YouTube Transcript:
Global Money Supply Surging_ Get Ready For Inflation's Massive Comeback | Tavi Costa

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
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