WEBVTT - The Bull Case for Gold 0:00:06.280 --> 0:00:09.680 Strap on your parachute. It's time for What Goes Up 0:00:10.000 --> 0:00:14.960 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:15.040 --> 0:00:18.480 What goes Up, a Bloomberg Weekly markets podcast. I'm Sarah 0:00:18.480 --> 0:00:21.320 Ponze or porter on the Cross Asset team, and I'm 0:00:21.320 --> 0:00:24.480 Mike Reagan, a senior editor at Bloomberg. And you can 0:00:24.520 --> 0:00:28.880 think of me as the molder to Sarah's scully. I'm 0:00:28.880 --> 0:00:31.639 gonna wait for one of these weeks, Mike, when you 0:00:31.720 --> 0:00:34.879 give me one that I maybe don't have to. You know, Sarah, 0:00:35.040 --> 0:00:37.159 I thought that one was fresh. I mean, that's like 0:00:37.240 --> 0:00:39.839 mid nineties. That's about as fresh as I get. With 0:00:39.880 --> 0:00:42.680 the references. I should know it. Maybe I'm just I'm 0:00:42.720 --> 0:00:46.600 just out of it all right, Well, X files, X files. 0:00:46.640 --> 0:00:48.720 Get on the Netflix and watch some X files. It 0:00:48.720 --> 0:00:52.319 will all make sense my whole if I haven't been 0:00:52.360 --> 0:00:56.680 watching enough Netflix these days. But this week on the show, Mike, 0:00:57.000 --> 0:01:00.000 different asset classes across financial markets are giving off pretty 0:01:00.040 --> 0:01:03.800 strong messages. Real yields in the US are deeply negative, 0:01:03.840 --> 0:01:06.720 while the US dollar actually just had its worst July 0:01:06.880 --> 0:01:10.199 in a decade. That all as precious metals have become 0:01:10.240 --> 0:01:13.680 a quasi obsession with gold futures touching two thousand dollars 0:01:13.680 --> 0:01:17.480 announced for the first time ever. So what's it all 0:01:17.520 --> 0:01:20.360 telling us? And of course we will close out the 0:01:20.400 --> 0:01:23.600 episode with our tradition the craziest thing I saw in 0:01:23.760 --> 0:01:26.800 markets this week? And if you saw something crazy, please 0:01:26.840 --> 0:01:29.920 do give us a call on the Bloomberg Podcast hotline 0:01:30.000 --> 0:01:34.640 at six four six three to four three four nine oh, 0:01:34.840 --> 0:01:38.480 or tweet to us at podcasts and maybe we'll play 0:01:38.480 --> 0:01:41.399 your voicemail or read your tweet on the show. Sarah, 0:01:41.400 --> 0:01:45.240 we did get a pretty interesting voicemail. Uh, no spoilers, 0:01:45.319 --> 0:01:49.360 but I think our friends in the crypto currency world 0:01:49.400 --> 0:01:51.320 will appreciate this one, so we'll get to that at 0:01:51.360 --> 0:01:54.240 the end as well. We have been asked to speak 0:01:54.280 --> 0:01:56.480 a little bit more about crypto lately, so maybe and 0:01:56.520 --> 0:01:58.000 this is a question that Mike and I may not 0:01:58.080 --> 0:02:00.520 have answers to, so maybe some of our listeners well, 0:02:00.560 --> 0:02:02.720 and if you do, like Mike said, give us a call. Yeah. 0:02:02.760 --> 0:02:06.320 I can't give any serious answer about anything crypto. It'll 0:02:06.360 --> 0:02:09.040 all be insulting to all the crypto people, so I 0:02:09.080 --> 0:02:11.400 will not proffer an answer to this one. But hopefully 0:02:11.440 --> 0:02:14.560 you can figure out this riddle for us. Like Molder 0:02:14.600 --> 0:02:17.080 and Scully and call us call us up and let 0:02:17.160 --> 0:02:19.120 us know when once you get to that, listeners call 0:02:19.160 --> 0:02:21.600 I know we're teasing the listeners a lot with this, 0:02:21.720 --> 0:02:24.720 with this setup, but but anyway, Sarah, as you said, 0:02:25.000 --> 0:02:27.880 really interesting guests this week, first time on the show. 0:02:28.560 --> 0:02:31.840 He is the head of North American macro Strategy for 0:02:32.200 --> 0:02:35.919 State Street Global Markets and his name is Lee Farridge. Lee, 0:02:35.960 --> 0:02:38.280 welcome to the show. Thank you very much, Mike, thank 0:02:38.280 --> 0:02:40.079 you for having me. Lee. I think you've got the 0:02:40.120 --> 0:02:43.840 Molder and Scully reference, right, I certainly I got Molder 0:02:43.880 --> 0:02:48.160 and Scully. I've got to I've got to do my 0:02:48.200 --> 0:02:51.040 homework from now on. Certainly, you know, I want to 0:02:51.080 --> 0:02:53.880 get to what Sarah said at the beginning there with 0:02:54.000 --> 0:02:56.560 gold and the dollar. But before we get to that, 0:02:56.600 --> 0:03:00.360 I want to ask you about what's going on in Washington, 0:03:00.440 --> 0:03:03.240 d C. I know you've been paying pretty close attention 0:03:03.320 --> 0:03:06.640 to sort of the sausage making, as they say in 0:03:06.760 --> 0:03:09.520 d C. As far as what is going on with 0:03:09.520 --> 0:03:14.040 the prospects for another round of fiscal stimulus, Why don't 0:03:14.040 --> 0:03:17.200 you walk us through what it looks like from your seat? 0:03:17.400 --> 0:03:20.800 You know, what can we expect in terms of another 0:03:21.360 --> 0:03:24.000 spending bill, and what do you think it all means 0:03:24.040 --> 0:03:26.640 for markets going forward? Well, I think I think for 0:03:26.680 --> 0:03:30.600 the economy in general, a market specifically, it's vital that 0:03:30.639 --> 0:03:34.240 we've got another package. And there's no doubt that the 0:03:34.320 --> 0:03:37.880 Cares acts really did bail out the economy back in 0:03:37.960 --> 0:03:41.520 Q two. So the unemployment insurance supplement runs out on 0:03:41.640 --> 0:03:45.200 July thirty one. You know, the other PPP loans can 0:03:45.240 --> 0:03:47.920 get converted to grants. During the course of August, we 0:03:47.960 --> 0:03:51.240 have the moratorium mon evictions. The Care's package was was 0:03:51.280 --> 0:03:55.720 a temporary stop gap, but huge measure, and now we 0:03:55.800 --> 0:04:00.400 need another one because the GDP dats of you two 0:04:00.440 --> 0:04:03.440 showed we're still in the midst of this is Jerome 0:04:03.520 --> 0:04:07.560 Power talked about at the latest FED meeting. Data is 0:04:07.560 --> 0:04:11.320 actually deteriorated since the middle of June. We need more 0:04:11.320 --> 0:04:14.560 coming through from Congress and at the moment it's stuck. 0:04:15.360 --> 0:04:19.400 There was an attempt to try and pass a just 0:04:19.400 --> 0:04:22.200 just one part of it, which was the unemployment insurance supplement. 0:04:22.800 --> 0:04:24.919 Doesn't look as if that got through, and it was 0:04:24.960 --> 0:04:27.200 only the third of the level it was out before. 0:04:28.040 --> 0:04:34.400 So yeah, this is a huge deal. Markets are reacting 0:04:34.440 --> 0:04:37.800 to it. To an extent on the basis that the 0:04:37.800 --> 0:04:40.400 heavy lifting is going to continue with the FED, so 0:04:40.440 --> 0:04:43.239 they're going to continue to have to be as dubbish 0:04:43.279 --> 0:04:46.640 as Power talked about, um. And that's why we're seeing 0:04:47.040 --> 0:04:49.479 so the gold continue to go up, euro you know, 0:04:49.480 --> 0:04:51.599 the dollar go down. But even if we get the 0:04:51.600 --> 0:04:54.480 fiscal package, it it's almost like a bare minimum. We 0:04:54.520 --> 0:04:57.040 have to get it. Like you said, on the monetary side, 0:04:57.040 --> 0:04:59.080 when it comes to the FED and durn Power, we 0:04:59.200 --> 0:05:01.200 know that there of support there. They have made it 0:05:01.240 --> 0:05:04.720 abundantly clear that they are on the market side, they 0:05:04.720 --> 0:05:08.840 will do absolutely whatever is necessary. Now on the fiscal side, 0:05:09.600 --> 0:05:12.120 do you have a sense of what the bare minimum is? 0:05:12.200 --> 0:05:14.599 I mean, what is the bare minimum that has to 0:05:14.680 --> 0:05:18.200 come through from the fiscal package for markets to not 0:05:18.400 --> 0:05:21.440 throw a fit? I mean, sure, before we had heard 0:05:21.440 --> 0:05:25.760 of two hundred dollars floated before replacement for that unemployment boost, 0:05:25.760 --> 0:05:28.440 I mean, would would that have even been enough? It 0:05:28.600 --> 0:05:34.839 may be enough to keep the market relatively happy, but 0:05:35.000 --> 0:05:37.279 actually when we start to see the data in the 0:05:37.320 --> 0:05:41.400 next month or so, we'll see it isn't enough. Um. 0:05:41.480 --> 0:05:45.320 So your two hundred dollars is a third of where 0:05:45.320 --> 0:05:49.080 we were before So to put that in context, in May, 0:05:49.480 --> 0:05:52.400 that six hundred dollars is worth one point three trillion 0:05:52.720 --> 0:05:55.320 to the U S consumer. It's seasonally adjusted annualized rates, 0:05:55.320 --> 0:05:57.840 which is where you look at personal income, so you're 0:05:57.839 --> 0:06:00.839 looking at the third of that. That's that's a huge 0:06:00.960 --> 0:06:04.080 drop UM. And with the unemployment rate still as high 0:06:04.120 --> 0:06:07.280 as it is UM and the potential next week when 0:06:07.320 --> 0:06:11.040 we get the payrolls report for July that we won't 0:06:11.080 --> 0:06:14.440 see much of improvement in the labor market picture. So 0:06:14.600 --> 0:06:17.839 I think that two hundred dollars might be enough to 0:06:17.960 --> 0:06:21.400 calm the market to an extent, but I think it 0:06:21.480 --> 0:06:23.680 means that actually the day to go forward is is 0:06:23.680 --> 0:06:25.680 going to get bad again. Ell. Yeah, I wanted to 0:06:25.960 --> 0:06:28.320 shift to the talk about the dollar a little bit now. 0:06:28.360 --> 0:06:30.400 I'll warn't you. I tend to ask questions that have 0:06:30.600 --> 0:06:35.680 about twenty seven parts in them, soah, so, so you 0:06:35.760 --> 0:06:38.240 might need to take some notes. But you know, obviously 0:06:38.600 --> 0:06:42.440 the dollar has just been weakening very aggressively in the 0:06:42.520 --> 0:06:44.240 last few months. Last time I looked at sort of 0:06:44.240 --> 0:06:46.680 the broad indexes down at like a two year low 0:06:47.480 --> 0:06:50.080 for the d X Y and the Bloomberg version of it. 0:06:50.520 --> 0:06:53.919 Now I know the bearrish case for the dollar is 0:06:53.960 --> 0:06:59.120 pretty simple. The twin deficits, the the government budget depthsit 0:06:59.680 --> 0:07:02.520 and the trade depth sit are are very bearished for 0:07:02.560 --> 0:07:05.080 the dollar. They have been for several years now, and 0:07:05.120 --> 0:07:08.200 a lot of people predicting barishness for the dollar have 0:07:08.600 --> 0:07:12.200 kind of gotten burned. But this time it really does 0:07:12.240 --> 0:07:15.080 seem like those sort of ranges that we've seen in 0:07:15.080 --> 0:07:16.920 the dollar are going to break, that we will see 0:07:17.640 --> 0:07:21.440 some potentially some more weakness starting to hear people talk 0:07:21.640 --> 0:07:26.840 about the risk of the dollar's role as a reserve currency. 0:07:27.000 --> 0:07:29.680 Do you think that's part of it? Uh? Is it 0:07:29.800 --> 0:07:33.520 time to start worrying about the dollar its position as 0:07:33.560 --> 0:07:36.880 a reserve currency? Or is this weakness more just you know, 0:07:37.320 --> 0:07:40.640 the the other fundamentals, the twin deficits and that sort 0:07:40.680 --> 0:07:43.920 of thing, and that basically you know, the idea that 0:07:43.920 --> 0:07:46.880 that this fiscal depths it's not going anywhere, it's gonna 0:07:46.880 --> 0:07:49.680 be huge for a long time. Or you know, is 0:07:49.680 --> 0:07:52.000 there any sort of risk of to the reserve currency 0:07:52.040 --> 0:07:55.040 status that that might be applay in this weakness. I 0:07:55.080 --> 0:07:58.720 don't think really it is about the reserve stasis. I mean, 0:07:58.760 --> 0:08:00.960 I think it is more to do with the fundamentals 0:08:01.000 --> 0:08:03.600 this if these are normal FX market moves, I mean 0:08:03.640 --> 0:08:06.640 the dollar euro dollars traded at one sixty in the 0:08:06.760 --> 0:08:08.280 history of the euro, and it was still the dollar 0:08:08.320 --> 0:08:11.000 was still the reserve currency. So there's a difference between 0:08:11.000 --> 0:08:14.320 the dollar being weak and the dollar losing its reserve 0:08:14.360 --> 0:08:17.920 currency status. But what has been a trend for a 0:08:18.000 --> 0:08:20.280 number of years now, last couple of years in particular, 0:08:20.720 --> 0:08:24.360 is the share of dollars within global reserves has been 0:08:24.360 --> 0:08:27.280 going down. It's still the dominant currency, but it's probably 0:08:27.280 --> 0:08:30.520 around sixties six of global reserves now it was up 0:08:30.560 --> 0:08:37.160 at And I think the fact is as the US 0:08:38.200 --> 0:08:40.480 withdraws from the world, which it has done over the 0:08:40.559 --> 0:08:44.560 last few years, then you know, other currencies have that 0:08:44.679 --> 0:08:48.400 potential to two or central banks around the world probably 0:08:48.400 --> 0:08:52.440 will make a more balanced reserve portfolio. Now, the dollar 0:08:52.559 --> 0:08:54.599 is still going to be the biggest means of exchange, 0:08:55.320 --> 0:08:58.680 so commodities are still priced in dollars. Oil is still 0:08:58.679 --> 0:09:01.200 priced in dollars, and that means that it's still going 0:09:01.280 --> 0:09:05.440 to be the dominant currency within reserves, but is it 0:09:05.480 --> 0:09:06.920 going to be as high as it on? Us know? 0:09:07.640 --> 0:09:10.520 And I think you know the euro is now coming 0:09:10.559 --> 0:09:14.040 forward as as somewhat of a viable alternative. I think 0:09:14.040 --> 0:09:17.560 the the common Fiscal package that was agreed a couple 0:09:17.600 --> 0:09:20.520 of weeks ago that was significant, maybe not in terms 0:09:20.520 --> 0:09:24.160 of the numbers, but in terms of the message, in 0:09:24.280 --> 0:09:28.880 terms of taking that step to a common fiscal policy. So, 0:09:29.080 --> 0:09:31.680 you know, for once during the crisis, I'm not hearing 0:09:31.720 --> 0:09:34.960 people talking about the Eurozone breaking up, which has been 0:09:35.320 --> 0:09:37.440 every crisis we've had in the past. Oh, could this 0:09:37.480 --> 0:09:39.480 be the end of the Euro? No, we're not getting 0:09:39.520 --> 0:09:42.000 that now. You know, Christine Legarde has come in and 0:09:42.040 --> 0:09:45.000 she has you know, carried on the drugging whatever it 0:09:45.040 --> 0:09:47.920 takes mantra, and at the same time you've now got 0:09:47.920 --> 0:09:50.960 the politicians stepping up with this this more common fiscal 0:09:51.040 --> 0:09:54.439 policy that means the euro is am or viable alternative. 0:09:54.960 --> 0:09:58.240 The remember is becoming more having more of a role 0:09:58.280 --> 0:10:01.480 within global reserves, still small, but I think what you're 0:10:01.480 --> 0:10:04.600 looking at is is reserves becoming a bit more balanced. 0:10:04.640 --> 0:10:06.600 But the dollar is still going to be the reserve currency. 0:10:06.840 --> 0:10:09.640 It's still the main global means of exchange and therefore 0:10:09.640 --> 0:10:12.720 it's still going to be the dominant currency within global reserves. 0:10:13.640 --> 0:10:16.800 But that doesn't mean it can't weaken further. That doesn't 0:10:16.840 --> 0:10:19.080 mean you can't have the dollar weakening against the euro 0:10:19.160 --> 0:10:23.000 and other currencies whilest maintaining reserve currency status. There there 0:10:23.000 --> 0:10:40.360 are two different things. So in your view, what actually 0:10:40.480 --> 0:10:42.360 is it that's driving a weaker dollar. I mean, I've 0:10:42.360 --> 0:10:45.439 heard a couple of different narratives, one being simply that 0:10:45.480 --> 0:10:48.760 the US has not gotten coronavirus cases under control relative 0:10:48.800 --> 0:10:51.760 to other countries around the world, one of course being 0:10:51.840 --> 0:10:55.800 growing deficits or inflation. Is it possible at a pinpoint something, 0:10:55.840 --> 0:10:58.280 and if so, what does that mean for how much 0:10:58.360 --> 0:11:01.160 further the dollar can actually be appreciate it? Well, I 0:11:01.200 --> 0:11:03.880 think it's it's a combination of those factors. But but 0:11:04.040 --> 0:11:07.880 what they do is they manifest themselves in this debasement 0:11:07.920 --> 0:11:09.760 of the dollar. And by that what I mean is 0:11:10.120 --> 0:11:13.320 real interest rates in the US have plummeted. You know, 0:11:13.400 --> 0:11:14.840 you look at the break even as you look at 0:11:14.880 --> 0:11:18.640 the tips that real interest rates have really sharply depreciated 0:11:18.679 --> 0:11:22.000 in the US over the last few months. And you know, 0:11:22.080 --> 0:11:24.960 it's a simple question of supply and demands. So the 0:11:24.960 --> 0:11:28.160 Fed is doing all of this, it has to do, 0:11:28.400 --> 0:11:30.960 you know, in terms of printing money expanding the balance sheet. 0:11:31.200 --> 0:11:34.520 We need desperately need more on the fiscal side. So 0:11:34.679 --> 0:11:37.040 it's a supply and demand. Money is like anything else, 0:11:37.240 --> 0:11:40.719 supply and demand. If you increase the supply, which we're 0:11:40.720 --> 0:11:44.679 seeing in dollars, significant increase in supply, and there's no 0:11:44.760 --> 0:11:47.840 increase in demand, what the price has to fall. Now 0:11:47.880 --> 0:11:50.560 normally people say, well, that would be inflation, and we 0:11:50.640 --> 0:11:54.600 think about inflation. Is consumer price inflation? We're not seeing that, 0:11:54.960 --> 0:11:57.840 and then we're not seeing a pickup in in inflation. 0:11:57.880 --> 0:12:01.560 And the GDP reports showed the inflation in Q two declined. 0:12:02.040 --> 0:12:03.959 But where we are seeing in play. The reason why 0:12:03.960 --> 0:12:06.679 we're not seeing consumer price inflation is because there's no demand. 0:12:07.559 --> 0:12:10.920 If prices of goods go up, people are unemployed, wages 0:12:10.960 --> 0:12:12.520 aren't going up, they won't be able to buy them, 0:12:12.520 --> 0:12:14.880 so demand will go down. So where we're seeing the 0:12:14.960 --> 0:12:17.559 inflation come through or the debatement the dollar come through 0:12:17.679 --> 0:12:22.559 is in asset prices. So that's in gold, it's in equities, 0:12:23.120 --> 0:12:25.600 it's in the dollar on the foreign exchange markets. Even 0:12:25.600 --> 0:12:28.360 treasury is treasury yields are going down. That means that 0:12:28.360 --> 0:12:31.959 the treasury values are going up. So every asset class 0:12:32.559 --> 0:12:35.080 is going up in price against the dollar. The dollar 0:12:35.200 --> 0:12:38.240 is being debased against those asset classes. But you're not 0:12:38.320 --> 0:12:40.800 seeing that traditional inflation in the high street. And it's 0:12:40.880 --> 0:12:42.880 very hard to have that traditional inflation in the high 0:12:42.880 --> 0:12:46.920 street without wage inflation. And that's not on the horizon now, 0:12:47.000 --> 0:12:49.160 is jero and Power has mentioned? You know, we didn't 0:12:49.160 --> 0:12:51.559 get wage in place in three and a half percent unemployment. 0:12:51.559 --> 0:12:54.600 We're not going to get over eleven percent unemployment. But 0:12:54.679 --> 0:12:58.240 you can still see asset price inflation. And that's what 0:12:58.280 --> 0:13:01.440 we're witnessed in the debatement dollar through asset prices. Yeah, 0:13:01.480 --> 0:13:05.200 I think you know, whenever sort of a equity bull 0:13:05.240 --> 0:13:07.920 in the US, here's the words doll dollar weakness. You 0:13:07.960 --> 0:13:10.000 can see their eyes light up, and you know and 0:13:10.040 --> 0:13:14.120 assume that that is, you know, gonna be unequivocal bal 0:13:14.559 --> 0:13:17.920 bullish signal for for equities. Do you think that's the 0:13:17.960 --> 0:13:20.880 case this time? Given everything else you've talked about, this 0:13:21.280 --> 0:13:25.080 lack of demand and the sort of nationalist sentiment around 0:13:25.080 --> 0:13:28.120 the world. Now, this US withdrawing from the rest of 0:13:28.160 --> 0:13:31.560 the world and China specifically, is a weaker dollar, is it? 0:13:31.600 --> 0:13:33.760 Is it as easy as a call as it used 0:13:33.760 --> 0:13:37.440 to be to say, weaker dollar means higher stock prices, 0:13:37.480 --> 0:13:39.880 at least on the index level. You know, obviously can 0:13:40.080 --> 0:13:42.400 go under the hood and pick out who has more 0:13:42.720 --> 0:13:45.920 export exposure. But from a macro level, is it's still 0:13:46.360 --> 0:13:50.400 weaker dollar equals great for stocks. Well, I mean, it's 0:13:50.440 --> 0:13:53.000 what was saying right now. Um, you know, it still 0:13:53.200 --> 0:13:57.120 continue to go up. And I'm you know, I've been 0:13:57.720 --> 0:14:00.520 surprised over the last couple of months. I I didn't 0:14:00.520 --> 0:14:03.040 expect stocks to do this, but I've been bullish on 0:14:03.080 --> 0:14:06.000 gold for a long time, you know, and and when 0:14:06.040 --> 0:14:08.800 the crisis happened, once we got through the liquidity issues 0:14:08.880 --> 0:14:11.319 and US rates at zero and the Fed we're doing 0:14:11.360 --> 0:14:14.320 what they're doing, I was negative on the dollar. I've 0:14:14.320 --> 0:14:18.480 been shocked by how the value of equities can get 0:14:18.559 --> 0:14:22.080 so divorced by the fundamentals, because ultimately there has to 0:14:22.080 --> 0:14:26.200 be a relationship between growth and equities, because earnings have 0:14:26.320 --> 0:14:28.680 to matter. So what we've got now, if you look 0:14:28.680 --> 0:14:31.440 at forward p ratios for the SMP, we're at the 0:14:31.480 --> 0:14:34.600 highest for nineteen years. We're in the midst of a pandemic. 0:14:35.120 --> 0:14:37.720 You know, we're somewhere between a recession and depression. Although 0:14:37.720 --> 0:14:39.880 there's no strict definition of the difference between the two. 0:14:40.280 --> 0:14:43.360 But the fact is that the equity valuations are at 0:14:43.480 --> 0:14:46.880 nineteen year highs. Yeah, and and and that to me 0:14:46.960 --> 0:14:49.960 makes no logical sense. But then when I look at 0:14:49.960 --> 0:14:54.360 it in terms of the dollar debasement story, then yeah, 0:14:54.920 --> 0:14:58.520 you know, it's hard to to really turn bearish on 0:14:58.560 --> 0:15:02.240 equities when we have the moves going on in terms 0:15:02.240 --> 0:15:04.520 of policy that we're seeing. So, you know, everyone talks 0:15:04.560 --> 0:15:06.760 about the NASDAK and how great the Nazdak is, and 0:15:06.920 --> 0:15:09.240 you know, yes, it's up eighteen percent this year, which 0:15:09.280 --> 0:15:12.680 is given what's happened since the start of January is 0:15:12.680 --> 0:15:15.120 is amazing, But the SMP is flat for the year. 0:15:15.240 --> 0:15:19.000 Even that in itself can be amazing. Gold is up 0:15:19.040 --> 0:15:22.440 twenty nine since the start of the year. So, yes, 0:15:22.480 --> 0:15:25.680 equities are doing well and in saying Nazdak is hit 0:15:25.720 --> 0:15:28.840 all time highs et cetera. But actually other asset classes 0:15:28.840 --> 0:15:30.640 are doing better. If you if you look at Treasury 0:15:30.680 --> 0:15:34.080 index since the start of the year, it's outperformed the SMP. 0:15:34.680 --> 0:15:36.880 If you were long of a treasury index, you've outperformed 0:15:36.880 --> 0:15:39.240 the SMP since the start of the year. So stocks 0:15:39.280 --> 0:15:42.080 at face value are doing well, But actually when you 0:15:42.080 --> 0:15:44.040 look at them relative with a lot of other asset classes, 0:15:44.040 --> 0:15:46.200 they're not doing as well as you might think, apart 0:15:46.280 --> 0:15:49.560 from a select few. And that's where the valuations get really, 0:15:49.560 --> 0:15:52.400 really hard. It might seem as though a year in 0:15:52.440 --> 0:15:55.880 which gold has very strong returns and then treasuries have 0:15:56.000 --> 0:15:58.960 very strong returns, yet you still have the nasdak up 0:15:58.960 --> 0:16:02.320 double digits. Some would say something has to break. We 0:16:02.400 --> 0:16:05.720 can't see this continue together. But is there a scenario 0:16:05.840 --> 0:16:10.040 where this can continue? Considering the fact that real yield 0:16:10.040 --> 0:16:12.760 I mean ten, you're real yielder at record lows near 0:16:12.840 --> 0:16:17.280 negative one percent, and Jerome Powell keeps on reiterating that 0:16:17.400 --> 0:16:21.160 the Fed is not even thinking about thinking about raising rates. Yeah, 0:16:21.160 --> 0:16:23.080 I think there are actually three thinking about I was 0:16:23.160 --> 0:16:25.160 thinking about thinking about thinking about to add one in 0:16:25.200 --> 0:16:31.200 this time. I mean everything when you when you study economics, 0:16:31.240 --> 0:16:33.400 when you're an economist as I am, everything tells you 0:16:33.400 --> 0:16:36.400 you can't just keep creating money this way without there 0:16:36.440 --> 0:16:40.040 being a price at some point, and that price ultimately 0:16:40.160 --> 0:16:43.480 comes in the form of inflation. But you know, we've 0:16:43.560 --> 0:16:47.400 we've seen it in Japan for for twenty years. Yeah, 0:16:47.400 --> 0:16:50.200 we've seen the budget deficit go out. You know, the 0:16:50.240 --> 0:16:53.520 government debt grads children GDP. We've seen the b J 0:16:53.680 --> 0:16:57.000 continue to expand the balance sheet. It's never translated into 0:16:57.040 --> 0:17:00.800 inflation on the high street. Because we have this situation 0:17:00.840 --> 0:17:03.280 in the global economy hour and developed markets where you 0:17:03.280 --> 0:17:06.480 have this huge level of inequality. So for a vast 0:17:06.560 --> 0:17:09.840 number of people, wages are not going up and therefore 0:17:09.920 --> 0:17:13.439 spending power isn't going up. So it's very hard for 0:17:13.480 --> 0:17:17.840 companies to raise prices. So consumer prices and you have 0:17:17.920 --> 0:17:20.240 the Amazon effect and others, you know that they're keeping 0:17:20.280 --> 0:17:23.600 prices down. You have transparent pricing, so you don't see 0:17:23.600 --> 0:17:25.919 it come through into consumer price inflation. You see an 0:17:25.960 --> 0:17:29.600 asset price inflation. It doesn't no, I don't think it 0:17:29.640 --> 0:17:32.760 can last forever. But you know we've seen in the 0:17:32.760 --> 0:17:35.000 case of Japan it it's gone on for a long time. 0:17:35.040 --> 0:17:37.119 And as you say, the message from jer own power, 0:17:37.160 --> 0:17:40.080 and this is why you know we see real yields 0:17:40.119 --> 0:17:42.520 in the US record lows. The record from you know, 0:17:42.600 --> 0:17:45.600 the very clear message from your own power is even 0:17:45.640 --> 0:17:48.880 when we start to recover, we're not going to start 0:17:48.960 --> 0:17:51.720 raising rates for a long time. You know, the market 0:17:51.760 --> 0:17:54.040 with price for about five years for the first FED 0:17:54.119 --> 0:17:57.200 rate hike. You know, when that's the situation, you've got 0:17:57.200 --> 0:18:01.200 to think inflation expectations have to rise, and that's manifesting 0:18:01.240 --> 0:18:05.680 itself in in asset prices. Walk us through your reasons 0:18:05.680 --> 0:18:09.840 for being bullish on gold, because I confess I can 0:18:09.840 --> 0:18:13.399 never quite wrap my head around what the the you know, 0:18:14.040 --> 0:18:16.760 current days catalyst is for gold. I remember a few 0:18:16.840 --> 0:18:19.520 years ago, people would talk about the actual physical demand 0:18:19.880 --> 0:18:22.560 for gold out of India and the number of weddings India, 0:18:22.560 --> 0:18:24.040 and I was like, it's trying to make sense to 0:18:24.080 --> 0:18:27.760 me now, But but but is it all just about 0:18:27.800 --> 0:18:31.119 the money supply basically? At least right now? It seems 0:18:31.119 --> 0:18:32.840 like it is that. Is that just trump everything else? 0:18:32.960 --> 0:18:35.280 Right now? Yeah? It does. I mean that that it's 0:18:35.320 --> 0:18:37.800 not about supply and demand. It's it's it's about demand. 0:18:37.840 --> 0:18:40.880 It's not about you know, it's about market demand rather 0:18:40.920 --> 0:18:44.240 than than than weddings in India. But yeah, I mean 0:18:44.440 --> 0:18:47.240 the fact is that the again going back to the 0:18:47.240 --> 0:18:49.560 supply and demand of money, if you if you massively 0:18:49.560 --> 0:18:52.919 increase the supply of dollars without an increase in demand, 0:18:52.960 --> 0:18:55.600 then the price of that has to go out down. Therefore, 0:18:55.640 --> 0:18:58.600 people seek out hard assets, and gold is the ultimate 0:18:58.640 --> 0:19:00.639 hard asset, and that's that's why it this. I mean, 0:19:00.640 --> 0:19:02.520 don't get me wrong, I'm not a gold expert or 0:19:02.640 --> 0:19:05.800 a metal person by any means, but you know, I 0:19:05.840 --> 0:19:07.840 say I've been bullish on gold for probably the last 0:19:07.840 --> 0:19:11.040 twelve months or so on the basis that I've always 0:19:11.119 --> 0:19:13.960 worried that that we had a bubble in markets and 0:19:14.080 --> 0:19:16.679 that at some point we were going to see the 0:19:16.720 --> 0:19:18.680 Fed have to cut rates and we would see QUI 0:19:18.800 --> 0:19:22.440 starts to rise again. Obviously did not foresee the pandemic, 0:19:22.480 --> 0:19:24.240 but I've been worried about it, you know, for a 0:19:24.240 --> 0:19:27.480 while now, you know, basically since the end of twenty 0:19:27.560 --> 0:19:31.199 eighteen or Q four eighteen, when the FED tried to 0:19:31.240 --> 0:19:34.880 shrink the balance sheet, when we had constated tightening and 0:19:34.880 --> 0:19:38.240 and yield started to move up, and what happens, equities 0:19:38.280 --> 0:19:41.440 crashed off in Q four eighteen, the Fed back away 0:19:41.600 --> 0:19:45.399 started cutting rates again. In it's like they're never getting 0:19:45.400 --> 0:19:47.280 out of this balance sheet where it is now, so 0:19:47.320 --> 0:19:50.240 the next downturn that happens, we're going to see more quie. 0:19:50.280 --> 0:19:53.040 And that's sort of led to my my bullish view 0:19:53.040 --> 0:19:56.320 on gold. Twelve eighteen months ago, So you became bullish 0:19:56.320 --> 0:19:58.119 on gold quite a while ago. How much does it 0:19:58.359 --> 0:20:00.760 how far does it take you? Then? Is there something 0:20:00.760 --> 0:20:03.240 that can happen that would then change your mind. The 0:20:03.320 --> 0:20:06.640 thing that would probably change my mind is if, well, 0:20:07.160 --> 0:20:10.040 if we get a vaccine, things starts to recover and 0:20:10.080 --> 0:20:12.080 we start to get inflation on the high street, and 0:20:12.119 --> 0:20:15.960 the Fed then has to to quickly backpedal. But until 0:20:16.000 --> 0:20:17.760 that happens, as long as you know the Fed, they're 0:20:17.800 --> 0:20:19.600 going to keep adding in liquidity, and as as long 0:20:19.640 --> 0:20:21.919 as rates are going to be at zero UM and 0:20:22.040 --> 0:20:24.200 your own pal is not even thinking about thinking about 0:20:24.240 --> 0:20:27.359 thinking about raising rates, then you know gold is going 0:20:27.400 --> 0:20:29.360 to continue to go up. And how do you put 0:20:29.359 --> 0:20:31.600 a value on gold? This is the problem with with 0:20:31.640 --> 0:20:33.080 equity is this is where I have a problem. Right, 0:20:33.119 --> 0:20:35.320 So I look at actors, they should be related to earnings. 0:20:35.840 --> 0:20:38.600 Gold is I don't know how you put a value 0:20:38.600 --> 0:20:40.240 on gold. I mean, I've said for a while, I've 0:20:40.240 --> 0:20:42.280 got a target in two and a half thousand. You know, 0:20:42.280 --> 0:20:44.560 I've had that for for a little while, so I'm 0:20:44.640 --> 0:20:47.760 sticking with that for now. But but really it's it's 0:20:47.800 --> 0:20:50.520 not it's not about a price target for me. It's 0:20:50.560 --> 0:20:54.720 about the conditions behind it. So if the conditions continue 0:20:54.760 --> 0:20:57.719 to be as they are now, then gold will continue 0:20:57.760 --> 0:21:16.200 to get supportive. At before we get to the craziest things. Um, 0:21:16.240 --> 0:21:19.640 I know you've been keeping a close eye on Brexit. 0:21:20.600 --> 0:21:22.359 As I like to call it, a never ending story 0:21:23.040 --> 0:21:25.360 of Brexit. This is like a soap opera in its 0:21:25.400 --> 0:21:28.840 tenth season at this point. Uh, but walk us through 0:21:29.760 --> 0:21:31.960 every I don't know how what four years? I guess 0:21:32.000 --> 0:21:36.520