How the Federal Reserve’s Actions Are Affecting Gold and Bitcoin (w/ Raoul Pal & Dan Tapiero)
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.