understood the whole supply chain problem. Now, the reason I called a grift is because nothing happened. Nothing. I'm not talking they fixed it. I'm talking nothing. I'm talking there were not even computers in Venezuela that stopped working. So, I am now convinced that Joerger worked for Wall Street and he he screamed about the risk of Y2K and Wall Street loved it because then they could sell software and hardware and the Silicon Valley got rich and then we had a recession because the whole thing blew off and and that funded the dot and and then that was the end of that. And so, um so I I Bitcoin might win, Bitcoin might lose. If I were the power structure, I'd be looking longterm for ways to put it into a shallow grave. Dave, how do you contrast that with um you know, other than the lendy of call it what now uh 17 years of for Bitcoin versus 5,000 years for gold? What's what's how do you like think about those two things? Gold versus Bitcoin. Well, one of the great advantages of Bitcoin is the ability to move it, right? So, so if we end up in an authoritarian world, so when I talk about, you know, what happens if they outlaw us? So, I'll say to uh someone, I'll say, "What if they outlaw it?" They say, "Well, I'll move to blah blah blah." And I go, "Well, I don't want to move to blah blah blah." You know, I mean, I don't really want to have to move to some place where they have snakes that can kill you, you know? And uh and um and and and so but but that is a big advantage, the mobility. You don't have to sew it into the seam of your clothes. You don't have to. It's a lot easier to to kester Bitcoin, isn't it? It is a lot easier. But but um I also thumb drive is a lot easier than the gold uh bar. Well, I I but I you know how many times you've been told your password doesn't work, right? I'm a lite, right? So I'll go to log into something. I'll say that password's not it. And I go I know that password's it. And what is the number to call the Bitcoin help desk? That's exact That's exactly right. That's exactly right. So, I just don't trust myself and and when my my password doesn't work or I call some help desk, whatever, I just get so frustrated that that the idea of tying my a significant amount of my wealth into something that is so obtuse for me. Again, I don't I don't understand why I'm such a lite. I had DOS 1.0.1, right? I mean, I was at ground zero of of this thing. I had there's a thing called Chemraw which is probably sold 20 million copies for drawing chemical structures. I had no I my my my copy of Chem serial number is 376. So so I'm not averse to being early into attack but no that Bitcoin doesn't do it. I I do believe the authorities are if I were it should trouble people that the first paper written about it was by three NSA guys. That that should bother you, right? that to really get in into your head and say, "Wait a minute, wait a minute, who's Satoshi?" And the mystery of Satashi, you know, um, and and and if I wanted to set up a central bank digital currency, which we all agree is a disaster, putting out Bitcoin, letting the smartest guys in the world debug it and set up networks and acclimate and stuff, that would be a great way to do it. So, Trojan horse. Trojan horse. Yeah, let me let me uh just digress for a moment. Go back to the overvaluation of the the stock market. One of the possibilities was this direction of rates, you know, from 82 to whatever it was, call it 20 2020, early 2020s, uh went in one direction, stock market went in the other direction. We've now kind of after Beni and Yellen have moved on, we've we now got Pal who seems to be like we're trending back towards long-term rates of like let's call it 6% or something like that. We're not there yet, but we're sort of directionally going there. Stock markets all-time highs, real estate market all-time highs. Like what what how do you reconcile those two ideas? Well, the real estate market's breaking. I mean, you can hear it shattering right now, right? the fact that the real estate market has a terrible lag effect because the buyers and sellers that they they when the buyers and sellers can't meet that that means there's no price discovery there but there has to be price discovery there right and so you follow uh my my great source of plots and cackles is from Darth Powell who's just constantly posting posting real estate plots and the real estate market's really breaking right in front of our eyes and so the fact that the real estate market appears to be okay to some people I think um is is and it's commercial real estate's a disaster a complete disaster and and hidden the the real problem I we're going to have another crisis of course because we always do the next crisis every article written 99.9% of the articles are going to have the word private in it okay so the private's going to show up in terms of private capital where by the way you're addicted to that I just you see that Jake you're addicted Aren't you? I was addicted. I love chapstick. Yeah. Yeah. You know what? Addicted. Yeah. I like crack, too. So, um um You break it, you cold turkey. Um so, so, so um so, so private capital is what bought up all the housing inventory after 089. So, they built all these houses. Where' the inventory go? Private capital. So, Black Rockck. So, our Black Rockck was buying housing at 0.15% leverage the rates, right? That's how they scooped up all the house. They uh single family dwellings are a lousy business, but if you can if you can buy them for almost no cost of capital, raise within margin and leverage the out of it, you can make money. And that's what they've done. Well, that's not going to work forever. Um, then you got the private debt market where when you buy that Barkco lounger and you get four easy payments. Um, or you or you get the Door Dash. That's the one that's gotten the most press like Door Dash. A burrito on buy a burrito on layaway. And I'm going, you know, maybe you should skip the burrito and eat a hot dog, buddy. Um, if you got to pay four easy payments. Um, so the private debt market is is comp considered completely opaque. Who was it? William White the other day said that the the shadow banking system is now bigger than the banking system and the shadow banking system is a disaster waiting to happen. And so so let's say there's $5 trillion in the private debt market which is where that debt's being held. So when Metro Mattress sells you a mattress and you pay over a year they don't hold on to that cost. they sell it off into the market just like you know you know bill collectors right and uh and if you're looking at paying your heating bill or your your car insurance or your bark lounger payment which one are you going to skip right and so the private debt market which serves the great role of getting it off your 27% credit card right so now your credit card so so it's so obvious to use the private debt market to use the layaways instead of putting it on a credit card and letting that grow build. It'd be $5 trillion of really zeroing out a ton of stuff. And then um on top of that, you got private private equity. Um and and private equity is is probably the worst invention in the history of mankind right there. Um and and so you got all these guys who were charging huge fees and and buying bad and buying other private equities. There's fees upon fees upon fees and offloading the entire risk onto the Kentucky pension plan where a bunch of Hatfields and McCoys are running it, right? So, Wall Street knows are you going to be when when we have to bail out Blackstone and Apollo and uh it's going to piss me off, right? We don't have we don't have to bail them out, but we will bail them out. And and um and then we'll have an inflation problem because now people are aware of the inflation problem. inflation expectations are no longer a a a a hidden by recency bias because now recency bias shows that inflation can pop up very quickly. So I think the Fed's cornered. I think the Fed's not going to be able to use its old tricks. I think they're going to be um I think they're going to be cornered. I think the bond market's going to corner them. I think rates are going to go up against their will. I would not want to be the next Fed chair. I'd take a pass. Um, I'm already hearing the people who want to be the next Fed chair because they're the ones spouting off about how we should drop rates today. They're the ones who are trying to get into Trump's head and say, "Make me your Fed chair and I will lick your balls." I I think that financial where Yeah, those them too. I I tend to agree and and I but I'm playing devil's advocate a little bit here because I rates were zero and now rates are they're not 6% but they're fat. The 30 years coming in on five the the 10 the 10's at four the three months is a little bit north of that kind of below average. I mean if you it is but look at any kind of history. Oh we had Bananki and Yellen at zero for a very long period of time. the rest of the world negative and here we are like are we talking their IQ's are we talking about the interest rates now I think they're smart I I think they're I think they're too too smart for their own failing I think it's a different failing right um which I'll probably be too polite to mention on this but the the how do how do we reconcile like rates are up now we've still got I mean I I I think that you're probably right about the real estate market too but the fact of the matter is that quesilla just printed its highest number ever and the stock market topped out in February 2025, but we're within, you know, we could you get a big enough rally like someone drops a big enough bomb somewhere, we'll probably rally to new alltime highs like it's well within spitting distance. Well, so that's an interesting point you make and that is here's what happens. This we get a crisis. we got some little mini thing that ought to move the markets and the last three guys willing to try to short it try to short it and they sort of tiptoe their they tiptoe their way in and then the crisis subsides and gazillions of people try to catch the bounce. Yeah. So there's a total asymmetry. So it doesn't just recover, it soarses because it says, "Oh, oh, we're not going to have World War II. Oh, by these markets, right?" But they didn't get sold when we were heading into World War II. And so every crisis seems to be a reason to buy and not a reason to sell because the guys who sold every time there's a crisis are dead. There Jim Chenos who's basically on Twitter just telling us, you know, he's a broken man at this point. And I family office. Yeah. Family office, right? That means he's retired. Um and uh and and and I'm not being critical of Jim. I mean, he's he was, you know, he's he's the guy who sort of sat there with the standard and fought off the last of last of the marauding the vandals and uh and and then he and then he lost, right? And and so um you you listen to someone like David Einhorn get interviewed and he says it just doesn't work anymore. Now he sounds like he's conceded it's not going to work. That's not what he's saying. He's just saying it's not working right now. And he knows. He knows. He knows. I guarantee you he knows. I had dinner with him and a bunch of hedge fund managers one night. And I was sitting there thinking first and foremost, I don't remember starting a hedge fund, so I'm not sure why I'm sitting at this table. Um, and we went around the table. This is a real funny story. This is right before the the Ukraine war really kicked into gear. And we went around the table at one point and said, "What what do you want to buy?" Some techie was ranting and raving about tech. And Einhorn lost his He doesn't do that often. He says, "Do you know what it's like to ride something down 95%." He says, "You know what 95% down is?" He says, "It's a 90% loss that then cuts in half." He says, "You ever been on one of those? You ever seen one of those?" Right. Einhorn's top choice, his choice was uh gold. And and he and I talked about gold for many years. He talked about his grandfather and stuff. Um, I didn't go with my top choice. In fact, it was trivial. He said, 'You're supposed to actually say something that you're in. You've sized it. Well, I said, 'Well, I didn't know that. I didn't know that was a rule. I said RSX. And I was watching RSX gets sold off. Russian ETF, right? Yeah, the Russian ETF. And I'm going, you know, the things the thing selling at bargain basement price. I've been watching it. I owned a little bit of it for years thinking, you know, these Russian oil companies are printing money somehow. Um, and Grant Williams actually said that too. So, you can't be a contrarian to the point where you're the only guy in the world. I believe something because then you go psychotic fast. But if there's a couple other smart guys saying, "No, Dave, I agree with you." Like I I went long I was watching Platinum for several years and I ran ran into Bookvar in the fall and I said, "I'm watching Platinum." and he said, "I just bought platinum for the first time." And Einhorn, I know, is looking at platinum. And then and so so I I reached out to Peter Brandt, who's a trader, and I said, "Peter, here's the plot of platinum. What what would uh what would you consider a breakout?" And and he did some quick squiggling on the page and he said, "Here's here's the breakout I'd look for." And so in platinum, which has been dead money, flatlined as though someone was pegging the price. So maybe a month ago, um it it it reached what I considered to be my breakout. Now I was buying gold at 290 and 280 and 270 and then I'm going I can't take the pain. And I waited. Then it climbed back up past those. I started buying again up to around 450 or something just like early 2000s. uh 1999 up through 2000 oh boy so long ago maybe 2003 or something. Yeah. And um that's four years but but in these markets if platinum becomes a good buy it's going to last 15 minutes because of the speed with which people jump in. And so I started hitting the buy button. There's no way I'm going to get a full position to platinum on the time scales that I work. And I face a boomer dilemma where I've got enough wealth where to take a what I'd call a a decent size position in terms of percentage allocation. When I look at how much I have to invest to do that, I go that's too much goddamn money. And so I've got this paradox where I go, this many thousand dollar is is a lot of money. And I go, but it's 0.1% of my net worth. going, "Okay, how do I how do I how do I deal with this problem?" So, I started hitting the buy button from about 95 96 somewhere up. And I've hit it about four or five times. And and the way I'll get up to a full position is if I'm right and platinum ends up in some meme phase, then I'll be up to a full position. There's no I'm going to buy my way up. Um I was surprised to see the run that gold has had. Gold has now outperformed the S&P 500 since some date. I forget which one it is, but it's like 20 25 years. Year 2000. Yeah. Is it 2000? Yeah. Yeah. It's it's outperformed it by 2% annualized. That's very material. Well, so so again, I was in all bonds in the 80s and then in 87 the crash occurred and I was sitting in the faculty lounge. One of my older colleagues said, you know, Dave really should own some equities. And I wasn't paying attention. I'm going to go to Wall Street when I was high school. But I completely lost that thread and went my own way and didn't pay attention. I said, "Ah, maybe you're right." So, I started going aggressively into equities. And by the mid9s, I was the guy at the cocktail party saying, "Oh, I just bought this. I just bought that." You know, the the the complete idiot. So, the bubble was fully intact at that point, right? I I had been suckered in and I owned Dell. I made a ton of Dell and I weird companies that were just you if you couldn't make money in the 90s you really were an idiot or or a short seller which I repeat myself maybe. Um and then Y2K got me out of everything in 98 I jumped out and the market cut way way back and I thought okay you're half smart half stupid if it comes back I'm getting the rest out and I got the rest out. So, I I went into the year 2000 with zero equities, 0.0. I had gold, cash, and you're not going to believe this, a short fund, David Ty's short fund, and I made 30% on the short. And then to try to hedge inflation, I try I I talked to Jimmy Rogers partner, guy named Clyde Harrison. I was trying to buy commodities. I couldn't figure out how to do it because they were not popular. And I didn't like what I was hearing. I talked to one of the money market makers and I didn't like what he told me and so I said screw this. I'm not touching this Um, and so I bought six Fidelity funds that were basically commodity benefits. So, you know, Fidelity Energy and Materials and things like that. So, I bought six of them. I started buying them pretty aggressively um around 01. And so it turns out the knots the knots when people were getting their butts kicked them made 13% a year compounded which was extraordinary and then that continued until around 13 and then the teens just kicked my ass. So the teens I compounded around 4% while most people were hired in kites making double digit returns. So the teens were the the decade I'd like to forget. Um we'll see what happens going forward. I need one good decade. I'm looking for one more good decade. Me too, Dave. Yeah. Yeah. Yeah. Yeah. Well, so so so year to date to total assets of risk ignoring fixed income. I'm up 28%. Is that gold, right? A lot of gold. Yeah. A lot of gold. A lot of gold miner. Not a lot of gold miners. I The miners I don't trust. Those guys don't know how to make money. I'm convinced. Yeah. Yeah. Um the the the uh the salaries go up and the the the buyer the takeovers go up at the same time. Yeah. They just get stupid and it's it's you know and then if it really gets good some Banana Republic dictator takes the mines from you and you know it just I buy some stuff Fleenstein says to buy and and but it my entire go gold m gold mining portfolio could go to zero and I wouldn't lose a lot of sleep. So it's it's really not big. What do you think about the possibility that it's uh deficits driving the the overvaluation? We've sort of seemed to Yeah, I think it is. And and and then the question is what does that mean? Right. So that's just inflation. So I argue with Milton Freriedman. Takes some balls to do that, right? Um I have a superpower. It comes from my chemistry career where I went into a field that was complicated and some said you couldn't figure it out and others thought they understood it. Neither was correct. But it was really complicated and and for 45 years almost every paper ever published showed someone was full of And and I realized these are experts who were trying to get it right who got it wrong. Some case profoundly. And it it developed the the ability to look at say a dozen experts just to pick a random Fed number who all agree and say I think you're all full of And and that's my superpower is to not to to have no problems looking right into the face of the crowd and saying, "I think you're all full of shit." Now, sometimes being contrarian is just being a just being wrong. But if you can't do that, you will never be contrarian, right? So, so that's a minimum requirement. And so, you know, I was laughing with Chris Martinson one day where when we were buying gold, he was buying gold about the same I've known Chris for 25 years. He was at David Ty's chat board and his prudent bear fund, right? Along with Adam Tagert, some guys from Fidelity and Goldman. Yeah. Menlo Bear. That's where the name come from. And uh and uh and there were some guys there who were really quite prominent who had stupid names. And um and we were we're laughing where someone said to Chris when they said, "Well, it was easy to buy gold back then because it was so cheap." And it was cheap because there were five of us who wanted it. I mean that was it. There there was five of us. Yeah. One was Bill, one was one was one was Chris Martinson. You know, it just no one wanted gold. When gold hit 300, all the guys on the Putin bear checkboard said sell, right? That's how bad it was. And and and I held on. I just somehow white knuckled it all the way to $3,400 and and that worked out well. Um, but a lot of this is it really is blind nut finding squirrels and avoiding the real I wrote about the subprime crisis. I know the date May 6, 2002 where I got an email from a friend of mine named Rick Sherlin at Goldman prompted by an email I sent him. He said, "We have problems all the time. What's got you especially jumpy?" And I wrote about the subprime crisis coming. And I nailed it. I mean, I really nailed it. And it wasn't because I was seeing it myself. I was just reading guys like Bill Gross and stuff who were who were talking about Josh Rosen was talking about the subprime crisis in the late 90s and um and and how General Electric was was was supposedly cleaning up their balance sheet but then was using the derivatives market to take the risk back on and stuff like that. So I wrote all about that. The thing I got dead wrong was I thought JP Morgan would become a smudge and that was wrong. Um, but I said GM, GE, I they were all gonna get crushed. Took five years. Yeah. So, so the fact that it hasn't happened doesn't mean it's not going to happen. It just means that it takes I saw Gunlock the other day just say that say it, it just takes so much longer. He said he said the valuations are ridiculous. When Jeff Gunlock says the valuation ridiculous, you ought to sit up and say, maybe I shouldn't be 90% equities right now, right? What do you think is the problem with the Federal Reserve? Is it the fact that they all the PhDs are all teaching the PhDs and so it's one school of thought becomes predominant or or is there something else going on? Well, it's part of the problem. Um the echo chamber is very big. Um the the other problem they're all academics in many ways, right? They're they're all using just theoretical constructs and there's you know they said Paul was supposed to be good now I can't say he's been terrible I I remember when he finally um flinched he was on stage and he made some reference they were watching the markets carefully and I remember Danielle D Martino Booth in a couple of DMs on Twitter was just catatonic she could she had so much hope for Paul then she said I can't believe it she was almost in tears right he hasn't been horrible hole. Um, and he he got handed a bad hand to play, right? So, so, um, he he was not yelling or yelling. I called the I was on Danielle Danielle Cambon's podcast. I referred to as the flatheaded hobbit, which I'm not sure whether she understood the flathead where you put your beer joke. Um, but um, but Bernanki is the unforgivable one. Bernanki talks about the Great Depression like it was a failure in the 30s, but it was a failure in the 20s. And I think he must know that. I think he and therefore must just be a pathological liar because the the 20s was this huge credit bubble. It was a consumer credit bubble. It was all sorts of credit bubble. The roaring 20s, right? Roaring 20s was foreshadowing. The name the roaring 20s tells you that it was a problem. and uh and the 30s, you know, they might have been able to mitigate some of the damage um intervene, but they forgot to all these bailouts, they forget Badget's rule about, you know, basically punishing people who have to be bailed out. I'd like to steal law that basically says that if your bank has to get bailed out, the seauiteers all lose 5 years of their compensation. They would pay attention more carefully. Right now, here's what would happen is they would actually start acting like bankers and we'd go into a deep recession immediately, right? And and and and because there's too much leverage in the system and so um so in any case, the next one will be a complete brain deadad person in my opinion. Uh my fearsome like Brainard. Um although although although the one that would cause me to just slice my wrists and down some Valium um would be someone like Stephanie Kelton. Wouldn't that be just beyond comprehension and funny? Um MMT. Yeah. Yeah. Exactly. So um the other problem so so Milton Friedman talks about how inflation is always monetary but I I I think he's not looking at the cause. I think he's looking at the effect and that is I think inflation is always government spending and that produces the monetary expansion and so the the Fed supposedly has some mandates. It used to be stable currency, right? Stable banking system. And so, um, those two are not necessarily full employment and No, no. See, I don't agree with that. I don't think that's it is one of their mandates, right? But I agree. But well, it's a mandate they want, they ask for. Okay. Right. So, it's their own personal mandate. And you can't you can't have full employment and stable currency. Those two fly in each other's face. And so so what what if if they had said look you know they should encourage full employment but it's not a mandate. I I like Rudy. Rudy says you know mandate is you know he's got something where he talks about their mandate being to bail out the banks right and that is their mandate right then that that's the realistically what their mandate is is to just make sure the banks never suffer. I mean, when they were first created, it was supposed to be if you can't have bank runs. You can't have someone showing up to a bank and pulling all the assets out and causing the panic in that sense. So, you have a collection of banks together and they all bail each other out. But, it's turned into this. Like, it's crazy giving them the currency. It's crazy giving them that second, you know, full employment. I think there's some you can find some data series that'll show you that full employment's the other side of inflation or something like that. Well, yeah. and and it's I just don't think it's their job. I think the business cycle's in charge of, you know, and we haven't had we haven't had a downturn in the business cycle that the Fed didn't treat as an emergency for 30 years. Yeah. And and so that's bailing out that that's keeping rates too low for too long, too many times. That's why I asked offer the too many times. Yeah. So Greensban got addicted to the results from 87. He really liked it. He went from being an Austrian economist to a narcissist real fast. And um and then he just decided every chance he could gone, he would just be the hero and ride in on the white stallion. And then it that became the norm. And so so then the question is, you know, how did it go on for so long? And I go, well, how do you define long? 30 years, the blink of an eye, 100 years from now, the textbooks, well, how long was the Great Depression? Right? I've I've argu I've argued with a Berkeley economist on this one. He said it World War II got us out of the Great Depression. I said, "No, it didn't." I said, "We're still austere. We're we're on rations. You know, the economy blah blah blah." And he says, "No, the GDP numbers show that that that the GDP grew." And I said, "Yeah, let's take Well, that's what I thought about." And then I wrote about this some number of years later where I said, you know, when you when you build something and then blow it up in a microscond, I wouldn't call that GDP. Just like now, we're about to see the boomers. We are seeing the boomers. H how many health care buildings have been built in your hometown? You can't drive anywhere without the word health being on the front of some building. The memory care centers everywhere. Health care is not the health care in this form is not GDP. It is the cost of a rapidly depreciating asset. If we were all healthy and not needing health care, wouldn't we be better off? It's not like building computers. Yeah. So, so the GDP is just the it's like you're driving a 20-y old Corvair and it's in the shop every week. Dave, we've got a couple of minutes left. Do you want to speculate on what causes the House of Cards to come down? Do you want to give us a date? No. Uh, yeah. Date. Um, yeah, I will give you a date. 2026 to 2046. Okay, there you go. I I I think there's going to be I think we're gonna go whips Nik. If you bought the NIKK, if you own the NIKK in ' 89, you're still underwater without adjusting for inflation. If you started buying the NIK at zero, no commitment in ' 89. So, you graduate from Tokyo University and you get your job and you put the equivalent of $1,000 a month in the Nikk podcast with a Twitter space with George Noble. And I said, you couldn't invest in the NIK. He said, oh, you could do this. I said, no, it took too long. You couldn't have done that. If you bought the Nikkay all the way down, it took you 18 years to break even. 18 years if you just started averaging in as it went down. That's that's an uninvestable market and I believe that's where we're headed. Do you What about the catalyst? Uh I think the catalyst is uh Richard Russell said, "Why?" Someone said to him, "Why can't this go on forever?" and he said, "Go into your kids' room, start stacking their blocks, keep stacking." What happens? And what you end up with is the taller the stack, which is displacement from equilibrium, which I talked about, the more shock sensitive and the more destructive the return trip to equilibrium, which is a pile of blocks in the floor. So, you reach a height where the tiniest little shock like a a Russian bond default, remember that one? Um, will trigger a cascading failure and the markets will go emergent. We we've had a few though. We had that Silicon Valley Bank. We've had And how many trillion did we put in to bail that one? Yeah. Yeah. Well, that's true. I don't even know. That was done quietly in my opinion. That was not we we didn't bail them out by you know someone marching out into in front of a microphone and saying we're going to do everything that it takes. That one I think they realize it was embarrassing. They were able to stem that. But you got all these insolvent regional banks that have commercial real estate on their books. Let me ask you a Silicon Valley bank goes down. If I had told you 10 years ago that a bank would go down and become insolvent because it bought too many treasuries. What's wrong with that picture? Yeah. Right? That means that the Treasury market is broken. And so, so now you've got you've got commercial real estate that was priced at 200 million which is now priced at 6 million. That was one I just saw the other day and it's on some private equity balance sheet at 200 million because they don't have to mark to market and at some point like Harvard and its $50 billion endowment which everyone has been focusing on lately. First and let's start with the what if it's worth only 20 billion? Let's start with that. Forget about and now people say, "I still don't care." And I I understand that, too. But but but you've got pension funds that are underfunded and not marked to market, right? Big- time underfunded and not marked to market. Kentucky pension fun was down, I don't know, 20% funded. And you got to figure those those Kentucky boys own some dog in there, too. Dave, on that note, that's full time. Thanks so much for joining us today. If folks want to follow along with what you're doing, you're on Twitter. What's your Twitter handle? Uh, David B column, C O L L U M. Um, I write it I write the most poorly marketed blog in history. Uh, uh, a year in review. I I I publish it once a year at the end of the year. And uh and uh I was told recently it gets it got this year 500,000 clicks which is pretty good for a for a 300page review. Now could be it got 490,000 who clicked and said this. I'm out of here. Um um but I know it's been read by some very important people. So I'll take that. They're the only ones who matter. Well, everyone matters. I was looking up I I've read it every year. I've read it since 2015. Really? It's being bound by Bob Morardi. It's been it's it's being they're all being bound by Bob Morardi right now. We're up to 2015, I think, and we've done 22, three, and four. And then I'm going to have this anthology, which you know, I'll probably sell, I don't know, 40 or 50 of them at least. How long have you been writing that for? Since 09. Okay. Okay. Yeah. That's what kind of put me on the map. Yeah. Yeah. That's that's how I found you. Yeah. Well, thank you very much for joining us. We appreciate it. We'll get you back in the future if you if you're willing. Oh, yeah. It's always fun. I can talk. Folks, uh, thanks JT. JT's got to run. He's got an early tea time today. I'm just I'm joking. Jake's moderating a p panel for the CFA. That's why we're a little bit early today, folks. We're an hour early. We'll be back next week. Same same bat time, same bat channel. Send me a link to this when when it goes up. We will. We will. Uh Dave