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Global Money Supply Surging_ Get Ready For Inflation's Massive Comeback | Tavi Costa
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the steepening of the yield curve is is one of the most important Trends in my view for the next year I think that that's that's highly likely there are indicators that show that inflation May reemerge Global liquidity is ticking back up government spending as percent of GDP has been on an upward Trend this may put pressure on the Federal Reserve uh to cut rates if the fiscal side is constrained this is according to research from our next guest Tavi Costa portfolio manager of crescat Capital who believes that we may be heading into a renewed inflationary period which may boost commodity prices we'll be talking about the implications investment implications of his research findings welcome back to the show Tavi David thanks for having me looking forward to this I'll be starting off by asking you a very broad question did the FED make a mistake with 50 basis points which is what they did in September a 50 basis point cut we spoke before September did they make a mistake yeah it's not that I'm trying to avoid answering the question but not sure they had an option um and from my my understanding of looking at the government itself and how much ER payments is going towards um especially relative to GDP close to 5% now compared to other economies you know we used to say well the dollar is the cleanest of all dirty shirts but then Looking Back Now and saying well look at Germany and Japan spending 0.5% or less than 1% of their GDP on interest payments and most of the other developed economies you know needless to say that the Emerging Markets are also spending way less than the US that gives the the the the government or I should say the Federal Reserve a sense of urgency to reduce rates much more than other economies and that has to have an impact on the dollar itself so I'm not sure that that the FED really had an option A lot of people are seeing this as look I think the FED has reduced rates uh before really accomplishing you know the the the end of an inflation problem I don't disagree I mean I don't think there's an end of the inflation problem but I also don't you know I think that saying that is also uh Missing the fact that you know if you were in their position you would have to do the same you don't have an option here would you keep rates at five five and a half percent and you know and and create a major burden for the government when you know that basically majority of the growth that we've had particularly from a valuation differential of companies in the US versus the rest of the world is mostly attached to the fact that we're able to spend more money fiscally than other countries you know then then you start reconsidering all these things and and so if you if you work under the assumption that the FED is trapped and the FED has to lower rates regardless of what's Happening then you know you can you can kind of come up with a lot of investment uh potential investment ideas or investment uh thesis that that are likely to unfold given an environment where suppression of rates is inevitable in my view suppression of rates is inevitable so interest rates are going to come down we're going to talk about that in just a minute uh that feeds into the next two charts that I want to show this is from your recent investment uh newsletter here from crescat Capital uh very very good resource by the way for investors check out crescat .c link below Global money supply has been going up according to this chart that you put together uh data from Bloomberg it looks like Global money supply versus US CPI correlation there that makes sense let's put these two charts together what is the story here that these tell well money supply by the way this is prior to any I I I put this chart out prior to anything that came out of China from a stimulative stem point in the Bazooka that we came out which only adds to that but that puts into perspective that the level of grow were seen which is about 7% on a year-over-year basis OR7 trillion dollar because the money supply is about 100 plus billion um we're talking almost as much as we're kind of in the same trajectory that we saw coming out of the pandemic and really there's not much going on right now compared to what was happening at that time and so when you think about this is is you know it's not coming just the US it's it's really globally China not as much part of this as you would think and China may even add tremendously to this data um but but the the chart of CPI with money supply I think the answer to that is know those friends that we all have that say money printing doesn't create inflation you know that's the person you want to share this chart with and I'm not trying to be you know uh hopefully uh rude or anything like that but a lot of people like to get into the technicality of what money print printing really means the expansion of money supply I mean it doesn't it doesn't really change the picture you know the money uh is being diluted in a large way and that has to have an impact on CPI particularly when you have you know this level of monetary stimulus along with fiscal uh which has been something that combination of the two is incredibly inflationary um what I'm extremely concerned because back in 2021 and 2020 when we came out of the pandemic and we've had all these stimulative packages coming out of most developed economies even emerging markets that the same and all the muddy creation that we've had um we didn't see the dollar actually depreciate relative to other FIA currency zone so that to the US economy you know just looking at the US economy alone that was actually a positive factor that uh helped not to make the inflation issue even worse this time I am very know I remember in 2021 I came out very strongly saying I think 10year yields are going to go a lot higher I'm still of that view I still think 10 year yields could could go a lot higher I think the suppression of rates is happening on the short end you just want to be clear of that it's the FED funds rate two-year yields and so forth those the t- bills they're all going to be suppressed in a big way in my view now the big Trend that I'm paying attention is not necessarily on the interest rate side of it but it's the impact of that on the dollar I think the dollar is extremely mispriced we've had a big depreciation of the dollar versus other fiia currencies recently and that actually we had has moved the other way a little bit recently as well and I think that that's not the real Trend the real trend is that the US dollar is likely to devalue much further versus the currencies now I want to be clear as well I've had that thesis about hard assets for a long time too I'm not talking about hard assets at this at this stage I mean I I'm extremely bullish hard assets for the near- term and the long term I am being very specific about the dollar versus all their fear currencies particularly the ones that are Emerging Markets I think that's going to have some major implications in the global economy and we have as investors to think about that especially for the next zero to three years and I'm not here to also say that this is the end of the dollar or anything like that that's I'm not going that extreme either I'm just saying depreciation of the dollar is highly likely for the for for the foreseeable future and you know I think that's going to be very important the dollar is going to depreciate relative to other currencies why because other central banks are going to be more doish than the fed or other reasons the other way around I think the FED is going to have to be more doish than other central banks I think we all if other folks have not uh learned a lesson about currencies is that it's a relative game always it's a relative game especially from the economy standpoint from policymaking and all those things and when I look at that interest payment relative to GDP this is the main thing I'm concerned about because I I cannot see this being fixed I'll side of suppressing rates in a large way and if that's going to be the the case here um then even the ECB and even the boj is in a better position in the Than The Fad in terms of the interest rate policy now keep in mind the the Japan as a country has a much larger uh leverage in the system than the US I understand that that's a very very uh contr and view what I'm seeing are very unpopular the fact that I think that the doj is in a better position than the US and I'm fully aware of what happened with the Dollar carry trade uh not too long ago but I do think that the fat is in it's really boxed in and it's going to have to lower rates regardless of what's happening and so we're going to get into that path moving forward and you know what's going to be interesting David is if inflation actually really starts re accelerating which is my base case right here I think that base case was a lot harder two three weeks ago to call now you're seeing break Heavens much higher you know the dollar I'm sorry the the crude uh crude prices are much higher you're seeing most agricultural Commodities much higher we've had one of the largest increases in food prices over the last you know since since the Russian invasion period in 2022 so know things are lining up to a point that I think inflation could re accelerate as the FED is lowering rates and the FED is going to be forced to ignore that that cannot be POS that cannot be positive for the dollar my view I want to come back to the inflation side of the story and and you've done excellent research on the interplay between the fed and fiscal policy so we'll talk about that but I want to focus on China stimulus first arguably the most important piece of news in the last couple weeks for base medals just today on Tuesday October 8th uh the Hong Kong uh hen index saw its biggest daily decline since 2008 because last night uh the government of China announced that uh perhaps the stimulus measures weren't going to be as big as initially projected take a look at this article from Reuters China stocks rally Fizzles a stimulus offer disappoints okay h s saw its biggest it closed 99.4% lower heaviest fall since 2008 uh comments here ultimately for the rally to be sustainable we need to see more fiscal policy and more measures to support the economy and the property Market uh says analysts so uh the Shanghai compos also fell basically uh economic IC planner chairman uh told reporters shinh high was fully confident in achieving economic targets of 2024 but his failures to detail sufficiently big or new measures rekindled Market doubts about beijing's commitment to ensuring the world's second largest economy can climb out of its most serious slump since the global pandemic copper today fell uh by the order of let's see here uh 3 and a half% 3 yeah 2% 3% in one day pretty big drop as you know base metals like copper rallied significantly um this was the announcement by the Chinese Central Bank here so what's next for base medals are we still is the China stimulus story still important after today's announcement well first I don't think mows really rely solely on this China thesis I think the China thesis is very much a potential upside to the story in a big way and the reason for that is because the amount of I want to be clear one thing the amount of spending we're seeing from developed economies outside of China whatever you want to call it developed or Emerging Market the Chinese economy but the amount of money on construction on trying to fix the electrical grids and and Green Revolution all those those those things that's not ending anytime soon the UN Shoring and clearly that is yet to drive even further demand for for the um for the Bas Metals in particular and you can see that as well I mean utilities are leading way in the S&P 500 year today as a sector what does that mean now either a defensive sector is very negative for the economy to see a defensive sector leading or it's just the fact that a lot of institutional Capital it clearly understands that uh all these Technologies and and macro trends that we're seeing from on shorings in particular uh are yet to feed a much larger uh investment towards uh the utility space and if we see that uh that's has to also Drive the demand for for the metals and so I want you know that's that's number one number two I think what's happening with China not too long ago China was was uh reported actually purchases of gold and gold was doing very well on the back of those those reports and then one one month it basically reported that you know unchanged Holdings of gold and gold had a terrible day on that day um and everyone was extremely bearish and saying look China's not buying gold anymore and and all it did was it didn't buy for a month and all these assumptions are made I don't agree it's a to me this is very similar to that I I disagree with this type of noise the Chinese market went up massively in the last few weeks everyone is extremely bearish and op food it everyone had a change their views and now after a massive move it's absolutely normal to see a volatility or a volatile day on the downside we're seeing that today now is that the end of it I wouldn't bet against it I wouldn't bet against it at all I used to be a China you know hawkish per I used to write all the papers about the the potential for a Leman brother moment in China years ago I'm not in that I'm not in that camp at all I think that the time to be short China was two to three years ago this is not the time now you know things have been cutting half you know some other things are down 80 plus per already um and if you don't understand that as an investor I think you're missing the point in a large way so I I I fully have this this uh China thesis as a as a as a potential for uh other things like gold and and base metals and others I do think that the Chinese economy or the Chinese government is serious about um stimulating their economy once again and um while I don't see this being what is highly dependent on the base ble skes I think could be a very important upside even for other emerging markets and so you're seeing is sell off in in in crude is sell off and a lot of other things and if you look at technically speaking crude is actually right in a support it would make sense to have a weakness uh right at that level that we're seeing right now now those those types of I shouldn't say support resistance those types of resistances are are are are usually not you know very strong you tend to see a big break out of those and I would I would would be betting on the other side of this I actually think that inflation will re accelerate I think Commodities would do much better here in three months from now and uh and that can change quite a lot this this Dynamic that we're seeing in a day like today I think those things are quite normal if you're an investor and you follow these things and I want to say one more thing every CH every thesis that you have that you come up with will be challenged at some point everyone I mean I've had my own Theses that been challenged in the past you know how many people told me Silver would never ride how many people told me gold would never rise and trust me I've had situation with silver trading $18 and I had to defend my thesis while those folks that came out recently and said China was was a trade to be in and they got it right now they're being challenged and what are you doing that position do you just get spooked and out of the the Theses or or do you have the bases and the support to really you know rely on it add to your position in a day like today now I I'm not an investor of of communism I'm not an investor of those those companies at all I want to be clear there too but I would not bet against it and I do think there's ramifications to the global economy and I think that's going to be very positive for emerging markets so I'm a buyer of emerging markets and I think that's that's really the the the big Trend ahead of us going back to uh your thesis here liquidity is going up stimulus from China and stimulus from other central banks so immediately what what are we looking at in terms of investment implications you like Emerging Markets Commodities uh these are your highest conviction calls right now for bullish assets that will react to this stimulus yeah I I have you know I've been very consistent over the years in those ideas um my ideas have always been we've been in a entrenched inflationary era um where central banks worldwide are very in a very limited position to fight those Trends and therefore going to have to allow them to uh continue infiltrating the system and ultimately it drives Capital back into things that have been neglected for a long time hard assets being one of them and also Emerging Markets now of course I have near-term um views as well and I I think energy looks very attractive I think a lot of people are are you know not counting on uh on the idea that energy can break out and change quite a lot the uh the macro setting here and I think that's a real possibility um you know there's geopolitics that can play into this as well as a premium to Energy prices uh but also um yeah natural gas oil all those look extremely attractive um other implications that I think are important when you have the suppression of interest rates on the on the on the short end but you also have inflation running you know somewhat uh freely um you can have a major steepener of the yield curve and so the steepening of the yield curve is is one of the most important Trends in my view for the next call it year I think that that's that's highly likely we were highly likely to see a steep steepener of or steep steepening of the yield curve and um and so those are those are important Trends uh that are you know also uh still you know likely to unfold here let's talk about that steepening of the yield curve the most important investment trend of the next year uh why why is that going to happen um for two reasons one I as I said I think the fattest trapped that they're going to have to reduce rates more than other central banks and they're going to have to act quickly despite what's happening and that doesn't mean we're going to see 50 basis points tomorrow anything like that I'm also not saying this but I think that that that the trend of rate Cuts is here and it's here to stay and so you know this is my my view on the short end so short end is likely to actually go lower and then on the back of that we're seeing inflation actually re accelerating this you know with with the fat acting that way uh but so with more stimulus globally on the money supply front uh we're seeing Commodities starting to Trend higher if you you know and if you are of that view that inflation is re accelerating you probably have the view that the 10year yield will be challenged and the other thing that I think not enough people are covering and they were covering a couple years ago and now this thing has been sort of on the sidelines has been the insurances of treasuries more recently on the long end are starting to increase again and I think that that drive Supply much higher drives yields much higher as well so I would not be want to be long the you know the 10year treasuries or the 30-year treasuries um and I do think those yields are going a lot higher and so if that's the case you know you have uh a short end that is limited and it's likely to go lower the long end is is is has got a lot of upside so that means steepening is is highly likely plus historically when you have a deeply inverted yield curve what do you see on the back of that a abrupt moments where the yield curve tends to un invert and in a very significant way and so I don't think this time is different I think we're going to see that once again when historically when the 10year minus twoyear yield curve steepened in the past which assets have historically done very well oh that's a good question I I actually did a full research on this looking at um I created an indicator and I actually did a a presentation at the IMF um about this which is a I was invited to because I created the percentage of yield curv inversions so instead of looking at separate yield curve uh spreads like the two versus stands that you referred to and others uh that a lot of people tend to look at I decided to actually create a little bit more comprehensive way of looking at this and and looking at all possible spreads in the yield curve there's about 45 y uh possible spreads and then calculating how many or how much percent of those yield spreads are actually negative and when you reach when you go up above the 70% handle you tend to see a recession uh and if if it's not a recession which actually happened I think one time um where Equity markets you know did well despite all this uh but one Trend that is very clear that it tends to happen more often than not and and and not only that but the performance is very robust is that the gold to S&P 500 ratio tends to rise significantly after those you know very large amounts of inversions begin to De uh to un invert and so we are at the process now if you look at the the gold to S&P 500 ratio has been going higher uh but not massively yeah because the the equity Market has been holding up well and you know gold has has has been doing tremendously well I mean the the surge we seening prices uh is really what's been driving this ratio recently but there's a lot more to happen here in my view and so I would be uh surprised if we don't see the gold just at p500 ratio uh be substantially higher in in call it one two three years um because of this this uh you know correlation it tends to have with the UN inversion of of the yield curve and so that's usually the big sign now it depends to your question it's going to depend on a lot of things so if you are in the deflationary era treasuries is a good bat and so in the last 20 years or so every time you were in the position where Yol curve is is extremely inverted and it starts to un invert as a recession unfolds you want to buy treasuries uh if you are in a more inflationary era you do not want to buy Treasures you're going to get in trouble you want to actually buy gold and so it really depends on where what type of regime you're in and now I I have my opinion on that I certainly believe we're in an inflationary era and I think you can measure that in many ways um particularly how you know Commodities have been Trading uh we can get into that there's kind of a rotation Dynamic that we tend to see from a when you're in a commodity cycle uh in very inflationary era and uh in my view this gold to S&P 500 ratio may actually work even more than we've seen in the past so and pay close attention to that uh because of this you know development in the yield curve so we're going to be in a bare steepener versus a bull steepener meaning the uh uh the shortterm will fall faster than the longterm but that's going to be into happening into more of an economic decline is that basically your thesis I am agnostic about bar bull steeper and I I think that you interesting you don't really have to answer that question um as a as a unless you you want to answer that question but um I don't think you you need that answer I mean we have that trade on in in our portfolio and we don't have that you know I don't have that answer I really don't know the answer for that um and I don't have a strong view because I don't know which one is going to move Mo uh more honestly if the fiscal side becomes a a a problem and the 10year yield moves a lot higher I'm I'm sympathetic with that view what if what if what if we see labor markets you know we I know we've seen some some data recently on employment rates and others that they'll support further Cuts but let's see we do in a month from now and you know a big change in the narrative on the labor markets uh front and now justifies the FED to cut much further you know then then the short end moves more than the long end so you know I why I don't really need to answer that question because I actually think the trajectory of both sides or not both sides but the the spread itself is is moving higher regardless so what we do is we keep always you know we we have a duration adjustment of of the position of that of those of those um of that um of that idea in a portfolio and every week or so we try to you know kind of match that duration because the duration uh the position would change because of the movements we tend to see so as long as we're haging both sides and and that spread continues to be you know balanced in the portfolio then that's you know I think that you can be agnostic to that question actually makes a lot of sense I'm going to flip back to my screen here you have in your report you said that your primary concern however is that the rising share of interest payments and entitlement spending post a serious ious challenge the sustainability of this Dynamic I think you were referring to the role of monetary policy here such non-growth oriented expenditures have surged significantly so by non-growth you mean spending on things that aren't infrastructure things are productive you're just spending things on interest payments on debt for example and that spending from the government has been rising sharply per your research what does this mean for Cal markets this chart yeah I I look I usually my letters kind of long and I kind of build on them over time and the prior letter was about a research I did about you know the average fiscal spending we've had since the global financial crisis across the globe and clearly the US is the one to spend the most it makes sense we're the reserve currency we can we can be less disciplinary than other economies um it's it's what comes with territory right and and so that's what we did we spend we meaning I'm I'm Brazilian I'm not American Amer but that's what Americans did they spend more money on the government side that created growth on the back of that that created a Divergence of valuations of equity markets in the US versus other places imagine spending more every year than other economies on a relative basis kind of explains why you have such you know froy valuations in the US versus other places so that's number one now when you dive into that 8% annual uh spending that we see relative to GDP every year right uh in in average um one important aspect of that is is that the known growth now how much of that is known growth how much is that is entitlement a lot of people say that oh entitlements is see it's eating the lunch of spin it's not I mean it is but it's it's it's not as bad I mean it's actually been very stable over the years believe it or not yeah I I I I ask everybody to look at that data look how much enam is is being spent relative to GDP over the years and you will see that line has been going sideways recently now what's not going been going sideways is interest payments relative to GDP that has been surging and now you know so you're looking at that 55% of of us spending is no growth because that's entitlements that's interest payments now 20% of that is interest payments just to give you some sense so it's a quite significant number and it's only going to grow from here unless we take rates to zero tomorrow which won't be the case either so you know I do think that this is a problem and it comes down to two potential Solutions if you think about it one you can suppress rates so the interest payments can Decline and that's one solution and I think that's going to be part of it and number two is let's spend more so that no growth aspect while May grow over time um you know you still have that other part uh the the growth aspect uh that will still be coming in in a in a more significant way at over time as well so let's say instead of spending 8% of or call it 6% of GDP on on fiscal spending on deficit uh you can maybe be spending 8% so but but that those things are highly inflationary both policies and I actually can see them actually know working together not you know not separately we can see a suppression of rates with more spending but what's funny about this David is that if we see suppression of interest rates that just means that the no growth aspect that 55% may actually shrink because you're suppressing interest payments uh relative to GDP so you have to think that way monetary policy is becoming more and more a tool uh to allow the government uh to uh to free up some of that burden from the debt front and and it's it's changing even the you know the Mandate of of the FED itself which used to be you know let's let's try to create stability from the inflation front labor markets and the real in my view the real um issue here is is how do we pay our bills tomorrow from a government standpoint and so it's it's changing the dynamic in a big way uh and I think again it goes back to being very very inflationary because all these Solutions or potential solutions to the problem they're not really fixing the problem they're just you know um I guess uh creating other imbalances and inflation is a big one so uh I view this as a problem and and I do think we're going to see a lot more inflation uh and this is not the end of it and it's you know it's interesting that policy makers try to justify these changes in interest rates and other things um by saying that you know inflation is back to normal levels uh when I know first those that's really coming from government data but secondly you can you can look at Commodities and commodities are not you know I I wouldn't explain this earlier but Commodities are in kind of a rotation that Dynamic right now you know you can see this clearly because every month it's there's one commodity that is the flavor of the day right it's like oh now it's gold gold price is surging and then the next no three months ago was copper uh and then was orange juice um and then it was energy you know you saw oil and and natural gas back when Russia invaded uh uh Ukraine um and then you saw lumber prices coming out of 2021 ammonia prices went up a lot so you can kind of see they rotate and that's usually a signed you're in a commodity cycle so I I would I would not play against that I I do think that that's that's a much longer Trend than most uh think it will it will last you've identified here something that I've noticed as well um which I find very interesting the relationship between gold and base Metals you use copper here as an example and you wrote that the recent rally in gold prices that's been happening all year long could serve as an early indicator of what could be on the horizon for base medals since when have they started moving together in tandem um logically that wouldn't happen but here we are well it's interesting because I think all of us try to be you know very specific when we look at Copper and say well it's a very cyclical commodity and tends to move more as an industrial met therefore it moves more with the economy and um you know when it falls it falls more than gold and when he rises it rises more than gold those things are all true I'm not here to say they're not true but clearly if you were in a gold cycle you're probably in a copper cycle look at that chart um and I think it's a reflection as well of what happens a lot in markets where the easy capital or the easy decisions are made with things that are safer right first and then as people feel confident they start spreading the risk uh and increasing going up on the risk curve so in other words it's much easier to take on a gold position at first than a proper position but as when gold starts moving they me a reaction of any vast like are there other metals that could move along with that and then you start doing your research in other metals and usually they're part of the same cycle you know if you're an investor in the gold space if you're a minor a lot of the the gold deposits also have copper a lot of the copper deposits also have a lot of gold a lot of the gold depos have a lot of silver so they're all kind of in the same fr the same in the same uh phenomena and then you think about what is what really creates a cycle for Commodities know at the end of the day if you could pick one thing what is it and it's usually cap acts it's it's Capital spending of The Producers when producers are spending a lot of money in aggregate that's usually the end of a cycle when producers are not spending enough giving money back to shareholders are not doing Acquisitions and so forth that's usually the sign of being at a bottom we're probably there right we're seeing some Acquisitions and usually they're happening between Majors one major bu another or merging with another major um but we're not seeing any cap ax increases cap axes are still extremely low relative to history particularly if you divide it or you adjust it by GDP which you should be right 10 million spend on the ground today are not $10 million you spend back in ' 08 they're very different those dollars will not get you the same that you did back in in in ' 08 and so I think it's all kind of linked and the same way goes to this I don't know ridiculous notion that is completely unsupported by history that if we see gold prices this time rise which has been happening we're not going to see the miners actually perform well I've never seen this throughout throughout history I I don't think that's supported at all uh by data and if we do see gold prices going a lot higher which I think we will it's just my opinion um I think that the miners will also follow and also base Metals copper silver Cobalt zinc manganese you name it most metals should should be moving in the same direction and ultimately if the underline metal price is moving higher then it means as well that we're likely to see uh better fundamentals for most uh mining companies so I've heard this Theory from some people and tell me what's wrong with this assumpt what the underlying assumptions behind this Theory gold going up could signal um more volatility ahead more weakness in the economy perhaps basically gold going up is a barometer of weakness in Risk assets which could then signal slower growth which means bad bad news for base medals like copper basically gold going up should mean copper going down a Divergence from your chart what if anything is wrong with that well David I would uh to those folks that have said that can you please forward this chart to them I think that would be important I think you should ask them the question what happened in 2000 why did gold rise so much and copper also was Rising as much as as it did during that period some people will say because of China China was driving both markets really what about today what are we seeing have you seen how much spending we're seeing in construction or have you actually taking the inflation act and how much is being spent even from the government forget about private and compare that with times like coming out of World War II when we did you know nowhere close to what we're seeing today even even the Marshall Plan which was a global plan not in the US was smaller than what we're seeing now adjusted for inflation or relative to GDP which is insane and so the the the amount of money going into construction is also likely to drive copper prices and I think that the whole idea of copper uh being more industrial and also uh having this connection with economy is true it's very very true um and and and potentially you know this is the beginning of an era now maybe this whole chart is wrong and the Divergence we're seeing is is the beginning of a new era where copper goes one way and gold goes another way um that's not what I believe you know this chart actually you go back to the 70s was the same thing um and usually this is just the case because um paent funds and other large Capital allocators uh they you know yeah gold has a potential to be signaling a weakness ahead if it's if it's rising not every time you know look at the early 2000s when was that you know that was the teack bust right and still copper did well look at that copper was still you know going up it it it actually had a little bit of a lag which is the whole point of this chart right yeah it's the arrow that is a little bit ahead of it but it went up and it went up a lot I'm just scrolling back to yeah I mean you're you're you're absolutely right uh good relationship between copper which is right here the uh uh the purple line and then gold the bar chart um obviously there have been periods of Divergence but if you just scroll back into oneyear increments here um for the most part except for uh 2019 um they've held on pretty well so now would it shock you if you put agricultural Commodities in this it will also show the same link yeah and interesting is that shocking I mean you know you start thinking about it from a just the rationale of putting Capital into gold and then gold starts going up you you start thinking about what are some other hard assets I should probably be considering should I put one of my fund into agricultural Commodities now that they're so cheap and they haven't moved as much as gold yeah here's wheat um moving quite well with gold yeah so there's this is interesting yeah and and so definitely there's a link in in in in these Commodities and you know they're usually all aligned so you know another point that is important remember that early 2000s all the way to 2011 where gold prices basically went one way way up despite the decline back in ' 08 which was brutal for investors but if you if you're sticking with the trend you did very well but um another thing that tends to happen when gold prices are rising Emerging Markets you know and there's a reason why we tend to see at times every couple decades a certain type of leadership in the market sometimes it's technology it's not forever and then it changes to Banks and it could change to emerging markets and then it goes back to us companies are leading the way to the upside and look I mean back in in um in uh in in the early 2000s if you bought ebo Visa which is the Brazilian index of equities the most barring way to buy Brazilian equities just buying an index it went up 18 fold until 2011 right so that's like those are the types of returns you can get with you if you uh if you're if you're being able to identify these Trends early and I think that's the type of opportunity we can have here um in a big way so yeah I want to finish off we have a few minutes left I want to finish off on mining stocks here you have here excellent chart cash flow of the gold sector and gold companies of all the uh of all the sectors in the S&P 500 it looks like this one has the highest cash flow margin uh is it by the the last quarter that you're looking at yeah as of September 17th um the GDX has just started to outperform the S&P 500 year to date it's up 25% versus the 21% but the outperformance is recent now tvy uh so what's next oh well I I think we're not you know we're nowhere close to what we're likely to see with the mining industry in my view um level of skep skepticism hasn't changed a lot of people still think that you know the the overwhelming view out there is that gold yes I agree with gold of course you agree gold is going up already it's so funny how people tend to miss misses things but but uh you know I think that the mining industry has a lot of Leverage to metal prices and leverage works both ways in a good way and a negative way if you catch the wrong wave of gold prices and metal prices in particular you're you're done right it's going to be a very difficult period to be in the mining industry if you catch the right wave where things are going up then yes C cost will also caught up to you know will also rise at some point as well and there's certainly a degree of that linked to gold prices too but they do have leverage and you start see institutional Capital come in scalability of projects um know things can change quite drastically the whole reason of this chart is is to kind of prove the point that you know there is there has been fun fundamental Improvement in this industry uh and you know margins have been improving it's needless to say that gold prices have been rising to degree that we haven't seen um in history and uh and other matters are yet to follow so um in my view the next wave here is going to be very much driven by the mining industry and so I'm very focused on this because uh gold prices have already showed the direction and I think that the next one um to uh to o benefit from this is the mining industry and you know we're seeing General investors become more and more interested in the space uh but the lack of knowledge understanding of of this whole industry I think reflects on the lack of efficiency that we have in and how we price this this this secur the Securities and you know in efficiency is also a cool word for opportunity in my opinion so uh this is why I I you know I'm always there's two things that I'm really interested for the next you know decade um one of them is you I'm you know three things one try not to be too cute with markets right I mean I don't know when gold prices are going to go down 5 10% or copper or any and not just me but anybody now I have a strong view that gold prices would be substantially higher 5 10 years from now if that's the case there's two trends that I'm very focused on mining I think mining will do very well well you could see energy you can see other things do very well but I think mining is going to be one of the main ones and number two is emerging markets and uh I think those are extremely mispriced today and you know talk to me in five to 10 years if I'm wrong on that then you know I'm happy to admit and move forward but that's that's really where my my my allocation of time Capital attention is is really towards at this point well it's been a great year for uh and precious medals in particular so you've been correct on that call so we don't have to wait 5 years to congratulate you you've already been right on that uh good stuff Tavi thank you always for your updates where can we learn more about you and uh what can we learn from your work learn more about me on Twitter at Tavi Costa and you can see some of my post uh and also at crash.net where you can see some of uh our research and pieces that we put out there as well but thanks again David always a pleasure speaking with you and uh yeah look forward to speaking with you yeah thank you very much thank you for watching don't forget to like And subscribe follow Tavi down below
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