Speaker 1This is the Commodity Culture Podcast, where we interview prominent investors, fund managers, analysts, and company CEOs to give you an edge when it comes to investing in the commodity space. Jay Martin, it is great to have you back on Commodity Culture. I want to talk about the broad market because it continues to look very overvalued here. I've had so many experts on this show. We've seen many people talk about it on other programs, that a major correction is just around the corner, but of course, it never seems to arrive. This begs the question, do you think things could actually be different this time? Because everybody looks at it as inevitable. We're going to see a huge crash in the S&P, in the AI adjacent names. But has AI perhaps changed the calculus, government intervention gotten more sophisticated, market manipulation? Passive inflows, another big story. So much of the money pouring into the three big indices are passive investing. Or will this story end like many are expecting it to, in a major downturn and bear market up ahead?
Speaker 2You know, I don't think it'll be different from 1999, 2008, 1987. I don't think that we're somehow going to break this cycle this time. There's definitely nuance to it for sure. And I think that the mistake people make. Is looking at high valuations as the clue that things need to crash, and that's not the indicator just because the market market's expensive and arguably too expensive. That doesn't mean that it needs to correct, right? You look at what's driving today's performance and yes, it's incredible consolidation. 40% of the S&P 500 is 10 companies, nine of which. Are incredibly dependent on the AI train to keep rolling. The 10th being Berkshire Hathaway, Berkshire Hathaway, Berkshire Hathaway. They're the one outlier, but these AI companies are all, they're playing the same game. Jesse that we have seen many, many times. You look at these companies like open AI and anthropic, a few others, but those are the names that everybody knows. Big companies, they lose hundreds of billions of dollars every single year. So how do they keep on rolling? How are they still in operation? Well, they do it by spending. Somebody else's money, right? They go back to the market and they raise new capital and they can keep doing that as long as every time they need money and they go back to the market, they do so from a place of strength, from a higher value, valuation, a higher enterprise value. That's what the market's rewarding them, right? They're saying, okay, you need more dough. Well, you're more valuable than last time we saw you. So we'll finance you again, right? And that pattern will keep repeating as long as the valuation justifies the ask for more money. This is. Exactly what happened in 2008 when the housing market crashed, housing didn't crash, right? It was the financial structure built on top of it that relied on house prices going up 15% every single year, right? There was a very common mortgage that was used in 2006 called the two and 28. And what this meant was that somebody who could probably not afford the house they were buying would be offered a two and 28 mortgage, meaning for the first two years, they pay incredibly. low interest and no principal payments. So their monthly payments were like negligible. That was for the first two years. For the next 28 years, they had to pay real money, real payments, higher interest rate plus principal. Most of the buyers would never have been able to afford the 28 year payments, but most buyers never expected to because what would happen is they get through the two years of minimal payments. Their house price would have gone up 50% annually. So when they go back to that bank. To refinance the bank says, well, the assets worth a lot more, we'll refinance this asset, put you back into a fresh two and 28, and you can restart the cycle all over again. So that is fine. And we'll keep going as long as house prices keep accelerating, right? High prices aren't enough. You need the increase. So you can go back to the market and ask for more money with a, with a more valuable asset, right? What happened in that crisis was that home prices didn't crash. They just stopped. Rising at 15% in 2006, they dropped to about 8%, right? And that mechanism had been working all the mortgages signed up from 2003, 2004, 80% of them had been refinanced into new two and 28 because house prices from 2003 to 2006 did what people thought they should do, had done in the past climb at 15% per year. But in 2006, that climb just slowed down and what used to rise at 50% began rising at eight. So when the home. Owner went back to the bank for the fresh mortgage, they looked at the home value and said, it hasn't really appreciated by enough for us to write a fresh mortgage, pay all the fees you're going to have to, which is going to have to come out of that mortgage capital and do this all over again. And that's why in 2006, thousands of American homeowners entered the 28 period. They couldn't afford that. They started defaulting those defaults through 2007 are what triggered the 2008 crisis. So that is a direct analog. To what we're seeing today, the AI companies can keep going back to the market for the capital they need to pay their bills because they don't generate any income as long as their valuations keep climbing. And the systemic effect of this is that AI companies need a lot of computation power. They buy that from the Oracles, the Microsofts, the Amazons, the Googles, and they future order that they reserve that in the future, knowing they need it and they want to reserve the capacity they will require. So they put those orders out. months or a year in advance. The bills aren't due immediately. They're due when they get access to the compute power, which they'll need eventually. So when the compute becomes available and the bill comes due, they'll go back to the market, raise the capital to pay those bills. That's what's happening presently. But the future contracts, the future orders for compute down the road, six months, eight months, 12 months, the money due on that from mainly OpenAI and Anthropic to mainly Oracle and Microsoft and also Amazon and Google is now over $2 trillion. Future promises to pay for compute power over $2 trillion. What's happened now is those companies, the Amazons, the Oracles, the Microsofts, they're the ones with this continually skyrocketing CapEx to build the data centers, over $750 billion last year. That number, $750 billion, is more than all the income of those tech companies building these data centers. So every new shovel in the ground is debt financed. They borrow to finance that against the loan payable, the balance payable from Anthropic and OpenAI because they, in theory, are owed $2 trillion for compute. The bank says, "Well, we trust you're going to get it. We'll loan against that." It's the same as if you owed me a million dollars, Jesse, on my balance sheet. I could take that loan payable to the bank and say, "Jesse's trustworthy. He owns a house. Can you lend me some money against this note payable from Jesse? He owes me a million. Why don't you lend me 300 grand?" They'd be like, "Okay, we trust Jesse. We'll loan you the money. And if you don't pay us, we'll come after him." So these big tech companies have $2 trillion of those and they're borrowing against it. So that's the whole system. And the reason it's vulnerable is because it is 100% dependent on the AI company's valuations continuing to climb. If they don't, and they can't go back for more capital, they default on that $2 trillion note to the biggest tech companies in the world, who then default on the hundreds of billions of dollars they're being lent to build the AI data centers. It's like you're borrowing hundreds of billions, secured by trillions, owed by companies who don't generate any income. Look, maybe that's sustainable. Maybe it's different this time. But we've seen this game so many times. And how it will end is anybody's guess. I think that we're going to see a lot more government intervention in this. And we can get into the reasons why. I think the problem here is systemic. Like when housing was the backbone of the American economy, that was the line in 2008. We can't let this fail. It won't fail. All of this. And banks were bailed out to keep the economy floating. At that point in history, though, the whole world still trusted the US Treasury to an extent that I'm not sure they do 18 years later. And that's just important because when that market crashed and the US government bailed out banks all over the United States, they were able to do it with relative ease because as the rest of the world fled to safety, safety meant the US Treasury. And so debt was readily available to them. They had an influx of capital coming from sovereigns all over the world that they could then redeploy into their own economy. The question you'd have to ask today is if we saw a similar crash. If we saw a similar crash in today's global economy, again, starting in the US market that would spread everywhere, would the world flood to US Treasuries with the same enthusiasm and confidence that they did in 2008? And if they didn't, it just means a whole lot more money creation to get the same outcome. And I tend to think that's maybe the direction we'll go. But before we get there, I think we're going to see a lot more government intervention because 40% of the S&P 500, that's pension funds, that's institutions, that's everybody's retirement plan. 750 billion in capex. AI is the biggest driver of US GDP and it's not even close. Number two is gambling, right? We all know Polymarket and Kalshi, but there's like an ocean of difference between what's holding up the US economy right now. It's AI, that's it. Nothing else comes. So that CapEx disappears, if that growth halts, you know, a US government that is funded 80% by income tax and payroll tax, right? What happens to jobs in that environment, right? US government's income gets crashed as well. So retirement savings, pension funds, institutions get hit. If the S&P corrects because 40% of it is held up by companies that can no longer stand. The second part though, is what happens to the United States government income when 80% of it is dependent on that economic growth and that disappears, right? So there's a myriad of reasons that we'll see very creative approaches to keeping this market alive. And I just want to state, people often hear me talk about this and they say, oh, you're bearish on AI. And I said, no, no, no, I'm not. I'm super bullish on AI. I will use AI next year, two years, 10 years to an extent I can't imagine. It wasn't the housing market that crashed in 2008. It was the financial structure built on top of it, right? Houses weren't destroyed. The investors who believed values would always go up were destroyed. The internet didn't crash in 1999, right? The stock market did. They're different. And we're going to see that again, for sure. I don't think that cycle for some reason would shift to something different this time.
Speaker 1Gold has historically been one of the most reliable stores of money in the world.
Speaker 240% the cost. the mandate and it's sold and everybody ran on it right media as well they towed that line when politicians and media dislike you as an industry capital does not arrive at your doorstep there was no money that arrived to the extraction industries for at least 25 years in any meaningful way in any way meaningful enough to replace what we're using because if you're not familiar with the mining industry look around you if it wasn't grown from the ground materials housing cars whatever if it wasn't grown it was mined at some point in its origin everything came from a mine unless it was grown so a nickel mine a copper mine an iron mine something like this mines are like melting ice cubes they're worthless every day they're in operation because they're extracting some of that metal and selling it there's less down there now so they're not investing in replacement reserves they will go out of business shareholders expect mining companies to continually be investing in replacement reserves but capital didn't want to go to that sector for 25 years so that didn't happen there's no replacement we are just depleting what we have and it takes five to ten years to discover prove economic and build a new mine to replace that reserve so that is why we're seeing this massive political shift right now like the department of defense actively writing checks into mining companies 15 of mp materials the only full suite rare earth miner and refiner in north america five percent of u.s antimony ten percent of lithium america these are equity positions the u.s government is writing checks into these companies to push things forward back to that parallel we spoke about about the u.s kind of stealing a page from china's playbook we used to call it capitalism with chinese characteristics they'd let uh free markets reign but they would step in and subsidize and bend regulation to ensure that their industries were winning globally the u.s is doing their version of that now but it's not just the u.s you know mexico has planned mexico new zealand has fast-tracked new zealand canada has the special projects office every developed country has realized they stopped investing in supply too long ago they don't control anything now in this new world trade order you can't be certain of the supply of anything that you could for the future for the previous 40 years of globalization and so you need to get your hands on stuff right and countries like canada if they play their hand right can really come out on top countries like the united states minerally endowed it's got so much of what the world needs everything that it does almost but it hasn't invested in that supply for so long so you know it's the ai data center build out that is like the headline narrative driving demand right now but the underlying foundation of this why it's not going to change anytime soon is the supply it's not going to change anytime soon it's going to be the supply side of the conversation we just have not invested in that that coupled with i mean everybody everybody remembers esg as a conversation like we don't hear that very often anymore if at all like why is that oh because real politic hit we no longer we need control i mean the critical metals list in the u.s is now like 60 metals like it was 25 not that long ago they're adding to it every year it's going to have the whole periodic table pretty soon and it's now always coming back to a matter of national security right everything's coming back to a matter of national security supply of silver supply of copper a matter of national security national security these unpalatable metals uh are now like headline for national security and preservation so i think ai survive ai bubble continues to inflate it drives commodity demand should it deflate will people turn towards hard assets probably right but uh right now they don't need to that's why we're seeing commodity prices trend towards all-time highs or head that direction um it's because of this demand
Speaker 1let's discuss gold specifically here obviously playing a very different role than a lot of these critical minerals um and increasingly playing a monetary role when it comes to the geopolitical stage uh you released a video on your channel about china's gold clearance system um we've seen a lot of interesting headlines come out of china in particular when it comes to precious metals i'd love to get your take on where you see gold headed and do you see its use as a model monetary as money returning to the system in some form or another whether that eventually the system we're in in today collapses under all this debt and we're forced to turn to gold as an alternative or whether it remains as a method of international trade between nations which some nations have started to do a little bit would love to get your take there
Speaker 2i think i'll wrap all this up in um a quote from a friend of ours luke roman who said there's very few moments in history where you need to own gold but during those moments it's about the only thing you want to own and what that statement means to me and and why that's important today is because you have to ask the question why in q1 of this year did we see 244 tons of gold purchased by central banks all over the world and we've never seen that much ever purchased in q1 of any year on record and on average 200 tons per quarter of 10 of the last 11 quarters we're setting records for central banks gold accumulation so what are they preparing for um you know and you mentioned china's efforts to decouple the paper contract price of gold from the actual price of an ounce well last january so for people that aren't aware most people that buy gold and silver by the way they don't actually ever take possession of the actual metal they buy a contract that specifies ownership on a certain amount of gold that is stored somewhere else that they're never going to see and they're not going to be able to buy it they're not going to be able to buy it and most people never take delivery of that physical metal which allows people to sell more than one contract of ownership for every ounce of gold and this is very hard to police and very hard therefore very hard to measure and we have no idea globally how many paper contracts on every actual ounce of gold exist it could be five to one could be ten to one could be a hundred to one the clues that this exists will be like last january when the physical price of silver was 40 higher than the paper contract for the same amount of silver why would somebody pay 40 more for physical silver when they could buy a contract for far less well they do it because they don't believe the contract is going to be able to hold up its bargain but it's actually going to be able to deliver the silver that it claims to because there was more than one claim sold on that one ounce does that make sense and that's what china is trying to get to the bottom of right now by banning uh trading and trading and trading and trading of paper gold for retail investors right and so they're they're trying to blow smoke on that right now and say and the evidence that they're right is that we'll see that same decoupling of physical price and paper price with people being more willing to pay more for physical to actually get it in possession because they have less confidence that the paper contracts actually mean anything at the end of the day and you know last week we saw the netherlands and france both reclaim their gold from the new york vaults which is under the island of manhattan right and this is significant because more than 60 countries worldwide store their gold under the island of manhattan and they they did that because in the 1940s and 30s europe was trending towards all-out war they ended up there european countries therefore shipped their gold overseas to a safer environment that's where the term fortress america comes from it's like no one's going to invade sustainably america the way they could poland or germany so let's put our gold there and therefore in a worst case scenario if our borders are overrun if our country is occupied our gold is with an allied nation on the other side of an ocean and it's safe and it's been there ever since um in 2013 germany asked for their gold back and it took them four years to get that gold on ships and sent back to germany it's important to think about that it took four years which is not abnormal because gold is a headache to move you have to uh move it in small batches because it's a high concentration of wealth you wouldn't want it all on one ship it's got to be guarded insured the logistics are complicated so four years for germany to get its gold back but four years is important because last week the netherlands and france asked for some of their gold back france asked for all of it and the netherlands asked for most of it they left 18 tons in manhattan but what was most interesting about it jesse is they didn't ask for the physical gold what they did is they just sold it they sold it in new york to other on the gold market and then repurchased it immediately in europe so they didn't actually have to transport any bars and that just it's important to think about that for two reasons number one no one actually audits that vault in new york other than american auditors there's no third party independent auditor that represents the interest of the europeans whose gold it is so you're trusting that new york actually has the gold they have and maybe they do i don't know for some reason the netherlands and france the decided not to ask that question i mean imagine right they said we want our gold back physically and for some reason new york said no either you can't have it right now or whatever uh how politically explosive that would be so they chose not to ask that question instead they said we're just gonna move the ownership to london so we'll sell in new york we'll buy in london still have the gold but it's closer to us now uh what i think about with that scenario is what's going to happen in the next four years if you had to wait four years to get your gold back there's no telling what the geopolitical chessboard would look like between now and then think of how much has changed in the last four years you know and so if you're if you have have 86 tons of gold as the Netherlands did, and they want it all back home. They're going to have to wait four years from today to get it. There's no telling what's going to happen to the open sea. It's what's going to happen to allied relationships, global security, all this stuff. There's no certainty that they would actually get their stuff back in four years. They decided we want it as quickly as possible, not willing to wait. Don't want to ask the Americans the hard question of whether or not they have it. And it's worth sitting with that because in the 30s, when you stored your gold there, this was a highly fortified, great balance sheet, very powerful country. It's like if you stored all your cash at your neighbor's house because he's rich and he's guarded and he's secure. But 30 years later, he's developed a bit of a gambling habit, racked up a lot of debt, kind of unpredictable. And you're like, man, is my stuff still safe there? But you don't want to ask for it because if he says no, there's nothing you can do about it. You're kind of in that situation right now globally. So that's where we land. But also, all that to say, what does all of this conversation encompass? It encompasses that the world is thinking very differently about that asset that has no counterparty risk being gold. That bridge asset, as Luke Grohman says, it's the thing. It's about the only thing you want to own during very small moments in history. And we're probably heading towards one of those. And central banks seem to be paying attention because they're not only buying a lot more of it than they ever have, but they're requesting it to be very close to home, if not within their borders. France's gold is in Paris. The Netherlands stored their gold in London, closer to home. But it's coming home. It's repatriation. So you just have to ask the question, why? Why are they doing that? What are they paying attention to? And what are they worried about? What conversations are they having that we're not allowed to hear? There's something behind that. That's not an accident. It's coordinated effort and activity.
Speaker 1I know you also are involved in the mining industry when it comes to your own investments. Perhaps you could give us some insight there into where you're seeing the most value right now when it comes to gold, silver, other commodities in the miners. And as a kind of a side note, whether you might answer the question for those who are perhaps approaching this space for the first time, has the big money already been made? Because we've seen a lot of these stocks go up hundreds of percent, even the majors. A lot of people I speak to think there's a lot of upside ahead. But for those entering the space, looking at the charts and going, man, did I miss this? What would your answer be?
Speaker 2You know, I can only speak to my long-term value investors. If you're out there swing trading, trying to make money, you're going to have to make a lot of money. You're going to have to make a lot of time markets and you feel like you missed a big swing. You did, and you're going to miss the next one too. And you might catch one, but then you'll miss the next one. That's a loser's game, in my opinion. But if you're willing to build a long-term high conviction thesis and then stick to it, absolutely. The big money has not been made because big money comes from duration, right? And that's where the money is going to come from. Gold miners today on average have a 58% margin. They could withstand a 50% decrease in the gold price and still be profitable. You know, has the money been made? No. I like the producers of gold, silver, and I like the development stories in copper right now, because copper is the biggest question mark in the commodity supply conversation. We don't know how we're going to solve this one. And so I'm looking for high quality, large copper deposits, you know, a billion tons or more. And there's a small club of companies that hit that threshold in countries that, you know, probably will do good deals with their trading partners. And that's a good place to look. Look, I think, Jesse, that you don't fix a 25-year glut in capital starvation in a couple of years. We're not going to repair global trade in a couple of years to the amount that it's been disrupted in the last six or eight. We're entering some kind of a new world trade order. That doesn't have to be a big deal. It doesn't have to be a big deal. I'm not saying that's bad, but it will be different. And what that means is that your certainty over the supply of all the stuff you need is just less certain. That's why we're seeing countries scramble. When I see big government intervention into the mining sector like we've never seen before, that's not a short-term move. When I see central banks buying gold like we've never seen before, that's not a short-term move. And when I see this copper deficit that we have because of 20 to 30 years, that's not a short-term move. And when I see this copper deficit that we have because of 20 to 30 years of capital starvation, that's not a short-term move to fix that. And so that's why I can easily wrap my head around a long-term commodities thesis. Inside of that, we're going to see volatility. You look at last January when silver hit $120 per ounce. That was too much too fast. That was traders getting involved in bidding the price up, people getting excited. And that happens inside a secular bull market. You see higher highs and higher lows, but they're still lows. As we go along the cycle, what struck me as interesting and whatever was when silver corrected from $120 in January down to $75. And I talked to people I'd bump into on the street or at my gym here in town during December, early January, when silver was around $100. And they'd say, I think I'm going to start trading silver. It looks really opportunistic here. I should get into this market. And then I'd see them a month later when silver was down to $75. And they'd say, I missed it. I missed it. I'm thinking, what? What did you miss? Buying the top and selling here? What are you talking? No, the price came to you. This is good news. This is exactly what you should want. And I don't know. It is what it is. That's investor framing. It's people thinking they're investors, but they're really just trying to trade share prices, which is not the same game. I can easily wrap my head around that long-term commodities thesis. I put my money where my mouth is. And also, I recommend that investors find something they really want to study. And if they don't, they're going to be like, I'm going to get good at and build a competitive advantage. And actually, it's not that hard to do because 99% of investors aren't willing to do that work. And investing is a competitive arena. So you should think about it that way. How can I be more competitive than everybody else? Do a little bit of work. It's going to put you ahead of 99%. Because when you're buying a share in any company, you are having a disagreement with somebody, right? That's where the tension is. You're buying because hopefully you think this company is undervalued and the price is going to go up. But somebody's selling to you because they think it's overvalued and going to go down. So you have to be able to ask yourself, what do I know that that person doesn't? And if you can't answer that question, probably take a time out and think about it, right? And that is how you should think about this. It's a competitive arena. And to be a top competitor, it's actually like a little barrier to entry because most people are just trading off of stock tips from buddies and Reddit subgroups. And that's it. So put in a bit of work and you can out-compete.
Speaker 1And another way you can out-compete, of course, is by attending the Vancouver Resource Investment Conference that's coming up in January. Why don't you tell us about that event, the Jay Martin Show, and anywhere else you'd like to direct people online?
Speaker 2My man, Jesse, I appreciate that. It's a ton of fun. Yes, January 24th and 25th. Looking forward to getting you back on stage, man, and sharing the stage with you. It's my favorite two days of the year. Two days, Vancouver, British Columbia. We expect around 11,000 investors. We had over 10,000 last year enter the building. 300 mining companies on the trade show floor, all with their unique business opportunity for you to take a look at, grill them, ask them the hard questions, put them on their heels for sure. You can attend the workshops. We have six stages wrapped around the conference. I'll fly in around 80 keynote speakers from all over the world. Past speakers have been former prime ministers, former presidents, some of the biggest money managers in the world, best-selling authors from all over the place. It's a ton of fun. We're going to come out swinging pretty hard with this year's agenda, so I'm very excited about that. VRICmedia.com for everything we do. The conference is there. Yes, the Jay Martin Show, my platform is there. VRICmedia podcast is there. Plus, we have a couple sub-stack letters that we publish. Mine is very geopolitics-centric, and we've got another team that publishes a letter written by junior mining investors for junior mining investors. Tons of fun if you want to get in the weeds there. Then we have an online education platform called the Commodity University. You can find that there as well. For anybody that what I said resonates, and they're like, I want to build my competitive advantage. I don't want to do this alone. Investing is hard. I want to do this alone. I want to join a community where I can align with peers and talk about the decisions I want to make, attend a monthly mastermind with analysts from all over, money managers who will share what they're doing in the market, access to a whole catalog of courses, everything from royalty and streaming business taught by Adrian Day, geology for non-geologists taught by Lobo Tigre. I teach a handful of masterclasses on mining stock valuation. You get access to all that, but more importantly, you get access to a community of other mining investors. You're not doing it alone.
Speaker 1dash metals dot com slash commodity to find out how to put your gold to work for you. Link is in the show notes below.
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