Consider allocating to hard assets like gold, commodities, and energy, as central banks are actively selling US dollars to purchase physical assets. Despite its recent run-up, gold remains historically undervalued relative to US debt, suggesting significant room for growth. Investors should be cautious holding long-duration US government debt over the next five years due to collapsing foreign demand and systemic risk. For a long-term position, view Bitcoin (BTC) as a digital store of value that is expected to continue gaining market share from gold. Be aware that nominal gains in US stocks (SPX) may be misleading, as they have consistently underperformed gold in real terms.

Gold & Hard Assets

• Bullish Sentiment: The speaker expresses a strong bullish view on gold and other hard assets like commodities and energy.
• Central Bank Activity: Central banks and sovereign wealth funds are actively selling US dollars and debt while increasing their purchases of physical gold.
• US as a Gold Exporter: The US has shifted from being a primary exporter of dollars to a primary exporter of gold, particularly to settle its trade deficit. In Q3, $20.6 billion in non-monetary gold was exported, and in October/November, gold was the #1 export.
  • The US exported 268 tons of gold last year while only mining 160 tons, indicating a net outflow of the physical asset.
  • This gold is often routed through Switzerland for refining and then sent to Eastern countries like China, India, Turkey, and the UAE.
• Valuation vs. Debt: While gold may seem expensive, its value relative to the amount of foreign-held US debt is still low.
  • Currently, gold's value is 14% of foreign-held US debt.
  • The 60-year average for this ratio is 50%, suggesting significant room for gold's value to grow relative to debt.
• Performance vs. Stocks: Gold has outperformed the S&P 500 (SPX), even with dividends reinvested, over the 1-year, 5-year, 10-year, and 25-year timeframes.
  • This suggests that in "real terms" (priced in gold), the stock market has lost purchasing power over the long run.

Takeaways

• The speaker believes the trend of central banks and nations moving towards hard assets is a major "seismic shift" that is likely to continue.
• Holding hard assets (commodities, precious metals, energy) is presented as a key defensive strategy against the devaluation of fiat currencies and increasing government debt.
• Despite its recent run-up, gold may still be undervalued when compared to historical averages against the total amount of US debt.

US Treasuries (US Government Debt)

• Bearish Long-Term Sentiment: The speaker is very bearish on US government debt over the next five years but is not super bearish in the short term (3-6 months).
• Collapsing Foreign Demand: Major historical buyers of US debt are exiting the market.
  • China has been a net seller since 2013.
  • Japan is no longer a major buyer due to changes in its domestic interest rate policy (unwinding of the "carry trade").
  • The European Union (EU) is the last major buyer but has held meetings to discuss using its $10 trillion in US assets (including treasuries) as political leverage.
• Impact on Yields: A decrease in demand for US debt forces yields higher, making it more expensive for the government and consumers to borrow money.
  • A study showed that for every $100 billion of US treasuries sold, the 10-year yield increases by approximately 19 basis points (0.19%).
• Systemic Risk: A significant portion of US debt (37% of notes and bonds from 2022-2024) is held by highly leveraged hedge funds in the Cayman Islands. A forced sale from these funds could trigger a "death spiral" of rapidly increasing yields.
• Short-Term View: The speaker notes that the trade of shorting US debt is currently very crowded, which is why they are not bearish in the immediate 3-6 month timeframe.

Takeaways

• Investors should be cautious about holding long-duration US government debt due to declining foreign demand and systemic risks.
• Watch the yield spread between the 5-year and 30-year US treasuries. A widening spread indicates that investors are demanding a higher premium for long-term risk, confirming the bearish thesis.
• The potential for the EU to sell its holdings is a major risk factor to monitor in US-EU trade policy discussions.

Bitcoin (BTC)

• Bullish Long-Term Sentiment: The speaker believes there is a "very strong case" for Bitcoin to act as a neutral store of value and continue to gain market share from gold over time.
• Relationship with Gold: While gold is currently leading the "hard asset" trend, the speaker expects Bitcoin to continue its historical trend of making higher highs and higher lows against gold in the long run.
  • The Gold/Bitcoin pair could see short-term strength in gold (e.g., moving from 13 ounces of gold per BTC to 10 ounces per BTC).
  • However, the long-term expectation is that Bitcoin will "continue to eat away at gold's market cap."

Takeaways

• Bitcoin is positioned as the digital equivalent of gold—a "credibly neutral store of value" for the future.
• While gold is the asset currently favored by central banks, Bitcoin is a long-term investment that could capture a portion of the capital flowing out of traditional financial assets and into hard/neutral assets.
• Investors might consider that while gold is the current focus, the long-term trend may favor Bitcoin's outperformance.

US Stocks (SPX)

• Neutral to Bearish Sentiment (in real terms): While US stocks have performed well in dollar terms, their value has eroded when measured against gold.
• Performance vs. Gold: The SPX has underperformed gold over most major timeframes in the last 25 years.
  • In the last year, the SPX was up 17% in dollar terms but down 25% when measured in gold, highlighting a loss of real purchasing power.

Takeaways

• Nominal gains in the stock market may be misleading. Investors should consider performance against hard assets like gold to understand their "real" returns.
• In an environment where central banks are favoring hard assets, stocks may continue to underperform these assets in real terms, even if their dollar price goes up.