Speaker 1I actually think there's math that works to put gold above $200,000 an ounce, but that is like insanity, right?
Speaker 2Yeah, I think $7,800 makes perfect sense. It is a flaming dumpster fire. They're 105% of receipts, quarter to date. And they're growing 7.5% while receipts are growing 4%. You're done. You're done. The debasement trade is back on, baby. I mean, reels were rising and gold and silver are taking off like scalded cat. The valuations are in la-la land, right? As context, the valuations are in like turbocharged super la-la land. I'm going to call it a bubble. I think it is a bubble, but I'm calling it a bubble as a percentage of GDP. It is absolutely a bubble. You know how these things trade, right? So it's, you know, once they pop, the volatility becomes inhumane. I think the easy part's over. I think we're in the inhumane volatility part. I think it gets much more discretionary around winners and losers, who has a moat, who doesn't.
Speaker 3Welcome to the Futures Edge. I'm Jim Murillo. That's Bob Iaccino. Before we get started, I want to thank our sponsors. Marco at Independence Arc. We always complain about banking conglomerates taking over. They take over the food supply, and they have. There is something we can do to push back, and that's to patronize small, independent operators like Marco. It's grass-fed, grass-finished beef. It is outstanding. Particularly, Marco, if you're listening, I want to start gravitating more towards the meats to smoke. Bobby was just saying that he gets some great stuff, so I'm in. Also, Bobby and I are two-thirds of the team at unfilteredinvestor.com. I know a lot of you guys have subscribed to that, and I truly appreciate it. We have one of our favorite people, one of our favorites. He is the founder of Horse for the Tree's Partners. It's Luke Roman. How are you, Luke? I'm doing great, Jim. How are you? Good. Good to see you. I'm glad you have a jacket on, taking us seriously. We deserve that, I think. No, I just was listening to your show with Meb. When did you record that? Because that was great. Thank you. That was excellent.
Speaker 2Yeah. That was, I think, Monday of last week, I believe, actually.
Speaker 3Yeah, I was just listening to it just to see what you're ranting about, which I don't mean that in a negative way. I like that you're ranting about something, particularly on a day like today, because I want to start about 1230 today, Chicago time. The crude goes through the roof when Trump starts threatening Oman, and guess what happens to the 10-year? Boom, 4.63 to 4.72, pretty damn quickly. I guess let's just start off with a bang. Bobby, should I wait? Because my favorite question is going to be about the yen and about the not-yield curve control from two weeks ago, but should we wait for more guests? Let's just go. No, let it go. Let it go. So, Luke, two weeks ago, big day for me and a big trading thing for me was when we came in, the U.S., and bought yen to keep. To keep the yen stabilized. My thesis immediately was like, wait, that's a cousin of yield curve control, which is a cousin of quantitative easing, buying long, and if they're trying to keep them from selling their bonds. I immediately bought silver. I probably should have bought gold. I think things are getting a little dicey and dire. What are your thoughts on that?
Speaker 2I agree. And the reason I say that is he's in a pinch. He bestens in a pinch. If you look at the latest Treasury Borrowing Advisory Committee report that came out with the QRA, the quarterly refinancing announcement. I guess it was two weeks ago. It is a flaming dumpster fire, and that is a technical term. And I say that because what it shows is that the U.S., despite everything we've done in a decent economy, what I call true interest expense, which is entitlements plus receipt or interest plus entitlements plus veterans benefits, they're 105% of receipts quarter to date. And they're growing seven and a half while receipts are growing four. Yeah, that math doesn't work. You're done. You're done. And they're made up of items that inflation adjusts faster than receipts adjusts. So the more you inflate to do that, to try to get out of that, the faster it runs away from you. And so I can understand why Besant doesn't want the Japanese selling U.S. Treasury bonds, which, oh, by the way, is what they're supposed to be for. When you hold an asset in reserve, it is your reserve for a rainy day. It started raining in Japan. They went to go sell their treasuries. They had to defend the yen. And Besant said, no, no, no, no, no, no. Don't do that. I'll lend you more dollars. Effectively what he did, I'll lend you more dollars advocating for FEMA swap lines usage and upsizing to support that. And by the way, this isn't the first time he's done this. He has done this repeatedly for 18 months since he's been in office. He said February of 25, judge me not on anything other than how the 10-year treasury yield trades. Well, heck of a job, Brownie, right? For us old guys, we know what that means, right? Yeah. New Orleans is underwater and Bush is congratulating the guy, right? So the 10-year is not going so hot, but he criticized Yellen for upsizing or for implementing and upsizing treasury buybacks. He's doubled the size on a run rate basis, mostly switching for short end for long end. He has continued the process of shifting issuance to the front end. He has repeatedly, again, earlier this year with the UAE, remember that? The UAE said, hey, we're either going to sell treasuries or we're going to go to the Chinese for liquidity. He said, no, no, no, we'll give you swap lines. Which, again, tells you that those that treasury market is not as deep and liquid as it's been advertised for our whole careers. And now we have Japan, to me, is really interesting, both on its own merits, but then also as part of this broader theme, which is fiscal dominance, continued sort of acceleration towards a soft form of yield curve control. And to me, the question was always going to kind of be, I mean, you guys have been around markets a long, long time, just like me. And it's like it never matters. And then all of a sudden it matters. Yeah. And when is it all of a sudden going to matter? And I'm not so sure it wasn't two weeks ago by how the 10-year is trading, how the 30-year is trading, how Western sovereign yields are trading, how gold is trading. I mean, the debasement trade is back on, baby. I mean, reels were rising and gold and silver are taking off like scalded cats.
Speaker 3Yeah, no doubt about it. You know, what's funny is that if you would have talked to me a month ago, I would have said if the problem was going to come from Japan is if they're going to actually start supporting it and make it too strong and start flushing people out of the carry trade, which then they could be selling treasuries. And you have told me before. You have told me before that a lot of that carry trade ended up in U.S. tech, which I fully believe. So I thought the worry was that they were too aggressive in strengthening it. And then all of a sudden it dawned on me, shit, the worry is that if it gets too weak, they're going to sell their own treasuries. So you're damned if you do and damned if you don't, right? That is, you know, it's interesting.
Speaker 2We wrote a report back in August of 2024. And we had been harping up until that point for the couple of years before, essentially, that the Bernanke generated dollar carry trade, right? We did ZERP. We cut rates to zero. You had a bunch of a big dollar carry trade. And anytime the dollar got too strong, it was very predictable. OK, dollar gets too strong. Long end yields are going to start going. Financial conditions are going to tighten. Bitcoin is going to sell off. Stocks are going to sell off. Treasury market is going to dysfunction. And then they're going to come with more dollar liquidity. Wash, rinse, repeat. And, you know, then risk on, dollar down, rates down. We saw this probably five or six times from 2020 forward. And they'd been harping on it, harping on it, harping on it. And I got caught out of left field in summer of 24, late July, early August of 24. When, when the yen got too strong and, you know, the yen carry trade, right? When, when we were, you know, back when I had hair, that's all anyone talked about. There was really no such thing as a dollar carry trade as, as overt as it's been since Bernanke. It was, it was the yen carry trade. And that's when it hit me. I was like, they're done. This is August of 24. I'm like, they're done. Because now you're in a situation where if you think about two constraints or, you know, macro bumper bowling, yen gets too strong. The yen carry trade blows up. Dollar gets too strong. Dollar carry trade blows up. And what we said at the time. What we said at the time was that the optimal tactical policy was essentially, you got to keep the dollar yen cross rate in sort of a range that has been demonstrated as not causing a problem for either, which means sort of alternating liquidity in yen liquidity, dollar liquidity, yen liquidity. And we said, that's probably good for gold. It's probably good for Bitcoin. That's probably good for stocks. It's probably good for emerging markets. That's what we said in August of 24 in the, in the near term. And from August of 24 through the end of the year, Bitcoin was up 60, 60%. Gold was up like 12%. Stocks were up like 10% and was up like 10% in the next month and a half. But then Trump got elected and promptly got, you know, waylaid. So it finished the year down. But, you know, three out of four is not bad. But my point is, is that with that context, you knew Japanese debt still going to be a problem. U.S. debt's only been rising since then. And so it was only a matter of time till we got back to that regime of dollar too strong problem, yen too strong problem. And if I wanted to make it a problem right away. Like the best thing I could do is start a dumb war in Iran and start messing with global supply chains by having the Strait of Hormuz shut down.
Speaker 3And of course, tie yourself into just a huge amount of debt of debt that needs to be sold to, to finance wars. Where's your sense of Bobby? A quick time out. You posted the rumble link on Twitter. Did you mean to do that?
Speaker 1Yeah, that's all I can find this live.
Speaker 3Okay.
Speaker 1So it could be that some of the other ones, the live function isn't working. So rumble is the only one that's live, but that's okay. This will go out in a week or two.
Speaker 3Sure. Yeah.
Speaker 1I want to, I want to propose something to both of you guys, and I don't really want to take the time to go through my back of the napkin math on this, but, and Jimmy, you know, this, I have a target for gold of about $7,800. I actually think there's math that works to put gold above $200,000 an ounce, but that is like insanity, right? So I'm not going to say that even though I just did, what do you guys think of that prediction? And I don't have a timeframe on it. I honestly, if you put a gun to my head, I'd probably say five years from now.
Speaker 2- What do you guys think of that move?
Speaker 17800 78 i think he wants to go with yeah forget the 200 let's forget that i gotta hit my first jar before i go to my second one so let's talk about 7800 probably a smarter bet yeah so what do you guys think of that particular what i think inside of five years look i think that that this
Speaker 3could spiral out of control and that's one of the reasons i hold gold so the 7800 to me it's it's immaterial that like yeah that's sure that's in my range up there too and i know what your math is and i love it but also the math doesn't account for if everybody's like shit we need gold now and people start you know positioning themselves for a panic and again i think the fed blinked i don't think they panicked but i think it is on the path to panicking you luke yeah i think 7800
Speaker 2makes perfect sense the one one of the metrics i've looked at has been foreign held portion of the treasury market relative to the market value of u.s official gold and we'll set aside discussions of do we have to do that or not do we have to do that and i think that's a really good point let's say we have it all i think we do but who knows let's say we have it all but if you just take market price of gold times u.s official gold what percentage of that is the foreign held debt outstanding and historically that number long term that number was 40 to 60 percent of the foreign held debt outstanding even after this giant run we've had in gold over the last couple years it's 13 percent like and in 1980 when we had an honest to goodness dollar crisis you know to your point bobby that number was 135 percent now that's a that's a gold bubble when you can literally 135 percent collateralizing the foreign held portion of your debt with gold like sell gold buy treasuries at 15 percent that was like the trade of of a lifetime now at 13 percent you know 7800 we would have to get back to what 20 percent to get to 7800 give or take that's a layup like 20 was in 1989 when the berlin wall came down and that was the last time our official gold collateralized our foreign debt at that at that rate so to me 78% i think within the next five years i'd be i'd be shocked if it's not there or higher just given a simultaneous loss of faith in a lot of things u.s around the world some of which of our of our own doing and b at the same time we need some of that loss of faith essentially to to create the political cover dollar weakness inflation etc to reshore and undo some of the things that we have done that have been not in our long-term strategic interest and that's what we're doing right now
Speaker 1over the last 30 to 40 years so here's part of here's part of it for me if if i could who's left that's buying a 30-year bond at whatever five and a quarter or a little bit more than that today five and a quarter percent and saying this is what i want to hold for the next 30 years outside of governments and maybe the the rare insurance company that's kind of forced to or whoever else is forced to but i feel like that pool of buyers has been shrinking over the years with all the private equity and the private credit and all those other things that are growing and so i look at it now as you look over the last 10 years the s&p without dividend is over 13 percent annual return with dividends over 15 the nasdaq i think is over 17 without dividends over 18 with that's with like three to fair three to four bear markets in there in the last 10 years i'm counting covet in there i'm counting the tariff bear market talking about just 20 percent lower and it seems like there is no sense of a sustained bear market anymore like it can't even happen so i almost look at it like there's treasuries that's for you know places like japan right there's gold that's for places like china well i think there's 17 straight months jimmy something like that they've been accumulating gold and now it has started some countries in africa have started and then their stocks and that's pretty much it now guys like us can be wow stocks look way overpriced but the people beneath us right who've only they've experienced some of the wildest 10-year volatility and they still only buy stocks which makes me want to lean more into gold because i know one is coming do you guys think
Speaker 2that's nuts i don't and i look at it as gold stocks and dollars and stocks and gold right which is fair yeah you know i i think the regime that you describe is because we cannot afford our debt and entitlements unless real rates are negative and increasingly negative then bonds are sort of unownable on a real basis i think they'll be fine they'll clip coupons i don't just because they can't afford rates much higher than here but that then infers a regime of stocks go up in dollar terms and they go down in gold terms which is really interesting because when you look at s&p whether it's total return or just on the index or even nasdaq right go with the highest flyer since the fed started raising rates in early 22 nasdaq and gold terms it's down like 20 and i think that's i think that's the regime and i there will be times where nasdaq outperforms gold for a bit i think we just went through one of those three four five month stretches but ultimately they i think the regime for the foreseeable future i don't know that's two years five years let's let's not get crazy but next two five years i think you've got to have the only way the fiscal math works for the united states specifically and the west more broadly is if stocks go up 15 plus percent per year in dollars and they go down probably five to eight percent
Speaker 3per year in gold so you're just saying basically what i'm hearing is buy gold buy gold today buy gold tomorrow buy gold anytime you got it
Speaker 2an extra cash correct at least hold it right i think you at least have to hold it and yeah if you don't have a sizable position yeah you probably should be adding every time it's weak and exactly it's it's the fiscal math is the fiscal now there's some things that could geopolitically change but i don't see those that would change that view but i don't see them i i
Speaker 1just i don't see them the last time i sold gold jimmy i sold one ounce of gold at 1982 one thousand nine hundred and eighty two hours and i thought wow i am loaded right i'm so rich right because i have a lot more right and i'm looking at it now i'm like well okay that that gold coin that i sold has been paid for by the accumulate or the increasing value of all the other ones and so that puts me in a situation where i sell more and let the you know if i'm right about 7200 i'm gonna have the same amount of money or more after selling a couple more i thought about that when we were above 5 000 just because of the way the trend was moving right as these these trends don't go i said i'll sell some but i have just been very bad at buying bottoms and selling bottoms and selling bottoms and selling bottoms and selling bottoms and selling bottoms
Speaker 3my whole career so i just don't do it but speaking of which luke so in january you know gold printed an all-time high i got out of 30 of my gold and silver on the way up i did not pick the top but it seemed like it was getting ridiculous and then since that time gold has been you know hammered down to 4 000 bounced along it for months what was the negative story on gold that was keeping it down because i mean i obviously i have my opinions on that but what's your opinion on it
Speaker 2in my opinion was i think it was the reserve selling probably aided by exchange still stabilization fund picture painting you know in terms of just western authorities wanting to manage the rate of ascent and i and i could make a case that they did that for nefarious reasons i could make a case they want to do that for sustainable reasons right if we want you know i i think it's in the united states interest for gold to be probably ten twenty thousand dollars five years from now and if that's the case you don't want it doing this this that's not helpful you want it kind of like this maybe with some volatility so you know but you're to put it to
Speaker 3sharp and you're not going to be able to do it you're not going to be able to do it you're not your point so because sometimes one of the problems with having luke on sometimes he's so smart and he makes the assumption that people listening are seventy percent of smart or only sixty percent of smart but here here's my question what you are saying is that these countries that have been amassing gold as a reserve needed it to stabilize their currency because the dollar was shooting higher when the conflict in iran began or maybe they needed it to buy oil at the elevated prices that's what you're saying right that's what i'm saying yeah
Speaker 2exactly yeah you can see they sold gold and they sold treasuries and you can see it that's very clear those footprints everything else on that part was speculative on my part in terms of the the the interest in that i mean i that was there's reasons it's speculative but yeah i think the primary reason was exactly that which is look right oil goes up a bunch your currency goes down a bunch you need dollars how do you get dollars you sell treasury bonds you sell gold
Speaker 3bingo and again and and part of that move down to 4000 too was just with things that go up parabolically go down parabolically okay let's go to something that seems good to me and i want you to poke holes in what's good is that it seems like in the entire world the ai thing is is huge it's enormous and we right now currently are the leaders by a wide margin i think that's fair to say but i want you to tell me if it's not that seems to be a very good thing a lot of the a lot of our companies are becoming more productive efficiencies are being created and we're creating the ai itself what what's going to go wrong in
Speaker 2that trade to me the the thing that makes me nervous i guess is twofold number one you know like one of my mentors said to me 30 years ago in this business you know value is not going to go down you know it's not going to go down it's going to go down it's not going to go down you're going to go down it's going to go down it's going to go down it's going to go down it's going to go down it's going to go down it's going to go down it's going to go down it's going to go down it's going to go down until something changes and and i've always taken that view to heart because i the valuations are in la la land right we go back to the famous you know sun microsystem scott mcneely ceo 2000 hey my stock was 10 times sales and if people haven't watching this haven't seen the scott mcneely on my stock was 10 times sales what were you thinking quote they should go look at that because then you go elon was trading at 100 times sales and some of these other things are trading for 50 times sales okay so as context the valuations are in like turbocharged super la la land okay the risk to me is that the chinese competition undermines a segment that is borrowing a whole lot of money based on an economic model that that may no longer be true and as someone who's grown up in the rust belt professionally spent almost all my career in the rust belt i a lot of the things i'm hearing from the ai guys and the tech guys sound so much like the union guys and they and the and the rust belt ceos a la 2002 which is like yeah we're just using china because are cheaper, but they're never going to be better than us. And there was like, well, they're catching up, but they're still not quite as good. And then it was like, shit, they're cheaper and they're better. And by the time you got to that point, it was over. Like employment here has never come back in manufacturing. It's bounced off the bottom, but it fell 35% and, you know, competent. Now it's great for companies margins that, you know, they basically moved all the manufacturing there and, you know, became wholesalers of Chinese made goods. And that was fine. That is to me, the big risk, probably the biggest risk for these AI companies, which is, I think AI is going to be a monumental productivity driver over time. And I think there's a real chance. They're also going to be like what we saw with telecom, which is the early bird gets the worm, but the second mouse gets the cheese. In other words, like it wasn't the people that laid all the fiber that got rich. It was everyone laid the fiber, borrowed a bunch of money, went bankrupt. And then other guys came in and bought it all out. And those guys are now rich and it is absolutely a massive productivity enhancer. And so for me, I look and go, okay, well, I've got the valuations I need for it to be a disaster. If something changes, it's going to be a frigging disaster because you can't sell for a hundred times, 50 times, 20 times, 10 times sales and have anything go wrong. And then, and here I'm out of my badly wicks. So people should take with a, with a, a block of salt, anything I say here, but I, you go to something called open router, which is apparently a tracker of the spendings of AI tokens to try to gauge market share. Essentially. I'm told that open router is at best a percent, a percent and a half picture of the whole market. So you have to take it with a grain of salt, but from a trend standpoint on open router, low cost Chinese models went from 3% share of use by American companies in the first quarter of 25 to nearly half by second quarter of 26. And then we have these new model rollouts where they're, you know, as good, arguably, on as some near frontier models and you go, okay, well, that's going to be great for American companies set aside any potential national security, blah, blah, blah, blah. That's a separate discussion. If the Chinese in bottles are nearly as good and one 50th, the cost that's great for productivity. That's great for growth. It's terrible for the trillion dollars in debt and trillion dollars in lease commitments and $500 billion in take or pay obligations in the semiconductor supply chain. And that's where I go, Hey, you know, I, I, that, that's where I'm getting increasingly nervous.
Speaker 1I have a question about Chinese AI, right? As a, as a use case. And the reason I have that is because one thing the Chinese don't do much better than any other government is restrain speech and restrain their citizens. And you behave this way and you don't behave that way and you don't behave that way. I suspect they're going to model their AI either now or down the road in the same way. So if we believe, that at some point a to steal from Lynn Alden, silicone networks, while perform neural networks, right? When she doesn't believe, by the way, I'm trying to get her back on the show, Jimmy, to talk about this. You would think the Chinese models would be restricted in some way, certainly in terms of like free thought. So I think maybe they're better now, but is it possible? And I'm looking for you guys again to call me an idiot. Is it possible that somebody like Elon Musk, for example, Grok is a lot freer in certain areas than like Claude is, right? I'm wondering if that could be an advantage for sort of Western AI models going forward. Is that a crazy theory?
Speaker 2I don't think it is. I think it's, I think for the Chinese, right? Like you ask a Chinese AI model, Hey, what happened in June in 1989? Right? Like they don't know. It's going to be a 70 degree day. It rained a little, you know, right? Now you ask the American AI that's not grok and maybe even if it's grok, like, Hey, run me a, a threat on Anthony Fauci's diary. And run me, you know, how that could possibly lead to lawsuits for fraud around certain medical, you know, things that were mandated by the government in America. And my guess is most of those AI models are going to go, wait, what? Huh? And so, and both of them are wrong. I think they should both be open. Right? So I guess for me, I think there are definite possibilities that we could leverage that. And like, at the end of the day, if I don't care about what happened on Tiananmen Square and I don't care about, you know, sort of what Fauci lied about, I just want, you know, something to sort of, you know, run my payroll at the end of the month, super cheap, you know, via some sort of agentic AI, then maybe it doesn't matter as much, but, but, but I, but your point's well taken. I don't, I don't know.
Speaker 1Yeah. I would say if by theory is right, Jimmy, that would mean we would, and I'm saying the West would remain more entrepreneurial than the Chinese would. Not that we would be better at, you know, building widgets.
Speaker 3Right. But what I don't love about your theory is they're very good at this. You know, when TikTok, when they brought TikTok to the United States, they were, they were very good about shrouding it, about getting the right people in our country to advertise for it and to be their agents. They got a lot of money to spend and they spend it. Here's what I, again, this is, here's my story, is that for 40 years, I've vacationed in Key West. Okay. Every year, go there for a couple of weeks. About four years ago, I started going up the Keys a little bit. One of my buddies was like, you like marathon better than Key West? No. Marathon's about 75% as cool as Key West. It's 60% of the price. It's a value trade. Finally, Luke gets why I'm telling this story, because that's what I believe the Chinese model is going to do. 75% is good at 50% of the cost. And people are going to make that decision based on their wallet. And I think China is going to be able to force that in our shores by getting, if they've gotten to people, this is speculating, if they've gotten to people like LeBron James or people who advertise and work in, because again, money talks and that's what they'll have. So Luke, do you think I'm crazy or Bobby's crazy for both?
Speaker 2No, I don't. I don't. I really, I don't really don't think either of you are crazy. I think the other thing too, there's a way to sort of split the baby, so to speak, of some of the issue or some of the, I don't even know what to make of it. The Americans with AI are trying to create God in a box, right? Which is like AGI. And the Chinese have been applying it as sort of a million different consistent improvements at every point of a manufacturing supply chain, continuously improving. So they're, you know, they're building up the supply chain. They're building up the build. They're able to build 5,000 cruise missile motors a week in the dark with two people with this stuff, because they've improved it to such a point at a time when America had maybe 4,000 cruise missiles total in inventory when we started running through this silly war, right? So it's this, and I know it's, so it has military implications, but it also has a part of the reason why we are hearing from West, you know, Hey, the Chinese are outproducing us. They can't possibly be making money at these levels in, like BYD cars or Xiaomi phones or all this stuff is part of it is they are making money and this stuff. And part of it is because they've applied AI, you know, a thousand different ways down this supply chain that's continuously improving as opposed to the American way of, Hey, let's put God in a box. And then once we get God in a box, it'll be smarter than us all. And we can all sit around and watch porn all day or whatever the hell we're going to do after we have gotten a box. And there's, so there's, there's not just, there's competing, not just, Hey, you know, whose system's going to tell us the truth or not and who's going to be called cheaper, but there's, there's actually different ways of going to market sort of implied by both. And we, we can see the easier model, I think is the Chinese model. It's almost like a AI version of the sort of, I forget what they call the Japanese way of continuous improvement. There's a word from business school. I can't remember it, but you guys know what I'm talking about. Yeah. They're basically using AI to do that like constantly all the time. It never sleeps. Right. And that has major competitive issues in global production markets. What I don't, we've seen puts and takes on the God in a box. There's situations where brilliant. And then there's other things where you get the hallucinations and things like that, where you kind of go, okay, well, it's not about to take everybody's job. That just some P so I, you know, I don't, I don't, I don't have a strong feeling either way. The one thing I do have a very strong feeling about is when you're valued at 10 times sales, 20 times sales, a hundred times sales, you're going to have a lot of debate around is Chinese AI as good or not. Right. If we would've said, Hey, as a Chinese AI is good as ours three years ago, I'd be like, ah, that's funny. They suck. And now like serious people can have a serious conversation. We can disagree and maybe it's right. Maybe it's wrong, but serious people are going, Hmm, maybe it is. Maybe it's not, it's better here. It's worse there. You don't get to have 30 times sales, 50 times sales in that
Speaker 3world. Hold up, Bobby, just a quick followup. So what you're saying. And I think I agree with you a hundred percent is that the AI trade as it existed for the last three years, in my opinion is over. And I did last week, early last week, I bought the chips. I bought Micron and I bought SMH because of a technical pattern. And I still think people have to buy those chips, but the makers, you know, the, not, not the chips, the original AI trade. I think that's gone. You agree with that? Yes. I think so. I think it's, you know,
Speaker 2I mean, you guys know how these, I'm going to call it a bubble. I think it is a bubble, but I'm calling it a bubble as a percentage of GDP. It is absolutely a bubble. Fair. You know, all these things trade, right? So it's, you know, once they pop, it's the volatility, it becomes inhumane. And so I think we're in the, yes, I think it's, I think the easy part's over. I think we're in the inhumane volatility part. I think it gets much more discretionary around winners and losers who has a moat, who doesn't. I don't think the sort of classic buy them all, buy them all, you know, it does. I think the moats are in the process of being revealed and
Speaker 1marked to market in these valuations. That's funny because this is, this is something that I'm like struggling with when I look back on the last 10 years, because again, the three of us are old enough to remember when a bear market hit, it never hit more than twice without becoming more than just the 20%. lower. Usually the first time, if not the first time, the second time, usually extend it. And we all thought that to be a normal thing. Now we're in a bear market. I mean, it sucks, but you know, it'll eventually end. Now they end in like six weeks. But again, I think the three of us would agree that's not going to continue. We're not just going to have four or five bear markets every 10
Speaker 3years. It only lasts like three weeks. Well, hold it though, Bobby. Let me push back on that for a second because everybody now buys and sells stocks at the press of a button. Everybody. It used to be like even 10 years ago, only a quarter of the people had instant access to their portfolio. Now it seems like 80% of the people. So everything is going to be condensed. So maybe we are going to have six-week bear markets, 34% down, boom, buy it all. Well, where I'm going,
Speaker 1if that's the case, I don't think those are bear markets anymore. Those are just blips. Yeah, there's 20% down. We need to change the definition of a bear market. But I just think at some point, the people buying will be outweighed by the fact that the value is not there. Maybe we're close to that now. Go ahead, Luke. I'm sorry.
Speaker 2I was going to say, I think you don't have to change the definition of a bear market. I just think you have to change the denominator. I think this is what caught Michael Burry, which is if you look from when he first said sell all stocks in gold terms, he was dead right. Stocks are down like 35% in gold terms. In dollar terms, it's been a disaster. And it'd be almost like, hey, I'm living in Venezuela. Sell stocks in Venezuelan pesos. And you'd be like, are you insane? What are you going to do with the money? But if you hear, like, the conversation, what we were just saying, like, I'm not going to buy the frigging bonds. And OK, I'm in cash, but I don't want to be there forever. And they can't let it go and, you know, a bear market go long because the fiscal situation spirals out of control so fast. So gold stocks. And I think that's really where you have to, if you look at it that way, stocks have been in a bear market. We're down 20% since early 2022. Depressingly, we're still down about 40% from January of 2000 in gold.
Speaker 1That's crazy. It's just such a difficult thing to explain to, like, Randy, at the Compass Hotel in Naples, you know, sitting at the bar. That's right. He's like, no, no, it's down in gold terms. He's like, what the fuck do I care about gold terms?
Speaker 2Which tells me it's going to continue. Once Randy tells you, dude, you can't look in dollars. You've got to look in gold terms. Then you'll be like, get me out.
Speaker 1I mean, can I put a button on the AI conversation or do you? Yeah, because we want to go to oil because we just dovetailed perfectly into it, by the way. Go. Let me just ask one real quick AI question. And Luke, I think I, I've known you enough now over the years to say that you were probably not born a fan of UBI. Do you now see a world where it might be not only necessary, but required that there's some sort of universal basic income? Jim, we haven't talked about this one for a long time. Yes, I am. I love it. How do I say this?
Speaker 2You've done the impossible. You've made me speechless. I still, I've said for a couple years now, and certainly over a year that I feel like my experience, I feel like China going into, to WTO was AI 1.0, except for manufacturing workers. That's was right. It was a productivity boom was great for corporate profits and manufacturing employment fell 30%. Never came back. Communities destroyed, you know, a million people killed themselves, drug overdoses, suicides, depressing stuff. And everything I hear from the white collar people nowadays, myself included, you know, our, our business, like AI is as dumb and as bad as it's ever going to be as we talk about this today. And it's going to improve exponentially. It's like the Terminator. And so this is coming for white collar. You know, when you look at the biggest employer in, I want to say it was 30 US states, it's healthcare administration. That is a field is uniquely suited for disruption by AI. And those are good jobs, right? Those are, you know, you make good living, you can get a mortgage on that. Most people probably have gotten mortgages, car loans, student loans on all that, all of which get called into question if their job is lost due to AI. And that's where you get into, okay, now we're right back to 07, 08, where you're threatening the financial system itself as a result of a deflationary impulse. And then you go, okay, something's going to have to be done. And so is it a proactive UBI? That's hard to do without blowing up the bond market. I mean, we're watching the 10 years where you want to see the 10 year really run like a scalded cat, start talking about UBI without a crisis. You know, you get a crisis, then you can do it. But it's, it's a, it's a very, very difficult political question, I think we end up there somehow, some way. And the part of the reason I sort of mumble my way through this is there've been some academic studies on it. And the people that get the UBI end off worse off than the people who don't in a lot of cases that they've studied. So I'm an empathetic person. And so I don't, you know, this is a sort of virus that's been left, you know, that's been released to the world, AI. And I don't, it's going to run through people. And some people are going to thrive. Some people are going to survive and some people aren't. And it's, I don't. It's hard to consider sometimes, but I do think some way, shape or form we end up there. I think it probably requires a more acute version of a crisis first for political cover.
Speaker 3So to put on what Luke said here, I agree that somewhere or other they're going to end up there. I don't think it's the right thing to do. Again, does technology hurt the labor market? In the short term, many times it has. In the long term, it's helped. But by the way, the short term can be extremely painful, like you said, and it has been, and it will continue to be. But doing UBI, everyone thinks they're going to, well, I'll have free time now to paint the next great Picasso. But as Luke said, they're going to be watching porn and sitting at the bar. They're not, you're not going to do the next Picasso. You need to work physically and mentally to keep yourself, that's the way humans are engineered for that.
Speaker 1At least the porn will be AI generated, Jimmy. So you'll be saving some women here and there.
Speaker 3Save some women who had daddy issues who, yeah, exactly. And you'll, there'll be less guilt. And I've heard, I don't know. I don't know anything about it.
Speaker 1Save some men too. Let's not be weird about it. Let's not be weird about it at all. So there's actually, I had a conversation with Tony Nash. Luke, I don't know if you know who Tony is, but, but you should, if you don't. I do. Tony and I were talking offline and we had him on our show a couple of weeks ago and we were talking on the show about how I asked Tony because his company is Complete Intelligence. And I said, is there any, can you think with your own just sort of AI focused brain, what could be some of the new businesses that come, new jobs that come out of AI like they did with the cotton gin? And like they did with the internet and so on, you know, there were always new jobs, everybody lost jobs and then there were new jobs. And off the top of his head, he couldn't a few weeks later, he reached out to me and he said, Hey, we started two new businesses that we could not have started if AI didn't exist. He goes, I just want to tell you that. So him and his partner started two new businesses just on a blank. And I wonder if that's going to be it because you're right. There's not going to be new Picassos. There might be some new Jackson Pollocks. See if anybody gets that joke. What I mean by that. All right, go ahead. It's a troubled person who throws paintball. Only if the CIA's give it a chance. It's the only person who throws paintball. Only if the CIA's giving the money to Pollock, right? Yeah. Okay. So I don't know. I mean, maybe the entrepreneurial thing is the way that helps it. I hope we don't go UBI, but I'll probably, I'll probably take it if they send it to me.
Speaker 3Okay. We got to hit oil. We got to hit oil. Oil right now, where are we at here? $84 a barrel. There are many people, Jonathan Barnett, if you're watching, this is your question you sent to me before. Tracy thinks that oil should be much higher than here. Some other people think oil should be much higher than here. What does Luke Grohman think?
Speaker 2Luke Grohman got it really wrong earlier this year. I do think oil should be higher. I think the thing I got wrong ultimately was China was able to take three to four million barrels of demand, three to four million barrels a day of demand off. I think there was leakage, more leakage than we thought, but I felt like I had a pretty good feel on that based on not just obviously the headline services, but some people I talked to in that region, that you weren't picking up a lot of lost barrels. So I think it was mostly China. And I think that's a really interesting and important point. Now, with that said- I think oil should be higher. And I think what we're seeing in terms of crack spreads and where the products are all trading right now are telling us that when combined with the SPR, the pace of decline of the SPR in the United States, that part of the reason oil isn't higher is because we've been running it down so fast. And maybe we're getting down to tag ends on that, so to speak. And if that's the case, you should see crack spreads normalize with oil moving up and product prices staying where they are. And that's going to be-
Speaker 3Trying to equate that to a steepener, like a bull flat.
Speaker 2That's a problem. Because, oh, by the way, run oil against 10-year treasury yields. Going back since Japan launched their- They lifted the ceiling on their 10-year JGB yield curve control in July of '23. And it's the same chart. You want to know where 10-year's going? Just tell me where BTI is. And so that's, I think, part of the reason why Besson was so focused on keeping it down, was how it interacts and feeds back into the long-term treasury yield. And so now in all of this too, as we're beating on China and talking about, we're going to do this, we're going to do that. Look, if I'm China, China's got a lot of optionality, right? You guys have been on trading desks. I've been sat on a sales desk for a long time. If I'm China, and Trump keeps harping on me, if I don't like it, be like, buy me a million barrels of oil, want to be done by the end of the day, do it sloppy. I've been there. I've taken that call, right? Hey, and by the way, give me my report. And by the way, I'm going to be back tomorrow, and the next day, and all the next week, and I want them all done sloppy. Feel free to tell all your friends, right? So every time in the West, there's going to be front run in China. We're going to wake up, oil's going to go from 84 to 92 to 102, and now what? And so China, the broader point is, China's in control of the oil market now. That's part of what we've achieved here in Iran. And you're like, but I don't think that was-
Speaker 3It's the opposite of what we wanted, right? Didn't Trump think- That's not the plan. Yeah. We take over Venezuela, we take over the straits of Hormuz, and we're going to bring China to heel with respect to oil. Exactly. And that's not what he achieved, right?
Speaker 2No, that's absolutely fair. And that's- surprised me. I didn't think it was the right thing to do, but I could see clear to the logic of once trying it, I thought it was going to blow up the treasury market faster than China blew up, which was absolutely correct. But I did not factor in China being able to be as resilient as they are to it. And I think it's much more secular structural than people realize. So I've just got new Chinese made solar panels with a new Chinese made bi-directional charger and a new Chinese lithium ion battery array. And sitting here in sunny Cleveland, Ohio, which I say in all facetiousness, it is sunny now, but I have an American made EV that I got earlier this year. And I just charged it using my solar panels, never touching the grid because of the rig up for free in like 20 minutes, because it is summertime in Cleveland. So those panels, man, they charge that car fast. Bobby, if you need that, if you're, if you are Southeast Asia, if you're one of these people that America is choking off, right, what else do we hear? We are. We're going to control all the oil choke points and you're going to have to deal with America and the American dollar. And, or you just go, Hey, China, can you make, give me that, give me what Luke has, give me the battery and the bi-directional charger and the solar panels, which by the way, you have like 95% plus market share on all three. And then give me a BYD too, because it's a $10,000 cheap, great car that rides better than a Mercedes and screw it. We'll just get out of the whole oil run around anyway, because we don't know why the Americans are so fascinated with beating their head on the wall in the Middle East. And I, you can see that in the trade flows of the car exports. You can see it in, in, in China. So I don't know. I, I think oil is going higher. I think Chinese exports of anything, solar and EV and battery related are going higher. And I think China's got way more leverage in staying power than the treasury market does. And, and this whole thing has kind of gone pear shaped as a result. Yeah. I don't disagree
Speaker 1about the pear shape at all. I mean, it is, you know, you, people, we did, we talk every week, and I, they said, how long you think things are gonna last? I said, month, five weeks. We'll be, we should be out of there. That didn't work out. Right. And we're still in there. And now Trump, you know, just throwing threats out there to Oman. I think he was kind of ginned up by how quickly Venezuela went and he thought Iraq would go the same way. I'm kind of upset if that's the case, because I did vote for the guy. If that's the case, he actually, that we'll do the same thing in Venezuela. That was never going to happen. I do know that people underestimated the amount of oil that China had stored. They had stored a lot of oil over the last 10 years. China has this longer term thinking that people in the West, specifically the US, don't have. The day that crude oil hit the highs when the war hit, I think it was somewhere around 109 or so, I had a Yahoo Finance appearance the next day. And I said, the highs were in. And I'm going to be on again tomorrow. And they told me when I asked if the highs are still in. I'm like, well, that's two different questions. Okay. The highs were in for what I said they were in. But I don't think we're going above $94. I don't. I think the world is actually starting to move more toward, EVs voluntarily now versus the regulatory force that was pushing it before, right? I think you're now seeing people going, okay, so this is when it actually pays to own an EV, right? I think that that's actually going to be a big deal right when Tesla decides to stop selling cars and go to sell robots. So I have a target of 93.20 on crude oil. So I'm not long, but I want to be long now. And I say that's probably it. I think that's probably it. I think that's probably it. I think that's probably it. I think that's probably it. I think that's probably it. I think that's probably it. I think that's probably it. I can't imagine we're still in this war as we approach the midterms. I can't imagine a scenario where that's the case. But who knows? I mean, I think that's what Iran's counting on.
Speaker 2It's interesting. I would concede your point on oil to 94, and that's it. And partly because of the EV thing. It was one of the things that was so frustrating about this war is I was, you know, you can be right for the right reason in our business, which is the oil. But you can't be the best, right? You can be right for the wrong reason, which is at least you're making money. Or you can be, you know, right or wrong for the right reason, which sucks. Or you can be wrong for the wrong reason, which is like horrible. You're not going to be in our business long if
Speaker 1you do that too much. I don't know what you said about crude oil. You said, I've been wrong on that. I know Goldman Sachs said $200. And that's what they asked me on Yahoo that day. I said, no, they're completely wrong. And we know Goldman watches Jimmy and I all the time. The actual head of Goldman calls the desk and tells what Jimmy and I have said.
Speaker 2So but go ahead. Yeah, no. So I was wrong for the right reason on this Iraq, because what I said was the bond market is going to break before China. The war is going to last. I was telling people at least June, if not the 4th of July, Strait of Hormuz is still going to be closed. This war is going to last way longer. Part of that was like when you get I've been in investment research a long time and there's, you know, all data is equal, but not really. Some data is more equal than others. And so I had somebody was on the ground in the Middle East to a friend of mine who pinged me literally Friday, Saturday. February 28th. So we had bombed overnight. Everyone's like, this is gonna be over in a week, maybe three to four weeks, maybe six weeks. Most he goes, it's gonna be way longer now, Luke. I said, how do you know? He said, because I'm sitting in a Middle Eastern country that is very close with the Iranians. They have the two closest relationships in the Gulf of any two countries. And in the June, June last year, the bombing run so much. So the Iranians actually moved all their private jets to the airport here so that the Israelis and the Americans wouldn't hit it. He goes, last night they hit us with drones. And he goes, this is going to last way longer than anybody thinks. So I was, and then I've heard, picked up other pieces of data that suggested same thing. And so like, I got it right. It was gonna be closed longer. I got it right. The bond market was going to break sooner. I got like, and I thought oil was going higher. And what I missed was, and it was right risk off oil up. And what I missed was at the end of March, early April, when Trump gave the press conference, you saw someone right on March 27th, March 28th, someone, the, the, the U S treasury move volatility index to 1 18. And I w I've been saying 1 20 to 1 30. That's where they react. That's where they cry uncle. They cried uncle there for six years. And I was too cute. It's at 1 18. I'm like, yeah, it's still go to 1 30 within 12 hours. Somebody came in and just bombed equity vol and treasury vol with it about to break out. Like no bit just as oil got hit on one of his, you know, pay wars over, you know, the, the, you know, the, the 16th piece deal or whatever the hell it was.
Speaker 3So what you're suggesting here, Luke, is that, you know, cause we've talked about the treasury before you think they've been blinking like even before this, just doing it very covertly.
Speaker 2Yes. I think they started blinking at the end of March and it's the petrodollar, right? The petrodollar is petro. So the petrodollar system, a metric of stress on the petrodollar system is the gold to oil ratio, right? So when gold's up high, it competes with treasury bonds. So high gold to oil ratio is straining petrodollar or a transition to it away from the, from the existing dollar system. A low gold to oil ratio is a strong petrodollar system, a strong dollar system where, you know, oil prices are high enough to generate dollar surpluses that are recycled into us financial assets and gold is low in price. So there's not a lot of competition for treasury bonds, right? So low gold, high oil, low gold, vice versa. If you look on a gold to oil ratio chart, it bottomed on April 1st, as he gave that speech on prime time, it's never gone back. It went from whatever, start of the war to 40. And it's been volatile and upward trending ever since. And I think it's one of these, the wisdom of markets things. I think the market knew it was over then. We weren't going to win. We were going to try to do a negotiated settlement, but sort of the view that we were going to recapture all of the world's oil choke points and force everyone back to buying oil only dollars failed at the end of March. And the gold to oil ratio has never looked back. It has never been below 40 cents. And I think with hindsight, I look back and go, if I was the perfect analyst, because I was bearish on risk, I was bearish on bonds. I was bullish on oil. I was bullish and wrong on gold through March. If I was the perfect analyst, I look at that and go, that was the blink. Now you got to buy stocks. Now you still sell bonds, but you got to sell oil. And that was, that would have been the, and I wasn't the perfect analyst.
Speaker 1My last point on oil before Jimmy wraps it up for us is ships were, and I'm assuming still are getting through. And part of the reason I know that I have a friend that works in the oil business and he does business with Iraq or his company does. And I remember I called him after I heard after the MOU, Iraqi ships were going back into the strait, which I found odd. Now they could have, you know, been sent out before and they were stuck on the other side of the strait. And I called my buddy, I'm like, are those ships that have been stuck on the other side of the strait? He goes, no, we've been getting through. He goes, so essentially if a ship's going back in, they're the end users or the end buyers, wherever the refinery is at. And he said, there are ships getting through select countries are, are getting their ships through. And I think that's part of the reason I, this was post my Yahoo interview, but I think that's part of the reason that gold is not at 150 right now is when you compare the rhetoric to what's actually happening on the ground. Yeah. We're short three, 4 million barrels, but we should be short about six.
Speaker 2Yeah. That makes sense. Right. Cause it's such a, it's such an important commodity. It would show up in price to your point.
Speaker 3There's motivation. That's what I got wrong. Right. There is. And there's people, I mean, we always talk about this is that you don't shut off oil things. You just reroute it. And does it take time? Of course it takes time, but there's a lot of, there's a lot of motivation to get oil through one way or the other come hell or high water. And people are very, very ingenious and very whatever. So hopefully they are. And hopefully it is working. Luke, do you got any last words or no? No, I got nothing. Nothing. Good. Tell the people, not everybody who watches our show knows where to find you, but I always say, tell the people where to find you anyway. Twitter's the best way, right? At Luke Groman. You can find me on Twitter. I heard you. I heard you. That's going in the promo. Yeah.
Speaker 2Right there. All this talk about watching online porn and boom. See what you. Right.
Speaker 3Exactly.
Speaker 2You can find me on X on Twitter at Luke Grohman and then FFTT-LLC.com for more information about our different institutional and mass market products.
Speaker 3And if there are at least two people out there watching of the 100,000 who will watch this show who aren't following Luke already, follow him. You guys, I want to say thank you to you guys too. All the support you've given us on this show and on unfilteredinvestor.com. Thank you guys so much. That thing is, that project is growing. We enjoy it. And Bobby and Mike's technicals on that are outstanding. Also, thank you for patronizing Marco at Independence Arc Farms. I'm Jim Murillo. That's Bob Iaccino. This has been the Futures Edge. We'll see you next time.
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