Gold, Bitcoin, and the Death of Risk Parity in the Midst of Crisis (w/ Raoul Pal and Dan Tapiero)
RAOUL PAL: Dan, here we are under ridiculous circumstances. We're both under house arrest and trying to figure out what the hell is going on. Unbelievable, right? DAN TAPIERO: Yeah, incredible, though, I have to say, I think we've lived through bits and pieces of this before. It feels like little bits of September 11th, little bits of '07, '08, little bits of '01, '03. RAOUL PAL: I think that's the Asian crisis as well, the type of liquidity loss that happens. DAN TAPIERO: Absolutely, and a massive wealth loss that happened very, very quickly. There are aspects of what's going on that we've lived through before. I think that that's been helpful to both of us, at least for our portfolios, and also not having a sense of panic because we've lived through this type of thing, even though this is, of course, a much greater degree and the speed is unprecedented in US history. I think that's the one thing that's new about this is that we can really say that the GDP contraction is by far the worst thing that we've ever seen. Also, and I would likely say, the worst thing that we will ever see. I won't say again, but when you see restaurant online bookings going down 98% in a 10-day period, that's not going to happen again, unless we have a nuclear war or something like that. It's that is the one thing that feels completely different. RAOUL PAL: You and I had a call a couple of Sundays ago, I don't know, two or three weeks ago, I was just chatting you through that, that it has been my opinion for a while that this is probably, well, not now probably, it's factually the largest economic event of probably all modern history. It's unprecedented in the US, or in western developed countries. We've never had a global supply, shock and demand shock and an oil shock, all at the same time whilst we were having tariffs and trade wars. Crushed, you couldn't make this stuff up. No wonder it moved fast, and that's everything rolled into one. DAN TAPIERO: I think the oil story-- if we hadn't had the virus, the oil story alone would have taken us down, maybe not as severe, or as sharp or as much but I think for sure oil is down 70% on the year, it almost felt like a September 11 th attack. We were going into the weekend with the virus just about to kick off, things are bad, and then all of a sudden, we get hit with this thing on top of it. I questioned the Russian- - Saudi again, I don't want to be-- I don't really know, we don't want to hypothesize too much in the realm of extreme theories, but it did seem very strange that they hit us right as we are on our back, and maybe there are ramifications for them later on after we stabilized, I don't know. I think it's the combination of the two, that really hit it bad. Look, the last three, four weeks has been the worst selloff, basically, that we've ever had. There's 87, of course in one day and 29, but again, three episodes in the last hundred years. We're living through real bad right now. RAOUL PAL: The question is then everybody needs to get through the head, because the market's saying, it's like a version of 1987. My view is actually 1929 because of the potential for some outsize outcomes later, how are you thinking this through? Obviously, none of us have a certainty in this, but we're just trying to get the grip with what could be happening. DAN TAPIERO: I also think, and I read this at few different places, but we both remember, '07, '08 took a long time. It was months and months and hemming and hawing, and we need TARP and then we don't and all sorts of different things that they had to work through before getting a bigger package passed. This was instantaneous. In '87, you had Greenspan easing that was at that time I think that that was a very bold move and he reacted quickly. Bernanke was very slow in '08. Also, the '01, '03 post NASDAQ drop, that was a slow thing. The response has been unprecedented. 6 trillion, yeah, but probably globally, it's more like 12 to 15 trillion in liquidity. The key word is unlimited. As a gold investor and gold guy for the last 25 years, I've been waiting for the unlimited sign from the Fed. We got it from the BOJ years ago. Then we got negative rates in Europe. We got Draghi with the we'll do anything, in-- was it 11 or 12? RAOUL PAL: 12. DAN TAPIERO: 12. We'll do anything. Finally, finally, last man to drop, we got the Fed. I would say the markets and also policymakers are really on top of this. Let's not have a philosophical debate at the moment about whether it's right for them to intervene. A lot of people think, oh, well, we shouldn't let the markets clear. Well, the markets froze. A week ago, there were no credit markets, there was no trading, no bid. RAOUL PAL: And there's still problems in it. DAN TAPIERO: Right. RAOUL PAL: The Treasury markets, there's still problems. DAN TAPIERO: Right, but I would say that, that response that quickly in the face of the data that we know is bad, I think really takes the tail away from this in the immediate future. Yes, can we retest the low? Sure, but they're going to be vigilant. Unlimited means unlimited. For me, hopefully, what I'd like to see happen is for them to peg the 30-year mortgage rate at some level lower at 2% and 1%. I think 30-year mortgages are still 3.5%. They said they're going to be in their buying. Now, again, you may say, okay, well, that's only a short term thing. I think that would be a tremendous boost for most of the population here, who would either refi or even consider buying a home once things stabilized. I think they'll be in buying the credit markets, buying mortgages for months and months into the future. We're there. They're on top of it, they fit. RAOUL PAL: I think about this, Dan, and I agree. It's been amazingly quick, but we had a roadmap that we've used before, so we had some idea what to do. When I look at it, if I look at, okay, let's assume GDP has dropped maybe 20% or 25% in this quarter, if GDP has dropped this much in this quarter, that equates to let's say $1.5 trillion of GDP just got wiped out in one go. Then you take the asset market liquidations and stuff, so we're probably at 4 trillion or so there. The Fed have basically, there's no net stimulus, they basically just papered over the crack. For net stimulus to take place, you're going to need a lot more than this, but I think it will come in due course. What they've done is papered over the cracks as fast as possible, which I think was the thing. DAN TAPIERO: Yeah, well, you could go further, if you want to take that line of reasoning. You could say that real rates have risen, they were minus 80 basis points, they went to plus 50, and they've come back down negative again, that's on the five-year real rate. That's happened because inflation expectations have dropped more quickly than interest rates. That comes from the oil shock, also the wealth collapse, et cetera. You could argue that the easing that they've earned, the Fed Funds cut, hasn't even yet really flowed through. Secondarily, the strength in the dollar has definitely acted as a tightening as well. You can really say that they really even haven't begun a wholesale easing process, that they've stopped the rot for now. That makes me think, and we've talked about this before, but that makes me think that the government bond curve does come all the way down and maybe it's 20 basis points flat all the way up to 30 years, or maybe it's 10 basis points. Now, I don't think for an institution that's a great bet to buy bonds at 60 bps for a move to 30 or 20 or zero. I think in that environment, they're going to need more protection, a different type of hedge than just government bonds. I mentioned this and I get into this now because I think we're beginning-- there's a new narrative that maybe just developing, which is that government bonds as an asset class are losing their efficiency or productivity. Once we get down to zero, I think it gets very hard for bonds in the portfolio to act as the hedge and I'm thinking again, for portfolios that are 70/30, 65/35 and that I think there begins to be a little bit of a possible transition towards gold, which doesn't have a cap on it. It has unlimited upside in a period where the authorities are going to be adding stimulus for a long time. RAOUL PAL: Make sense because bonds just don't offer the-- there's no capital gains now. All it does is act like cash. Well, fine, you'd use cash then, there's no point having a bond market. You're right, you need something that can offset with gains to create that all-weather style portfolio or a portfolio hedge of some sort because it's no bones. DAN TAPIERO: Just think about since 1980, every time we've had the downdraft in the periods we were discussing before, there were massive gains in bonds. You and I both in early 2000, I was loaded up on two years, the whole year was made on US 2-year notes. That goes for every time we had one of those periods and so that would offset the losses on the acid side of your portfolio. We don't have that now. I think if there's an existential crisis, from an investor standpoint, again, putting aside the virus and the oil and all of that is that in the next five years, what can replace bonds? RAOUL PAL: Well, if you're a pension fund manager, and I know you sit on an Advisory Board of endowments, or whatever it is, these are real meaningful questions now that everybody's going to have to have is, and I don't know the answer, we should think about this because Europe and Japan have gone through this. How did their pension system cope, and what did they do? DAN TAPIERO: Well, they've gotten killed. I know German insurance companies, they have to put their money into negative bunds, and they have to pay out what they have to pay out based on their policy. I don't know, maybe the central bank is supporting that industry. I really don't know. RAOUL PAL: It makes me think that most people just leave the equity market. Because if you don't have a way of taking intelligent balanced risk over a long term time horizon, and if I look at the European stock markets and the Japanese stock markets, they obviously never recovered again. Which is one of my core thesis that I don't think the US market recovers for an extraordinary time until the demographic blows through. Because they're part of this. How do you run intelligent risk in an equity portfolio for a pension? Now, it's difficult. DAN TAPIERO: Where does it go then? This is the common refrain. If you pull from the equity, are you putting it into commercial real estate and hoping that you'll make some return? RAOUL PAL: Or do you get the government guarantee the pension system and you just put it into cash? It's all going to end up in the government balance sheet and the central bank balance sheet in the end, whichever way you cut it. DAN TAPIERO: It could. It could. I also think that's a very long term thing, that doesn't happen overnight. For the equity market to become not a place where you can have exposure to the asset side, to assets into growth in the economy, I don't know even what's what liquid enough to replace it. I understand what you're saying. You would need the government and also industry and business to say the equity markets don't work for us, we need it all guaranteed. That's really, you're very close to the socialist, a socialist system. RAOUL PAL: They're buying their bond market because it's on the books of the pension funds and the life insurance companies. DAN TAPIERO: I missed that. You said Europeans? RAOUL PAL: Sorry, the Japanese. DAN TAPIERO: Oh, the Japanese. RAOUL PAL: ETFs, which are basically the equity portfolios and the life insurances and the pension funds to try and prop up returns because there's no bond return. It becomes a very complicated world because we've all made promises we actually can't match because all promises the entire pension system is built on never once assume that bond yields are zero in the point that you're raising. DAN TAPIERO: Right, but how about a different thought? How about, we always talk about all this debt, et cetera, and I remember in the mid-80s and late '80s, people talking about how Reagan had leveraged up too much, we'd had too much debt, and that the US economy, I think there was a Book Day of Reckoning or something like this, it was going to default and all of this business. What ended up happening in the '90s was that we reflated the asset side of the balance sheet, of the country's balance sheet. Maybe when we think about what are the models, the frameworks of the future, maybe they've gone unlimited right away. Maybe, maybe you're right, maybe the government is going to support the equity markets to a greater degree than we could ever imagine. How much pressure is the debt side of the balance sheet if let's say the S&P doubles from here? Let's say the next three years, often you get inflationary episodes after there's a panic spike that forces the hands of authorities. It's not impossible that we have an inflationary episode where the risks of the S&P doesn't go up, the nominal value of the S&P goes up. Also, connected to this, and this is maybe something contrary to what you've been thinking is that, look, Americans only care really about the equity market. No one cares about the value of the currency. This is a perfect situation where if the dollar went down 20%, 30% here, wouldn't be that big a deal because especially if it happened over time? I would say most Americans wouldn't care, wouldn't know, it wouldn't matter I think over a five, six-year period, you could probably have it go down 50%. Look, it went down from 2000 to '03, that was a huge run for macro guys like us, that dollar selloff. It was because of that dollar selloff that we could recover from the NASDAQ collapse, which really was a gigantic collapse. RAOUL PAL: One of my core ideas I'm floating around my head is the 1920s. We've got the US essentially and the UK and France eventually and Germany out of the troubles that they were in was currency devaluation. The US were quite late in repayment because the dollar was very strong. They kept accumulating gold reserves, gold reserves, gold reserves, and eventually, they said, listen, even though we're accumulating reserves, we have to weaken our currency. Almost the moment they weakened it, the economy turned around. DAN TAPIERO: Right, and I think it's exactly the same. We're at the place where-- we've discussed this, look, the dollar in theory, in theory, it could still rally a bit, I don't know, but I think it's late in the game. You could have, if we have another episode where the markets are saying the Fed's not adding enough liquidity, the package stimulus is not getting through enough, the markets correct again, let's say in the next few weeks, and you have another huge dollar up move. That's possible. I think this is an ending move, but that in-- it may be a few weeks, it may be a few months, I don't know. I think the next 30%, 40% is to the downside. That's because I think that's really the only thing, also that will get Europe to be more aggressive on stimulus because if the Euro heads up to 135, they're going to have to do a lot more. Also, China. China still has 3% government bond rates, or 2.75%, or whatever it is, that should be down at 1%. We have to force China also to be more aggressive. If everyone is being more aggressive, because we're going to either actively intervene in the dollar or naturally because of all the excess stimulus, the dollar heads into a bear market. I think you could be in a situation that's like the '20s, where it really is rip roaring. I'm just saying this is a model I'm working with. I see you're 1920, the '29 framework where things could be-- I think that's more likely if the authorities give up and don't do the right thing. RAOUL PAL: My view on that is, and again, we're all holding a lot of different scenarios in our heads because we have very unprecedented times. I just think that the probability of a larger solvency crisis based on slow growth is pretty high. In that situation, I think it's almost impossible to stop the dollar. I think the dollar is these two windows. One is this now period and I agree, I really don't know whether the Fed are going to do enough to stop the dollar rising. Maybe if they do, that's it squirts up again. They try and smash it back down. Okay, fine. My fear is actually give us six months' time in September, October when economic growth hasn't really picked up, but we've got this real debt issue, so you've got negative cash flows and negative earnings out of corporations and debt. Like Ford just got downgraded to junk, we start going through the debt cycle. Now, the worst is obviously abroad because they need dollars, and they don't get access to the Fed. The borrowers in the US can get access to the Fed in some way, shape or form, the foreigners don't get it. That's what drives the dollar. My fear is there is still a larger potential dollar cycle that is even more toxic. Who knows? DAN TAPIERO: Think about the Chinese. I credit them with getting us out of the '08, '09 crisis. They acted as the-- when Bernanke was slow, they acted as I would say the asset purchaser of last resort, they came in and bought 100 billion dollars' worth of commodity assets in Canada, in Australia. They really injected the markets with liquidity. They may not be in the same position vis a vis debt that they were back then, but I would not enter underestimate their ability to hit the system with massive stimulus. They still have a closed capital account, they can do what they like. If the dollar does beginning a weakening period, that is going to be a green light for them to really go all out in terms of adding liquidity. When I think of Europe, Europe is dead. They're not very dynamic. As we know, the banking index is down still 90% from its '07 peak, it's dropped 50% in the past few months. It's sclerotic. It's an old crusted, centralized system. The Asians are dynamic, the Chinese are very dynamic. I wouldn't rule them out because you're saying, oh, the foreigners don't have-- when I think of foreigners, the only group of people I'm thinking about are the Chinese. Also, after this virus they have, there's precedent for it. They don't actually have to debate or pass anything, Xi can wake up and say-- RAOUL PAL: What you're implying is one of the ideas you've got in your head is that this cycle of boom and bust driven by stimulus still, basically, this is no larger than a large variation around the net mean, and we just go back to normality again, because the central bank don't let it happen. DAN TAPIERO: Raoul, I might not have thought that except that they've been-- RAOUL PAL: That doesn't balance well with the Bitcoin/gold view, or it could be. It could be a balanced portfolio, which is it all works out. They massively overspend. If it doesn't work out, you make the money on the other side. DAN TAPIERO: No, I think this is the perfect best environment for gold and certainly, Bitcoin. If they inject the amount of liquidity that they will need to create a dollar bear market, oh, my goodness. What's unbelievable about this current period is that the gold is, as you know, it's broken out against your GMI basket of currencies to new highs, but the gold is at $1650, with the dollar near the highs, that's unbelievable. Three, four years ago, I never would have thought that no one would ever thought that when the dollar begins a bear market, that's when gold goes into hyperspace, you see? I think it's two ways. If you're going to have your 1929 death scenario in default, well then gold has a has a bit as well. RAOUL PAL: I don't see world that gold doesn't work or-- DAN TAPIERO: I hate to say it, it doesn't work but it does seem like this is the best of all worlds for it and then also for Bitcoin because Bitcoin-- RAOUL PAL: I combine them both every day at the moment. It's adding, adding, adding, adding. DAN TAPIERO: The moment like that night you sent me a message and I sent it back to you. You said I can barely sit still, I'm so bullish Bitcoin. It's right, because Bitcoin was invented as a result of the breakage or inconsistencies that exist in the legacy world, in the existing financial system. If you're not going to own Bitcoin a week ago or today even, there's no difference between 5000 and 6000 and 6500, it's all super cheap to where it should be. If you're not going to own it now, then I think there's no better time, the macro fundamentals will never be as supportive as they are now versus price, versus price. I see a scenario where the great bull market and maybe the focus. Look, I'll give you an example, the gold miners, for instance, are in extremely undervalued, cheap sector. Again, this is not my specialty, but the entire gold mining sector is only a few hundred billion dollars. Amazon is three times larger, I think three times larger than all the golden silver miners around the world. Now, I understand a lot of the Bitcoin people say oh, gold is for old men, and no one cares about it and there'll be a generational change where everyone will sell their gold and buy Bitcoin. The bottom line is that gold is a $10 trillion market, Bitcoin is $100 billion market, digital asset ecosystem, total value is maybe 300 billion, 250. Anyway, my point is that for larger institutions players, they can't buy enough Bitcoin for it to be relevant in their portfolio, and gold. Look, gold prices could double, triple, you could have a $20, $25 trillion asset class in five to 10 years. That's real. I think that's upon us now. I think that's upon us now. RAOUL PAL: What does the macro world look like? Forget this other world of the digital side for now, but let's get to old school macro. What does it mean when there are no rates for any of us to trade? We all made our career in rates. DAN TAPIERO: I think, look, macro has been on a slow decline for the last-- I would say since 2012-'13. There have been opportunities of course, and the best managers will always make money. That top 1% of hedge fund managers will always make money. It's the nature of things. Macro as an asset class that has-- let's call it an asset class that has winded its back, I think that died a few years ago. Hence you see the retirement of some of the great classic global macro guys, and there really aren't that many young guys, if any at all coming up coming up, because the opportunity isn't there. The great open-ended opportunity is in the digital space. Crypto, Bitcoin however, however, if you're a 25- year-old today, you're not going into macro because you want to analyze central bank movements or float liquidity. That's all-- RAOUL PAL: I met this incredible guy. He was on Real Vision. He's like a 22-year-old, smartest guy I've ever met, he's already been working in his part time hedge fund that you've worked for in the past. Amazing. He's doing all the central bank analysis spot lines. Like you, I'm thinking, look, that's great, but there's a whole world that's going to offer you a bigger risk reward set because I think in macro, in the big macro terms, because of the time horizon, the demographics and the debt bubble and all of this, this is probably the last great patch of returns to be had from, let's say, this credit cycle, the exit of the baby boomers, and then however the dollar plays out, call it a spike, and then a collapse or a collapse of all value of fiat currency, that's the whole macro opportunity set. It's finished. DAN TAPIERO: Look, I think you can construct a portfolio, a global macro portfolio of let's say 15 or 20 different bets that are across all the different assets. In theory, you can. If you look at, and I think I sent you this, the Crescat guys have been doing very well. They have a very interesting portfolio. I looked at their portfolio, it was a year or two ago, they have lots of different bets going on nicely allocated, but now they have one bet, which is this bet, this one bet. The problem with global macro hedge funds and global macro portfolio management is there really just aren't enough bets out there like there used to be. You have a handful of bets and that's it. That's not really a proper way to run a portfolio. This endowment that you say I help advise, we literally have a book. We have hundreds of positions, but it's across private equity and VC and equity and debt and 50 different funds and all sorts of things, it's the truly diversified institutional portfolio. That, to me, is a more interesting way forward. RAOUL PAL: Tell me about that portfolio and your-- obviously, we've had some meetings recently, what people, how people are thinking about the changes in the world, the structural changes. How does an endowment deal with this? Because you've got infinite time horizon theory. DAN TAPIERO: We have a very large exposure to private equity, I think, versus the norm, north of 20%. It's because we don't need to draw on the money. We have that luxury and the returns there have been very stable. We haven't been in bonds, in long dated bonds, we have short dated bonds as a cash proxy, we have some gold. We have quite a few funds. We have funds who are actually doing well. We've been with certain hedge fund managers for 10, 15 years. Guys you know who over this cycle, different cycles have been able to produce returns, but we're really looking for what I would call idiosyncratic alpha. However, we moved into healthcare, a few different health care funds that have a little more volatility. The big advantage and endowment has, is that we really can handle a lot of volatility underneath the portfolio. We have our allocation to equity. It's not it's not big, to straight equity. RAOUL PAL: What percentage is that listed equity? DAN TAPIERO: Over 30%, but it's less than 50%, but we have things that are equity like. 30% that way and then another 20%, let's say in private equity, which is really I think for us, a better way to get exposure to growth because in private equity, there are moats. We can be involved with businesses that have serious moats around them. Part of the problem with macro, and I think the public funds is that with all of the algos and computer programs and everything that's entered in the last 10 years, you just have so many eyeballs looking at every single asset that flashes on Bloomberg. I've had this view for the last 10 years that the way to make real money is to be involved in things that people can't see, that people can't do, that people aren't aware of or have difficulty doing like Bitcoin, is extremely difficult for people to buy, even though-- mostly because it flashes on the screen and they think the volatility is insane, or they can't handle it. If they were really to do the deep dive on Bitcoin, I think they'd see a whole new world open up and if you position it correctly, and size it correctly, it's a position I think all institutional portfolios, including endowments, all need to have is the 1%. RAOUL PAL: When you go to the endowment and you say this and you should buy Bitcoin, what do they do? They laugh at you? DAN TAPIERO: Yeah, but no, I think we have some forward thinking people. I think they're open to it. Because, as I was saying, the Wences Casares view, which is get off zero, that all institutions should have at least 1% is a very powerful argument. I think if you look at a basket of, and I think Dan Morehead's done this work of digital assets, a basket of companies over the last five years, actually, this is a basket of cryptocurrencies that he put together, if you had had that basket or even just Bitcoin, let's say over the last five years, if you long Bitcoin, if you'd had 5% of your portfolio in Bitcoin in a 60/40 portfolio, your performance would have doubled. A 60/40 portfolio, the performance would have doubled over the last five years with a 5% allocation of Bitcoin. If you add just 2% or 3%, or 1% or 2%, you're looking at adding 20, 30 percentage points to performance, and for an institution that's massive. I think there's never been as much-- I've never seen as symmetric a bet as exists with Bitcoin and the risk reward for institutions to even dip a toe into the sector. Whether it's owning Bitcoin, or whether it's owning a basket of the companies that are growing up in the digital asset ecosystem, some of those companies were worth zero four or five years ago, you take a look at Binance was worth, five years ago did not exist and today, it's probably a $10, $15 billion company. You're having tremendous wealth creation going on underneath. I speak to different institutional investors and some of them, they've never heard of any of these companies. Imagine you're talking to a guy running billions of dollars who's never heard of Coinbase. It's almost impossible to think that for us, not that Coinbase is the be all, end all the greatest company, whatever, but it's a large company in the space that's been around for seven or eight years that is making a ton of money, that has good management, has a hundreds of people working for them, offices all around the world, they're making money. It's not like some fledgling operation run out of someone's garage. There are probably 50 companies in the space that are real businesses, real businesses worth let's say over $100 million. As an example, you think about where we're talking about where's the next thing where if the macro world is dead as an example this world to me is in stark contrast to that. I'm so-- about that because I see how dead and over macro is. RAOUL PAL: It's like my monsoon theory. If you've got a bunch of old indebted countries like the West, then look for countries that are the opposite like the Middle Eastern countries and countries like India, you look for the complete opposite. Macro is a dire opportunity set, the digital world is unlimited upside and looks like a call option. It's really interesting, but I also want to talk to you about GPI on the gold side. I'm hearing it from everybody in the gold space. That's sales are going through the roof. Everyone's scrambling to get physical, can't get hold of it. What's going on? What do you hear? I know you're not in the business day to day, but what are you hearing? DAN TAPIERO: Well, I've been apprised of the situation. Settlement, in the United States, you cannot get next day delivery of metal, period, and it's more so. Now, maybe there are little pockets. Maybe if someone is selling out of a certain vault and someone wants to buy it, you can. Look, the Mint, the US Mint ran out of Silver Eagles a few weeks ago. Someone told me that you still can buy it to goose up with your storefront entities in in Germany. I can't confirm that or deny that but for settlement next day, you can't get. It changes almost day by day. There were a few days ago, you could only buy for storage out three months, but I will tell you this month and this is not just for my company, but for other players in the space, the volumes are up five to 10 times from the previous months. It's been a complete blowout. I think it'll stay high. I think that the virus definitely accentuated a lot of this and when the refiners come back on stream, I think that that spread between physical and futures will come back in but you know what, we may have a- - people are beginning to understand that paper gold is not physical gold and that spread there may stay for a little while, maybe not as wide. Also, look, all these things are working at once. What we've discussed about gold before in the last 20 minutes or so, the big macro behind gold, that's coming together with the realization that physical is a lot better than GLD, is a lot better than futures in all the reasons why which we could get into on another day, and you know them, we've talked about them. They were falling on deaf ears for many years. Now, there's an understanding that I want to have my gold with my name in a vault, I want to know what's there or in my vault at home. I think that the case for storage, especially larger amounts, you don't want to have millions of dollars of gold in your house. We offer storage in seven different places around the world. That's very rare. A lot of these coin dealers, most of them don't, most don't have storage. For larger, more institutional players, you want to do a big chunk, we're really seeing that business explode. RAOUL PAL: Silver. Silver, for me, it's always I've never that interested. I'm always interested in gold first, then there's occasionally a point where the silver is the call option, call up option or the rocket ship once everything starts moving. DAN TAPIERO: Look, to be really honest, I never make money in silver. Maybe that was because when I was actively trading or managing a portfolio, just the volatility was too great. My track record trading and being long gold or silver, it's nine to one. I guess, to me, it makes sense. When silver was 17 a few weeks ago, I thought it was going to 25 and it went to 12 instead. I still think it's probably going back to the old highs, and more eventually. It's super cheat, but I don't know when it's going to do it. It has a mind of its own. Yes, it's rocket fuel. One thing I might say that's different now is that remember, part of this bull phase has been driven by Central Bank buying of gold. In the last two years, you've had more central bank buying of gold. The two largest years basically ever in 40 years plus, since the de-peg. To me, gold is becoming remonetized. Silver, I think will follow gold, but I think there's something special going on with gold now. I talked about this recently in an interview I did for the Hard Asset Alliance, that gold I think is re-monetizing. I think for years gold was not really considered cash, was not really in the '90s, certainly gold was ignored. In the 2000s, it was low and then in '07, '08, the '08 crisis, it became a hedge against the banking system problems and then also responded to all that QE. It wasn't being purchased by the central banks and by larger institutional clients in the way that it has been in the last two years. I think there is this sense as we-- I don't want to say move off a dollar standard because I don't think that the US reserve status is being questioned. Look, I think that central banks around the world don't want to hold as many dollars. It's not attractive to hold them in treasuries. I think they have been moving into gold. You see it in the data. Also, when you own dollars and you own treasuries, if your country does something that the US doesn't like, maybe they decide you can't get access to those dollars. RAOUL PAL: Russia de-dollarizes actually. DAN TAPIERO: That's right. I think there are other central banks who see that and say other countries say, well, we like the US but that's a risk we don't really need to take especially when the two years are yielding 25 basis points. There's been like a move to remonetize gold, and that's why gold is up at new alltime highs versus the basket, the GMI basket, but not at all-time highs against the dollar. You're thinking, well, why does that happen? It's because those countries, the Brazilians, the Argentines, all of these countries, they have more of an experience, more of a history with gold, and also with currency crises in the US. Gold does have that aspect. I think it's just come to the fore in the last two years. Then also, something new also is that in the next five years, mine supply will be going down. CapEx in the mining sector has dropped over the last five years, discoveries have gone down. As you know, my conversations on Real Vision with John Hathaway and Tom Kaplan, were all about the structural deficit that we're going to see in gold over the next two, three, four years depending upon how high the price goes. Sam Zell took a major position in gold in January, just simply based on the supply/demand. He talked about this on CNBC, I think, but just strictly based on supply and demand factors, not the virus, and maybe some-- he talked about the uncanny timing. I think you have that also going for gold. RAOUL PAL: I think to start wrapping up, I want to get back to a point you made right in the beginning of our conversation about the potential for gold to replace bonds in pension portfolios, or in portfolios overall, which it hasn't done. It took a long time for hustling from some people on Wall Street on the gold desks to try and get institutions to even look at it again, from them saying they didn't want to own any of it. Slowly, it's been incrementally moving up then the central bank as you've just talked about, what is your idea with how they can do it and how big a deal is it if it becomes part of actual portfolio allocation again? DAN TAPIERO: I think if around the world and I did this presentation in 2010 for the Drop Knee group, do you remember the Drop Knee? We did a tremendous amount of work for this presentation, but we basically found and I think the numbers are exactly the same, or pretty close to the same, that if, let's say institutions worldwide, moved to a 1% to 2% allocation, there wouldn't be enough-- obviously, there wouldn't be enough gold in the world to satisfy those needs. You have to think it's not all the institutions. You're starting to see it slowly. I think that that's going to be one of the main drivers to taking the price up over the next five, six years. I think it can double or triple. That'll be one of the drivers and again, you'll get more supply, you'll get a supply response. They'll take positions in the miners, they're very cheap, and I think they'll own a lot of physical gold. I think that the time for owning GLD and futures, I just think that that's not really an intelligent way if you think about it, or you being owning gold with the banks, you own gold as a hedge to banking system problems. Why would you ever have your physical gold sitting in the basement at any of the larger banks? You pick them. I think if we were going to get even a 1% or 2% allocation to gold from all the institutions, it would eat up all the available gold, certainly all the investment of gold out there. You're not going to get that, you're going to get plenty of people who are going to be stuck in the old mode of thinking gold doesn't yield anything like Warren Buffett or any of the naysayers from over the past few years. I do think you will get some of the more forward thinking people to start considering it, and I'm seeing this just in the last six to nine months. Certain people, let's just say, who are involved with the advisory role I have with this endowment, people who you might not necessarily ever think would consider gold are starting to see it. They talk about it as gold as cash, because cash yields zero. In the short end of the yield curve, yield's basically nothing. They're like it's cash with a free option to the upside, and so, when I started to hear that from people who have rejected it for years, it just gives me the sense that we might be heading into a new period. RAOUL PAL: Just to wrap up here. What's your view, the central banks and the fiscal stimulus, this is enough to generate a risk rally whether it's here or a little bit lower or whatever, that we generate a risk rally that goes on for a while. How do you see that the next call it three months playing out as your hunch? DAN TAPIERO: I guess this is my old time macro guy in me. When I see gigantic stimulus, when I hear unlimited as I mentioned before, I don't really-- and I hate even using this phrase, but I don't really want to fight the Fed, the market and may go down. I think it's probably a better bet to think that treasuries are going to go down to 20 bps and that some of these credit products I think will probably come down also in yield. To me, it's very clear, you should be long as much gold as you can, and proportionally also Bitcoin. I also have another thought that, look, Trump's popularity rating is near its high. It was low. I think just yesterday, it popped up to one of the highest approval ratings of his term. It's not maybe the highest. I still have this thought in the back of my mind that Trump is going to want things operating smoothly, the markets doing well into the election and I would not underestimate his power to do that. He's been the most responsive president in my life. Probably the only one that watches the S&P daily, understands interest rates and monetary policy, I think, in a pretty deep way and people may not agree, but in my experience, the other presidents just have not had his intuition. I think that that intuition on interest rates, and what the right setting should be comes from all those years in the real estate business. I'm thinking that things will hold up into the election. We may go down short term in a week or two, but look, we already know that unemployment next week will be-- we went 3.2 million. It's going to be 2 million, 1.5, 1 million. We know what the trajectory looks like. It's bad. Growth two months from now is going to be better than it is today. For sure. Growth six months from now will be better. I think he will do whatever he can artificially or not to keep the market up into the election. Then maybe afterwards, we have a problem because some of the problems reassert themselves. We had a moment of extreme panic. As I forwarded to you, and I think I said on Twitter, when the VIX is at 90, I'm not a buyer of the VIX. Even if it goes to 130, it's a bad risk reward bet as an investor. The only other time was '08, we got to 90 in the span of a week. That's enough. That's about as great a panic as I've ever seen and as fast a panic as I've ever seen in 30 years. That feeling of all assets are zero and frozen, there were a few days in a way where I felt that I felt that and so when I feel that, that and they respond, that's it. It's just that that was a gigantic trade. It happened, they responded, they responded faster and bigger than we've ever seen. It's not a great risk reward bet to play on something, as I always used to say, going back to the same well. I don't want to go back to the same well, meaning to go to the same thesis again. If I'm negative, I need some new information that's going to make me negative. I think look, the dollar, it had a massive spike up. It may have been the spike. It's coming down now. That might have been it, I don't know, but all of these things hitting an extreme point to be long the dollar last week into that high, to be long from there is to be long the VIX at 90. I'm not long the VIX at 90. It's still at 60 or something like that. I think we have a digestion period here, and that may not be enough red meat for you to be really happy about that. RAOUL PAL: I don't think I bought-- I don't think-- DAN TAPIERO: And still have your scenario. I don't know. RAOUL PAL: The point being that is none of us know. I'm at the same point. I closed all my shorts. I've got bond trades because I think bond yields go to zero. Then that's it. Yes, I'm long dollars still, I think it goes further, but that's it. That's a very liquid thing you can get out of in about 10 seconds. Other than that, I'm like you. I'm like, okay, we've got the first phase. Let's see what it's got now. DAN TAPIERO: Look, and you've covered brilliantly, and we're very public about it right into the teeth of the pain and fear. We know what that feels like. We know that that's usually it, especially when you have signs that are telling you that. RAOUL PAL: Yeah, it could be early. I actually think there's another leg down but exactly as you say, I'll leave that to somebody else. DAN TAPIERO: Yeah, I think so. RAOUL PAL: Okay, now I'd like to start a post chat called the Intersection. I'm going to ask you a series of questions which we ask all of our guests. Is there one person living or dead, that you would want to interview more than anyone? If so, who and why? DAN TAPIERO: For me, I would love to be able to interview Churchill and get him to explain how he felt at those moments of at the absolute very bottom at the low, he seems to me, you have to believe he's one of the three great Western statesmen in the history of the West going back to Greece basically, and to be able to speak with him and interact with him in person and for him to describe how he mustered the energy and power and strength to live through that period, I think that would be the most fascinating thing. RAOUL PAL: What is the book or books that have changed how you view the world, and how so? What are you reading right now? DAN TAPIERO: Actually, this book I'm reading right now, the Neil Ferguson book about the square, and the tower. It's the history of networks. It's a history of the West basically but through that prism that the scaling of networks is where all value comes from. It's so interesting because it's the perfect historical intellectual backdrop for the birth of Bitcoin and yet he doesn't make the connection. It's a 500+ page book, and there are only two pages about Bitcoin. It's a phenomenal read. It's made me think differently about how to assess value of things, of markets, of business projects, of almost anything. RAOUL PAL: As an individual and a leader in your field, how do you stay engaged and relevant in a world that's moving so quickly? DAN TAPIERO: Recently, in the last six to nine months, it's been Twitter. I just found Twitter after we did that interview on Bitcoin. I gave out this address, I'd never used Twitter. It is an unbelievably powerful tool. It's incredible. I have never, in the 25 years of getting access to every single piece of research, having an unlimited research budget, at the places I was working at for years and years. There's nothing like this because it's live and the quality of the-- now, there's a lot of garbage on there too and a lot of overly emotional people and overly ideological, all of that but they're a core group of unbelievably smart, informed people also thinking differently, especially when you cross over into the Bitcoin digital asset space. The guys, and I've said this, under 35 I would say in the investment world, the smartest guys under 35 are all in that space. The real entrepreneurs, the risk takers, the guys who have a vision of the future. That, I look for different ways at different times to stay plugged in and engaged but Twitter recently has been the one thing. RAOUL PAL: Some of our guests could tie their success to one key breakthrough. Did you experience a tipping point in your career? DAN TAPIERO: You can answer that question so many different ways, because there's so many different tipping points, but for me, really the first one, the very first one was very early in my career in '92, in '93, I was working at Tiger for Julian Robertson. His style of investment in macro was something that I took to very naturally and it was something, it's a very idiosyncratic style. It's very qualitative, very big picture, super macro, super long term macro. Julian wasn't really that concerned with the month to month moves or any of that stuff that the business has turned into now. He was really able to make billions and billions of dollars and he had had specific background in macro in the '80s but his analytical framework for understanding great investment ideas he was able to apply across the board. It was seeing that and being on the front lines and being the guy on the phone pushing the brakes of the peseta or the lira, or the punt, living that, buying Spanish bonds at 11%, developing the macro thesis for that, and then taking massive positions. I was very young, but that thematic almost historical but I say in that analysis that one uses it as a history major, you read 20 books and then you come up with a thesis. It was the same thing. Julian would speak to 20 people, he would read 20 things, he would come up with a thesis and then position. I was able to do very well, very young in this business because I was fortunate to be in the presence of someone like that. To see it firsthand, and then lucky enough that it actually spoke to me. RAOUL PAL: The flip side of that, can you identify failure that had the most significant impact on your career, and what do you do to overcome it? DAN TAPIERO: Yeah, that's easy, because 1994, Japanese bonds. In '93, I had made literally thousands of percent return in my portfolio, leveraged, it's just long bunds and European bonds, Australian bonds. In '93 of course, a lot of people had money. I had sold everything very well, except I kept a very large position in JGBs because it was certain to me at that time that rates were going to zero basically. It was a crazy thought, but I thought they're going to be in recession forever. Again, I was at thousands of percent return in '93 and I lost about 35%, 40% of everything I made in the previous year in one week in March, I think it was of '94. I was long I think it was 50 JGB calls, by personal account. 50 call, JGB calls is enormous position. Those are big contracts. I think $50 million worth. They all went to zero. I basically, yeah, exactly. Thank goodness, I had calls but I didn't talk for about three months. I was just so blown away. I was very young. I was walking around in a daze, really in a daze. That taught me the importance, number one, of using options because thank goodness, I still kept 65%, 70% of what I've made the previous year. Also, that and understanding that trends that are super-duper clear with macro fundamentals that are super clear, don't always have to play out in the timeframe that you're expecting. Remember in '95, the '96 JGBs bottomed, and they rallied basically for 20 years or whatever it was, but in '94, they went down-- I can't remember, at least 10 or 15 points, maybe 20 points. I wasn't the only one who got killed in that period, many more experienced guys too, but it really taught me to know that when you have outsized gains that they aren't necessarily going to be replicatable forever, meaning be happy with what you've-- if you make a big chunk, and you're feeling really successful, time to start thinking that that might be enough. That was the first time and again, I made that mistake not to such a degree ever again, but I've made that mistake, made it in the following years and each time you make it, it reduces the probability that you make it again. Now, I haven't made that mistake in years. Yeah, that was '94. I'm sure you remember it too. RAOUL PAL: Unbelievable time. Unbelievable time. Next question, two more questions left. Who is a person you admire and why? DAN TAPIERO: When I think back to when I was really blown away by somebody, it was about 15 years ago. Now, I was fortunate to be invited to a-- it was a lunch with the Commandant of the Marine Corps. I had not really known just how impressive the leadership was in the military. I have to say I was totally blown away and felt completely safe. This was after September 11th. The way that he described the world and the way that he described just our forces and our readiness versus the way the press had been explaining things, just blew me away. I don't think I've ever-- and from then on, I've just held the leadership of our armed forces in super high regard. I think people in the private sector are just not aware how efficient and well thought and certainly, not in the world are people in the world do not realize the quality of those individuals. That's a broader answer, but-- RAOUL PAL: A nice answer. Okay, final question. What view do you hold that is the most controversial in your professional life? DAN TAPIERO: Well, controversial. I think right now, it's that I think that Trump has been doing a phenomenal job on the policy front. There's so many people here on the macro policy front. I'm not really qualified to talk about a lot of different things and most of these things as an expert, but in terms of ranking, and I mentioned this before ranking his feel of monetary, I've called it monetary fiscal policy, there's no president or leader that I've ever seen who's had such an intuitive feel. People on the East Coast, especially, around New York, they don't like Trump and they're super emotional about him. They can't even see that he's skilled or talented in any way. Look, he does come across not great a lot of times and sometimes, there's a roughly in but if you're just looking at his skill in this area, and this is one of the reasons I said before, I think we can potentially still have a move up into the election. I've just been very impressed. I think there are very few people who are even willing to listen to that view and just think, have their personal opinions and I'm taking it completely out of that realm. I think that's very controversial. Then of course, the other view connected to that is I think this is, eventually we're going to see a doubling and tripling of the gold price. I don't think that's understood. Maybe in the gold community, I have some buddies, but I'm not going to get anyone like spiking my drink for that. Whereas I make some positive comments about Trump, and people are coming after me. Now, even if it's on a strictly analytical basis, so anyway, that's what I would say there. RAOUL PAL: Dan, as ever, an absolute pleasure to speak to you, let's see how this pans out in the next few months. I think we'll probably get back together then try to scratch our heads and figure out, okay, what's the next-- DAN TAPIERO: Yeah, and maybe with a dinner in the city. Hopefully, things will unfreeze literally, the credit markets are frozen. We're frozen in New York City, New York City will unfreeze too. RAOUL PAL: I look forward to it. DAN TAPIERO: Yeah, me too. JUSTINE UNDERHILL: If you're ready to go beyond The Interview, make sure you visit realvision.com where you can try Real Vision Plus for 30 days for just $1. We'll see you next time right here on Real Vision.