Lead-Lag Live

Tavi Costa on Dollar Bearishness, Mining Investment Opportunities, and AI’s Dual Inflationary Effects

• Michael A. Gayed, CFA

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Ever wondered how Japan's delayed rate hikes or the U.S.'s soaring interest payments relative to GDP could reshape global markets? Get ready for a deep dive with Tavi Costa from Crescat Capital as we untangle the intricate web of current macroeconomic trends. Discover why Tavi holds a bearish outlook on the dollar and what that means for fiat currencies, as well as his perspectives on the dramatic positioning in mega caps and the unpredictable behavior of equity markets amidst recent turmoil.

Moving into the metals and mining industry, Tavi offers a goldmine of opportunities, literally. We discuss the concept of fiscal exceptionalism, the undervaluation of mining assets, and why private mining deals could be a jackpot for savvy investors. Tavi reveals how inefficiencies and conservative gold price assumptions create fertile ground for significant returns, especially through leveraged buyouts and strategic investments. If you're looking for new investment frontiers, this segment is not to be missed.

Lastly, we tackle the twin giants of AI and infrastructure spending. Learn about the paradoxical nature of AI's initial inflationary pressures juxtaposed with its long-term deflationary effects. Tavi also sheds light on China's aggressive stockpiling of metals and its undisclosed gold purchases, a strategy that could provide unexpected liquidity and act as a market tailwind. This episode is packed with critical insights for anyone keen on understanding the future trajectory of global markets and the burgeoning demand for metals. Prepare to reframe your perspectives with expert analysis from Tavi Costa.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Speaker 1:

my name is michael guy at, publisher of the lead lagarboard. Join me for the rough hour is mr tabi costa. Uh, tabi, introduce yourself the audience. Who are you, what's your background, what we've done throughout your career and uh, are you loving this market action now?

Speaker 2:

isn't this what we live for? Macro seems so boring usually and then all of a sudden things get really interesting. But yeah, I was out to manage a global macro portfolio here at Kresge Capital and then we also have a long short portfolio. But I've also been very, very involved with the commodities trade. We manage a fund in the exploration, development and production side of mining mostly exploration right now and some development stories and I've been very involved in acquisition of private companies as well in the mining space, and so my involvement with commodities is a little larger than usual. A little larger than usual. But that's because of also my background in the macro. That, I think, helps us to have conviction on this long-term idea that we identified a few years ago and continue to be deploying capital into the space.

Speaker 1:

Is what's going on macro or is it more structural, mechanical? So I say that purposely because you know, it seems to me that this is an element of both. The macro is around the fact that you had Japan being late to the game as far as raising rates, so there's a mismatch of the monetary cycle from them relative to all the other currencies and countries out there. But at the same time this feels mechanical, which you know, almost like a margin. How do you think through sort of the last several days here?

Speaker 2:

Yeah, I think we're all trying to understand what exactly is causing this and outside of the most obvious answers, which is mega caps and the yen, all through positioning being very extreme, you know. There's also the idea that, you know, we've flipped from having no interest rate cuts to now people starting to believe again we're going to have multiple cuts. And in my opinion, you know, after diving in, it's just difficult because you have your short-term median views on macro and also your long-term views, term medium views on macro and also your long term views. My more kind of medium long term view is that which I find it fascinating to see, by the way, is how we're seeing these big declines in equity markets and the dollar is not really rallying and, yeah, the yen is one big trade. But there's other things as well happening in that world Emerging markets that are outperforming S&P 500. There's a few things that are kind of remarkable, even some commodities. You would expect a lot more of a painful environment and it's not really what we're seeing. And so to me, when I step back and look at the macro data, to me it seems like the Fed policy is inconsistent with the amount of leverage we have, and this is an unpopular opinion, the fact that the debt problem is manageable Very unpopular. I guess it's very manageable. What is not manageable is how much we're paying on the interest payment relative to GDP.

Speaker 2:

If you look back in any other cycles of reserve currencies and all sorts of things, the British Empire had over 200% of that to GDP. Some people will talk about Japan. Japan's case is a little bit different because it's not the reserve currency, so maybe it has to manage that a little bit differently. But even from the standpoint of having this sort of leadership role that the dollar has worldwide, but even from the standpoint of having this sort of leadership role that the dollar has worldwide, it is remarkable that we have interest payments that close to estimates for 2025, approaching 5%, and the rest of the world is just not there at all. Japan, as an example, is like 0.something percent right now 0.5%. If you look at other places, you know Germany or you know Canada would be other, you know good one to look at, australia, even the UK are, you know, significantly smaller percentages than the US and you know that research itself kind of branches out to a lot of ideas.

Speaker 2:

You know thoughts about, thoughts about. Can the US really keep this going? Does it really matter this obsession that I have, you have, everybody has about labor markets and inflation? Do they really matter? When it comes down to this interest payment relative to GDP and trading currencies? For some time now, and looking at things for a long time in terms of history and what matter, I don't think interest payments relative to GDP has really mattered historically. And talking about the dollar in the 90s versus the yen, and so all these things are starting to matter now, I think that's just the beginning. Now, I think that's just the beginning.

Speaker 2:

I actually think that that inconsistency of the Fed is reflecting on the sell off of the dollar, because the interest rate policy has to be adjusted relative to the world, as you mentioned. And if that's the case, this is different than those other cycles, which is a weird sentence to say. But because it's never different this time. Because it's never different this time. But looking at this from those optics, yeah, the yen is maybe.

Speaker 2:

Yeah, this has been a big move, and when those things happen in the short term, you don't want to get caught up in another big move on the other side. But long term, medium term, I'm very bearish to dollar versus other fiat currencies, and this is my first time of somebody. I tweeted this and somebody said hey, you had this view for many. No, I never had this view. I had the view of long gold. I've never been bearish on the dollar versus other fiat currencies. This is a new view for me. I have new territory in terms of adjusting my opinions, and so I definitely think that there are, after a big move we had recently. Now I wouldn't be betting on those things short term, but it is interesting how the behavior of the market has changed. It reminds me a little bit of the COVID crash, when you didn't really see treasuries rallying on the back of that market, and so this is a little bit like that in my view.

Speaker 1:

That point about interest payments not mattering. They haven't mattered because of negative rates. Yeah, exactly About the majority of our history. Right, and I want to relate that actually to a post you put out, because I think it's actually interesting the way you framed it on X, where you show a chart of the NASDAQ 100 year to date, which is still positive, and your point is how can anyone call for emergency cuts when the NASDAQ is still up for the year? I want to relate that to the discussion around negative real rates, because it seems like the policymakers need an excuse. How could you possibly deal with these interest expenses on the government debt side with rates where they are relative to inflation?

Speaker 2:

Well, I said it didn't matter as well, because I was in a macro discussion with some really smart guys and when I mentioned the net debt and that interest payment relative to GDP, this really smart guy, which was actually part of the Market Wizards book, came out to me and said that doesn't matter, it has never mattered, it's not going to matter. I said look, I understand. I mean, this is sort of entering those kind of new territory environments where we don't really know how markets will behave. But in my opinion, this really matters. Actually, it matters a lot more than any other thing, and your point is right.

Speaker 2:

Negative rates have played a role into making this irrelevant for a long time, but now this is very inconsistent, as I said before. And so, if we think about this I thought about this more mechanically in terms of well, if we do have interest rates having to be adjusted, what have we done in the past to fix that problem? Well, you can talk about radical changes like debt restructuring, which I don't think we're there yet. Usually you get there when the debt is not manageable. That's not the problem here. The debt is manageable. We can still add another 70% to GDP on the debt. Looking back historically, we could do that. All we need to do is adjust the yield and make it a banana republic environment, which is likely the case, and so that's why I'm in an inflation camp for the long term.

Speaker 2:

Because I think that's a Fed member a former Fed member, actually a former Fed employee came up to one of my tweets and said hey, you know, tavi, that's not the solution. I'm not proposing any solution. I'm just talking about markets. What's the path of least resistance? It's, you know, it's manipulated yields, in my view, and inflation, and it's just no way around this. Or do you want another Great Depression? I don't think anybody wants that. So you know, it's just the path of least resistance here. So you know. So by no means I'm offering any solution to the problem. I'm just talking about markets and you know, it is of my view that, if we think about this from the 1940s environment as well, we actually had to reach a primary budget surplus at that time, which, for those that don't know what is primary budget, that just means taking the deficit and taking it out, excluding interest payments on the debt. So what are you really spending in the economy? And today, if you look at the primary deficit of the US so excluding interest payments relative to the rest of the world's normal deficit. So, including interest payments, we're still spending more than the rest of the world's durable deficit. So, including interest payments, we're still spending more than the rest of the world, which is crazy.

Speaker 2:

Or the other way to think about this what has really benefited the US economy versus other parts of the world since the global financial crisis and why have we seen this really big divergence of growth, not only in the economy versus, but also in the equity markets of the US versus the rest of the world? And I can make the case yeah, that's technology and all sorts of things, but really comes down to how much we spend on the fiscal side relative to those other economies. I mean, we're talking probably average outside of the US is probably 3% or so. The US alone has done close to 8% deficit, you know, annually, all the way back to the global financial crisis, which is a huge number. It's a huge difference, and so that interest payment eating its way into the overall deficit is, which is now close to 60% of the deficit, the deficit, you know it's probably going to have an impact on growth if you think about that.

Speaker 2:

Um, and so I am of the view that you know, this physical dominance that people like to talk about is really coming from the us. It's a fiscal exceptionalism and saw you know that that that comes down to? And can we keep that going, moving forward? I think that's one of the most contrarian views out there is can we see austerity in the next three years or something along those lines? Can we hit a wall here of debt at some point? And again, not debt, but interstatement on the debt. I think we're getting close to it. I think we're getting very, very close to it.

Speaker 2:

So, and I think those things are going to have impacts of growth, are going to have changes in fx, which hence my view about dollar weakening versus other currencies um, that's not an extreme view about the end of the dollar reserve currency status and all sorts of things. So don't even know for those thinking about, don't even go there, because that's not my opinion at all. It's just a point about three to five years in the markets and uh and, and how things are shaping up for gold is really really interesting, because you know when you think about what unleashes markets in terms of those dollar weakness trends that we can see in three or five years. It's really really interesting stuff that could happen here. Emerging markets can do very well. You can see their natural resources, gold and all sorts of things that have really lagged sort of changing the dynamics of the market.

Speaker 1:

So I'll bring up a post from Toll on X when would you put your money today? Or what would you put your money in today? And I want to relate that. I know we're talking about gold, we're going to hit on that a little bit more, but I want to relate that to this great chart you always put out, which is great for context, which looks at the commodities to equities ratio. Ok, historically, going back to the 70s, explain for the audience what this shows.

Speaker 2:

Well, I think this goes back to an idea of Senzel that said no great money is made on lack of capital, interest and access. Actually, the lack of capital overall is an attention from investors is what creates inefficiency and it creates great opportunities. So if you put that idea into a more, you know, pragmatic approach and think about what's happening with technology and so forth, you know there is no lack of interest, there's no lack of capital. I mean, there's actually excessive capital and so it's hard to make those big bucks and try to make great money in those parts of the market. And my understanding from you know I started, you know I had a view about looking at that chart that you referred to and started having a view about real assets and owning tangible assets. And a few years ago, and I started to think about okay, which one should I own? You know, is that the housing market, or should I buy commodities, or should I do? What commodities Should I do? Energy, agricultural, metals and mining? What I, you know, started to understand was that the capital spending of these industries really matter and the timing to put something to go from exploration to production also really matters, and the timing to change the supply of commodities is, it's even more important, and so what I realized is that the metals and mining industry have the longest cycle because of that, and so that attracted me immediately, and public markets have been broken in terms of the mining industry for a while now. In other words, the improvement of fundamentals don't really reflect the inequity prices.

Speaker 2:

I have my own theory of why that's happening. But to go back to your question, where should I put my money into it? Look, what I've been noticing more and more is that these private deals in the mining industry are becoming more and more attractive. Can buy a mining project, a tier one, tier two asset nowadays that has a production of gold that could be producing hundreds of millions of free cash flow, and having access to that cash flow is to me, I think, one of the best ideas out there, because you're basically buying these mines for one to two times free cash flow nowadays. You can lever that trade by using, you know, doing leverage buyouts A lot of there's. You know, we know of a few partners that are looking to buy gold, silver, copper from those mines. They're looking to finance those deals as well, and so, you know, I don't think it's sort of unheard of an industry that is being out there. You can, or a business that you can buy for two to three times cash flow at current gold prices. Actually, I should correct that, which is my view.

Speaker 2:

Why the public markets are broken is that if you dive into a mining industry the mining industry today and dive into a mining business, you're going to figure it out that Most of those forward earnings and markets trade in forward earnings, as you know very well, I think, about those assumptions. They have assumptions that they make the gold prices they're assuming or considering in the next five years. We're talking about 1,800, 1,700 gold prices in some of these commodity businesses and so that's all my view. I don't think gold prices are going to be at $1,800 in five years from now. So that's sort of an arbitrage if you think about it. In fact they're being sold as $1,800 today at current gold prices of $1,800. And if you apply just normal prices now at, call it, you know 22, 2300 gold prices.

Speaker 2:

The changes in for cash flow are very significant and it changes the NPV calculation also very significantly. And in fact, if you look at, what causes the suppression of earnings of most of those mining deals is basically predicated on massive inflation of cost, which could be the case, and then at the same time, deflation of metal prices, which to me that's ludicrous. And so if somebody is pricing an asset at that way, we all like to be great negotiators, but the market is negotiating for you, you don't really have to do anything. So you know there is a, as I said, there's inefficiencies in that space and so not a lot of people know how to navigate it. Who is selling those assets I want to know. So a lot of folks are not in the industry, are not aware of those deals and so those.

Speaker 2:

I think that applying the venture capital approach into the mining industry has never been so interesting to me, and so I've been really trying to learn what the technology space that's done so well in the 90s and so forth and what created that flood of capital that came into the space at that period, and try to recreate this in the mining industry, but obviously try to get positioned as much as I can first, and I would love, I would welcome a shakeout in the gold price in the next six months so I can get a round of deals done, but that's where my capital and my attention is really going after. It's not trying to be too cute about where Fed funds rate are going to be six months from now, but rather focus on this big opportunity of buying businesses at two, three times free cash flow with gold prices at $1,800. You know, and to me I can't find anything else better than that.

Speaker 1:

It's an interesting observation from Thomas on LinkedIn. Talk about mining. The only copy is making certain it's cash flow with CapEx deducted and not EBITDA. Maybe talk about some of the nuances of fundamental analysis when it comes to mining stocks relative to tech stocks, for example.

Speaker 2:

Well, that's a good point, because you know the CapEx and I never look at EBITDA. That's why I never mentioned EBITDA. Especially in the mining industry, you never want to mention EBITDA. But looking at the CapEx, you can break it down to two things. There's really reclamation cost, right, what's going to cost you to close that mine, and the sustaining capital or the capex that might be necessary to either stay in production or expand that production. So you have to understand the profile of the mining deal is to be sold, obviously, and understanding what the capital needs are of each of those deals. They're very different from each other.

Speaker 2:

Now I like to find deals where I can. You know. First, I I have a view about the, the geology in terms of the exploration potential. That's number one, because that's going to add to the ounces in the ground that you can then expend the production. Number two you want to make sure that the closure costs.

Speaker 2:

Usually these deals are being priced as what we call reclamation project. That asset is being basically under the assumptions that this asset is going to need a certain amount of capital until the end of the mine life and some of these projects that are being sold today that have hypothetically, mine lives of seven years, eight years are the most interesting ones because if you're able to have a different view about the duration of it, meaning maybe you can add double the mine life, which is very usual, especially if it's an asset that is under the umbrella of a larger company and that larger company is not giving enough love to the asset that it requires in order to find more ore. The improvement and efficiency that you can add to as a new buyer could not only add to the duration of the mine life, but also effectively change the entire business model and meaning. You know the NPV could. You can be adding multiples of the NPV from that perspective, and so that's where I think it becomes very attractive. And, plus, if there was ever a time to be looking at bolting on all these ideas and creating the next major, it's right now, because majority of people are looking at Barrick, newmont and all sorts of other large miners and looking at the share price and being very discouraged by it, and I don't blame anybody for doing that.

Speaker 2:

But the real opportunity is not in the share price of these things, although they can do very well. The real opportunity is being able to put together these deals where you can buy it for really cheap, own a very large percentage of the business, keeping it as tight as it can be, finding the strategic investors that can be part of those deals and have access to the free cash flow and then bolt on to that because now you have a balance sheet. And, just to give some background, I was very involved and I am a large shareholder of the seventh largest silver mine in the world and it's a private business and no, we don't care about what people think about the business itself. What I know is that we have access to the free cash flow of it and for every dollar the silver goes up, the leverage to the free cash flow standpoint is really significant, and so using that to sort of break out and buy more mines is definitely, I think, that I don't think anybody's really paying attention to and I yeah, I mean it's really hard to actually pay attention to the macro environment right now because all these opportunities are showing up and I would love a recession to happen, because I think that could create an even more sense of urgency from these companies to selling these assets that they don't want.

Speaker 2:

And the big idea is, as we're seeing, some of the mergers happening across most of the big companies in the mining industry, especially the oil businesses, are seeing the same thing. When two big companies merge, just so people know, what happens is their tier two assets. They become irrelevant to that fusion of those two companies, and so that's where you see the sales of these assets that tend to be highly attractive. And so I'm putting all my efforts on this, because I definitely think this is one of the best opportunities I've seen in my career.

Speaker 1:

So there's the behavior of gold in fear moments, flight to safety, and then there's the behavior of gold from a very long-term cycle perspective. Let's talk about the cycle here, a very long-term cycle perspective. Let's talk about the cycle here as it relates to gold in particular. I'll share another post you put out which is a great look at unemployment rate crossing above the 24-month moving average and recessions afterwards. Historically, I've made the argument that gold's demand will pick up because large institutional players do not short, they're long only, and if they're long only and they're bearish about the cycle, they try to allocate to non-correlated assets. There aren't that many. Gold happens to be one of them. Draw the link between volatility in risk on assets and gold and typically, how does gold behave in general when you have a recession?

Speaker 2:

That's a good question, because I think when people say well, historically, gold doesn't perform well in recessions, I'm not even sure why they use the word historically, because if they're just looking back, one recession historically to me means looking at multiple recessions. As we all know, we've had many of those in history and there were many times in history where gold actually rallied substantially despite the downturn in the markets. And I think it really comes down to a lot of things Like, for instance, there are cycles where we have a recession where investors are heavily invested in equity markets in the US. There are cycles when it's the opposite Markets are very frothy outside of the US. This is a classic one that looks much more like the tech bubble kind of environment from that perspective, where markets really are frothy. If you look at valuations of US companies versus other parts of the world, if you look at the, you know the sentiment of the dollar, uh, you know what's been happening with treasury markets recently selling off, when markets, uh, also are volatile, and you know, during those times the mining industry did very well. Gold did very well too. So I am also of the view that if you look back during, you know, if you look one of the view that if you look back during you know, if you look, one of the best, most reliable indicators although this contrarian, I guess this labor market one that you were showing is also very reliable Yield curve inversions is a great one.

Speaker 2:

You know, when you deeply inverted yield curve and you started seeing a steepening of the yield curve, well, that's a recession signal. Then some people will get really technical and say, well, is this a bull stipper or a bear stipper? It doesn't really matter. We actually had bear steepeners happen in the 70s and it was also a recession. So really it comes down to the signal of actually going inverted and then steepening again. And if you think about those times, we did a comprehensive analysis of this, looking at all possible yields and the yield possible spreads in the yield curve. There's 45. I presented this to the IMF not too long ago or about a year and a half ago, where I talked about not just the percentage of yield curving versions but what comes out of that yield percentage of yield curve inverse. Number one is recession is highly likely. But really is the gold to S&P 500 ratio in the next call? You can look at this in 12 months, 24 months windows and so forth, and the biggest trades that you tend to see during those times is actually at times when we have that are similar to now, where the cycle of capital is really deeply involved with the US markets versus other parts of the world, which is similar to what we saw in the tech bust, for instance, and during those times, the gold to S&P 500 ratio performed really well. So, to your point about volatility, I am a believer that we're going to see this again, and it's interesting that the S&P 500, now priced in gold turns, hasn't really gone anywhere in the last, you know, probably since 2017 or so. If you look at the Dow Jones, it started to already decline, but the Dow Jones is less relevant than S&P, arguably, and so, you know, I think that that idea could potentially work here, and so I'm, you know, paying close attention to gold.

Speaker 2:

And lastly, what I would point out is the volatility of gold versus treasuries. You know it's the first time in 45 years that gold is less volatile than US treasuries. It's the first time in 45 years that gold is less volatile than US treasuries. Don't look at just today. I'm talking about five, three years of movement, and if you're running a patient fund or any type of asset allocation that requires a defensive asset, and you're seeing the constant decline in volatility of treasuries.

Speaker 2:

You're starting to take note of the benefit that gold could actually bring to your portfolio, rather than Bitcoin that has almost always trades with a 3x on its back versus Nasdaq. So, whatever you want to know what Bitcoin is doing, just look at Nasdaq and multiply by three times, and that's usually what's going on. In fact, yesterday I was really funny See, nasdaq was down 5%, and then I see Bitcoin down 15%. I'm like, oh, that my view. Central Bank's buying gold. They're not net buyers of treasuries, as we used to see before, and when I say net buyer, it's buyers relative to how much is being issued, not just how much they've been buying recently, I guess is a bigger calculation to me, and they are definitely net buyers of gold, and so those things are starting to shape up and will change the volatility profiles. Well then, my final point is that if you are of that view that gold can reach $3,000, $5,000, $10,000 an ounce one day, I think it can reach stupid prices.

Speaker 2:

Personally, imagine what I said about those mining companies, that you have control of the free cash flow and what is the NPV of a mine that is being sold for $300-$400 million? That actually makes $300 million every year in cash flows, free cash flow. So I don't think you can find many businesses like that with potential growth right. I mean, there's real growth here. It's not like an industry that is dying and it will probably go out of business here soon. There's definitely growth here, potential if gold prices take off to levels I think it could. So I don't know. To me it's almost as close to an arbitrage as it gets.

Speaker 1:

It's a comment on X from CrashCoin, which actually I want to tease out, the rotation from the metaverse to the metalverse, which is actually a good way to frame it. But where I want to go with that is how important is it for tech momentum to break for there to be some real flow of funds into the metal space?

Speaker 2:

Well, I think that to answer that question, it would be probably a decline in equity markets, a reckoning in equity markets that would cause the mining space to resiliently behave. And I'm not saying going up, I'm just saying not going down as much as the market. So, you know, relative performance improvements that will cause people to think, hmm, if metals and mining companies and industries have performed this well during the recession and a downturn, imagine what it could do in the back of a normal market. I think that's what it takes and we saw some of that in the early 2000s. What I cautioned people in the early 2000s about, about the metals and mining industry, is that this is a different environment than back then from that perspective is, you know, and uh, in terms of the extremes that we have, in terms of the CapEx trend is much more severe than we saw back during that time, and I will also point out the fact that deglobalization trends may exacerbate this a lot further than back in those times.

Speaker 2:

People like to talk about China being a large buyer of commodities. Now, imagine if we have G7 economies actually financing those purchases today, rather than one country having seven economies or more. I think that's possible. You have the on-shoring. You know it's the irony of AI being deflationary when you have to build all these. You know data centers and sorts of things and that infrastructure and the electrification, also from a standpoint of you know the demand of electricity that we needed from the AI revolution and all the electrical grids that need to be revamped. You know all those things are going to require a lot of metals and that's inflationary, not deflationary at first. So until we build everything in order to take advantage of AI, it's probably going to be a lot more inflationary at first until we get to the results of AI actually causing prices to become more subdued.

Speaker 1:

I'm glad you mentioned it because I've been on that kick also, actually causing prices to become more subdued. So yeah, I'm glad you mentioned it because I've been on that kick. Also, I don't recall any other technological revolution where it could conceivably actually be inflationary for a while because of that electricity demand, because of that energy demand. I don't think there's ever been an example of that in history.

Speaker 2:

Yeah, it's a good point. I mean I was looking more from a standpoint of infrastructure spending not necessarily the electricity, but that's a good point and from infrastructure spending as well. To your point too not even the Marshall Plan, which was a global spending of infrastructure, doesn't get close to what we're seeing in the U Plan, which was a global spending of infrastructure, doesn't get close to what we're seeing in the US alone relative to global GDP. And imagine if other countries will, you know, add to the table which I think they will in terms of infrastructure spending, and this is going to be, you know, probably very big changes in terms of construction spending but also the demand for those things over time that probably will create the demand, the long term. You know tailwind that we may see for metal prices just from the demand alone, not, you know, completely forgetting about the supply side of it.

Speaker 2:

And you know, for those that don't know, the supply side of it, that's the scary part to me is is the fact that you know we just don't have enough. I mean, I work with a lot of people in the mining industry and look it's, I have a lot of projects and I don't have people to run it. It's a problem. You know that's the issue. We don't have enough people that know how to run a mining company, people that have enough knowledge about it, and we're not going to see that change until we see metal prices improving drastically. That also causes a boom in the mining industry. Those booms create excitement that then create interest from young people and wanting to become geologists and all sorts of things. I have a daughter. If my daughter was actually going to college right now, I would certainly just tell her well, look, the geologist space looks really attractive right now and you should consider it, and I would certainly consider that because it's a geoscience space. In this environment of multi-year spending, of construction and lack of metals, to me it seems like also a real mismatch that needs to be solved at some point. And now that's something AI won't fix. It will actually exacerbate it.

Speaker 2:

And so I think that there is a. You know, that's why we see inefficiency, right, I mean, that's exactly why you have a. You maybe copper or silver likely into a major discovery and share prices come off out of those news, because investors are seeing this as an opportunity to finally get liquidity and volume improvements, and so they sell their shares. And if you're a long-term investor, that's what you know volume improvements, and so they sell their shares. And you know, if you're a low-term investor, that's what you love, right, it's intrinsically that company's improving and investors are just not seeing that. And so, yeah, fundamentally, markets are broken from that perspective.

Speaker 2:

And if you are, you know, not paying attention to the day-to-day changes in performances and actually trying to buy a high-quality asset, what a wonderful time to be involved with this stuff. But again, it takes time. It takes a lot of a huge learning curve. I feel like I'm new to the industry and I've been here for some time now. And I feel like I'm new to the industry and I've been here for some time now, and I feel like I know nothing about this. And it's a very complex industry. Everything you think it could go wrong, it goes wrong, and so. But the margins are becoming really interesting and I think we're only getting it started right now.

Speaker 1:

You had mentioned China earlier. I have written about what I believe may be a bottoming out process in china's economy and actually I don't think china's markets have all done that terribly in this, all things considered. But, um, from a big picture perspective, um, is china perhaps gonna surprise and encounter? I mean, could you have a situation where the us enters recession and China recovers? Because I would think that's even more fuel to the commodity fire.

Speaker 2:

Well, that's a good question. I think the timing for being bearish on China was five plus years ago, amen. I remember we were very deep into shorting Chinese banks and real estate companies at the time. Back in the days, it was difficult. I remember having to speak with or actually create an instrument from Goldman Sachs so we could short it almost like the big short really big short, really, and uh, and, and the main reason was because these companies would get suspended and you couldn't really uh get out of your trade, uh and so, uh, it was a scary moment for for some time, but it now, I think you know, people have finally realized a lot of these companies sunac and evergrand and so forth have all gone, um, if not bankrupt, very close to it, um, and now the banks are, you know, have already collapsed in prices most of the regional banks and, and the large banks, and you saw changes in consolidations and so forth. Um, you know, it shocks me a little bit that the Chinese yuan didn't weaken more. To be honest, I thought it was going to see more of that.

Speaker 2:

Now here is an insider perspective. You know what we sell in terms of metals. I mean, what if I tell you that there's Chinese demand that is well above the prices that are being bought out there by Western societies, meaning Chinese parties coming in and saying we'll pay this much for your metal, are you willing to sell this for us? Why wouldn't you? I mean, it's like we're talking significant percentages, higher than everybody else. So it is interesting that they are stockpiling metals to in a way that we haven't seen in a long time, and I have.

Speaker 2:

I was, you know, I follow markets from a data perspective but also, you know, running this other uh mining company and helping to run that you. You can kind of see that from, you know, from uh front seat role of of what's happening and it's uh, it is kind of remarkable. I, you know, I did my own math of how much potentially china is buying I'm sorry how much gold has gone up versus how much has been disclosed of purchases of central banks, and the math doesn't add up. Meaning I think there's, you know, we're looking at GLD and other instruments that should be benefiting from this movement in gold, and to me it seems like there's a lot of undisclosed purchases of gold that are much more relevant than what it's been disclosed. And so this whole, all these charts that I also share, charts of, oh, china's buying gold and all that they're kind of irrelevant because the purchases are much bigger than what has been shown in these charts and we don't know how much it is and who is buying. But we know there's a buyer and I mean it wouldn't shock me if there's a Western society actually buying it and not disclosing it. I mean it wouldn't shock me. So I don't know, it's sort of bizarre Because from being in this mining company as well, you can kind of see that these demands are off the charts.

Speaker 2:

You can kind of see that these demands are off the charts, and but sometimes prices are not reflecting those demands either. So, which is funny, I mean, you know, you see silver prices weakening and so forth, all sorts of things, and you know, while there's a large buyer out there that continues to buy it every time it falls and and so I, I don't know, I think the sides on the wall that this is the early stages. But you know, I think it's part of it. The skepticism that is shared by most communities is part of it, and maybe this liquidity that could potentially come from China from your point could be an extra tailwind that nobody's actually expecting, and I think that there is a possibility of that, and you know, fundamentally, some of these other countries that have high exposure to metals are also doing better. And, lastly, the last thing I would point out is there are jurisdictions that people are not paying attention to.

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Michael A. Gayed, CFA

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