Verum on Fools Gold and how to Trade it

Worried that actually I think there's a chance Bitcoin could just wow like bad things

are happening bad things are happening everything is overvalued all of the

savings of the world have gone into speculative assets so no surprise the S&P is here but of course it's a

question of what what happens next this was a one-on-one conversation with a John G patreon

subscriber these excerpts are edited for their privacy and Lish to other

subscribers with their permission to my mind the rise and Rise Of Us asset prices um has been a function of um the

emergence of China the policies that China uses to keep its

currency advantageously low and and then the bad fiscal policy

decisions of the US and and so it's meant that all of the savings of the

world have gone into spec cative assets so no surprise the S&P is here but of

course it's a question of what what happens next where does it break Europe is

presently broken you just it has no mph yeah um the his biggest company sells

handbags really beautiful handbags but is handbags you know um the US

um just owns the tech it owns the future you investing you positive carry on

technology there's no other industry um there's no other industry the US owns that um they've started

correcting the errors in their fiscal policy the economy is growing really really fast China's going into a

stagnation that the Japanese recognize J Japan's Got a hot stock market but a

very weak economy um and the system worked really

well when the US wasn't growing but the US is now growing and so it has an

interest rate which is much higher than Europe can afford the UK can't afford it

China can't afford it Japan can't afford it and so you the US is paying more uh

for cash and all of all of the capital in the rest of the world is coming into US assets and so everything is

overvalued now what happens next is something

breaks I don't know if it you 1998 it was ltcm something will break you know

last year it was it was a bank maybe there'll be more Banks but something will break

uh you the the ECB is at 4% and it has to start cutting interest rates but

imagine the fed's at five and a half if the ECB goes to three and a half or

three even more money is going to come into US assets yeah and so you can

imagine a conversation where the fed and this happened in 1927 it was a very very similar setup

where money was again laying out of the UK and Europe and going into the

US and the UK had Sterling was on the gold standard at a level that was too

high no one wanted to own it because it was a fear of devaluation and so the UK had to pay a very high interest rate now

back then a very high interest rate was 4% but they need the unemployment was huge

and they needed to cut rats but they couldn't except they went to the to the

New York fed and they said actually we need you to save the rest of the world

we can cut rates if you cut rates but if you don't cut rates we

can't cut rates and if we can't cut rates we're going to blow up and so in

1927 the Fed was persuad that it had had to ignore the the really hot domestic

economy and it had to bail out predominantly the British economy and

that extra liquidity made you know the stock market of 1929 and things became Preposterous you

know trees don't go grow to the sky and they fell down and I just

wonder I wonder if what we're seeing just now the S&P is down less than 5%

from his high um but for I think almost a year the biggest decline was 2% so

five is I five is not a dip but it's it's two and a half times bit bigger

than before but I I I think there's a danger that a danger I'm being a

fantasist I I try and fantasize scenarios and then I try and look at the charts for confirmation um I wonder if

stocks US stocks and whatever could could have a proper like 20%

correction um that the economic news continues to be poor in the rest of the

world but in the US is better and better and and investors begin to expect the

FED to to hike rates um and if we're if that came

around so my fantasy is if the S&P fell 20% between now and the summer I'd want to

buy stocks and I'd want to kind of buy an option on interest rates being cut

before by by September October this year in America to save the rest of the world

how do you reason if stocks go down 20% and you say okay it's time to buy stocks

but you don't know where the bottom is something more shitty can always happen

do you just size the position so you you can't you can't do that unless you sell

today and that's a big ask you're like youve got to leave the party uh you've got to risk that it it

goes up another 20% and that's on you yeah I'm saying for me I don't even think it's 5050 I

think it's kind of 20% it goes up 20% and and 80% that it it goes down 20 but

everyone has to reach their own conclusions on that but that's the only way you can do it you you say Hey listen

the last six months I mean regardless of what you do I think I just don't think

there's sufficient upside in the market just now to Warrant the risk of underwriting it being down 20 because to

your point if it does fall 20 you ain't buying any you're holding on and hoping it's going to turn you know now

obviously you you can come in with um you can do call spreads or put spreads

and have a you know a fixed loss never be naked um so you can deploy that

um what I do is I say look everything is

overvalued so my my total rist size is is modest so one way to think of it is

I've got a brilliant fantastic Bally smart friend here and he has no more

than 10% of his net worth he's like what what am I worth you know you include your the the house volue you take away

your mortgage if you have a mortgage you add it all up um and he he never has

more than 10% of that number at risk never yeah I this is a risky it's a

Preposterous business we're trying to guess the future why would you why would you risk 10% of your

network um so that's my kind of starting point and let's say my net worth therefore is a

million dollars okay just now I wouldn't want to have more than 200,000 in

stocks and just now I'd actually be I would I'd be trying to cut that to like

either zero or five in that metric that' be um I say m

that' be if I'd be like 0 to 50,000 I on technology stocks the ones seem to

matter um I've been kind of like anywhere

between 200 and 400,000 in Bitcoin

um today I would be 200,000 and really looking to cut

that to 50,000 as well I mean okay so like today I'd be 50,000 Bitcoin 50,000

St um I would still be buying those leaps on the on the TLT

um so in a million doll portfolio I'd be spending like I'd be spending

$50,000 and that' be a so that's my biggest that'd be my biggest risk position um and that's 50,000 that can

go to zero as if time goes away but that's that might save me I always you

know I always have a I don't know like a gun in my in my socks or something just in case

bad um and then the thing yeah which really excites me but it's very hard to

play it is with that million dollars I'd want to be long a million dollars and

short like 500,000 of Yen and 500,000 of the Chinese currency no that's hard to

to put on so the Yen why because of China everyone talks about Japan and

honestly in the world of narratives I'm unsure if it's just another narrative to shift money

elsewhere shit's happening here so why don't we move Capital over there for

example Brazil doesn't fit the bill anymore so let's talk about India to me

it's just a game of narratives hey I'm the narrative go

um something profound has happened so we can actually talk factually um I've got

60 70 years of price Thea for the the Japanese yen versus the

dollar and Japanese Yen has devalued by 40% in the last two years I let me just

say that again Japanese Yen has lost 40% of's value versus the US dollar 60 years

of data and that's just happened and everyone's going yeah I'm like let me say it again the Japanese Yen has lost

40% of his valuee okay the pushback is hey like shut up um Japanese interest

rates are zero and they're 5 a half% in

America and at some point American interest rates is going to come down to zero and so the currency will

weaken maybe okay but maybe that doesn't happen um in the past the US had

interest rates High it hasn't always been zero the US has not enjoyed this

economic growth since the period 2003 to

2006 and whenever the us being the reserve currency and all the money being tied to it it doesn't help when the US

grows very fast because they've got to raise interest rates and then interest rates break things you know so the last

time it grew was International Sovereign money

financing speculation in the housing market and it was a great boom and then it crushed

um and today we've got Sovereign International savings financing smart

fiscal US policy and the US is booming and interest rates are not coming down

and it'll break things now um and'll break things because the rest of the world has to come and match the US now

you know the 10 year and 30y year ggbs up until like very very recently

have yielded nothing yeah and yet the Japanese government spends 30% of its

revenue on debt service at zero so imagine jgbs gave you the same

yield as us treasuries so the US has to bring rates

down brings rates down his stock market is going to

double you know it's so this is why I always wanted maybe my allocations there I said

$50,000 a million dollar portfolio I said 50,000 in NDA 50,000 in Bitcoin I should have said that I'd probably

be today I'd probably be 150,000 so the money that I took out of NASDAQ and

Bitcoin I put into gold gold gold Futures not gold miners um but for other reasons

um but you cannot so you can't go to zero because there's there are these tail events

where equities can go up like a lot I mean if if the US cut interest

rates in a surprise manner this year with the economy being strong I mean

where where's the S&P the S&P is what 4,000 something around 5,060 now more or

less I'd buy 10 or 15,000 uh strikes on calls

because the market will just go in I mean it won't go there in six months but um yeah but you are assuming they just

cut rates because of other Count's problems what happens to the US economy

if rates are kept high so they they increased interest rates very rapidly uh

and the the expansion in rates was the highest was the biggest increase in rates they've ever done in the history

of the Federal Reserve and they didn't break any anything they didn't break

anything um and it doesn't look as if the you know it didn't break

anything yeah and they have a history of cutting interest rates to bail out the

rest of the world but remember we again

Co um the entire US economy the household sector financial sector

everyone they locked in they locked in 30-year rates at 2% which is why nothing

is broken yeah but the thing that is broken is no one is buying a new house

like so normally I live I live in Chicago in a

nice suburb I bought my house for 500,000 um and things are going well and

there's a really nice house in in in another neighborhood it's kind of the same as my house but I

really like it it's nicer um I can't do that because my

mortgage payments I'd have to take out a new mortgage my mortgage payments would I

think be 50% more than I'm paying now okay but if they cut rates

dramatically don't you think it will cause imbalances if the only reason they cut is to take care of Japan's system so

if that if that came to pass then again I think the power with 1927 to 1930s is um is very aped

because it was the the death of the gold standard you had it was a they had

designed a system the system the system is meant to bring you to equilibrium I keep boring people

about um trade surpluses like the system is not working because China every year

records a profound Trade Surplus um and international trades what's meant to

happen is your currency appreciates you get richer Visa the rest of the world and you import

more um because you know your currency's gone up in a BMW is cheaper if you if

you import it uh and then your purchase of the BMW creates jobs in Germany and

and and then they export more in the system balances um that is not happening um

it's not happening o to explicit trade uh policies being taken by by the Asian

countries um and and what that does is it creates more and more funny money which goes into asset prices and makes

everything expensive um so the the system is failing system is failing um

and it's go I all I'm saying is it's going to fail more and in failing more is going to

make asset prices even more ludic ludicrously overvalued and at some point

it will it will blow up now when it blows up you see you you're I'm going to

be writing about this soon when it blows if it blows up if it

blows um well two steps if that begins to happen I think

10 year and 30y year treasury bon in America will go very very

low um and that's why I own the TLT leaps okay now I'm I'm

describing the blowup scenario if you remember 10 year interest rates I think

were 16% in 1982 and then the FED started cutting

inflation was very low and it and and 10 year bond prices went up went went up

the yield fell two years later the bond yields were back at 14%

And you look back you're like that's just crazy but it was the re recency bias of what had happened and so

when the American economy improved people panicked and they sold bonds again and

so what I want to say was there was like a double bottom in the price of US Treasury bonds and that created this

50-year bull market and I think that 50-year buom market is going to end in the next two years MH and I think that

the great price high that we saw in covid for the treasuries we won't get to the same high but I think we could get

pretty close and if that happens you sell every US Treasury you short it but

you make money from the so no one wants to own them just now so you buy options because you don't want to buy yeah you

know I can't buy them because the price is going down just now so I can buy little

options because if that happens and remember

if the US can't cut interest rates initially and

bonds keep selling off people have stopped talking about it but you you you pointed it out a year

ago we lost Silicon Valley Bank um because their biggest asset was

10 and 30 year US government bonds and it was fine because you don't have to Market to Market but then people start

pulling money out of the bank and then suddenly you're like oh we're bankrupt okay well that problem hasn't gone away

you know Bank of America has got um if it had to sell its Bond portfolio it it

would be bankrupt yeah Bank of America was bankrupt

2008 but that was okay because US debt GDP was 60% well today it's

125 so the US comes in is like ah we got it you know we're the US government

we're you know we're gonna we're gonna the banking sector but people like me will sell those bonds and the question

is what do we buy a golden agricultural Farmland I don't know agricultureal

Farmland is well bid um and and actually you try and own um private cash

generative businesses with no debt um and this and you you'll be in a

so it'll be hundred years since we destroyed a currency system and and the the anniversary is in what

six years time I think somewhere between then and now so the only reason to buy gold is

because paper money will go to hell basically you're just preserving the value of your wealth I've made a lot of

money from gold but I'm very cynical about it um yeah I know I would prefer

to buy a boat because I mean it doesn't make sense to buy gold but I guess if

you need to keep cash anywhere else than under your mattress you buy gold there

there are times um gold is not an agent of chaos the world is finding lots of Agents of

chaos today uh but it's it definitely benefits from chaos you know there are

times when gold goes crazy so normally I'm really pushed to have more than 5%

in gold today I'd want to be 15 and I can imagine was almost like half of my

money would be in Gold do you mean physical gold what about gold miners

do not buy gold mining stocks they are um look at the chart of GDX gold

has gone up six times since 2004 and the gold mining ETF is flat flat do not like

do not buy gold like just buy more gold what happens if China blows up how long

can they keep the music on that's simple so just keep watching uh usdcny

um as a chart I post I post it on Twitter today and then someone threw a

rud pure with testicles and things but um it's quite

fun it is it it is four basis points away from setting off like like

being in a nuclear power plan and everything everything starts going that's the thing how long do you think

they can keep this going as long as they had currency

stability but if you you know so the dollars moved from 100 100 to 106 this

year and it's around it 106 105 if it goes to 110 if it goes to

115 wow like bad things are happening bad things are happening and this so again but try so again my my Mantra is

listen to music be happy be blissful

um and and don't overcommit and really don't over so like normally when you're

bullish my rule is I can't overcommit I'm I'm capped at 10% of my net worth I'm saying just now of that of

that 10% hard limit I want to use 1% of it well I want to use 10

percentage points of it um in terms of risk assets I probably want to use a lot

of it in terms of trying to bet that the dollar actually Rises so again keep it balanced you you can have a a currency

position benefiting from the dollar appreciating you've got to keep invested

in equities because the central tendency is to rise yeah can't be greedy you have

some so you feel it I wonder if the dollar and the stock market can go up if

gold and Bitcoin are also going up you you get you

get well yes um so since quantitative easing quantitative easing was March

2009 the Dollar's gone from like 80 to 105 um the stock market now 2009 is the

low but the S&P has gone up four times and the gold price is

probably doubled so yeah yeah your default

setting was that doesn't happen and I'm like lady that that's been happening for

the last 15 years yeah no like oh yeah you see how we get the Mind fog the

con the arrogance comes down because we've got preset narratives and we and

don't see the reality yeah it's true because I have

been watching the dollar closely and I have been puzzled especially recently

when gold started to take off I really wondered if the stock market can go

further if the dollar does not come down well that that's the scenario I try I

very poorly try to sketch out to you that um so I think what I was saying

is and again who cares because at a personal investment level it's almost impossible to play but

um volatility across asset classes is going to go up and it's going to the volatility is

going to be unlocked by the Dollar Rising um it's going to cause things to break

us equities are going to be very weak it's going to elicit a monetary response from the Federal Reserve then us

equities are going to be incredibly strong and then it's going to blow up it's a Tarantino movie for you in

the end it always blows up uh and and again bear in mind I've

said to you in the last 25 years we've had what three or four events that in a

in a in a normal in a normal b cup distribution you'd expect one event in

100 years and we've had four and three and 25 years so um that means to me that

I don't have to be invested all the time I can wait because why

not well I mean i' I've tried to describe a volatility

machine and the volatility machine ultimately pushes prices a lot higher

but there are these massive soffs you could have bought you could have bought Bitcoin for 17,000 um beginning of last year or the

end of 2022 you know um yeah could have bought the S&P I know 40% lower like two

years ago yeah so just now yeah you're looking for opportunities um but you

know gold has just broke is really made of you know I said to you dollar

Yen looking at a 40-year something very powerful has just happened and and and I can see it's I

can see the afterburn and what gold is doing and I'm beginning to speculate

well if this continues then I think equities come down I think the Federal Reserve Cuts interest rates and then

people say we're doomed and then they buy bonds but um so it's all stages but just

nownow I think um I'm going to post something tomorrow silly picture of me and I'm

going to say um the most intelligent investors today are aggressively cautious I know

what you mean if you're going to go for it just buy Bitcoin but you know I I was

trying to say Well done Bitcoin because um there was this old adage that all of

the professionals worked in the bond market and just all the idiots like me in the equity Market you know like bonds

had to like look ahead they had to like work out the economy they weren't looking at the profit

margins um and I was saying wow you know like S&P is only down 4% really

dangerous things are happening in the world worried that actually I think there's a chance

Bitcoin could just you were talking about correlations and you know if NASDAQ Falls 20% does Bitcoin B another

20% maybe so like here's like so here we go I I I feed you NASDAQ Falls

20% what does gold do what does Bitcoin do I mean we don't know but I would say

Bitcoin would fall a lot more I don't know about gold what would prop that

up heos like you lit I I I spent a lot of

time it's hard to believe but with really damn intelligent people and they're

like if this comes to pass I don't know what to own there's nothing it's really

hard to know what you want and and gold is call it Alchemy it should be um

Anarchy um when you throw your hands up you say this system is out of

control and you want to give it like a finger to the system you buy gold because it's Preposterous you say you

know what you're all idiots I'm buying the dumbest assd gold is the easiest

answer actually I mean I would buy gold gold cows and a ranch then trade milk for more gold

imagine that and that would be a wonderful deal if chaos came to pass you want a private

business that's cash generative no DB I'm looking at um there's a um was funny

I went online I was buying these um cannabis Edibles um they're really

good um and so I and they've just gone direct to Consumer and so I went on the website I

get it delivered to Florida and then they ship it to St I don't know why I'm telling you this but um and so I put my

details in and then there's just no data privacy the guy who owns the compan

sends me an email like wow this is so excited we're so excited you're buying the

product I'm like why do you like me what what I'm buying the drugs I'm like

where's the seeny but anyway um and of course he's doing another Capital

raising round and he's running at $20 million in

sales and he's capitalizing the business at 40 um and

it's the margin expansion you know I can now buy his product in St bars I can buy

it any once this once you're free I can buy it with my credit card I can buy it on his website I can get it delivered to

my shipping company in Miami and I could have it delivered to London St bar anywhere you know and of course you've

seen Germany the future is one of deregulation so this is a a consumer

Pharmacy business with 80% cash margins no

debt and they've just changed the regulation they could be doing 100 million in five years time and at that

margin it could be worth a billion dollars I'm like I'm going put 100,000 bucks into that like why not you know

that's that's kind of where I am do I want to buy Nvidia maybe Nvidia doubles maybe maybe it falls 90% you know