Shaun Newman Podcast - #460 - Tavi Costa

Episode Date: July 5, 2023

He is a partner and portfolio manager of Crescat Capital. Tavi's research has been featured multiple times in financial publications such as Bloomberg, The Wall Street Journal, CNN, Financial Post, The Globe and Mail, Real Vision, Reuters. We discuss history & where he believes gold is heading. Let me know what you think Text me 587-217-8500 Substack:https://open.substack.com/pub/shaunnewmanpodcast Patreon: www.patreon.com/ShaunNewmanPodcast

This is John Ravaki. This is Simon Esler. Hi, it's Heather Prozac. This is Tom Romago. This is Alex Kraner. This is Steve Kirsch. This is Dr. Pierre Corey, and you are listening to the Sean Newman podcast. Welcome to the podcast.

Folks, happy Wednesday. Hope everybody's week is moving along, man, after a couple of rough days or with the old weather, at least where I'm sitting. The stuns started shining and, you know, a little bit better. I'm single parenting it right now as the wife is away for the week. And so I'm doing multiple jobs where I'm doing. multiple hats and when the days are a little long shall we say in a different sense when the weather isn't cooperating being stuck inside has made life a little bit interesting and so having

the sunshine and at least you kick them outside and well kick us all outside who am I kidding I'm the fourth kid anyways before we get to today's episode let's get to today's episode sponsors guardian plumbing and heathen that's blaine and joy stephen you want to hear more about them go back to 337 you know they hear that episode 337 they're the home of the Guardian Power Station bringing free electricity to everyone as well as the reliable off-grid solutions Alberta, Saskatchewan, and beyond. And of course, they're one of many companies looking for guys. And so if you're interested in a job or you get a background in plumbing, well, plumbers, HVAC, techs, installers, and pretenices are looking for them all. Just go to guardianplumbing.com.

Where you can schedule your next appointment at any time. Erickson Agro Incorporated. They're at Irma, Alberta, Kent and Tosha, Erickson Family Farm. I'm raising four kids growing food for their community and this great country. They've signed on the podcast, and I'm actually heading to Irma, Alberta for a golf tournament this Friday. And I just got word that Kent is stuck in a different country and won't be making it back. So I guess I won't be golfing with Kent, but I look forward to being an Irma. And Darrell Sutter there, Bob Stauffer, and a few others that should be, I don't know, it sounds like it's going to be a ton of fun, a little bit of a, well, I don't know, hopefully maybe a relaxing Friday before this guy starts

to get ready to head south. The butcher shop, that's the deer and steer butchery, that's a butcher shop here in Lloydminster. And of course, I've been talking a lot about the prices of different, well, certainly every price in the grocery store. So if you're from this area and you've got an animal to get butchered, well, I mean, deer and steer, if you're a hunter and, you know, the hunter. seasons a little ways away from us, but if you nab the animal, deer and steer can get you hooked up that way as well. And of course, they also offer the ability to go in the butcher

shop, put your hands to your own meat and help carve it up, which I think is a super cool experience, especially if you've never done anything like that before. It can be pretty eye-opening. And certainly, I don't think I need to tell this audience this, but maybe stay away from the supermarket meat aisle for multiple reasons. One being the cost of it is going absurd. The second is, you know, as they get closer and closer to the old MRI jab being put into animals or at least that they're possibly flirting with that idea, I think sticking away from that might be just a smart idea.

Could be just me. Maybe I'm a... Well, no, I don't think I'm a worry word at this point. Am I, folks? Don't think so. The Three Trees, Tap and Kitchen, they are, well, I always talk about their tap, what they got on tap, a lot of local draft, a lot of local beers. It's fantastic. Tews always talks about the food and how fantastic it is.

And I think all of us in the Lloydminster area can agree that now if you've been out to one of their live music nights, that's, well, that's a few and far between in this area. So if you want to stop in and take advantage of one of their live music nights, just do a little creep in, creeping, creeping. On social media, you can find out when they got their next act coming through. And I would also suggest you call them Book of Reservation, 780874-7625. Finally, I've just put up my first Patreon video in like probably a year. Actually, I think a little more than a year. And I had been kind of shutting that down. I was like, okay, this is over with.

I'm done with this. I'm just going to slowly exit out of it, you know, and then I've been saying it lots. Me and Tom Luongo had a conversation, and it's, you know, I'm like, okay, from July until December, we'll see what happens. And so I put my first video back up there. You can expect more videos to be going up. That's behind the paywall. So if you want to support it, great.

If you don't, totally cool. We're just going to work on the Patreon account. And in the show notes, you can click on that. You can find out a little bit more about it. If it's up your alley, great. If it's not, totally cool. I totally get it. So either way, it's sitting there if you're interested.

Interested. Now, let's get on a tail of the tape brought to you by Hancock Petroleum for the past 80 years. They've been an industry leader for bulk fuels, lubricants, methadone, and chemicals delivering to your farm, commercial or oil field locations. For more information, visit them at Hancock Petroleum.compt.a. He's a partner and a portfolio manager at Crescott Capital. His research has been featured multiple times in financial publications such as Bloomberg, the Wall Street, journal, CNN, financial posts, the Globe and Mail, Real Vision, and Routers. I'm talking about Tavi Costa.

So buckle up, here we go. Welcome to the Sean Newman podcast today. I'm joined by Tavi Costa. So first off, sir, thanks for hopping on. Thanks for having it. Now, for my listeners, I'm going to guess they've never heard of you. Because, you know, I got three older brothers, and they feed me different people, especially from, you know, the financial backgrounds and different things.

that and so I just started following you recently as well and then I started listening to some of your stuff and on and on it went so for the listener maybe you could talk a little bit about yourself just so they get a feel for who they're you know who's on the show today sure my name is Taddy Costa I'm a portfolio manager at Kreska Capital we basically manage three different funds a global macro long short and a precious metals fund most of work has been in the macro side so a lot of the things I share on the internet are related to my macro views and the firm's views as well. I would say there's three over,

three overriding themes that we have in a portfolio today that I think we're attempting to capitalize on in the following years. We'll discuss of commodities and tangible assets theme where we want to play that through energy shortages and electrification metals, uranium, agricultural quantities, commodity-led economies. The second one has to do with this precious metals thesis that we have, the belief that gold is going to return as a central bank asset and an inflation hedge over time. We're big believers of that thesis as well. Number three is this long duration assets, how expensive they are and is dislocating in the markets given the issues with valuations that we have currently in the world.

And so especially in the U.S. equity markets. and themes are usually involved. I'm usually discussing one of those through my posts on social media. And that's really where I spend most of my time as well. Well, I certainly want to talk to you about gold and precious metals. I'm, I don't know, I've got to stop saying this. You know, I'm a newbie, but certainly, like I say, with the older brothers, my dad, and the group of friends, we talk about a lot of different things.

We follow a lot of different things. I just, as for the podcast, you know, I haven't. talked a whole lot about it. You might be one of the first guys I've ever brought on to talk specifically about one certain thing. So before we get into it, I was chuckling because I was, you know, I was picking away at who you are and different things like that and found out you're a division one tennis player once upon a time. I assume A, that once upon a time you were quite the athlete then. And did you, do you still play tennis or is that a thing of the past? Oh, that's a thing of the past. I've tried to stay in shape.

I do a lot of long, long runs. But tennis is just a passion for now. I enjoy watching it. It's basically what got me to the U.S. I mean, it's my parents, I didn't grow up in a rich or anything like that. So my parents, you know, didn't have the money to allow me to study in the U.S. and have a college degree and being able to be recruited by a Division I school at the time that basically paid for almost all my expenses.

if not all of them. I was really blessed by that, and I was able to kind of start my life in the U.S. from there, and here I am today. So, yeah, I owe a lot to the sport, and, you know, I still follow very closely, but I don't play as much as I should. Who's the person you watch on the tennis circuit?

Like, who's the guy or girl, you know, like, they're top of their game? Oh, boy. I mean, it's hard to not be excited watching Carlos Al-Karras these days. He is young number two or number one who's been fighting back and forth with Djokovic. I love watching him. I saw him live. I've been watching him for a while, and it's really amazing to see what a guy as a teenager can do at that

and playing at that level. So in terms of the women, well, there's a... a Brazilian lady I really enjoy watching her name is Bia and she's still top, what, 15 in the world? But by watching her maybe because she's Brazilian as well. But you have to forgive

me. Once upon a time, I had a jersey fall off the wall, so they're both off right now. So my frame fat. But I got to try and find a little bit of sports to talk about from once in a while just because I don't scratch that itch a whole lot anymore. And I'm thinking, you're probably the first guy ever on this show to ever talk tennis.

And I was waiting for Djokovic to come up because certainly been following, you know, his last couple years, it's been interesting to finally see him get back playing and a bunch of different things allowed into a bunch of different places. Regardless, that's not why I brought you out. I just, you know, for the listener, they're like, why is Sean going down this road? I was like, Division I won tennis players, folks.

I'm like, come on, let's talk a little sports here before we get in the nuts of bolts. That being said, I only got you for a short period of time. And you're a guy with, actually, no, I'm going to back. I want one other thing on tennis because I've never been to a live event. I don't know why I would ever go, although in saying that, you kind of check off the boxes of different sporting events.

Is tennis live like amazing? Are you like, you know, you got to pick your right game? Because, you know, like I've been to football. You know, up here in the north are hockey games. If you pick the right one, it can be amazing. It can also be terrible. Baseball, you know, I've been to all these different sports. Tennis is one that I've never checked off the box.

I think of the wrong guy to ask because I'm very biased. But, you know, if you ask my wife, I think she didn't have a passion tennis until we went to see the U.S. Open. It's such a large event. If you've never seen tennis, I asked you to go over to that one. It's just very, and just a huge event with a lot of different players. But as you get into it, you start learning about the story of the players and, you know, why are they where they are? and so forth, where are they from? And it's kind of a small world, you know, so it becomes, you know,

rather than understanding where all the players in a baseball team are from, that's essentially a big top players of the tour. You know, you're talking, you know, 30, if you know the 30 players, the top 30, you basically know the most important, you know, athletes in tennis in the world. So it's a little bit of a different sport in that sense. And as you learn more about it, you definitely get more. engage with it. And so I think, I think watch just gives you a sense of, of, of respect of how,

you know, how crazy the sport is. I mean, you know, it's an individual sport and such a chess game. And it's, I don't know, it's, it's very intensive in terms of the need for the physical, you know, ability of most of those players to perform at that level. No, that's interesting. The storytelling of each player really adds to the game. You're right. Hockey, we got 20-some guys. You're not going to do that on every, yeah, I get you.

Okay. I want to hear about, following on Twitter, I've read a few of your articles, I've listened to a bunch of your podcast now. Some of it goes well over my head. Other visits, I'm like, oh, yeah, this makes sense. When it comes to gold, what do you think people should know right now? Like, you know, we're sitting at this, I don't know, this strange world, it seems like.

We're just in la-la land. It feels like, and I see, and hearing you talk about gold, I see a ton of people talking about gold. What do you think the average everyday person needs to understand? That gold is a defensive asset that you won't be rich buying it. Unfortunately, almost certainly that won't happen, especially if you live in the U.S. and you are buying the metal, if you maybe live in an emerging market with,

an emerging market currency, certainly that can help you to not go broke. But gold is just a defensive asset. It's probably the most credible one that we've seen in history in terms of enhancing the quality of your portfolio. Central banks see it that way. Large institutions are going to start seeing that way, in my opinion. They used to see it that way throughout history. And we go through cycles. I think the biggest counter argument for the metal over the last years has been it's underperformance relative to other things. And that is precisely the reason why it should be in your radar of assets to own today because, you know, the last 10 years are certainly not very unlikely to play out again

in the following decade, especially being marked for so many more trends that I think are developing and will probably change market correlations and the way things are going to behave. So as you form a view about gold itself, which was my case back in 2019, and my thought was, look, I think the metal will be higher in 10 years from now. And you start then to really work on what are the best ways to capitalize on that trend. And very quickly, you start learning about silver, which is the high beta version. High beta just means a way to bet on an asset that will be more volatile, but also likely to offer a better return if you're right. about the gold price, then you start learning about the miners.

The miners have been chronically underforming the metal over the last 20 years or so. And a lot of people avoid them for the right reasons as far as being, you know, they spend, they've been drunken sellers in terms of the capital spending. They've been, you know, adding debt to their balance sheets over the last decades or so. But more recently, we're seeing a complete opposite of them. They're being ultra-conservative. Their cap-ax trends are ultra-low, which is something I learned throughout history that the commodity market don't want to be all-in or invested in that space throughout your whole career.

There are times and cycles that you want to be allocating time and capital into that space. And that is right now, in my view, and the best way to look for that is looking at a simplistic chart of cap-ax throughout all the commodity producers. they tell you basically where the cycle is. So if they are spending a lot of capital, if they are overcommitting their capital commitments in terms of where to put money into projects and buying other, doing a lot of M&A,

you want to avoid that sector. When you're seeing the opposite of that, which is kind of the case where investors don't want to be related to those names, very, very small institutional, following comes to investors base. You have also an entire industry that has been starved for capital, and you can see that by just seeing the amount of capital being spent in the ground.

Very few of the major companies are focused on exploration, which tends to be a time when you want to be, you know, that. And so we've had a period recently where discoveries of resources have been one of the lowest industry. And one, it's because of the geological challenging. Second, also just because of the lack of spending and investment. And so all that is playing a role into why I think that metal prices in general could do very well in the only years, especially in this environment that I call the act of macroin balances, where you have the debt problem of the 1940s when we had the World War II.

you have the valuation problem of the 90s when we had the tech bubble or the late 20s before the Great Depression. And number three, you've got inflation problem of the 70s. We've never seen all three forces at once. And those are usually times when tangible assets, when you have those separate instances, usually you see tangible assets outperforming financial assets. And this is why I give so much emphasis in this right now. You said you listed off a bunch of different times and he said we've never seen all three forces at once Could you just maybe

Elaborate on that again? I'm trying to fall along. We got a little bit of an internet Lag here so I want to make sure I caught everything there and You're saying right now we're seeing all three at once? Yeah, so in the 1940s for instance is a great of the debt problem where government is a government debt to be shot up to levels that are similar to now. And at that time, what is important is if you're running capital at that time and you're a money manager, the issue of that is that gold was bagged. And so you couldn't really buy the metal. Gold was pegged to the dollar. And so you wouldn't really make money on that trade.

And so a lot of investors end up either buying treasuries because of the time, there was something called the war bonds. So we'll demand being driven because of the debt levels. There was a demand of being driven by nationalist agendas and other things, which is very different to today. I don't see individuals buying treasury securities to help the government to finance, you know, all of its physical budget. And so we're living in a different world,

but the debt problem itself force that level or that the whole decade to be in a financial repression environment. where the Fed and other institutions, central banks, couldn't really raise rates to a certain degree. Otherwise, things would just naturally break. And so today, it's a similar environment. If you look at where inflation was and how you really want to behave when you have an inflation problem getting out of control, you really want to raise rates significantly like you saw in the 70s, but that debt problem doesn't allow you to do so.

So that's an important aspect of history. The second one is the 70s, which from a debt perspective is completely different to today. But what reminds us of that is the nation problem. Inflation works through waves. We've seen the first wave recently. And we're starting, we're likely to see the second wave here soon. And why is that? It's because the underlying issue, which supply, hasn't really been fixed.

If you look at copper supplies, copper production, if you look at nickel production, if you look at the capital spending in the overall commodity space within a chronic underinvestment period here. And so that needs to be fixed first and foremost. But when you raise rates like the Fed has done recently, you make the access for capital really difficult. And so what the 70s taught us is inflation happens through waves. While it may decelerate and even go to deflationary aspect of it at some point, things will come back, in my opinion, given those pillars that are so entrenched in the economy.

Those pillars are what I call four pillars of inflation. Number one, wages and salaries growth. When they start, they usually tend to trend, the chronic underinvestments in commodity businesses. The number three that we didn't see in the 70s, but we certainly see today is the irresponsible level of fiscal spending. you know, today we're approaching 8% of GDP. That's really, you know, the magnitude of the capital spending in very alarming. And number four, globalization trends that have started maybe in 2015, 2016, with China-U.S. relations worsening.

And since then, we've been things only get worse from here. And so those are what reminds us from the 70s is not exactly the pillars, but really the idea of inflation, you know, over time. And this model of the waves that tend to be the case as a way to sort of guide us throughout this next 10 years of what we're likely to see. Number three is the valuation problem. I mean, we have certainly you said being in the Lala Land and I couldn't agree more. I mean, that's, you know, you look at what's happening with the AI space and technology, with the level of focus most of institutions have spent in terms of capital and attention towards part of the economy, which is technology and others related, has really caused a misallocation of, and a dislocation of, I should say, of valuations where you have things like Nvidia, for instance, which are clear, the clear winners of this AI first wave of AI. you know, even quadrupling their free cash flow estimates for two years out,

still trading a 45 or so times free cash flow of 2025. And so, you know, those things are usual in the normal market. And so valuations in terms of market capital GDP, you can look at the ratio itself, which looks at secretly adjust the PE ratio. Most metrics that focus on price versus fundamentals, you will find that we are at a very extreme evaluations throughout history. We've only seen this in the in the back in 1929 or so at the peak of right before the Great Depression. So that kind of sets the stage of what to do in this environment.

You know, can we expect large performances in the overall equity markets for the next decade or so? If you're investing for the future, where should you be really focusing your money, and attention. I think, you know, clearly throughout history when you reach those in balance, and you see a central bank that ultimately and makers ultimately have to step in and do something about this issue, meaning repressure, financial repression at some point, so they can't take interest rates and leave them high for too long. Things have to be rebalanced back to more normalized level, normalized meaning from a debt perspective. And all of that is going to play a role into inflating assets that have not been inflated for many years.

And I think tangible assets would be one of them. And that's these, you know, we're probably going to see a housing market. Although it's expensive relative to equity markets, it's actually cheap relative to the overall equity market. You're paying less for a house. I don't own real estate myself. I prefer investing in commodity businesses and properties that have minerals in the ground. That's where I focus my capital and my client's capital.

But I do think that you're going to be better off owning a house than owning a, you know, a 401k into into average stocks that are out there for most average jokes. And so why is that? It's because a house is unlikely to be cheaper to build in 10 years from now, given the fact that materials are going to get more expensive as well. So, you know, yes, we may see 20% pullbacks just like the market does. But overall, the trend of the next 10 to 15 years is that 10. Assangeable assets will likely outperform financial assets. We'll have to really focus on that and think about different ways to capitalize on those ideas. There's going to be a lot of themes being unleashed in this.

Brazil is going to be an important commodity-led economy. China will probably be in a difficult position. It's a commodity importer. And so you kind of have to think about even from a balance of hours of the macro environment type of thought to also allocate your capital. So this is where I spend most of my time thinking. You have an, you know, being originally from Brazil, what are your thoughts on the bricks nations and, you know, like the stockpiling of gold, right? Like, I mean, that's been headlines everywhere. Being a, you know, a guy who's big on gold.

What have you thought of those companies, companies, those countries, you know, actions, you know, actions. I guess over the last, you know, I don't know how far it goes back off the top of my head, but certainly it hasn't just been the last six months. It's been many, many years. Well, first, I think the emerging is not a, I don't like to describe the economies as a block because I think they're very different in their nature. You know, China being a commodity importer, you know, Brazil being a commodity exporter, you know, China being an authoritarian regime in a more geopolitically neutral economy, although has a leadership today that could be perceived as authoritarian, it's nowhere close to China.

I can guarantee you that. And then you have a place like Russia where it is a common economy, but very similar to China is a complete authoritarian regime. And so how do you deploy capital in a place like that? it's very difficult. It's a total geopolitical mass. And then you have places like India where are geopolitically neutral to a certain group, maybe similar to Brazil and maybe arguably a little more, have a little more issues,

has a little more issues relative to tensions with other economies, but relatively better than China and Russia. To me, you know, the BRICs economy or a block in general is not the way I'm. I see it how to invest capital. It's why I struggle when I see emerging markets, ETFs and all those things. I don't get any allocation towards that because I just don't understand the, you know, how to how to really really even understand risk itself by being exposed to those instruments. And so what I do is I think of South America as a block.

I think South America in general is extremely unexplored in terms of resources. I think we've got tremendous opportunities there, especially if we're going to see economies going on short when it comes to their needs of reducing liability or dependency with China and Russia and others in the Middle East. we're going to see those economies, developed economies like the U.S., Canada, Europe, Australia, build relationships with other places like Brazil or other economies in South America in general, more than Africa, given how Africa is so linked to charity, although Africa might play a role there too. And so, you know, this is why when I see opportunities in the whole global economy, I do think that the prices of businesses in that part of the world, is excessively cheap right now, especially when you look throughout history or relative to the prices of a business being run in the U.S. or Europe or Canada. And so I get really excited about the opportunity there because we've seen this throughout history in terms of Brazil being so undervalue. And the opportunity in the next five to 10 years is to me very clear. And so I am

spending a lot of my time understanding the market. And I think there's ways to calculate. I think it's the banks. There are commodity businesses there that are really interesting. There are other more traditional types of companies that one should be looking at. But it's not just Brazil. I mean, there's Bolivia. There's Peru, you know, potentially Mexico and other places that may play an important role in the global economy or a much more important role in the global economy that they have

played in the last 10 years. That's the important side, is that shift and understand that the cost. commodity markets are really small and thin relative to technology and other sectors of the economy. And so when you see institutional capital really coming into the space, they are going to be spreading their wings into a part of the economy or types of alternatives that are not available right now. At some point, they will come into Brazil and realize that Brazil is extremely linked to the market markets, very highly correlated to natural resources industries. and at some will become, in my opinion, a place where a lot of people will deploy capital into. You've mentioned Canada a few times. I sit in Canada. When you stare at Canada from afar, what do you see, you know, whether, you know, it's, I don't know, actually, I guess just

what do you see here in the coming, from your standpoint, in the coming years? Well, geopolitically, is very difficult to work in Canada, believe it or not. I mean, it's, you know, you're talking to First Nations issues when it comes to developing assets. We are right at the core of developing assets in exploration side of the industry of metals and mining. And I can speak firsthand that it's been very challenging to really be able to advance a lot of the projects that we have in Canada. However, Canada lies other parts of South America and is extremely rich mineral. rich and in some parts unexplored as well. And so obviously more explored than than Brazil itself certainly is is a place where we have been spending a lot of time trying to understand the best

opportunities. You know, Golden Triangle, Yukon are certainly places and Newfoundland are certainly areas that we've been as investors and continue to be so as, you know, not just just gold and silver, but really all sorts of other metals and even in the energy space as well. So, you know, asking me where Canada is, you know, relative to Japan, I think it's a much attractive opportunity relative to Brazil. I would say Brazil is more attractive, given the prices and the level of opportunity for the following years, given the asymmetry that you can get by buying today in South America. But, you know, again, It's a relative game.

You know, you're talking Canada versus Europe. I rather own Canada. Canada versus, you know, China, I rather own Canada. Although I do know there's a lot of inflows from China and enlisted capital outflows from China into Canada as well. So, you know, it's just the reason why it's not as attractive is, number one, from a debt perspective. We do know that there's a lot of debt in Canada as well.

We do know that the real estate market is likely ahead of itself in that in the parts of Canada, not all parts. It's very regional like the U.S. And so to me, I think it's we have a lot of investments in Canada. We think that they are, you know, extremely undervalue relative to what those companies hold in terms of resources in the ground. And to me, this is the more interesting part is, you know, you think about in the mining industry, made their capital is not by buying a producing mine. It's not by buying a developed mine. It is by buying a property that then found resources in the ground.

And that process of defining the size of that deposit is what creates a speculation environment that makes most of those guys a billionaire. And so that's where most of the capital has been made in the industry. To me, that's where I want to focus most of my capital. capital inattention is on that side of the industry. So Canada has a lot of opportunities in that side, and that's why it is in my radar. Let's bring it all the way down, if you don't mind, Tavi, to just the individual person. You know what?

You'd written, this is most arguably, we are arguably experiencing the most important time in Gold's history. And a lot of people are, you know, just individually going, yeah, I get it. like inflation's going crazy, et cetera, et cetera, et cetera, and they're starting to pick up precious metals, that type of thing. I guess is your advice for individuals to just hold it through investments like their portfolio, or is it like physical,

is it specific, does it matter, or you just like make sure you have some, where are you add on, you know, just if you bring it down to the individual and they're sitting here listening to this, and they're going, oh crap, I don't own any gold or silver or whatever or maybe they're like oh yeah i own a ton but it's all you know tied up in the stock market and that type of thing i think it's going to be an important asset to own over the

next decade or so um number one we've had really two other gold cycles since the 70s one happened in the 70s and the other one happened in the early 2000s um and you've looked at the drivers of those markets uh really you know they're very different um Number one, you were in an inflationary regime back in the 70s. Number two, you had central banks accumulating gold. Number three, you have a lack of discoveries, new gold discoveries. Those things are very similar to today in terms of inflation side, in terms of central banks accumulating, but also the lack of discoveries

and capital spending on exploration in general. That after the 70s, in the 80s, we had a surge of discoveries in the matter. Those are where we've had majority of the developments of large gold mines and so forth happened in the 80s and the 90s. And that tends to happen on the back of appreciation of the metal price. It makes sense. And so at the end of it, so that's why you saw that developed. And then we had a period from the 80s all the way to the late 90s where gold did nothing

but gold low in price. So imagine you're in the 90s, late 90s, at the stock market going up a lot. lot, seeing gold prices go down for the last stuff, basically 20 years. And you're thinking, boy, why would I ever own this? This is, you know, this is just an old metal that, you know, I'm not sure why we even buy this in the first place. Well, guess what? That was the bottom of the second gold cycle.

The very, very bottom, very early stages of that was in the late 90s, right? As the tech bust was developing. What we had at that time, if you think about the drivers, well, we had China becoming a large economy in terms of trying to accomplish what it is becoming a growing plant of the global economy. They drove construction prices or construction spending that drove commodity prices higher. then you also had a falling production of gold similar to the 70s where most of gold companies, the majors, were really, you know, raising their production levels. You're seeing quite the opposite at that time, and which, you know, to me was a macro driver of the time.

That gold cycle also lasted about 10 years. Now, if you bought metals and if you bought. companies that were in those industries of battles and mining back in those days, you made a lot of money. A lot of people became billionaires in that part of this cycle. Well, let's talk about I think we are, you know, about to see one of those. And they usually happen, you know, as we make new highs. And so we're very close to one with, we've hit what we call technically a triple top gold hit a record lab in 2020 in August. It did it again back. in when Russia invaded Ukraine in 2022.

It did it again recently. So that's a triple top. And in my opinion, this triple tops usually don't hold. It's the time when people, you see some historical resistance causing a sell-off. But that usually doesn't really hold the metal. What you tend to see is a breakthrough. It tends to blaze through those prior levels. and add another, you know, a couple hundred ounces, dollars per ounces in terms of prices.

I think we're about to see that in the following six months or so. And let's think about what causes a third gold cycle. What are the driver happening today? I've never seen so many. We've got central banks accumulating assets. We have a secular decline in gold production of most majors. We have 6040 portfolios looking for an alternative. to really deploy their capital.

Bonds have not been performing as well. They haven't been serving as a haven't been serving as a haven asset for the last one or two years. This is the first time we see 60, 40 portfolios collapsing in, what, 30 years or maybe in history. So a list of things going on. There's a manufacturing revitalization era happening through developed economies. Remember when China was becoming a global manufacturing plan?

Well, what if we see the U.S.? Canada, Europe, because of their attempts to reduce this dependency with China. The trifecta of macroin balances that we have, the debt problem of the 40s, the inflation of the 70, valuation of the late 90s, that's another thing. The lack of discoveries that we're not seeing, the fact that most commodity producers are ultra lows in terms of capital spending. So I'm sorry, but I can go on and on, the unsustainable debt, the deficit issue, that is compounding the debt price boy.

I mean, have we ever seen all this list of things and they sound familiar to the 90s, you know, that we've had a 20-year period of declining metal prices when everyone was so bearish and skeptical that we should own that. And central banks were not even buying. There was no signal of central banks buying at that time,

which is really interesting, you know. That didn't even, wasn't even the case. And then you have this, list of things going on and people are just dismissing it. So, you know, I think that that's what takes to be a contrarian investor is to do deep analysis and find something that people disagree with you, that people are not excited about, but actually make sense from a fundamental and macro perspective. And I think, you know, I can make a very strong case for why we're likely to see metals and mining being one of the best performing parts of the following decade.

Yeah, I don't know, you know, it's funny, being, what did you call that a contrary investor? Is that what you said? A secondrarian investor, yeah. Yeah, I enjoy that. I enjoy following people that are talking against the herd or against the, you know, going upstream and not just, you know, cruising along. You said it multiple times. I've heard it lots and I guess I'll show my greenness, folks, but 6040 portfolio. What is a 6040 portfolio?

about 60% of their allocation is in equity, 40% is in fixed income. The idea is that that has been one of the most popular portfolio allocations that we have over the last 30 years. The fact that when markets decline and prices or have a correction, the fixed income side of that portfolio, mostly treasuries, tends to perform very well. So it's almost like plays as a defensive asset to your allocation. And so, and you won those. You want an aggressive side of your portfolio and a defensive side of it.

But throughout history, there are periods when treasuries kind of lose their role. And gold actually takes over and becomes that defensive asset. And so opinion, we're at the beginning of that, you know, the beginning of seeing fixed income prices collapse that we saw in 2022. And gold prices hold its ground. Why is that? you know, why are we seeing that? I don't know if you have to, well, I don't know, maybe I'm wrong to hop in here, but like right now, like the dollar just doesn't, I'm speaking here in Canada,

the dollar doesn't buy today what it could have bought a week ago, let alone three years ago, and it's only getting worse, it isn't getting better. And one of the things about gold, silver, precious metals is, I just go back to, I think somewhere I read it or you've said it today, but it being a defensive asset against that, I assume you would agree with that. Oh, absolutely. I think it's it is a defensive asset and it's probably there are times when you want to have that. There are times you want to ignore it. You know, the last 20 years or so, yeah, maybe you should have ignored it. You know, the last or the last 10 years, you should say.

Well, not totally. Actually, you know, it did fine. It didn't do very bad. You know, the treasuries do a little bit better. Maybe it depends on where you are invested in a fixed income space. You know, the is you shouldn't have gold in your portfolio relative to treasuries. The time was treasures are cheap. Look at what yields you're getting paid at that time versus gold. You know, so that's all plays a role. With a couple minutes left, just to bring it back to the individual, is there anything you're like, you know what, just buy gold?

Just have some of it sitting there or silver or whichever. And I'm bringing it all the way back because maybe I missed it. But is there like, is there anything you're like, you know, have physical, it doesn't. matter? Or you're like, oh, no, physical is great. That's the number one. Or does it matter? I find it difficult to tell someone what to do because I don't know their level of risk profile. Try to answer that question more, you know, offer some ideas. Look, I don't own physical gold myself. I don't own silver, physical silver either. I think that's a option for people that are for risk averse and perhaps are worried about the system in general.

That's not to say that I'm not worry about all that. But I think given my age and the way I approach risk, I'm okay taking a significant amount of risk for over the years. And how I do it, well, look, I think owning silver is a really interesting way to be long gold, especially today. When you look at gold-silver ratio, you think you're entering another site. if we are, you know, silver will most likely outperform gold in, you know, in this, in this decade. And then you have the miners.

While the miners are interesting, I think they lack vision, majority of them. Most of the big miners are not focused on deploying capital into a part of the industry that is really cheap. So I think it's the first time in my career that I see gold at near all-time levels and about to make create a gold cycle. and you look at the valuation of a prop that has gold in the ground. And so that divergence to me is really interesting. And so that's why I spend most of my time is looking for properties that have high quality gold deposits or copper or silver or, you know, whatever that is. Because that has been completely overlooked. Well, I appreciate you giving me some time this morning.

And I don't want to, we had a heart out here. and I want to make sure I honor that. So I appreciate you hopping on and giving me some time this morning, Tavi, and I hope we can do it again, because I do find your insights very fascinating, and I'm sure the listeners do as well. Well, thanks for having me, Sean. Appreciate the invite.