1 00:00:02,360 --> 00:00:08,960 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and 2 00:00:09,000 --> 00:00:11,440 Speaker 1: this is Here's Why, where we take one news story 3 00:00:11,480 --> 00:00:13,360 Speaker 1: and explain it in just a few minutes with our 4 00:00:13,400 --> 00:00:19,919 Speaker 1: experts here at Bloomberg. I haven't seen yet a sense 5 00:00:19,920 --> 00:00:22,000 Speaker 1: of Okay, where's my safe haven? Where do I grink 6 00:00:22,040 --> 00:00:25,160 Speaker 1: park myself? The US is benefiting right now from kind 7 00:00:25,200 --> 00:00:27,040 Speaker 1: of the safe haven trade. At the moment, you can 8 00:00:27,040 --> 00:00:28,639 Speaker 1: find me a safe haven in this market, I'd be 9 00:00:28,640 --> 00:00:30,120 Speaker 1: the first one to sign up for that. We do 10 00:00:30,240 --> 00:00:33,240 Speaker 1: see some of the safe havens seems to doesn't perform 11 00:00:33,280 --> 00:00:35,600 Speaker 1: as good as we expected. For example, Go and silver, 12 00:00:35,840 --> 00:00:39,960 Speaker 1: Japanese here and the bones. In times of trouble, investors 13 00:00:40,040 --> 00:00:43,959 Speaker 1: often look for safer ground. During previous crises, that's meant 14 00:00:44,000 --> 00:00:47,360 Speaker 1: to rush into assets like US treasuries, the dollar, the 15 00:00:47,479 --> 00:00:51,760 Speaker 1: Swiss franc or gold. But the turmoil caused by President 16 00:00:51,800 --> 00:00:56,200 Speaker 1: Trump's trade tariffs last year upended the traditional safe haven 17 00:00:56,320 --> 00:01:00,360 Speaker 1: trades as investors turned away from US assets, and the 18 00:01:00,440 --> 00:01:03,560 Speaker 1: latest conflict in the Middle East has seen another shift. 19 00:01:04,160 --> 00:01:08,360 Speaker 1: Here's why the Iran war is prompting a safe haven rethink. 20 00:01:11,120 --> 00:01:14,280 Speaker 1: Joe Eisenthal House to Bloomberg's Odd Lots podcast joins us 21 00:01:14,319 --> 00:01:16,759 Speaker 1: now for more. Joe, great to talk to you. Can 22 00:01:16,800 --> 00:01:19,040 Speaker 1: you help us understand first of all the background here 23 00:01:19,080 --> 00:01:22,600 Speaker 1: what makes a good safe haven asset? Why are treasuries 24 00:01:22,680 --> 00:01:25,240 Speaker 1: or the Swiss frank or gold considered a place to 25 00:01:25,319 --> 00:01:26,880 Speaker 1: shelter from market turmoil. 26 00:01:27,440 --> 00:01:31,000 Speaker 2: The thing that investors are always looking for is some 27 00:01:31,080 --> 00:01:36,640 Speaker 2: sort of asset that is not strictly correlated to growth 28 00:01:36,760 --> 00:01:39,120 Speaker 2: or to risk asset. So what is a risk asset 29 00:01:39,240 --> 00:01:42,320 Speaker 2: or risk asset is an asset that goes up when 30 00:01:42,400 --> 00:01:46,920 Speaker 2: things are going well. So stock market classic risk asset. 31 00:01:47,280 --> 00:01:49,960 Speaker 2: You're feeling optimistic, you think the world is going to 32 00:01:50,000 --> 00:01:53,080 Speaker 2: be good, all things equal, you want to buy more stocks. 33 00:01:53,520 --> 00:01:56,120 Speaker 2: That's what a risk asset is. Then you have other 34 00:01:56,200 --> 00:01:59,280 Speaker 2: assets that are characterized as safe havens, and so there's 35 00:01:59,280 --> 00:02:03,080 Speaker 2: something about properties in which you expect to be paid back, 36 00:02:03,120 --> 00:02:06,559 Speaker 2: you expect to hold their value even if things aren't 37 00:02:06,600 --> 00:02:10,040 Speaker 2: going great. So gold obviously a classic one. People have 38 00:02:10,080 --> 00:02:13,240 Speaker 2: been using it for money for thousands of years, and 39 00:02:13,280 --> 00:02:15,960 Speaker 2: so by and large you expect it it'll still have 40 00:02:16,040 --> 00:02:20,079 Speaker 2: monetary possibilities in a thousand years. The performance of gold 41 00:02:20,160 --> 00:02:24,560 Speaker 2: is not contingent on things going particularly well. In the economy. 42 00:02:24,919 --> 00:02:28,480 Speaker 2: Treasuries are another example. The US is you know, maybe 43 00:02:28,480 --> 00:02:30,520 Speaker 2: it's changed a little bit, but by a large stable 44 00:02:30,639 --> 00:02:35,880 Speaker 2: and the coupon payments are simply contingent on legally required 45 00:02:35,880 --> 00:02:39,680 Speaker 2: payments from the US government, and so again those payments 46 00:02:39,720 --> 00:02:43,160 Speaker 2: will happen regardless of whether the economy is strong or 47 00:02:43,240 --> 00:02:46,120 Speaker 2: bad or whatever it is. So that has safe haven 48 00:02:46,200 --> 00:02:49,920 Speaker 2: properties all around the world. Generally speaking, the US has 49 00:02:49,919 --> 00:02:53,400 Speaker 2: had very little inflation over the years, certainly relative to 50 00:02:53,440 --> 00:02:56,680 Speaker 2: many countries, and so therefore the dollar holds its value 51 00:02:56,919 --> 00:03:00,600 Speaker 2: relatively well, it's accepted almost everywhere, so it as safe 52 00:03:00,600 --> 00:03:04,880 Speaker 2: haven property. So basically, what people gravitate to in times 53 00:03:04,880 --> 00:03:07,880 Speaker 2: of stress, and it's a little different are assets that 54 00:03:07,960 --> 00:03:10,919 Speaker 2: are not correlated to the business cycle, that can perform 55 00:03:11,040 --> 00:03:13,720 Speaker 2: and hold their value even if things aren't going well. 56 00:03:14,120 --> 00:03:17,079 Speaker 1: So what was different than during the tariff turmoil of 57 00:03:17,160 --> 00:03:19,680 Speaker 1: last year because some of these traditional safe havens seemed 58 00:03:19,720 --> 00:03:20,760 Speaker 1: a bit less attractive. 59 00:03:21,440 --> 00:03:23,720 Speaker 2: Yeah, So I think the way to think about it 60 00:03:23,800 --> 00:03:27,200 Speaker 2: is that, you know, safe havenness is something that kicks 61 00:03:27,240 --> 00:03:30,840 Speaker 2: in at specific times. And so let's go back to 62 00:03:30,919 --> 00:03:35,240 Speaker 2: the tariffs. Did it create a true crisis crisis as 63 00:03:35,400 --> 00:03:38,440 Speaker 2: in like a run on the banks, et cetera. No, 64 00:03:38,720 --> 00:03:41,960 Speaker 2: not really. There was a lot of anxiety and so forth. 65 00:03:42,040 --> 00:03:45,360 Speaker 2: But the net effect of tariffs where for many people 66 00:03:45,400 --> 00:03:48,880 Speaker 2: around the world the US looked like a less attractive 67 00:03:48,920 --> 00:03:51,360 Speaker 2: place to invest. It would be more costly to do 68 00:03:51,800 --> 00:03:55,480 Speaker 2: business here and so forth, And so in this environment 69 00:03:56,080 --> 00:03:57,440 Speaker 2: you saw the dollar weakening. 70 00:03:57,600 --> 00:03:57,760 Speaker 1: Right. 71 00:03:58,400 --> 00:04:00,560 Speaker 2: This really did not have much to do with its 72 00:04:00,560 --> 00:04:04,360 Speaker 2: safe haven properties per se. It was just the dollar 73 00:04:04,480 --> 00:04:08,600 Speaker 2: being another currency, and investors around the world look and say, okay, 74 00:04:09,160 --> 00:04:12,240 Speaker 2: this is not great for economic management. I don't really 75 00:04:12,280 --> 00:04:14,760 Speaker 2: want to put more assets on the ground in the 76 00:04:14,840 --> 00:04:17,960 Speaker 2: US because importing goods in the factories and so it 77 00:04:18,000 --> 00:04:20,560 Speaker 2: will be more expensive, and so then they sell dollars. 78 00:04:20,880 --> 00:04:23,400 Speaker 2: Now you fast forward to the war in Iran, and 79 00:04:23,440 --> 00:04:26,960 Speaker 2: this is very different. The dimensions of the currency are 80 00:04:27,040 --> 00:04:30,880 Speaker 2: not about broader conditions. This is there is a war 81 00:04:30,960 --> 00:04:33,240 Speaker 2: going on. We do not know how long this war 82 00:04:33,320 --> 00:04:36,360 Speaker 2: is going to go on. War spiral out of control, 83 00:04:36,520 --> 00:04:38,479 Speaker 2: even if they're meant to be contained. This is a 84 00:04:38,600 --> 00:04:43,520 Speaker 2: historical fact. In that environment, people are not thinking about 85 00:04:43,800 --> 00:04:46,279 Speaker 2: is the US a good place to invest right now? 86 00:04:46,600 --> 00:04:49,960 Speaker 2: They're thinking I am scared. I want to have my 87 00:04:50,080 --> 00:04:53,240 Speaker 2: money in something that is likely to roughly retain its 88 00:04:53,320 --> 00:04:56,120 Speaker 2: value for a year and now five years from now, 89 00:04:56,120 --> 00:05:00,200 Speaker 2: et cetera. And by that measure, the dollar is relative 90 00:05:00,480 --> 00:05:04,560 Speaker 2: attractive option. So at times these what we call save 91 00:05:04,640 --> 00:05:08,520 Speaker 2: haven assets performed differently. In twenty twenty five, the dollar 92 00:05:08,600 --> 00:05:11,120 Speaker 2: performed like an investment asset. Oh, I don't really want 93 00:05:11,160 --> 00:05:13,000 Speaker 2: to hold it so much, because the US is a 94 00:05:13,080 --> 00:05:16,599 Speaker 2: less attractive environment. Today the dollar looks good. It's a 95 00:05:16,600 --> 00:05:19,200 Speaker 2: safe haven asset, not because the US is a great 96 00:05:19,200 --> 00:05:23,240 Speaker 2: place to invest per se, but because those properties, those 97 00:05:23,279 --> 00:05:25,000 Speaker 2: safe haven properties have kicked in. 98 00:05:25,560 --> 00:05:29,240 Speaker 1: So how does that work then in this moment for treasuries. 99 00:05:28,800 --> 00:05:33,159 Speaker 2: Yeah, another great question. What makes treasuries a safe haven? 100 00:05:33,680 --> 00:05:37,680 Speaker 2: Obviously it's the fact that the US is very credit worthy. 101 00:05:37,800 --> 00:05:41,039 Speaker 2: That the US borrows in its own currency. So therefore 102 00:05:41,080 --> 00:05:44,040 Speaker 2: there is no prospect of the treasury like running out 103 00:05:44,040 --> 00:05:46,119 Speaker 2: of money. It can always print it and so forth. 104 00:05:46,440 --> 00:05:50,479 Speaker 2: And so what gives treasuries a safe haven property is 105 00:05:50,520 --> 00:05:54,920 Speaker 2: the fact that that payment is guaranteed by the US government. Now, 106 00:05:55,040 --> 00:06:00,120 Speaker 2: another factor in the pricing of treasuries is inflation. And 107 00:06:00,200 --> 00:06:02,760 Speaker 2: so if you have, like I say, you know, treasury 108 00:06:02,800 --> 00:06:05,400 Speaker 2: that pays a four percent coupon. You get a four 109 00:06:05,400 --> 00:06:08,880 Speaker 2: percent yield every year, but inflation, let's say it goes 110 00:06:08,920 --> 00:06:12,120 Speaker 2: to six percent, that is a money losing investment, right, 111 00:06:12,240 --> 00:06:15,080 Speaker 2: The real value of that treasury, that coupon payment, is 112 00:06:15,080 --> 00:06:17,039 Speaker 2: not keeping up with inflation, so you do on to 113 00:06:17,040 --> 00:06:19,679 Speaker 2: hold it with the war. People are worried about inflation. 114 00:06:19,880 --> 00:06:23,000 Speaker 2: I mean, obviously we've seen oil prices spike. Wars are 115 00:06:23,080 --> 00:06:26,600 Speaker 2: costly just from a sort of budgetary standpoint, They require 116 00:06:26,640 --> 00:06:31,560 Speaker 2: more fiscal expenditure, They put strains on resources of all sorts. 117 00:06:31,839 --> 00:06:34,960 Speaker 2: We may have to massively ramp up missile production, that 118 00:06:35,120 --> 00:06:39,000 Speaker 2: puts strains on the real economy. All of these things 119 00:06:39,080 --> 00:06:42,159 Speaker 2: taken to be per se inflationary. So then you look 120 00:06:42,200 --> 00:06:44,760 Speaker 2: and you're like, if you're an investor, someone's selling you 121 00:06:44,800 --> 00:06:47,599 Speaker 2: a treasury, you're thinking, you know what, I want to 122 00:06:47,680 --> 00:06:50,760 Speaker 2: hire yield to compensate for this inflation. So it's the 123 00:06:50,880 --> 00:06:54,440 Speaker 2: type of thing once again where the same asset in 124 00:06:54,480 --> 00:06:59,040 Speaker 2: a different environment, the safe haven properties aren't kicking in 125 00:06:59,440 --> 00:07:02,440 Speaker 2: for that moment. Now, I do think it's worth noting that, 126 00:07:02,600 --> 00:07:05,800 Speaker 2: Like you can watch say like the VIX for example, 127 00:07:05,880 --> 00:07:08,760 Speaker 2: a measure of financial conditions and sort of a pure 128 00:07:08,800 --> 00:07:12,120 Speaker 2: measure of how anxious people are feeling. If you get 129 00:07:12,120 --> 00:07:16,080 Speaker 2: a major VIX spike, there is a good chance that 130 00:07:16,320 --> 00:07:18,680 Speaker 2: people will buy treasuries. And so what I'm saying is 131 00:07:19,080 --> 00:07:22,960 Speaker 2: I mentioned all the concerns with treasuries. However, maybe that's 132 00:07:22,960 --> 00:07:26,440 Speaker 2: a price people are willing to pay just for that security, 133 00:07:26,480 --> 00:07:29,320 Speaker 2: and so there's a push pull here. I like the 134 00:07:29,360 --> 00:07:32,720 Speaker 2: fact that the payment is guaranteed. I don't like the 135 00:07:32,800 --> 00:07:35,480 Speaker 2: fact that the payment is going to keep up with inflation. 136 00:07:36,080 --> 00:07:39,400 Speaker 2: If things are really breaking down, you might say, you 137 00:07:39,440 --> 00:07:42,240 Speaker 2: know what, I'm willing to take a price loss. I'm 138 00:07:42,280 --> 00:07:45,040 Speaker 2: willing to accept a coupon payment that is less than 139 00:07:45,080 --> 00:07:48,720 Speaker 2: inflation because the fact that I get paid anything at all, 140 00:07:48,800 --> 00:07:50,800 Speaker 2: and the fact that I will get my principle back 141 00:07:50,880 --> 00:07:52,320 Speaker 2: at the end of the term, whether it's a ten 142 00:07:52,360 --> 00:07:55,360 Speaker 2: year treasury, is worth so much to me in this 143 00:07:55,480 --> 00:07:59,280 Speaker 2: period of extreme anxiety that I will use a treasury 144 00:07:59,320 --> 00:08:02,400 Speaker 2: as a safety and even if it's a money losing investment. 145 00:08:02,680 --> 00:08:04,760 Speaker 2: An analogy that I like to make is a safe 146 00:08:04,760 --> 00:08:07,800 Speaker 2: deposit box. You pay the bank for the right to 147 00:08:07,840 --> 00:08:10,840 Speaker 2: hold something in a safe deposit box. De facto, that 148 00:08:10,960 --> 00:08:13,760 Speaker 2: means that a safe deposit box has a negative yield, 149 00:08:14,280 --> 00:08:17,960 Speaker 2: and yet it is often part of someone's safe haven portfolio. 150 00:08:18,000 --> 00:08:21,200 Speaker 2: I'm going to put my values balls in there, despite 151 00:08:21,240 --> 00:08:23,040 Speaker 2: the fact that it costs me a little bit of 152 00:08:23,120 --> 00:08:26,760 Speaker 2: money every year, because the fact that I will be 153 00:08:26,800 --> 00:08:28,800 Speaker 2: able to take them out one day is worth quite 154 00:08:28,800 --> 00:08:29,720 Speaker 2: a bit of peace of mind. 155 00:08:30,480 --> 00:08:33,560 Speaker 1: Can you then explain to us what happened with gold, 156 00:08:33,600 --> 00:08:35,120 Speaker 1: because if we look at a gold chart for the 157 00:08:35,160 --> 00:08:37,640 Speaker 1: past few years, and we've talked about at length, you 158 00:08:37,679 --> 00:08:41,640 Speaker 1: know number go up to absolutely quote our Hike Sekbox 159 00:08:41,840 --> 00:08:43,960 Speaker 1: and his book ab Our Crypto, but this time around, 160 00:08:43,960 --> 00:08:46,600 Speaker 1: we haven't seen the same rally in gold during the 161 00:08:46,600 --> 00:08:47,199 Speaker 1: Iran War. 162 00:08:47,360 --> 00:08:49,720 Speaker 2: Why so, first of all, as you said, gold has 163 00:08:49,800 --> 00:08:52,640 Speaker 2: rallied a lot over the last several years, and it's 164 00:08:52,800 --> 00:08:57,280 Speaker 2: rallied during a period of i would say, sustained high inflation. 165 00:08:57,800 --> 00:09:00,560 Speaker 2: The rate of inflation has come down, but all around 166 00:09:00,559 --> 00:09:03,800 Speaker 2: the world is still fairly high. People are worried about 167 00:09:03,880 --> 00:09:08,400 Speaker 2: the you know, paper currencies holding their volume. It's gone 168 00:09:08,440 --> 00:09:12,960 Speaker 2: up during a period of geopolitical attention, obviously multiple wars 169 00:09:13,360 --> 00:09:16,880 Speaker 2: around the world since twenty twenty two, and so once again, 170 00:09:17,000 --> 00:09:20,320 Speaker 2: you know, there's this anxiety about like sovereignty and some 171 00:09:20,880 --> 00:09:23,560 Speaker 2: pretty fundamental questions. And so this is the type of 172 00:09:23,720 --> 00:09:27,600 Speaker 2: environment in which people want to reach for an asset 173 00:09:27,679 --> 00:09:31,000 Speaker 2: that once again, it transcends time, it transcends space, it 174 00:09:31,040 --> 00:09:33,840 Speaker 2: transcends nation states, and so forth. It's a form of 175 00:09:33,880 --> 00:09:36,880 Speaker 2: money that's kind of understood everywhere in the world and 176 00:09:36,920 --> 00:09:39,680 Speaker 2: throughout history. So the last several years have been a 177 00:09:39,720 --> 00:09:43,319 Speaker 2: really good environment for people wanting to have some allocations 178 00:09:43,400 --> 00:09:46,480 Speaker 2: that people want to hold a dollar alternative. If you 179 00:09:46,520 --> 00:09:49,920 Speaker 2: think back to twenty twenty two, Russia got sanctioned and 180 00:09:49,960 --> 00:09:52,520 Speaker 2: lost access to a lot of the dollars that it had, 181 00:09:52,840 --> 00:09:54,800 Speaker 2: and I think people around the world were looking at 182 00:09:54,800 --> 00:09:56,079 Speaker 2: that and you're like, you know what, maybe I want 183 00:09:56,080 --> 00:09:58,240 Speaker 2: to hold fewer dollars because this could happen to me 184 00:09:58,320 --> 00:09:59,959 Speaker 2: too one day, and so I want to hold gold 185 00:10:00,720 --> 00:10:03,760 Speaker 2: in a vault. Now we get the war and gold 186 00:10:04,080 --> 00:10:07,160 Speaker 2: hasn't done as well. I think there's probably a couple 187 00:10:07,240 --> 00:10:10,680 Speaker 2: of factors. You know, something that happens in an extreme spike, 188 00:10:11,120 --> 00:10:14,000 Speaker 2: and this is a little bit counterintuitive, is when you 189 00:10:14,040 --> 00:10:17,160 Speaker 2: have real fear, dollars suddenly become more interesting to you 190 00:10:17,200 --> 00:10:20,360 Speaker 2: because you start thinking, I have a rent bill to 191 00:10:20,440 --> 00:10:22,560 Speaker 2: pay I have a Bloomberg bill to pay. I have 192 00:10:22,600 --> 00:10:24,440 Speaker 2: to pay for my terminal, I have to pay for 193 00:10:24,480 --> 00:10:27,360 Speaker 2: the lights, I have to like pay for everything. You 194 00:10:27,400 --> 00:10:29,360 Speaker 2: want to just survive to the next month, and the 195 00:10:29,360 --> 00:10:31,840 Speaker 2: way you survive to the next month is making sure 196 00:10:31,880 --> 00:10:34,640 Speaker 2: that your bills are paid. Can't pay your bills in gold, 197 00:10:34,960 --> 00:10:37,800 Speaker 2: and so you think to yourself, Okay, there's big liquidations happening. 198 00:10:37,920 --> 00:10:40,320 Speaker 2: I do want to hold gold long term, but in 199 00:10:40,400 --> 00:10:42,640 Speaker 2: the short term I need to come up with some dollars, 200 00:10:43,080 --> 00:10:45,800 Speaker 2: and so gold having done extremely well over the last 201 00:10:45,840 --> 00:10:48,520 Speaker 2: few years, it may be something that you sell in 202 00:10:48,600 --> 00:10:51,440 Speaker 2: this environment. There's another drawback to gold, which is that 203 00:10:51,640 --> 00:10:56,080 Speaker 2: it's costly to move right. It's heavy. Unlike say bitcoin 204 00:10:56,200 --> 00:10:58,959 Speaker 2: or on like say the dollar, you can't just withdraw 205 00:10:59,000 --> 00:11:01,280 Speaker 2: it anywhere in the world. If you have your gold 206 00:11:01,480 --> 00:11:04,880 Speaker 2: in a vault in Switzerland and you move to Singapore, 207 00:11:05,240 --> 00:11:07,839 Speaker 2: that gold is not available to you at a moment's notice, 208 00:11:07,880 --> 00:11:09,680 Speaker 2: and so you have to think about how are you 209 00:11:09,679 --> 00:11:12,400 Speaker 2: going to get it there? Or if things really go bad, 210 00:11:12,440 --> 00:11:14,160 Speaker 2: how do you get your gold out of that vault. 211 00:11:14,160 --> 00:11:16,439 Speaker 2: These are questions that gold investors actually have to think 212 00:11:16,480 --> 00:11:20,160 Speaker 2: about sometimes, and I do wonder given the closure of 213 00:11:20,160 --> 00:11:23,560 Speaker 2: the strait of hor moves, and give it the fact 214 00:11:23,600 --> 00:11:25,480 Speaker 2: that we don't know how why the war is going 215 00:11:25,600 --> 00:11:28,480 Speaker 2: to spend. Maybe there is a little bit of cost 216 00:11:28,840 --> 00:11:32,760 Speaker 2: to holding something in which the ability to physically move 217 00:11:32,800 --> 00:11:35,400 Speaker 2: it to where you are is part of its appeal, 218 00:11:35,880 --> 00:11:38,800 Speaker 2: and so perhaps at the margins this is a negative 219 00:11:38,840 --> 00:11:41,960 Speaker 2: factor in gold, which is here is a type of 220 00:11:42,000 --> 00:11:44,280 Speaker 2: money that has to be physically moved at a time 221 00:11:44,320 --> 00:11:46,160 Speaker 2: when physical movement is under stress. 222 00:11:46,600 --> 00:11:48,960 Speaker 1: Joe, fascinating stuff. Thanks so much for joining us, Joe 223 00:11:49,000 --> 00:11:53,880 Speaker 1: Wisenthal Houst of Bloomberg's Odd Lots podcast. For more explanations 224 00:11:54,000 --> 00:11:56,600 Speaker 1: like this from our team of three thousand journalists and 225 00:11:56,720 --> 00:11:59,839 Speaker 1: datalysts around the world, go to bloomberg dot com. Slap. 226 00:12:01,920 --> 00:12:04,880 Speaker 1: I'm Stephen Carol. This is Here's why. I'll be back 227 00:12:04,960 --> 00:12:07,000 Speaker 1: next week with more. Thanks for listening.