Money Rehab with Nicole Lapin - Famed Economist Nouriel Roubini on the Economic Future of Interest Rates, Bond Yields, Nvidia, Crypto and More

Episode Date: May 7, 2024

Nouriel Roubini is the closest we may ever get to an economic rockstar. Today, he sits down with Nicole to talk about his outlook for 2024. They cover interest rates, bond yields, Nvidia, crypto, and one you won't see coming: strippers as an economic indicator. You'll have to hear that one to believe it! Find more of Nouriel's work, including his latest book MegaThreats, here: https://nourielroubini.com/

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp. Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It's an election year here in the United States, and that means we will all be scrutinizing the recent past and trying to predict the near future. My guest today has built his whole

career around being quite a bit more of a fortune teller than the average person or even the average economics professor. Dr. Nouriel Roubini is perhaps the most famous economist out there. He's a professor emeritus of the Stern School of Business. He's the CEO of Roubini Macro Association, a macroeconomic consulting firm, and most famously known as Dr. Doom himself. In 2006, Dr. Roubini started banging the drum to warn of coming financial crisis, which of course it did. And that's how he first got his nickname, Dr. Doom. He also predicted that China would be able to manage its financial troubles in 2016 and come out stronger, which of course it has. Today, we talk about his 2024 predictions, where Dr. Doom thinks the

economy is now heading, and one you won't see coming. Why strippers are a leading indicator of a recession. And I know Dr. Rubini can get wonky at times, but I promise stick with it because he spews so many financial gems. Dr. Noriela Rubini, welcome to Money Rehab. Great being with you today. You recently said in an Economic Outlook piece, one must therefore approach any 2024 forecast with humility. Why with humility? Why is 2024 harder to read? Well, every year is not easy to read. You know, Yogi Berra, your Yankee coach, said it's very hard to make forecasts, especially about the future.

And there's a joke that says that God created economists to make weathermen and astrologers look good when it comes to predicting. And say most economists got it wrong. The rise in inflation we had after COVID, most thought it was temporary, turned out not to be. Most economists predicted that the Fed raising rates is going to lead to a severe recession. That did not happen. So, economics is not a precise science. I'll give you one example. At the beginning of the year, markets were expecting that the Federal Reserve would start cutting rates in March. And by six times this year, because inflation had dropped very sharply in 23. So they said if it continues, then with lower inflation

and slowdown of growth, you're going to see Fed cutting six times starting in March. As of now, market expectations are that the Fed is not going to start cutting rates in June because the Fed had told us it's not going to be in March. And the Fed had told us at the beginning of the year that this year there will be three rate cuts rather than six. Now markets and even the Fed are signaling we're not going to start in June.

Most likely we're not going to start in July. We're lucky if we start in September. We're lucky if we have another cut in November. So instead of three, at best two. There are some scenarios in which inflation remains above three rather than falling towards two. And if we're going to be not just high for longer, but higher, because some people are starting to say, hey, the next move by the Fed is not going to be a cut. By early next year, it could be hiking rates. Now, if you have that scenario happening, because inflation

is sticky and doesn't have to go much higher to be above 3, then the Fed has to raise rates. And this year, the consensus was that probably we do achieve a soft landing, and soft landing means we achieve going towards 2%

inflation without a recession. But if the Fed were to stay higher for longer and then high-grade, say, next year, the probability that not this year, but by next year we have a big-time recession at the beginning of whether a Biden or a Trump administration, that likelihood becomes larger. and or a Trump administration, that likelihood becomes larger. And if the U.S. were to end up in a recession, there are other effects. Higher interest rates in the U.S. means higher interest rates in the world.

Higher interest rates in the U.S. means a stronger dollar that has negative impacts for the rest of the world. Higher dollar implies that the dollar price of many commodities falls. If interest rates are going to fall. So you think they're going to cut twice this year? At best. At best. If everything goes right, they don't cut three times. They start in September and do another one in November.

That will be a baseline. But that assumes that, say, tensions in the Middle East don't imply oil prices going up, say, Brent, from 80-ish to 100. If that happens, inflation is higher, growth is lower, and the Fed will not cut rates, and they may even consider raising them. Well, speaking of growth, in April, the latest GDP report came out, showed that the U.S. economic growth slowed to 1.6%. Why do you think there was already a slowdown? So the first estimate of first quarter growth was inflation was slightly higher than expected. And compared to fourth quarter of last year where growth was 3.4,

the initial estimate was 1.6, so less than half. I think that what's happening is there's a lot of persistence of inflation. The last mile, it's easier to go from 8 to 3. Going from 3 to 2 is much harder because service inflation is more sticky and depends on wage growth because the labor intensive and wage growth has softened, but not that much. There are some sector of the economy where inflation remains quite high. One of them is shelter, housing, rent, because demand is rising, but the supply is constrained. Car insurance is rising for a number of reasons.

Health care inflation has been rising rather than falling. And until recently, actually, growth last year was above potential. Before this Q1 number, even the International Monetary Fund expected that U.S. growth this year would be strong, 2.7, even higher than last year. And if growth is above potential, the tightness of the labor market, the tightness of goods market,

the imbalance between strong demand and weaker supply implies that those inflationary pressures may continue. The labor market is tight by any standard that might lead to more persistent wage inflation. And of course, like the dollar, bond yields, gold, they're all connected. They're all reacting to each other. So what would your forecast be? The inflation and the dollar question, where bond yields are ultimately going to be this

year? My view is that, at least for this year, since the Fed is going to cut less than expected, since the Fed is going to cut less than expected, both short-term interest rates that are directly controlled by the Fed and longer rates, because the path of short rates affect what 10-year treasury yields are. And given any treasury yield, then mortgage rates are something above that. So higher for longer means also mortgage rates are now 7%.

And people maybe have to move from one part of the country to another, find a better job. They cannot sell their homes because if they sell it and they want to buy a new one, when they sell it, maybe they were paying only 3% on their old mortgage. And having to buy and pay 7% is nobody wants to do that. Or if they don't buy in the rent, rent had been increasing for many reasons. So, you know, what happens to interest rates has impact not just on the cost of money for the government, but mortgage rates, interest rates on car loans, interest rates on credit cards, interest rates on any other consumer loans, let alone interest rates for the corporates and the businesses that borrow.

Everything is higher, more costly, and that damages the economy. But also it's higher for savers. It's higher for savers. That's correct. You get a higher interest rate, even if the interesting thing is that the short-term interest rates come from zero to 5.5, the Fed. saving deposits, instead of paying you zero, they would pay you something closer to 5%. And instead, both for demand deposits and for, how to say, saving deposits, interest rates have gone higher, but maybe towards 2-ish, not towards 5-ish. So those benefits have not accrued even to savers. And those who actually hold long-term bonds, the point is for existing long-term bonds,

when the yield goes higher, the price is lower. So actually higher yield makes you lose money. It makes you lose money, not gain money. It's only when then you buy a new bond, the higher interest rate, you get five. But when it goes from one to, say, five or four and a half, you're losing 30%, 40% on the price of that bond, something that people sometimes don't fully understand.

They think that government bonds are safe, safe from credit default risk, but they're not safe from the market risk. And last year, when a bunch of banks, when Bas starting with Silicon Valley Bank, the reason was what technically people call duration risk is that if you hold lots of long-term government bonds and the yields goes higher, the market-to-market value of those bonds collapses

and then you could become bankrupt. It happened to Silicon Valley Bank and it happened to a whole bunch of other banks. So these impacts are actually things that you have to think about when you say higher interest rates are good for savers. They're not for those holding long-term bonds. Long-term, like 10-year duration. Yeah, exactly. Those are massive losses. In 2022, when Fed increased rates, the S&P 500 went down by about 15%. The rise in bond yields from one to three and a half implied that the price of the 10-year

treasury fell by 20%. So the asset that traditionally is supposed to be safe and defensive, that is long-term bonds, lost more money in 2022 than S&P 500. Something that people never thought about and why they didn't think about because we're in a world for almost a decade where 10-year treasury yields were close to zero. They're one and they're not going up. And actually, if anything, they were falling. And as the yield was falling, the price was going higher. When the yield goes from one to three and a half, the price falls by 20%.

Something that any basic economist knows, but I don't think that any basic investor. But like 26-week T-bills are fine. Yeah. Short-term T-bills don't have the same, when interest rates go higher, they don't have the same price impact of long-duration bonds, and you get the higher yield. So when inflation is rising, the right thing to do is should move away from 10-year treasury to three months, six months, one-year T-bills. But if you hold a 10-year treasury bonds or a 30-year you have to wait 10 years or you wait to have 30 years until that and suppose that you're becoming old you're retiring

you have to sell those things then you would face the mark to market loss so only if you can buy and hold forever or for a long time you don't And one of the typical investment advice that most people follow is this rule. When you're younger, put 60% of your savings into equities. They're more volatile. And put 40% of your savings into long-term bonds that they give you a lower return, but they're less volatile.

But as you reach retirement, you want to be less in stuff that is highly volatile and stuff that is more safe. But again, the point about long bonds is that they're safe in terms of credit risk if the government doesn't go bankrupt. And for now, let's not worry about that. But they're not safe if a rise in interest rates

drops the value of this stuff. And the other thing that's important is that the idea of 60-40 is based on the negative correlation between the price of equities and the price of bonds. So when the economy is growing

or we're in risk-on and people are optimistic, the equity prices go higher, so you make money on your equities, but the yield on the bonds goes higher and the price falls and you lose money on the bonds. But you more than make money on the equities compared to the losses.

And instead, suppose there is a recession or people are risk-averse, there is panic, then prices of equities go lower, but the yield for the bonds goes lower, so the price goes higher. So you lose money on the equity leg of your investments, but you make money on the bond because there is this negative correlation. That negative correlation assumes that inflation is low and stable because when inflation is rising, like 2022, bond yields go higher.

So you lose money, 20% on the bonds. But the higher discount factor for the dividends of the stocks means that stocks go lower. So in 2022, you lost 15% of ZNP. You lost 20% of your safe treasury because the correlation within the price became positive rather than negative. And the Nasdaq fell not by 15%, by 30%. Many of these tech and growth stocks lost more like 40%, 50%. And, of course, all the other bubbles, Mimi stocks, SPACs, crypto fell more at 60%, 70%, 80%. So that was a blowback.

Well, let's talk about your favorite asset class. Last time you were on the show, you did not mince words about your feelings on crypto. Talk about that correlation cluster. You know what? Bitcoin has, though, been on a run lately up 82% this year. Yeah. Think it's going to fall?

What's going to happen? Hold on to your wallets. Money Rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN.

When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements

and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network,

which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work. But sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. And now for some more money rehab. You know, I remain skeptical, first of all, on crypto as an asset class because they call cryptocurrencies currencies,

but we know they're not currencies. Nobody's pricing anything in crypto, not even Bitcoin. It's not a scalable means of payment. You can do only seven transactions per second using Bitcoin. Visa network allows you to do 50,000. It's not a stable store of value

because it can go up 10% one day and can go down 10, 20% a day. You know, if you look at the volatility, say, of Bitcoin, you know, in 17, 18, it went from 5 to, say, 20. Then it fell from 20 to 3. Then you had this big rally until 21, reached 60, then it fell to 16,

and then went up now to much higher than the previous high, but then has corrected every time there is something. And the point about Bitcoin is that since you have FOMO, like in many asset prices, the guys who are the suckers who buy at 60 are the retail guys. And once they reach the peak, the big guys, the whales sell.

So when the price falls by 60 to 15, then the suckers panic and then they sell at the bottom. And then it goes up, there's FOMO, they buy the top, and then again. So it's the worst situation because in investments

you buy low, sell high. Exactly. And instead there's just the opposite. You buy high and you sell when it's low and you lose money. So most people lose their shirts. And by the way, this is Bitcoin. There were 20,000 ICOs

where these coins were issued, the initial coin offering. 80% of them were a scam, literally a scam in the first place. Another 17% have lost their value and gone to zero. So 97% have gone bust. So the only left are 600 out of 20,000. And of those 600, excluding the top 10, the others are down 80% from the peak.

And even the top 10, with the exception of Bitcoin and Ethereum, are way down from the peak. And even the top 10, with the exception of Bitcoin and Ethereum, are way down from the peak. So you have to look at the universe, not just pick and choose. Well, last time you called them shit coins. You still believe that? Anything besides Bitcoin and Ethereum? Yeah, because, you know,

when 97% of an entire asset class is either a fraud or goes to zero, actually it was offensive to call them shit coins because actually manure is actually productive because you can use it as a fertilizer in agriculture, while these shit coins use a huge amount of energy, they damage the planet, so they're actually having negative productivity, while manure can be used for something productive. So it's offensive to manure to call them, you know, shit coins, with your respect. So they're much worse than shitcoins.

They're toxic coins of some sort. They're toxic. But not Bitcoin. Or would you say Bitcoin is excluded? I'm skeptical of Bitcoin. You know, I've spoken two years ago, I'd gone from 69 to 15, and the narrative would have been different.

And now it's gone up to 60s, but then a few days, even recently, it's fallen 10% to 20% from that peak. And the idea that Bitcoin over the long term is going to go, there's a prediction actually in the last few years, was that by now, many people were in the industry. They're not speaking about 69. They spoke about 200,000, 300,000. A bunch of them said by 25 is going to be 500,000, right?

So if you compare to the hype was there, this is a rally that goes above, no, close to the previous peak is nothing. It's really nothing. And by the way, you know, we talk about huge amounts of these crypto assets. But, you know, the value right now in the market of these crypto, call them assets, they're not currencies. In my view, they're not even assets. It's maybe a trillion, trillion plus, depending on the day and whatever not. on the day and whatever not.

In the world, there are about $100 trillion of financial assets, stocks, bonds, and so on. That doesn't even include the real estate that is one of the biggest assets that Hauser are holding. So suppose your Bitcoin was going three times in value, say 200,000 over the next few years. Okay, from 1 trillion is going to be 3 trillion. But in a situation in which actually the value of the other asset has gone up probably by another 10, 20%.

So, right now it's 1 trillion, 1100. It's going to be $3,000,000 out of $120,000. Spare change. Frankly, spare change. It's a spec in the financial universe. Yeah, exactly. And as I said, Bitcoin, let alone any other of these crypto something. Toxic coins.

Toxic coins is never going to be a currency because the whole idea was they become a currency and I'll give you an example why there's a country in the world that decided actually

to make Bitcoin a legal tender that is El Salvador so if you hold Bitcoin and you go to a store in the US you cannot buy any goods.

It's not legal tender. I mean, if the vendor really wants to, you could accept Bitcoins, but the number of points of sale where Bitcoin is accepted as a means of payment is just less than 1%, nothing. But in El Salvador, they say no. If you go to a store and you want to buy something with Bitcoin, of course, the price of the good is not in Bitcoin local currency. But then you can convert the current price and use Bitcoin. The vendor is obliged, legal tender, obliged to accept the same way. If you go to a store, I can pay in dollar. I cannot pay in euro or yen because they're not legal tender, US, but the dollar is.

So they make a Bitcoin legal tender. It's been two or three years now. And the amount of transactions in the economy that are in Bitcoin is less than 1%. This is in a country where you forced it. So, you know, we forced to use it as a legal tender and people don't want to use it as a means of payment. So it's not a currency. Certainly it's not a currency. Now, people say it's not a currency, but these crypto things are assets.

Now, if you look at the definition of an asset, an asset gives you usually income. Usually income. Stocks give you dividends. Bonds give you a coupon. A bank account gives you an interest. Real estate either gives you a rent if you rent it or if you're using it for your personal use. Appreciation. Appreciates and as housing services are useful.

Commodities, you know, we use food. We use oil. It's useful. And so on and so on. So every asset has either income or has a stream of utility of some sort. Now take gold. Gold doesn't have income, fair enough, but has been a store of value for a long time. The price of gold has gone up. And whenever you're actually high inflation, it's a good hedge against that type of inflation

and is used both in industry, gold, silver, in lots of goods and services, but it's also used as jewelry. Forever people have worn gold and it has that psychic value of jewelry. Jewelry

is something that forever has been used and so on. Now, Bitcoin doesn't have income, doesn't have industry use. They do have these tacky Bitcoin pieces of jewelry. Which is made of gold. Made of the gold, first of all, and they look so ugly. And if they're not made of gold, they of all, and they look so ugly. And if they're not made out of gold, they're worth nothing.

And then it doesn't have other utility or use or whatever. So for every asset, you can measure what is the fundamental value by giving the discounted value, say, of dividends or the discounted value of certain uses or of utility, whatever not. So that gives you what the fundamental value of that asset is. Or long-term bonds are the discounted value of short rates and so on. And it's a coupon that gives you the value. In the case of Bitcoin, let alone other crypto asset, there's no way to measure what the fundamental value is. Is the fundamental value, you know, 10,000, 0, 50,000, 100?

It's impossible to say. Now, people say the benefit of Bitcoin is its scarcity. It's scarce. And since the supply can grow only up to, I don't know, 21 million, if demand increases, then it's going to be worth a fortune. First of all, we don't know how much demand is going to rise, and then it's a self-referential. It says because there is limited supply, demand has to go higher, and that's going to be worth more. And that's going to be worth more. There are lots of things in the world, sand or rocks on a beach that are in X amount of supply and they're worth nothing.

Unless you use them for, you know, cement or whatever. But there is a cost of extracting them. So it's not as if people say it's the scarcity value. But tons of things in the world, you know world are scarce and are not worth anything. First point. Two, Bitcoin is probably one of very few crypto something that is truly in limited supply because the production of many of these toxic coins or shit coins, whatever you want to call it, is decided for most of these other things randomly by whoever is the issuer. So people say the Fed can debase the dollar because they can print as much dollar as they want.

And if we print too much, we have inflation, the value falls. But there are constraints to how much the Fed can do that because if they print too much money, there is inflation. Inflation is bad for everybody. There is political backlash against it. So the idea the Fed will have high inflation is totally far-fetched. Say inflation went higher, the Fed raised rates, and now from

eight it's gone down to three. So this is the basement of fiat currency in a civilized country, because there are basket cases there. Zimbabwe is of the world, but those are exceptions. It's not happening. But in the world, but those are exception, is not happening. But in the space of this ICO, the basement was just 10 times more than anything the Fed has done in the last 20 years. I mean, they kept on issuing new ones that were just a

piece of junk worth nothing. And each one of them, you could increase the supply as much as you wanted. So if you're talking about the basement of the dollar that's controlled by a Fed that is a responsible and politically responsible actor because they have to achieve a target and if they don't, their mandate is going to be punished by the political system and the public. So there are

forms of discipline on what the Fed can do. There's no form of discipline. I mean, these guys were scammers who printed this crap. And what they did with the money? They bought mansions. They bought boats. They bought their, you know,

Maseratis or what was the Lamborghini, sorry. Lambo was their favorite sports car. They went to Puerto Rico with no income taxes. And they totally evaded taxes. And actually, if you look at Miami, there is this famous strip club called Eleven. It's big. It's huge. the revenues that came to this strip club from crypto guys who were doing these big parties with spending hundreds of thousands of dollars

on big bottles of champagne and so on, they were something like $15 million just in one club gone from $1 million two years before. And then, of course, when the bust of crypto occurred in that winter, the next year the revenue were only 500,000. So they were essentially spending money on anything, including essentially lap dancing and lavish parties in these strip clubs. That was what was happening.

And guess what? Fraud to a scale like we've never seen before. Take FTX and SPF that then is now in jail. Take Binance, was just fined 5 billion and CZ end up in jail. And this is just two examples. By the way, most of them have not yet ended up in jail. But the amount of people that are crooks, real crooks, criminals, scammers, and so on, huge. And you were doing, by the way, the money media stars and celebrities and sports stars and top actors, again, to go and say this crypto junk is worth. And that was also total criminal behavior. So, you know, people say whenever there is a new technology, say like the Internet bubble, there were lots of stuff that went bust.

But that's capitalism, you know. Is there a strip club index? Like, is there an economic index? I think there's some truth to this. I don't know about the index, but Miami was the place where a lot of these people moved. It's huge. I don't know.

I've never been, but they say there are, you know, it's not the typical strip clubs, they have hundreds, lap dancers, whatever. In the 70s, there were shady practices, you know, the banks would invite their clients to gentlemen's clubs, and then deduct as a business expense,

and then the SEC said that's not acceptable, but in the crypto world, you know, paying for lap dancers and escorts was considered standard business operation. I think it's a leading indicator. I think if you talk to strippers, they'll know when bankers come and tip, things are going well. I don't know if anybody has done a survey. So I have only one example.

But I think that example about 11 in Miami is just a proxy. And as I said, whether you buy boats, whether you buy planes, whether you buy Lambos, whether you buy stuff, and you use the proceeds of something that you are supposed to take the money of an investor to invest into something, and then 20, 30, 40 percent of it is kind of really stealing the money and escaping. That's criminal activity. Guess what? A few of them finally were indicted, arrested, convicted, and luckily a few of them are in jail, but not enough. I think that this should be your next book, Toxic Coin.

I think that this should be your next book, Toxic Coin. Well, luckily— I also think that there's another value that they could have offered, which was a hedge, and they didn't offer that either. No. And by the way, people say crypto is negatively correlated with other assets like equities. So it does well when equity goes down and so on. That's not true. It's actually more than correlated. When equity goes higher, they go higher more. When equity down and so on. That's not true. It's actually more than correlated. When equity goes higher, they go higher more.

When equity falls, so on. So it doesn't give you the dedication benefits. And then they say crypto does well when inflation is higher because it avoids the basement of fiat currency. Again, that's not true because when interest rates are going higher,

because inflation was higher, crypto was collapsing, Bitcoin from 60 to 15. And instead, when inflation started to fall, that again, Bitcoin went higher. So the hedge doesn't exist. It really doesn't exist. But in theory, that would have been helpful. If it was, but it's not a hedge.

So if that negative correlation with other assets, you could say it's a hedge against inflation, against risk-off, but it's not. Like we've seen it for historically gold and dollar. You can say something, but it's not true. Hold on to your wallets money rehab we'll be right back and now for some more money rehab okay before we go nuriel love to do a quick lightning round with you uh bullish or bearish i'm gonna list out some things you tell me if you're bullish or bearish? I'm going to list out some things. You tell me if you're bullish or bearish.

Ready? Yeah. Okay. One month treasuries. You know, I'm bullish in the sense that yields are going to remain higher. So you can get your 5% or so on those things. 10-year treasuries. I'm bearish because I believe that inflation and other factors imply high rates that mean

rise a lower price. S&P 500 index funds. I would say over the short-term horizon, I think that this year may go slightly higher, but it's gone so much higher. Price earnings are too high that if the economy weakens, if the Fed stays higher for longer, if bond is slightly higher, it could correct. I don't expect a bear market. A correction for a year of say 5% or so, I would not rule it out.

So slightly bearish. NVIDIA. NVIDIA is long-term is bullish because I think that the AI revolution is going to change the world. For now, NVIDIA has a near monopoly on the higher-end chips that are using AI. The price in the short run was a little bit maybe overpriced even with all the caveats about the long-term stuff. P-ration may be excessive. And again, in 2022, when rates went higher, NASDAQ fell by 30, S&P only 15, because those are long-duration assets that are more sensitive because the stream of dividends is farther out in the future.

So when rates go higher, they fall more than traditional stocks. So it could correct, but I would take a correction as maybe an opportunity to buy from values that are currently too high and buy and hold over the long run. The only other caveat on Nvidia that is important is that right now they have a monopoly on the high end. But I think, first of all, the Chinese, then the other big chip makers that are the TSMC in Taiwan or Samsung in Korea are going to catch up. And if there's going to be more competition over the next five, ten years

and they're not going to be the only provider of these chips, then their margin will be lower and they're going to lose some market share. So that's also something to keep in mind. People assume that they'll be the only monopoly provider of these chips and probably that's not going to be the case in the long run. Tesla. Tesla. then probably that's not going to be the case in the long run.

Tesla. Tesla, I'm similarly a little bit giving aside the short run, where one day it goes up 15%, the next day it can fall 15%. I think the price-earning ratio is high. I think that while recently Elon Musk went to China and met with the Prime Minister and he said, you're welcome here, and you can even over time build

semi-autonomous vehicles, in the Chinese market, even today, the Chinese electric vehicles car are cheaper and they're actually better than even Tesla. so much the chinese are now exporting them all over the world and even the europeans are becoming nervous about too many chinese evs in europe in the u.s we don't have that problem right now because they slapped

years ago at 25 tariff on chinese evs so we have not seen the same onslaught like in Europe. But I think that Tesla is going to face massive competition within China and is going to lose market share. It's going to also face competition in other parts of the world where the Chinese EVs are going to be exported. Maybe there'll be restrictions also in Europe and the US. But there are all the emerging markets, the global south and so on, where the competition

is going to be between cheap EVs that are highly quality of China and more expensive EVs of Tesla that have actually not the same quality. So Tesla is going to do fine, and there'll be European producers of EVs. There'll be also in the US, the big three are all investing. producers of EVs, there'll be also in the US, the big three are all investing. So I don't see a medium term where Tesla is the major global player in EVs and there's nobody else. There'll be definitely Chinese, definitely Europeans, and definitely other Americans. It'll take time, now they're ahead on some things, but they're expensive. So in that scenario, the current price-earning ratios seem high for a firm that's going to do well, but they've gone up so much even in spite of the recent correction that I'll be cautious.

Gold. You know, I'm moderately bullish on gold. You know, I'm moderately bullish on gold. And in the last year or so, actually, gold, as I predicted, has gone significantly higher. It was around $1800, $1900. Recently, it's been as high as $2400. It's been a good rally because I live, one, in a world where gradually over time, there'll be more inflation and gold tends to do well. Two, because of geopolitics, strategic rivals of the U.S. can have their foreign asset seized.

We saw in Russia, it was not just their dollar assets, foreign reserves, but also the euro, the yen, the pound. And the Chinese have over $3 trillion of treasuries that if there was a significant escalation could also be seized or frozen. So if you ask yourself, and it's not just the strategic rivals of the US, China, Russia, North Korea, Iran, but in other countries, they worry about their dollar also being frozen

because if US imposes, say, on China some financial sanction and Brazil doesn't follow those financial sanctions, we can also punish Brazil. So there's a whole range of countries right now getting nervous about the holding of treasuries. And that's the risk of, unquote, de-dollarization over time. Again, it's not going to happen tomorrow, but there is a risk. So which is the only asset? There's a liquid asset, there's a reserve asset that central banks are already holding. Central banks hold euro, dollars, pound, yen, whatever.

They also hold gold. So if you're in China and you ask yourself which is the only asset that cannot be seized by the U.S. if there was a war or escalation, treasure can be frozen. So you want to switch to gold because gold bullion and gold bullion not in the vaults of the New York Fed because the New York Fed in New York holds in its basement tons of gold for lots of people. If you leave it there, they can seize it. Gold bullion in the basement of the Central Bank of China. And gold bullion, not gold financial, because you can buy gold with this ETF like GLD. If you buy gold financial, again, those assets can be frozen because they're financial assets

by the U.S. So the safe asset is just gold in the ground somewhere in China or Russia. And the reason actually why gold has gone higher, part of it is concerns about inflation. But people who track this data see that central banks in the world, not just the stock market rival, but other ones, are increasing their allocation to gold. Gold is not in fixed supply, but the supply depends on mining. Gold is slightly polluting in terms of, like many other minerals,

so there are environmental constraints and this and that. So when the price of gold goes higher, supply goes higher, but it takes many years of investing in new mines. All demand can go higher faster. So my point is you want to be overweight. If in your portfolio gold will be 5%, maybe you want to be 10%.

So you should be slightly overweight. And geopolitical risk also implies that gold is safe when there's a financial crisis or panic and tensions. Okay. Nouriel, we end our episodes, as you know, with a tip that listeners can take straight to the bank. It sounds like the only thing that people should do with their money right now are buy gold bars, in your opinion, and bury them. No. No, I wouldn't say that.

What would be more recommended? No, I would say the following thing. No, I wouldn't say that. What would be more recommended? No, I would say the following thing. First of all, I'm optimistic that tech stocks over the long term are going to do better. So you want to be less in the old economy stocks of firms that probably gradual over time are going to be weaker. You want to be overweight in high technology. Now, you cannot buy today OpenAI is private, but Microsoft owns 49% of OpenAI

and all the other big, magnificent seven own some, they've invested into Anthropic and Inflection, the Google, the Meta, the Apple, and so on. So the way you want to be exposed to AI is going to do well is just go for, if not the Mac 7, Mac 5, and you want to be exposed to AI is going to do well, is just go for, if not the Mach 7, Mach 5. And you want to be there. And even if they are a bit, how to say, hyped right now,

long term, I think those are going to be the winners. But the traditional safe asset, in case there is, again, a correction in equity, was 10-year treasuries. My point is, you don't want to be in 10-year treasury because the yield goes higher, the price is going to fall, but you want a combination, one, of short-term treasuries where inflation goes high, you get the yield,

not the price adjustment. Inflation-adjusted treasury in the U.S. are called TIPS. Gold, some gold, and some types of real estate that are also protected from climate change. Real estate, usually when inflation goes higher, does better than equities because in fixed supply is a hedge against inflation, rents go higher. The only caveat is in large parts of the U.S., the south, the coastlines, there's going to be a huge amount of stranded assets because of sea rise level, droughts, heating, climate change and so on. And already many of the insurance companies today are not insuring anymore homes in part of South Florida, parts of California. And in Louisiana, there are lots of people living in the bayou because their homes are going to be underwater.

So you want to be into REITs. REITs are public equities that invest into real estate assets, not just housing, but also a variety of commercial that are, how to say, environmentally proof. A number of people, including myself, are now working on taking data for all the REITs in the U.S. and at the zip code level, figuring out which REITs in which part of the U.S. are more at risk of climate and which are not. So you want REITs that represent real estate assets.

Where is that list? I want to see it. Well, I've been working on a project that's going to be launched as ATF sometime in the summer. And one of the assets in this portfolio, as I said, gold, show them treasury tips. data using now big databases and using also machine learning that the zip level of each US zip level, you can measure how much that particular zip code is subject to

climate change, flooding, warming, hurricanes, droughts and whatever not. So you can have a proxy for how much of a rate has excessive concentration in parts of the U.S. that are going to be damaged by climate change. Can you come back and talk about it when it comes out? Yeah, when it comes out.

Right now, it's not yet launched. And when you talk about it, of course, there are constraints of what you can say and not say. Right now, I give you the idea when we launch it. I think that's something that definitely, as I said, there are $20 trillion of treasuries that in my scenario are going to be, if inflation is six and real rates are two, tiny treasury will be at eight by the end of this decade. rates are two, tiny treasury will be at eight by the end of this decade. Right now they are at four, four-ish. When they went from one to three, they lost 20%. If they go from four to eight, eventually you could have another 40% losses on stuff

that's supposed to be safe. That's why the 40 lag of your investment has to differ from the past. That's the investment, not just gold. Gold has one piece of it, but it's not the only one. Thanks, Narelle. Great being with you today, Nicole. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your

money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.