WEBVTT - Credit Investors See Highest Rate Risk Exposure Ever: Dhulipala 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.839 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. In 0:00:33.880 --> 0:00:36.000 the past few weeks, you've seen a little bit of 0:00:36.000 --> 0:00:40.360 caution in equities, not so much in credit. In fact, 0:00:40.560 --> 0:00:44.720 investors are earning close to the lowest extra premium to 0:00:44.840 --> 0:00:49.120 own junk bonds in the US relative to treasuries since 0:00:49.280 --> 0:00:53.479 two thousand and seven. Here to talk with us about 0:00:53.600 --> 0:00:57.080 that and when this could potentially shift? Is Shriny Dulipla 0:00:57.400 --> 0:01:01.840 Deep Dulipola correct that, okay, Chief investment officer and founder 0:01:01.880 --> 0:01:04.600 of killden in Castle Asset Management in it New York. 0:01:04.720 --> 0:01:06.920 Tremely thank you so much for being here. What do 0:01:06.959 --> 0:01:08.800 you make of this? Why is there such a risk 0:01:08.840 --> 0:01:11.440 on environment right now? First of all, thanks for having 0:01:11.440 --> 0:01:15.000 me over, Lisa, It's great to be here. Um, you know, 0:01:15.040 --> 0:01:18.399 I think this trend kind of started really um, you know, 0:01:18.440 --> 0:01:22.880 post the financial crisis, when basically the global central banks. Um, 0:01:22.920 --> 0:01:26.840 you know, effectively moved rates from what we're basically neutral 0:01:26.920 --> 0:01:29.000 rates of around five percent all the way to like 0:01:29.040 --> 0:01:34.640 negative interest rates and that level of liquidity in the market. Um, 0:01:34.680 --> 0:01:38.080 just effectively caused this huge influence of fixed income assets 0:01:38.120 --> 0:01:41.479 and as a corollary into the highal market. And that 0:01:41.520 --> 0:01:44.679 has effectively been playing out to this day. UM. You 0:01:44.720 --> 0:01:50.600 know obviously, UM, you know, the fed a tailwind doesn't 0:01:50.600 --> 0:01:53.920 exist anymore. UM. And you know these types of the 0:01:54.280 --> 0:02:00.720 type of changes occur, you know, they meander, tell there 0:02:00.800 --> 0:02:04.320 is a final cathartic event that causes a shift to 0:02:04.360 --> 0:02:08.360 current to happen. So at this time, UM, you know 0:02:08.440 --> 0:02:12.600 it is you know, it's it's to me, it's very 0:02:12.680 --> 0:02:16.600 very surprising that spreads are holding where they are. Um. Um, 0:02:16.639 --> 0:02:19.240 my guests, if I had to say something positive about 0:02:19.240 --> 0:02:22.480 the credit markets, what I would say is the fundamentals 0:02:22.560 --> 0:02:25.880 underlying the market are actually pretty good. What about the negative? 0:02:26.760 --> 0:02:30.160 I think the biggest negative is really valuations. UM. You 0:02:30.200 --> 0:02:33.000 know you are so to kind of put numbers onto 0:02:33.040 --> 0:02:36.280 kind of what you said at the beginning, uh hwyal 0:02:36.360 --> 0:02:38.880 markets are trading at a spread of about three sixty 0:02:38.880 --> 0:02:43.240 basis points over treasuries. That is, as you very well mentioned, 0:02:43.240 --> 0:02:45.919 like close to the all time types, which was basically 0:02:46.000 --> 0:02:48.880 back in two thousand and seven. The difference in two 0:02:48.919 --> 0:02:52.480 thousand and seven and now is rather marked, the biggest 0:02:52.480 --> 0:02:55.720 being you know, the corporations are no longer as loved 0:02:55.760 --> 0:02:58.520 as they were back then. Uh. You know, you actually 0:02:58.560 --> 0:03:01.680 have a pretty robust economy. Global economy is growing at 0:03:02.080 --> 0:03:04.040 I think the last time I checked time a forecast, 0:03:04.080 --> 0:03:05.920 they've been kind of they keep ticking it up. It's 0:03:06.080 --> 0:03:09.919 about three point nine pc now. Uh. You know, investors 0:03:09.919 --> 0:03:12.360 are no longer all that leveraged either. So back in 0:03:12.400 --> 0:03:14.639 the day, you had banks that were very leveraged. You 0:03:14.720 --> 0:03:19.000 had hetge funds that were carrying thirty times to one leverage. Um. 0:03:19.040 --> 0:03:21.639 So those are the positives. And as a result, I 0:03:21.680 --> 0:03:25.000 would expect, uh, you know, all in coupon yields for 0:03:25.160 --> 0:03:27.360 corporates have also kind of gone down a lot, so 0:03:27.400 --> 0:03:29.959 in terms of interest coverage, that the the the corporates 0:03:29.960 --> 0:03:33.440 look reasonably healthy. Um and you know, because of the 0:03:33.480 --> 0:03:36.040 underlying economy, I would say that the default rates will 0:03:36.080 --> 0:03:39.360 be reasonably lower. So that's the positive, and that would 0:03:39.360 --> 0:03:42.760 that would probably explain why spreads trade where they do. Okay, 0:03:42.800 --> 0:03:45.600 I'm assuming there's a negative here now. I think the 0:03:45.600 --> 0:03:48.760 biggest negative, as I said, is valuations. Um, you know, 0:03:48.800 --> 0:03:51.760 at three d sixty basis points over treasuries, you're just 0:03:51.960 --> 0:03:55.560 not getting paid enough. You own the one second, if 0:03:55.560 --> 0:03:57.320 I were hearing you right now, I would say this 0:03:57.440 --> 0:04:00.320 is a bullish person who sees very limited down side 0:04:00.800 --> 0:04:03.320 because it seems like a positive backdrop. But a prop 0:04:03.360 --> 0:04:06.360 with valuations would that be accurate? No, I would say, 0:04:06.440 --> 0:04:10.160 I'm actually the absolute opposite. This is the most cautious 0:04:10.200 --> 0:04:12.960 I have been about credit. Um, you know, for the 0:04:13.040 --> 0:04:15.880 simple reason. So, like, let's just step back, Like, you know, 0:04:15.960 --> 0:04:18.760 what is a bond. A bond has two components to it. 0:04:18.920 --> 0:04:22.040 Bond has an interest rate component and a spread component. 0:04:22.040 --> 0:04:26.360 The spread component is effectively the risk component. And what 0:04:26.400 --> 0:04:29.520 we just discussed, the fundamentals that are good kind of 0:04:29.560 --> 0:04:32.799 explained why the spread component is trading at all time types. 0:04:32.839 --> 0:04:34.800 And I think at this point it's kind of capped. 0:04:35.520 --> 0:04:37.719 This is the all time tights and sure enough, you know, 0:04:37.760 --> 0:04:41.599 the fundamentals look good. But the bigger issue with credit 0:04:42.040 --> 0:04:46.360 is the interest rate component. Over the last thirty five years, 0:04:46.520 --> 0:04:49.920 we've seen nothing but this uninterrupted rally and treasuries, which 0:04:49.960 --> 0:04:54.400 has been the biggest tailwind to owning high yield. We 0:04:54.760 --> 0:04:57.120 As as a portfolio manager, I never really had to 0:04:57.120 --> 0:05:00.120 think about rates as a risk. This is really the 0:05:00.160 --> 0:05:03.760 first time in a very very long time that rate 0:05:03.839 --> 0:05:06.599 component is the one that is going to basically be 0:05:06.640 --> 0:05:09.080 the biggest risk for our market. So if I want 0:05:09.080 --> 0:05:12.320 to expand a little more into it, you know, uh, 0:05:12.680 --> 0:05:16.760 that that very simply speaking, why do I feel negative 0:05:16.800 --> 0:05:19.800 about credit? High credit deals roughly around six and a 0:05:19.880 --> 0:05:23.599 quarter percent three month libor yields to and a quarter 0:05:23.640 --> 0:05:28.880 percent to two point You now actually have a tremendous 0:05:28.920 --> 0:05:34.160 competition from cash substitute instruments for uh, you know, rather 0:05:34.200 --> 0:05:37.039 than owning high yield. So I think the biggest risk 0:05:37.080 --> 0:05:40.400 to high yield I feel is liquidity risk. Um. You know, 0:05:40.440 --> 0:05:44.119 I think over the last five to six years, there's 0:05:44.160 --> 0:05:48.080 been a big proliferation of passive money you know, long 0:05:48.160 --> 0:05:51.120 only uh. You know, people talk a lot about ets. 0:05:51.160 --> 0:05:53.760 They have small percentage of the market, but overall about 0:05:53.800 --> 0:05:57.839 half the market has a daily liquidity to it um. 0:05:57.920 --> 0:06:01.120 And as a result, I feel like the next crisis 0:06:01.240 --> 0:06:03.280 is not going to be an OA type of crisis. 0:06:03.720 --> 0:06:05.600 You know, we're not going to have a spike in default. 0:06:06.480 --> 0:06:10.559 The big worry is what is that interest rate where 0:06:10.680 --> 0:06:14.120 people actually start to say, you know what, I'm just 0:06:14.160 --> 0:06:16.000 not getting paid enough to be in high yield and 0:06:16.040 --> 0:06:19.880 I want to move out. If investor here's what you're saying, 0:06:19.960 --> 0:06:23.239 and buys your thesis and agrees also with Jamie Diamond 0:06:23.240 --> 0:06:26.000 in his annual literature Shareholders, in which he said that 0:06:26.120 --> 0:06:29.599 interest rates may go higher and faster than people expect. 0:06:30.480 --> 0:06:35.279 What do you do right now? I think, um, you 0:06:35.320 --> 0:06:38.640 know a couple of things. So one of the things 0:06:38.640 --> 0:06:43.040 you can do is effectively go into low duration instruments. Unfortunately, 0:06:43.279 --> 0:06:45.479 one of the beautiful things about you know, this low 0:06:45.520 --> 0:06:48.040 interest rate environment we've had in high yield, these companies 0:06:48.080 --> 0:06:51.360 have been able to turn out their debt, so there's 0:06:51.400 --> 0:06:54.359 not a lot of low duration instruments left. But I 0:06:54.400 --> 0:06:56.279 think this is as good as it gets for the 0:06:56.400 --> 0:06:59.000 for the medium term. For term loans, you know what 0:06:59.000 --> 0:07:01.520 what used to be some thing. So if you are 0:07:01.600 --> 0:07:05.560 talking about an environment where um, um, you know where 0:07:05.560 --> 0:07:07.920 default rates are going to be low, um, you know 0:07:08.800 --> 0:07:11.800 a lot of the term loans, higher quality term loans 0:07:11.840 --> 0:07:14.119 that really did not afford you a good amount of yield, 0:07:14.560 --> 0:07:17.120 actually pay you some some yield to own that those 0:07:17.160 --> 0:07:21.600 those look fine. But more importantly, I think I don't 0:07:21.720 --> 0:07:25.120 mean to be completely negative on corporate credit and high 0:07:25.200 --> 0:07:29.520 yield um. What has happened as a result of a 0:07:29.560 --> 0:07:34.040 lot of proliferation of indexed money into this into the 0:07:34.080 --> 0:07:38.080 market is you now have a market which is bifurcated 0:07:38.120 --> 0:07:41.120 between haves and have not the very liquid credit I 0:07:41.160 --> 0:07:45.160 think I would avoid. But one has to also accept 0:07:45.200 --> 0:07:47.480 that there is a small subset of the market which 0:07:47.480 --> 0:07:52.800 focuses on mid cap corporate credit which is generally under 0:07:53.000 --> 0:07:56.640 underappreciated and under owned, where you can find a lot 0:07:56.680 --> 0:07:58.920 of value. And you know, I think on the long side, 0:07:59.000 --> 0:08:02.400 that's kind of what we prefer are And this one 0:08:02.520 --> 0:08:04.360 last thing a plug about what I do. What I 0:08:04.360 --> 0:08:06.600 will say is this is as good an environment as 0:08:06.640 --> 0:08:08.760 I have seen for long short credit managers. So you 0:08:08.800 --> 0:08:13.480 can be risk neutral uh and really make what I 0:08:13.520 --> 0:08:16.360 would consider to be well about market recurrens without taking 0:08:16.360 --> 0:08:18.560 too much risk. I want to thank you very much 0:08:18.640 --> 0:08:21.040 for coming in and sharing your experience and your knowledge. 0:08:21.200 --> 0:08:25.200 Shrine Duli Pala, founder of the credit hedge fund KILL 0:08:25.320 --> 0:08:44.480 Donnan Castle Asset Management much appreciated a hundred million people. 0:08:44.600 --> 0:08:47.640 Can they be wrong? Well, they're spending a hundred dollars 0:08:47.960 --> 0:08:51.280 a year in order to be Amazon Prime subscribers. Shira 0:08:51.400 --> 0:08:54.280 O v Day, Bloomberg, gad Fly Technology Commus may in 0:08:54.360 --> 0:08:57.640 dB one of them. Shira, what do you make of 0:08:57.720 --> 0:09:02.959 this revelation that a hundred million in Prime subscribers are 0:09:03.000 --> 0:09:07.440 filling the coffers of Amazon with ten billion dollars a 0:09:07.520 --> 0:09:11.760 year for the privilege of shopping. So it wasn't really 0:09:11.800 --> 0:09:15.480 surprised by the number, but I was surprised that Amazon 0:09:15.679 --> 0:09:18.920 disclosed the number. So let me break that down. So, Amazon, 0:09:19.040 --> 0:09:23.000 for more than a year now has been disclosing the 0:09:23.080 --> 0:09:27.560 revenue it generates from Amazon Prime and its other subscription 0:09:27.720 --> 0:09:30.920 products like Audible, um, subscription models and things like that. 0:09:31.360 --> 0:09:34.880 And thanks to that number, which Amazon was essentially forced 0:09:34.880 --> 0:09:38.480 to reveal because the SEC has been pressuring them to 0:09:38.559 --> 0:09:41.360 disclose the number of Prime members and Amazon has refused 0:09:41.360 --> 0:09:44.920 to do so until recently until it gave the revenue disclosure. 0:09:45.240 --> 0:09:46.800 So An also have been able to kind of back 0:09:46.840 --> 0:09:50.360 out the approximate number of Amazon Prime members and it's 0:09:50.400 --> 0:09:52.400 been pretty close to a hundred million if you look 0:09:52.440 --> 0:09:54.679 at the numbers. The question for me again is why 0:09:54.720 --> 0:09:59.120 didn Amazon pick now, of all times to disclose finally, 0:09:59.400 --> 0:10:03.280 after years of silence, how many prime members it really has? 0:10:03.679 --> 0:10:05.959 And I'm curious to know the answer and don't have one. 0:10:06.240 --> 0:10:10.360 Another number that Amazon disclosed that you wrote about is 0:10:10.360 --> 0:10:12.720 one that is less talked about, and that is the 0:10:12.760 --> 0:10:15.920 median salary of people who work for Amazon. It is 0:10:16.000 --> 0:10:18.920 less than thirty dollars. What is this due to the 0:10:19.040 --> 0:10:23.880 narrative that Amazon is creating high quality jobs around the country. Look, 0:10:23.920 --> 0:10:27.200 I think it's a great question, and there's been questions 0:10:27.240 --> 0:10:29.320 for a long time that a lot of the jobs 0:10:29.360 --> 0:10:32.120 that Amazon has created, and to be fair, this company 0:10:32.160 --> 0:10:35.600 has hired hundreds of thousands of people in the last 0:10:35.640 --> 0:10:37.800 few years, but there's been a big question about whether 0:10:37.800 --> 0:10:41.400 a lot of those jobs are quality lasting jobs. Right 0:10:41.720 --> 0:10:45.640 in Amazon, Um, those package sorting centers or package warehouses 0:10:45.679 --> 0:10:49.200 that are dotted across the country. Uh, there have been 0:10:49.960 --> 0:10:53.240 you know, reports about bad job conditions and and and 0:10:53.400 --> 0:10:57.679 low pay for long hours and other ill treatment of workers. 0:10:58.080 --> 0:11:03.160 So yeah, the revelation that the median compensation of an 0:11:03.160 --> 0:11:07.360 Amazon employee is less than twenty nine thousand dollars. Uh, 0:11:07.520 --> 0:11:12.520 that's an interesting piece of that debate about whether Amazon 0:11:13.440 --> 0:11:16.720 Amazon creates jobs that are good jobs. Sure, just the 0:11:16.760 --> 0:11:20.040 back of the envelope estimate. If you have a hundred 0:11:20.200 --> 0:11:23.920 million subscribers to Amazon Prime paying a hundred dollars a year, 0:11:24.000 --> 0:11:26.800 that's ten billion. If you have a hundred and twenty 0:11:26.840 --> 0:11:30.120 five million people for Netflix of paying a hundred and 0:11:30.120 --> 0:11:34.920 twenty a year, that's about a fifteen billion. Spotify seven, 0:11:35.040 --> 0:11:38.800 I believe it's seventy million subscribers paying what maybe a 0:11:38.840 --> 0:11:42.959 hundred a year for Uh, let's call it a hundred 0:11:43.040 --> 0:11:47.120 year for Spotify, that's another seven big that's thirty two 0:11:47.120 --> 0:11:51.120 billion dollars for people to just get entertainment. Uh. Is 0:11:51.160 --> 0:11:56.920 that enough to sustain the valuations of these businesses? Well, 0:11:57.360 --> 0:12:00.040 I mean, look of those companies that you men s 0:12:00.160 --> 0:12:04.080 and uh, you know, Amazon does not generate the biggest 0:12:04.160 --> 0:12:07.640 chunk of its revenue from subscriptions, right That Prime is 0:12:07.720 --> 0:12:12.720 sort of this genius idea that costco also uses, right, 0:12:12.720 --> 0:12:14.880 where you pay a company for the privilege of spending 0:12:14.880 --> 0:12:18.320 more money at the company throughout the year. Um, Amazon 0:12:18.360 --> 0:12:22.800 Web services though, and things like advertising potentially for Amazon. Yeah, 0:12:22.800 --> 0:12:26.000 fair enough. Um, you know, Netflix and Spotify are both 0:12:26.400 --> 0:12:29.960 highly valued companies that exist only on subscriptions. And look, 0:12:30.240 --> 0:12:33.880 the business model of cable and telecom companies is also 0:12:33.920 --> 0:12:36.360 to sell subscriptions, and those are again some of the 0:12:36.480 --> 0:12:40.120 largest UM and and companies in the world and also 0:12:40.160 --> 0:12:43.560 highly profitable. So yeah, you can sell subscriptions to things, 0:12:43.600 --> 0:12:46.679 whether it's entertainment or telecom services, and that is a 0:12:46.800 --> 0:12:49.760 very viable business for a lot of companies. So, just 0:12:49.800 --> 0:12:52.439 to put this new perspective, Amazon shares today up one 0:12:52.480 --> 0:12:55.599 and a half percent, following gains in the past three sessions. 0:12:56.120 --> 0:12:59.240 Not so happy over in Apple Lands, And I do 0:12:59.280 --> 0:13:01.160 want to touch in this because this is catching a 0:13:01.160 --> 0:13:04.520 lot of people's attention. Shares down more than two per cent, 0:13:04.920 --> 0:13:09.080 and some people are attributing this to mounting concerns about 0:13:09.080 --> 0:13:13.439 waning smartphone demand. We talked about this not frequently. Um, 0:13:13.640 --> 0:13:15.800 why are people suddenly worried about this now because this 0:13:15.840 --> 0:13:20.319 has been known forever. Yes, it's a it's a fair question. 0:13:20.360 --> 0:13:23.480 I mean the there has been this kind of the 0:13:23.559 --> 0:13:28.240 same exercise happened before Apple's last earnings report, which was 0:13:28.880 --> 0:13:32.360 I think there was some over optimism about the sales 0:13:32.400 --> 0:13:35.800 potentials of the iPhone ten and other new Apple devices. 0:13:36.000 --> 0:13:38.640 And then you saw in the weeks before Apple reported 0:13:38.679 --> 0:13:41.480 December quarter earnings that analysts started to pair back their 0:13:41.520 --> 0:13:45.000 expectations and that turned out to be smart um. And 0:13:45.040 --> 0:13:48.079 again we're seeing a very similar exercise this year. Look, 0:13:48.520 --> 0:13:51.360 I think everyone in the investment world, if not inside 0:13:51.400 --> 0:13:54.680 of the Cupertino headquarters of Apple, is coming to realize 0:13:54.720 --> 0:13:57.320 that this is a new reality for Apple, which is 0:13:57.840 --> 0:14:00.680 it's getting harder and harder for them to sell more 0:14:00.679 --> 0:14:03.840 iPhones every year. If you look at the analyst estimates 0:14:03.880 --> 0:14:08.240 of iPhone sales this year, they're expected to interrupt a 0:14:08.240 --> 0:14:10.800 few percentage points. And remember this is a year when 0:14:11.800 --> 0:14:14.040 a year ago everybody expected there to be this big 0:14:14.040 --> 0:14:16.760 boon from the iPhone tan and other new devices that 0:14:16.800 --> 0:14:19.160 come on the market. That's not going to happen. So 0:14:19.320 --> 0:14:22.440 there's been this kind of re imagination of what Apple 0:14:22.480 --> 0:14:24.440 really is. So it's not a company that is going 0:14:24.480 --> 0:14:28.480 to rely on growth in unit sales of iPhones. Instead, 0:14:28.520 --> 0:14:30.520 it's going to need to charge more for those devices, 0:14:30.600 --> 0:14:32.880 is going to need to sell ancillary products like the 0:14:32.920 --> 0:14:35.680 home pod and the air POD's headphones, and that's the 0:14:35.720 --> 0:14:38.320 way that Apple is going to keep growing. Now that 0:14:38.680 --> 0:14:41.600 the easy growth of I can just sell more iPhones 0:14:41.640 --> 0:14:44.960 every year, that that story is over. So people are 0:14:44.960 --> 0:14:46.600 waking up to that and they're getting a little bit 0:14:46.600 --> 0:14:50.280 nervous or perhaps just setting some risk ahead of earning. Sarah, 0:14:50.920 --> 0:14:52.680 thank you so much for being with us. We love 0:14:52.720 --> 0:14:56.080 having you on Shara Ovida Bloomberg Gadfly columnists covering all 0:14:56.240 --> 0:15:00.880 things tech, talking about what's going on with Amazon dot Com. 0:15:00.960 --> 0:15:05.040 It was surprising how low the median salary was, less 0:15:05.080 --> 0:15:08.520 than twenty nine dollars apiece, fifty nine times less than 0:15:08.560 --> 0:15:28.200 what Jeff Bezos took home. Definitely interesting. The price of gold. 0:15:28.440 --> 0:15:31.280 An ounce of gold right now will cost you about 0:15:32.280 --> 0:15:36.120 and four dollars, But what will it cost you, let's say, 0:15:36.160 --> 0:15:38.920 in the next twelve months. Here to help us understand 0:15:39.000 --> 0:15:41.400 the ins and outs and the ups and downs of 0:15:41.400 --> 0:15:43.840 gold is Frank Holmes. He is the chief executive and 0:15:43.880 --> 0:15:47.280 the chief investment officer for US Global Investors. They are 0:15:47.280 --> 0:15:50.840 based in San Antonio, Texas, but he joins us here 0:15:50.840 --> 0:15:53.200 in our eleven three oh studios. Frank, always a pleasure. 0:15:53.200 --> 0:15:55.480 Thanks for coming in. I want to just mention also 0:15:55.520 --> 0:15:58.120 that you men helped to manage the Golden Precious Metals 0:15:58.320 --> 0:16:04.160 Fund U s r X give us your outlook for gold. Well, 0:16:04.160 --> 0:16:06.680 I think that gold has a high probability of hitting 0:16:06.680 --> 0:16:10.320 fire this year. Uh. And the double combo with that, 0:16:10.400 --> 0:16:13.240 with that fear trade is just a weaker dollar even 0:16:13.400 --> 0:16:16.960 the rates have been rising, and that's helping actually fuel 0:16:17.080 --> 0:16:21.040 global economic growth and as leading to this commodity boom 0:16:22.080 --> 0:16:24.920 because you're getting this this great export of our high 0:16:25.000 --> 0:16:28.800 end products and using of commodities. And the other part 0:16:28.840 --> 0:16:30.800 of this is the love trade. And you find that 0:16:30.880 --> 0:16:34.360 when which is six all demand for gold, and it's 0:16:34.480 --> 0:16:37.120 highly correlated to the g d P per capita of 0:16:37.320 --> 0:16:41.320 China and India and their GDP capita continues to rise. 0:16:41.760 --> 0:16:43.240 And this is the year of the Dog, and there's 0:16:43.240 --> 0:16:49.000 gonna be a lossle of gold puppies purchased. Coward, Okay, 0:16:49.040 --> 0:16:52.440 so people are going to be purchasing gold puppies. Is 0:16:52.480 --> 0:16:54.400 that the main driver here of the price of gold? 0:16:54.440 --> 0:16:57.960 Because gold has been a very confusing asset class and 0:16:58.320 --> 0:17:01.360 a lot of people have been expecting it to gain 0:17:01.400 --> 0:17:06.159 as people I inflation. Now people are ratcheting back inflation expectations. 0:17:06.480 --> 0:17:09.159 What's the main driver here, Well, the inflation is no 0:17:09.200 --> 0:17:12.240 doubt and important issue because the concern is that if 0:17:12.280 --> 0:17:16.600 you use factors to to look at the cost of inflation, 0:17:16.680 --> 0:17:19.320 inflation is running at eight percent. If you use nineteen 0:17:19.359 --> 0:17:22.480 eighty prices, inflation is pushing close to ten percent. So 0:17:22.560 --> 0:17:26.920 there's an argument that inflation is actually understate it. And 0:17:27.000 --> 0:17:29.880 we're just talking about this is the cost for cell 0:17:29.960 --> 0:17:33.520 phones and mobile technology, all this stuff. It's really creeping 0:17:33.600 --> 0:17:36.400 up much faster than two point seven percent or three 0:17:36.400 --> 0:17:40.320 point one percent. So I think in the airlines industry, 0:17:40.359 --> 0:17:42.720 one reason why I created jets because I saw my 0:17:42.760 --> 0:17:46.399 options to fly had fallen by but my ticket prices 0:17:46.400 --> 0:17:51.720 went up, and that's inflationary. So I think that inflation 0:17:51.840 --> 0:17:53.920 is going to I believe the New York Fed has 0:17:53.960 --> 0:17:57.040 a different inflationary number. It's higher than the CPI number, 0:17:57.320 --> 0:18:00.000 and I think as people reassess this, the factors behind 0:18:00.040 --> 0:18:03.360 ended inflation is probably running closer to over five. So 0:18:03.400 --> 0:18:06.760 we actually have real negative interest rates under that scenario, 0:18:07.359 --> 0:18:11.000 and that bodes well for a gold Frank, I want 0:18:11.000 --> 0:18:12.760 to cast your mind back out on the movie you 0:18:12.880 --> 0:18:15.000 call in nineteen I guess it was the mid nine 0:18:15.680 --> 0:18:19.640 ninety six. There was something called e gold and it's 0:18:19.640 --> 0:18:22.520 been written about as the precursor to cryptocurrencies. It was 0:18:22.560 --> 0:18:26.960 basically a digital currency that was back by gold. Governments 0:18:26.960 --> 0:18:30.720 around the world did not like this. Uh. In fact, 0:18:30.760 --> 0:18:33.359 I believe there was even an application that was written 0:18:33.400 --> 0:18:37.280 for the pomp pilot in order to track e gold. 0:18:37.520 --> 0:18:42.440 Do you believe that the popularity of cryptocurrencies is having 0:18:42.440 --> 0:18:46.240 a dampening effect, perhaps even temporarily on the on the 0:18:46.280 --> 0:18:49.280 price of gold. No, I don't. I think what's really 0:18:49.320 --> 0:18:52.040 important in my journey of going into that space. I'm 0:18:52.040 --> 0:18:55.600 a chairman of high blockchain, first company mining these coins 0:18:56.040 --> 0:19:00.879 in Sweden and Iceland. Uh. And I think that that 0:19:01.000 --> 0:19:04.440 you saw five billion dollars last year go into these 0:19:04.440 --> 0:19:08.399 new I c o s and that's speculative money. And 0:19:08.480 --> 0:19:11.399 the regulatory world has basically said you cannot speculate in 0:19:11.440 --> 0:19:14.680 the securities market. Uh. You want to speculate, go to casinos, 0:19:14.680 --> 0:19:18.240 buy lottery tickets, to go to racetrack. So the millennials, 0:19:18.760 --> 0:19:21.200 they want to speculate, and that's what that's money is. 0:19:21.280 --> 0:19:25.040 It's really gone into speculation. Uh. And now there's a 0:19:25.080 --> 0:19:27.639 crackdown taking place because some of the stuff was not 0:19:27.720 --> 0:19:31.000 full true plane autonomy. Disclosure. But I really think that's 0:19:31.040 --> 0:19:34.280 five billion dollars that never went into new expiration for 0:19:34.400 --> 0:19:38.320 gold or new technology that normally would you see going 0:19:38.320 --> 0:19:42.040 into the capital markets. I'm just wondering what would have 0:19:42.080 --> 0:19:46.760 to happen for you to dramatically change your outlook on gold. Well, 0:19:46.840 --> 0:19:50.040 first of all, stand back at fifty thou feet, get 0:19:50.040 --> 0:19:53.359 an airplane. Gold is you know gold has always been 0:19:53.640 --> 0:19:56.959 advocated ten percent, waiting rebalance each year. And why is that? 0:19:57.000 --> 0:20:01.040 Since your two thousand gold is two times the appreciation 0:20:01.080 --> 0:20:04.119 of the SMP five two times and last year it 0:20:04.160 --> 0:20:07.119 was up, that's not bad. So I give you a 0:20:07.160 --> 0:20:09.320 short term or long term. Gold is done what it's 0:20:09.320 --> 0:20:13.040 supposed to do in an overall portfolio against currency volatility. 0:20:13.520 --> 0:20:16.359 So from that end, until I see something else take place, 0:20:16.640 --> 0:20:19.520 I don't think gold is a fourth most liquid UH 0:20:19.680 --> 0:20:22.800 asset class trade in the world. I think that gold 0:20:22.840 --> 0:20:25.760 has its place in a portfolio. But don't buy gold 0:20:25.760 --> 0:20:28.640 to get rich. Yeah, you go and buy it for love, 0:20:28.720 --> 0:20:31.280 for jewelry, or you buy for your portfolio because it 0:20:31.400 --> 0:20:35.600 does mitigate volatility and it's a de risks overall portfolio. 0:20:36.080 --> 0:20:39.560 What about investing in gold company in companies that have 0:20:40.040 --> 0:20:44.720 royalty streams from gold. My favorite is a superior business model. 0:20:45.080 --> 0:20:46.960 I mean, just think of it. Franko Nevada has the 0:20:47.040 --> 0:20:50.960 royalties on Barrick and Newmont's assets in Nevada, and their 0:20:51.160 --> 0:20:53.840 revenue per employee is a half a million dollars for 0:20:53.840 --> 0:20:58.120 for simplicity, and Franque Nevada is twenty one million. I mean, 0:20:58.560 --> 0:21:01.439 Goldman Sacks is one million to alors. So the efficiency 0:21:01.560 --> 0:21:04.960 ratio is so high. They have very some do they 0:21:05.000 --> 0:21:07.760 have a hit to book value. They pay more dividends FRANKL. 0:21:07.840 --> 0:21:10.439 Nevada than all any other gold mining company in the world. 0:21:10.920 --> 0:21:14.919 So it just goes to superior business model. All right, 0:21:14.960 --> 0:21:17.359 We're gonna leave it there, Thanks very much, Frank Holmes. 0:21:17.640 --> 0:21:20.800 He is the chief executive and the chief investment officer 0:21:20.880 --> 0:21:25.280 for US Global Investors, managing the Gold and Precious Metals 0:21:25.280 --> 0:21:43.679 Fund U s e r X. We have heard a 0:21:43.720 --> 0:21:49.520 lot about possible sanctions on Russia. Will President Trump issue more? 0:21:50.040 --> 0:21:53.680 Looks like perhaps not. To make some sense of all 0:21:53.680 --> 0:21:55.080 of this back and forth, I want to bring in 0:21:55.160 --> 0:21:58.720 Richard Kahn, managing partner at Eurasia Advisors, which is based 0:21:58.840 --> 0:22:03.080 in New York, and Richard has vast technicles, working with 0:22:03.280 --> 0:22:06.920 Russian businesses and Russian and US alliances, So he is 0:22:06.960 --> 0:22:10.720 a perfect person awagh in on this. Uh does this matter? First? 0:22:10.760 --> 0:22:13.440 I should ask should we even be talking about sort 0:22:13.480 --> 0:22:15.919 of the will will the US or won't the US 0:22:16.240 --> 0:22:21.479 add sanctions to Russia? Well? Thanks, Lisa. I think certainly 0:22:21.480 --> 0:22:23.800 it should be on our minds because it goes to 0:22:23.840 --> 0:22:27.080 the issues of how we view the Trump administration and 0:22:27.960 --> 0:22:32.320 their relationship with Russia. Um. But I you know, in 0:22:32.359 --> 0:22:34.920 my view, that's if you will, a side show to 0:22:35.000 --> 0:22:39.840 the main events which relate to investigation looking for evidence 0:22:39.880 --> 0:22:43.639 of interference and links and coordination with Russia, which is 0:22:43.680 --> 0:22:47.080 what Mueller is looking at. Now. This is potentially, at 0:22:47.119 --> 0:22:52.960 least in some people's mind, evidence of proclivity to favor 0:22:53.040 --> 0:22:56.360 Russia and perhaps evidence that Russia remains in a position 0:22:56.359 --> 0:22:59.800 to affect Trump. Just to be clear, the fact that 0:23:00.040 --> 0:23:03.600 President Trump seemingly walked back what Nicki Haley had said 0:23:03.680 --> 0:23:06.920 earlier about possible additional sanctions is that what you're talking about. 0:23:07.080 --> 0:23:09.800 I am referring to that. It certainly plays into that narrative. 0:23:09.960 --> 0:23:12.879 Of course, there may be other explanations for it, but 0:23:12.960 --> 0:23:16.199 this is part of a pattern of Trump from the 0:23:16.280 --> 0:23:19.919 very early stages of his campaign of making nice with 0:23:20.119 --> 0:23:23.800 Putin and being unwilling to take on Russia as he 0:23:23.840 --> 0:23:27.760 has taken on many other countries, particularly some of our allies. Richard, 0:23:27.760 --> 0:23:29.960 I wonder if you could just give us the perspective 0:23:30.240 --> 0:23:32.960 of what it's like to be in Russia at the 0:23:33.000 --> 0:23:35.800 current moment. I mean, if you go online, you can 0:23:35.840 --> 0:23:39.600 see a variety of photographs around the Internet showing a 0:23:39.600 --> 0:23:43.520 lot of food that has been banned because of Russian 0:23:43.600 --> 0:23:47.720 retaliation to Western sanctions. The food being banned is then 0:23:47.800 --> 0:23:51.520 destroyed in landfills, and indeed, even the Russian cabinet is 0:23:51.560 --> 0:23:55.040 said to consider a special agency in order to counter 0:23:55.240 --> 0:23:59.359 foreign sanctions. What are the sanctions doing to the daily 0:23:59.440 --> 0:24:03.080