Latest / Bloomberg Intelligence / Credit Investors See Highest Rate Risk Exposure Ever: Dhulipala

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Credit Investors See Highest Rate Risk Exposure Ever: Dhulipala · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. In
• 0:33
  Speaker 1: the past few weeks, you've seen a little bit of
• 0:36
  Speaker 1: caution in equities, not so much in credit. In fact,
• 0:40
  Speaker 1: investors are earning close to the lowest extra premium to
• 0:44
  Speaker 1: own junk bonds in the US relative to treasuries since
• 0:49
  Speaker 1: two thousand and seven. Here to talk with us about
• 0:53
  Speaker 1: that and when this could potentially shift? Is Shriny Dulipla
• 0:57
  Speaker 1: Deep Dulipola correct that, okay, Chief investment officer and founder
• 1:01
  Speaker 1: of killden in Castle Asset Management in it New York.
• 1:04
  Speaker 1: Tremely thank you so much for being here. What do
• 1:06
  Speaker 1: you make of this? Why is there such a risk
• 1:08
  Speaker 1: on environment right now? First of all, thanks for having
• 1:11
  Speaker 1: me over, Lisa, It's great to be here. Um, you know,
• 1:15
  Speaker 1: I think this trend kind of started really um, you know,
• 1:18
  Speaker 1: post the financial crisis, when basically the global central banks. Um,
• 1:22
  Speaker 1: you know, effectively moved rates from what we're basically neutral
• 1:26
  Speaker 1: rates of around five percent all the way to like
• 1:29
  Speaker 1: negative interest rates and that level of liquidity in the market. Um,
• 1:34
  Speaker 1: just effectively caused this huge influence of fixed income assets
• 1:38
  Speaker 1: and as a corollary into the highal market. And that
• 1:41
  Speaker 1: has effectively been playing out to this day. UM. You
• 1:44
  Speaker 1: know obviously, UM, you know, the fed a tailwind doesn't
• 1:50
  Speaker 1: exist anymore. UM. And you know these types of the
• 1:54
  Speaker 1: type of changes occur, you know, they meander, tell there
• 2:00
  Speaker 1: is a final cathartic event that causes a shift to
• 2:04
  Speaker 1: current to happen. So at this time, UM, you know
• 2:08
  Speaker 1: it is you know, it's it's to me, it's very
• 2:12
  Speaker 1: very surprising that spreads are holding where they are. Um. Um,
• 2:16
  Speaker 1: my guests, if I had to say something positive about
• 2:19
  Speaker 1: the credit markets, what I would say is the fundamentals
• 2:22
  Speaker 1: underlying the market are actually pretty good. What about the negative?
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  Speaker 1: I think the biggest negative is really valuations. UM. You
• 2:30
  Speaker 1: know you are so to kind of put numbers onto
• 2:33
  Speaker 1: kind of what you said at the beginning, uh hwyal
• 2:36
  Speaker 1: markets are trading at a spread of about three sixty
• 2:38
  Speaker 1: basis points over treasuries. That is, as you very well mentioned,
• 2:43
  Speaker 1: like close to the all time types, which was basically
• 2:46
  Speaker 1: back in two thousand and seven. The difference in two
• 2:48
  Speaker 1: thousand and seven and now is rather marked, the biggest
• 2:52
  Speaker 1: being you know, the corporations are no longer as loved
• 2:55
  Speaker 1: as they were back then. Uh. You know, you actually
• 2:58
  Speaker 1: have a pretty robust economy. Global economy is growing at
• 3:02
  Speaker 1: I think the last time I checked time a forecast,
• 3:04
  Speaker 1: they've been kind of they keep ticking it up. It's
• 3:06
  Speaker 1: about three point nine pc now. Uh. You know, investors
• 3:09
  Speaker 1: are no longer all that leveraged either. So back in
• 3:12
  Speaker 1: the day, you had banks that were very leveraged. You
• 3:14
  Speaker 1: had hetge funds that were carrying thirty times to one leverage. Um.
• 3:19
  Speaker 1: So those are the positives. And as a result, I
• 3:21
  Speaker 1: would expect, uh, you know, all in coupon yields for
• 3:25
  Speaker 1: corporates have also kind of gone down a lot, so
• 3:27
  Speaker 1: in terms of interest coverage, that the the the corporates
• 3:29
  Speaker 1: look reasonably healthy. Um and you know, because of the
• 3:33
  Speaker 1: underlying economy, I would say that the default rates will
• 3:36
  Speaker 1: be reasonably lower. So that's the positive, and that would
• 3:39
  Speaker 1: that would probably explain why spreads trade where they do. Okay,
• 3:42
  Speaker 1: I'm assuming there's a negative here now. I think the
• 3:45
  Speaker 1: biggest negative, as I said, is valuations. Um, you know,
• 3:48
  Speaker 1: at three d sixty basis points over treasuries, you're just
• 3:51
  Speaker 1: not getting paid enough. You own the one second, if
• 3:55
  Speaker 1: I were hearing you right now, I would say this
• 3:57
  Speaker 1: is a bullish person who sees very limited down side
• 4:00
  Speaker 1: because it seems like a positive backdrop. But a prop
• 4:03
  Speaker 1: with valuations would that be accurate? No, I would say,
• 4:06
  Speaker 1: I'm actually the absolute opposite. This is the most cautious
• 4:10
  Speaker 1: I have been about credit. Um, you know, for the
• 4:13
  Speaker 1: simple reason. So, like, let's just step back, Like, you know,
• 4:15
  Speaker 1: what is a bond. A bond has two components to it.
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  Speaker 1: Bond has an interest rate component and a spread component.
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  Speaker 1: The spread component is effectively the risk component. And what
• 4:26
  Speaker 1: we just discussed, the fundamentals that are good kind of
• 4:29
  Speaker 1: explained why the spread component is trading at all time types.
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  Speaker 1: And I think at this point it's kind of capped.
• 4:35
  Speaker 1: This is the all time tights and sure enough, you know,
• 4:37
  Speaker 1: the fundamentals look good. But the bigger issue with credit
• 4:42
  Speaker 1: is the interest rate component. Over the last thirty five years,
• 4:46
  Speaker 1: we've seen nothing but this uninterrupted rally and treasuries, which
• 4:49
  Speaker 1: has been the biggest tailwind to owning high yield. We
• 4:54
  Speaker 1: As as a portfolio manager, I never really had to
• 4:57
  Speaker 1: think about rates as a risk. This is really the
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  Speaker 1: first time in a very very long time that rate
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  Speaker 1: component is the one that is going to basically be
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  Speaker 1: the biggest risk for our market. So if I want
• 5:09
  Speaker 1: to expand a little more into it, you know, uh,
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  Speaker 1: that that very simply speaking, why do I feel negative
• 5:16
  Speaker 1: about credit? High credit deals roughly around six and a
• 5:19
  Speaker 1: quarter percent three month libor yields to and a quarter
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  Speaker 1: percent to two point You now actually have a tremendous
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  Speaker 1: competition from cash substitute instruments for uh, you know, rather
• 5:34
  Speaker 1: than owning high yield. So I think the biggest risk
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  Speaker 1: to high yield I feel is liquidity risk. Um. You know,
• 5:40
  Speaker 1: I think over the last five to six years, there's
• 5:44
  Speaker 1: been a big proliferation of passive money you know, long
• 5:48
  Speaker 1: only uh. You know, people talk a lot about ets.
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  Speaker 1: They have small percentage of the market, but overall about
• 5:53
  Speaker 1: half the market has a daily liquidity to it um.
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  Speaker 1: And as a result, I feel like the next crisis
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  Speaker 1: is not going to be an OA type of crisis.
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  Speaker 1: You know, we're not going to have a spike in default.
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  Speaker 1: The big worry is what is that interest rate where
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  Speaker 1: people actually start to say, you know what, I'm just
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  Speaker 1: not getting paid enough to be in high yield and
• 6:16
  Speaker 1: I want to move out. If investor here's what you're saying,
• 6:19
  Speaker 1: and buys your thesis and agrees also with Jamie Diamond
• 6:23
  Speaker 1: in his annual literature Shareholders, in which he said that
• 6:26
  Speaker 1: interest rates may go higher and faster than people expect.
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  Speaker 1: What do you do right now? I think, um, you
• 6:35
  Speaker 1: know a couple of things. So one of the things
• 6:38
  Speaker 1: you can do is effectively go into low duration instruments. Unfortunately,
• 6:43
  Speaker 1: one of the beautiful things about you know, this low
• 6:45
  Speaker 1: interest rate environment we've had in high yield, these companies
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  Speaker 1: have been able to turn out their debt, so there's
• 6:51
  Speaker 1: not a lot of low duration instruments left. But I
• 6:54
  Speaker 1: think this is as good as it gets for the
• 6:56
  Speaker 1: for the medium term. For term loans, you know what
• 6:59
  Speaker 1: what used to be some thing. So if you are
• 7:01
  Speaker 1: talking about an environment where um, um, you know where
• 7:05
  Speaker 1: default rates are going to be low, um, you know
• 7:08
  Speaker 1: a lot of the term loans, higher quality term loans
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  Speaker 1: that really did not afford you a good amount of yield,
• 7:14
  Speaker 1: actually pay you some some yield to own that those
• 7:17
  Speaker 1: those look fine. But more importantly, I think I don't
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  Speaker 1: mean to be completely negative on corporate credit and high
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  Speaker 1: yield um. What has happened as a result of a
• 7:29
  Speaker 1: lot of proliferation of indexed money into this into the
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  Speaker 1: market is you now have a market which is bifurcated
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  Speaker 1: between haves and have not the very liquid credit I
• 7:41
  Speaker 1: think I would avoid. But one has to also accept
• 7:45
  Speaker 1: that there is a small subset of the market which
• 7:47
  Speaker 1: focuses on mid cap corporate credit which is generally under
• 7:53
  Speaker 1: underappreciated and under owned, where you can find a lot
• 7:56
  Speaker 1: of value. And you know, I think on the long side,
• 7:59
  Speaker 1: that's kind of what we prefer are And this one
• 8:02
  Speaker 1: last thing a plug about what I do. What I
• 8:04
  Speaker 1: will say is this is as good an environment as
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  Speaker 1: I have seen for long short credit managers. So you
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  Speaker 1: can be risk neutral uh and really make what I
• 8:13
  Speaker 1: would consider to be well about market recurrens without taking
• 8:16
  Speaker 1: too much risk. I want to thank you very much
• 8:18
  Speaker 1: for coming in and sharing your experience and your knowledge.
• 8:21
  Speaker 1: Shrine Duli Pala, founder of the credit hedge fund KILL
• 8:25
  Speaker 1: Donnan Castle Asset Management much appreciated a hundred million people.
• 8:44
  Speaker 1: Can they be wrong? Well, they're spending a hundred dollars
• 8:47
  Speaker 1: a year in order to be Amazon Prime subscribers. Shira
• 8:51
  Speaker 1: O v Day, Bloomberg, gad Fly Technology Commus may in
• 8:54
  Speaker 1: dB one of them. Shira, what do you make of
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  Speaker 1: this revelation that a hundred million in Prime subscribers are
• 9:03
  Speaker 1: filling the coffers of Amazon with ten billion dollars a
• 9:07
  Speaker 1: year for the privilege of shopping. So it wasn't really
• 9:11
  Speaker 1: surprised by the number, but I was surprised that Amazon
• 9:15
  Speaker 1: disclosed the number. So let me break that down. So, Amazon,
• 9:19
  Speaker 1: for more than a year now has been disclosing the
• 9:23
  Speaker 1: revenue it generates from Amazon Prime and its other subscription
• 9:27
  Speaker 1: products like Audible, um, subscription models and things like that.
• 9:31
  Speaker 1: And thanks to that number, which Amazon was essentially forced
• 9:34
  Speaker 1: to reveal because the SEC has been pressuring them to
• 9:38
  Speaker 1: disclose the number of Prime members and Amazon has refused
• 9:41
  Speaker 1: to do so until recently until it gave the revenue disclosure.
• 9:45
  Speaker 1: So An also have been able to kind of back
• 9:46
  Speaker 1: out the approximate number of Amazon Prime members and it's
• 9:50
  Speaker 1: been pretty close to a hundred million if you look
• 9:52
  Speaker 1: at the numbers. The question for me again is why
• 9:54
  Speaker 1: didn Amazon pick now, of all times to disclose finally,
• 9:59
  Speaker 1: after years of silence, how many prime members it really has?
• 10:03
  Speaker 1: And I'm curious to know the answer and don't have one.
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  Speaker 1: Another number that Amazon disclosed that you wrote about is
• 10:10
  Speaker 1: one that is less talked about, and that is the
• 10:12
  Speaker 1: median salary of people who work for Amazon. It is
• 10:16
  Speaker 1: less than thirty dollars. What is this due to the
• 10:19
  Speaker 1: narrative that Amazon is creating high quality jobs around the country. Look,
• 10:23
  Speaker 1: I think it's a great question, and there's been questions
• 10:27
  Speaker 1: for a long time that a lot of the jobs
• 10:29
  Speaker 1: that Amazon has created, and to be fair, this company
• 10:32
  Speaker 1: has hired hundreds of thousands of people in the last
• 10:35
  Speaker 1: few years, but there's been a big question about whether
• 10:37
  Speaker 1: a lot of those jobs are quality lasting jobs. Right
• 10:41
  Speaker 1: in Amazon, Um, those package sorting centers or package warehouses
• 10:45
  Speaker 1: that are dotted across the country. Uh, there have been
• 10:49
  Speaker 1: you know, reports about bad job conditions and and and
• 10:53
  Speaker 1: low pay for long hours and other ill treatment of workers.
• 10:58
  Speaker 1: So yeah, the revelation that the median compensation of an
• 11:03
  Speaker 1: Amazon employee is less than twenty nine thousand dollars. Uh,
• 11:07
  Speaker 1: that's an interesting piece of that debate about whether Amazon
• 11:13
  Speaker 1: Amazon creates jobs that are good jobs. Sure, just the
• 11:16
  Speaker 1: back of the envelope estimate. If you have a hundred
• 11:20
  Speaker 1: million subscribers to Amazon Prime paying a hundred dollars a year,
• 11:24
  Speaker 1: that's ten billion. If you have a hundred and twenty
• 11:26
  Speaker 1: five million people for Netflix of paying a hundred and
• 11:30
  Speaker 1: twenty a year, that's about a fifteen billion. Spotify seven,
• 11:35
  Speaker 1: I believe it's seventy million subscribers paying what maybe a
• 11:38
  Speaker 1: hundred a year for Uh, let's call it a hundred
• 11:43
  Speaker 1: year for Spotify, that's another seven big that's thirty two
• 11:47
  Speaker 1: billion dollars for people to just get entertainment. Uh. Is
• 11:51
  Speaker 1: that enough to sustain the valuations of these businesses? Well,
• 11:57
  Speaker 1: I mean, look of those companies that you men s
• 12:00
  Speaker 1: and uh, you know, Amazon does not generate the biggest
• 12:04
  Speaker 1: chunk of its revenue from subscriptions, right That Prime is
• 12:07
  Speaker 1: sort of this genius idea that costco also uses, right,
• 12:12
  Speaker 1: where you pay a company for the privilege of spending
• 12:14
  Speaker 1: more money at the company throughout the year. Um, Amazon
• 12:18
  Speaker 1: Web services though, and things like advertising potentially for Amazon. Yeah,
• 12:22
  Speaker 1: fair enough. Um, you know, Netflix and Spotify are both
• 12:26
  Speaker 1: highly valued companies that exist only on subscriptions. And look,
• 12:30
  Speaker 1: the business model of cable and telecom companies is also
• 12:33
  Speaker 1: to sell subscriptions, and those are again some of the
• 12:36
  Speaker 1: largest UM and and companies in the world and also
• 12:40
  Speaker 1: highly profitable. So yeah, you can sell subscriptions to things,
• 12:43
  Speaker 1: whether it's entertainment or telecom services, and that is a
• 12:46
  Speaker 1: very viable business for a lot of companies. So, just
• 12:49
  Speaker 1: to put this new perspective, Amazon shares today up one
• 12:52
  Speaker 1: and a half percent, following gains in the past three sessions.
• 12:56
  Speaker 1: Not so happy over in Apple Lands, And I do
• 12:59
  Speaker 1: want to touch in this because this is catching a
• 13:01
  Speaker 1: lot of people's attention. Shares down more than two per cent,
• 13:04
  Speaker 1: and some people are attributing this to mounting concerns about
• 13:09
  Speaker 1: waning smartphone demand. We talked about this not frequently. Um,
• 13:13
  Speaker 1: why are people suddenly worried about this now because this
• 13:15
  Speaker 1: has been known forever. Yes, it's a it's a fair question.
• 13:20
  Speaker 1: I mean the there has been this kind of the
• 13:23
  Speaker 1: same exercise happened before Apple's last earnings report, which was
• 13:28
  Speaker 1: I think there was some over optimism about the sales
• 13:32
  Speaker 1: potentials of the iPhone ten and other new Apple devices.
• 13:36
  Speaker 1: And then you saw in the weeks before Apple reported
• 13:38
  Speaker 1: December quarter earnings that analysts started to pair back their
• 13:41
  Speaker 1: expectations and that turned out to be smart um. And
• 13:45
  Speaker 1: again we're seeing a very similar exercise this year. Look,
• 13:48
  Speaker 1: I think everyone in the investment world, if not inside
• 13:51
  Speaker 1: of the Cupertino headquarters of Apple, is coming to realize
• 13:54
  Speaker 1: that this is a new reality for Apple, which is
• 13:57
  Speaker 1: it's getting harder and harder for them to sell more
• 14:00
  Speaker 1: iPhones every year. If you look at the analyst estimates
• 14:03
  Speaker 1: of iPhone sales this year, they're expected to interrupt a
• 14:08
  Speaker 1: few percentage points. And remember this is a year when
• 14:11
  Speaker 1: a year ago everybody expected there to be this big
• 14:14
  Speaker 1: boon from the iPhone tan and other new devices that
• 14:16
  Speaker 1: come on the market. That's not going to happen. So
• 14:19
  Speaker 1: there's been this kind of re imagination of what Apple
• 14:22
  Speaker 1: really is. So it's not a company that is going
• 14:24
  Speaker 1: to rely on growth in unit sales of iPhones. Instead,
• 14:28
  Speaker 1: it's going to need to charge more for those devices,
• 14:30
  Speaker 1: is going to need to sell ancillary products like the
• 14:32
  Speaker 1: home pod and the air POD's headphones, and that's the
• 14:35
  Speaker 1: way that Apple is going to keep growing. Now that
• 14:38
  Speaker 1: the easy growth of I can just sell more iPhones
• 14:41
  Speaker 1: every year, that that story is over. So people are
• 14:44
  Speaker 1: waking up to that and they're getting a little bit
• 14:46
  Speaker 1: nervous or perhaps just setting some risk ahead of earning. Sarah,
• 14:50
  Speaker 1: thank you so much for being with us. We love
• 14:52
  Speaker 1: having you on Shara Ovida Bloomberg Gadfly columnists covering all
• 14:56
  Speaker 1: things tech, talking about what's going on with Amazon dot Com.
• 15:00
  Speaker 1: It was surprising how low the median salary was, less
• 15:05
  Speaker 1: than twenty nine dollars apiece, fifty nine times less than
• 15:08
  Speaker 1: what Jeff Bezos took home. Definitely interesting. The price of gold.
• 15:28
  Speaker 1: An ounce of gold right now will cost you about
• 15:32
  Speaker 1: and four dollars, But what will it cost you, let's say,
• 15:36
  Speaker 1: in the next twelve months. Here to help us understand
• 15:39
  Speaker 1: the ins and outs and the ups and downs of
• 15:41
  Speaker 1: gold is Frank Holmes. He is the chief executive and
• 15:43
  Speaker 1: the chief investment officer for US Global Investors. They are
• 15:47
  Speaker 1: based in San Antonio, Texas, but he joins us here
• 15:50
  Speaker 1: in our eleven three oh studios. Frank, always a pleasure.
• 15:53
  Speaker 1: Thanks for coming in. I want to just mention also
• 15:55
  Speaker 1: that you men helped to manage the Golden Precious Metals
• 15:58
  Speaker 1: Fund U s r X give us your outlook for gold. Well,
• 16:04
  Speaker 1: I think that gold has a high probability of hitting
• 16:06
  Speaker 1: fire this year. Uh. And the double combo with that,
• 16:10
  Speaker 1: with that fear trade is just a weaker dollar even
• 16:13
  Speaker 1: the rates have been rising, and that's helping actually fuel
• 16:17
  Speaker 1: global economic growth and as leading to this commodity boom
• 16:22
  Speaker 1: because you're getting this this great export of our high
• 16:25
  Speaker 1: end products and using of commodities. And the other part
• 16:28
  Speaker 1: of this is the love trade. And you find that
• 16:30
  Speaker 1: when which is six all demand for gold, and it's
• 16:34
  Speaker 1: highly correlated to the g d P per capita of
• 16:37
  Speaker 1: China and India and their GDP capita continues to rise.
• 16:41
  Speaker 1: And this is the year of the Dog, and there's
• 16:43
  Speaker 1: gonna be a lossle of gold puppies purchased. Coward, Okay,
• 16:49
  Speaker 1: so people are going to be purchasing gold puppies. Is
• 16:52
  Speaker 1: that the main driver here of the price of gold?
• 16:54
  Speaker 1: Because gold has been a very confusing asset class and
• 16:58
  Speaker 1: a lot of people have been expecting it to gain
• 17:01
  Speaker 1: as people I inflation. Now people are ratcheting back inflation expectations.
• 17:06
  Speaker 1: What's the main driver here, Well, the inflation is no
• 17:09
  Speaker 1: doubt and important issue because the concern is that if
• 17:12
  Speaker 1: you use factors to to look at the cost of inflation,
• 17:16
  Speaker 1: inflation is running at eight percent. If you use nineteen
• 17:19
  Speaker 1: eighty prices, inflation is pushing close to ten percent. So
• 17:22
  Speaker 1: there's an argument that inflation is actually understate it. And
• 17:27
  Speaker 1: we're just talking about this is the cost for cell
• 17:29
  Speaker 1: phones and mobile technology, all this stuff. It's really creeping
• 17:33
  Speaker 1: up much faster than two point seven percent or three
• 17:36
  Speaker 1: point one percent. So I think in the airlines industry,
• 17:40
  Speaker 1: one reason why I created jets because I saw my
• 17:42
  Speaker 1: options to fly had fallen by but my ticket prices
• 17:46
  Speaker 1: went up, and that's inflationary. So I think that inflation
• 17:51
  Speaker 1: is going to I believe the New York Fed has
• 17:53
  Speaker 1: a different inflationary number. It's higher than the CPI number,
• 17:57
  Speaker 1: and I think as people reassess this, the factors behind
• 18:00
  Speaker 1: ended inflation is probably running closer to over five. So
• 18:03
  Speaker 1: we actually have real negative interest rates under that scenario,
• 18:07
  Speaker 1: and that bodes well for a gold Frank, I want
• 18:11
  Speaker 1: to cast your mind back out on the movie you
• 18:12
  Speaker 1: call in nineteen I guess it was the mid nine
• 18:15
  Speaker 1: ninety six. There was something called e gold and it's
• 18:19
  Speaker 1: been written about as the precursor to cryptocurrencies. It was
• 18:22
  Speaker 1: basically a digital currency that was back by gold. Governments
• 18:26
  Speaker 1: around the world did not like this. Uh. In fact,
• 18:30
  Speaker 1: I believe there was even an application that was written
• 18:33
  Speaker 1: for the pomp pilot in order to track e gold.
• 18:37
  Speaker 1: Do you believe that the popularity of cryptocurrencies is having
• 18:42
  Speaker 1: a dampening effect, perhaps even temporarily on the on the
• 18:46
  Speaker 1: price of gold. No, I don't. I think what's really
• 18:49
  Speaker 1: important in my journey of going into that space. I'm
• 18:52
  Speaker 1: a chairman of high blockchain, first company mining these coins
• 18:56
  Speaker 1: in Sweden and Iceland. Uh. And I think that that
• 19:01
  Speaker 1: you saw five billion dollars last year go into these
• 19:04
  Speaker 1: new I c o s and that's speculative money. And
• 19:08
  Speaker 1: the regulatory world has basically said you cannot speculate in
• 19:11
  Speaker 1: the securities market. Uh. You want to speculate, go to casinos,
• 19:14
  Speaker 1: buy lottery tickets, to go to racetrack. So the millennials,
• 19:18
  Speaker 1: they want to speculate, and that's what that's money is.
• 19:21
  Speaker 1: It's really gone into speculation. Uh. And now there's a
• 19:25
  Speaker 1: crackdown taking place because some of the stuff was not
• 19:27
  Speaker 1: full true plane autonomy. Disclosure. But I really think that's
• 19:31
  Speaker 1: five billion dollars that never went into new expiration for
• 19:34
  Speaker 1: gold or new technology that normally would you see going
• 19:38
  Speaker 1: into the capital markets. I'm just wondering what would have
• 19:42
  Speaker 1: to happen for you to dramatically change your outlook on gold. Well,
• 19:46
  Speaker 1: first of all, stand back at fifty thou feet, get
• 19:50
  Speaker 1: an airplane. Gold is you know gold has always been
• 19:53
  Speaker 1: advocated ten percent, waiting rebalance each year. And why is that?
• 19:57
  Speaker 1: Since your two thousand gold is two times the appreciation
• 20:01
  Speaker 1: of the SMP five two times and last year it
• 20:04
  Speaker 1: was up, that's not bad. So I give you a
• 20:07
  Speaker 1: short term or long term. Gold is done what it's
• 20:09
  Speaker 1: supposed to do in an overall portfolio against currency volatility.
• 20:13
  Speaker 1: So from that end, until I see something else take place,
• 20:16
  Speaker 1: I don't think gold is a fourth most liquid UH
• 20:19
  Speaker 1: asset class trade in the world. I think that gold
• 20:22
  Speaker 1: has its place in a portfolio. But don't buy gold
• 20:25
  Speaker 1: to get rich. Yeah, you go and buy it for love,
• 20:28
  Speaker 1: for jewelry, or you buy for your portfolio because it
• 20:31
  Speaker 1: does mitigate volatility and it's a de risks overall portfolio.
• 20:36
  Speaker 1: What about investing in gold company in companies that have
• 20:40
  Speaker 1: royalty streams from gold. My favorite is a superior business model.
• 20:45
  Speaker 1: I mean, just think of it. Franko Nevada has the
• 20:47
  Speaker 1: royalties on Barrick and Newmont's assets in Nevada, and their
• 20:51
  Speaker 1: revenue per employee is a half a million dollars for
• 20:53
  Speaker 1: for simplicity, and Franque Nevada is twenty one million. I mean,
• 20:58
  Speaker 1: Goldman Sacks is one million to alors. So the efficiency
• 21:01
  Speaker 1: ratio is so high. They have very some do they
• 21:05
  Speaker 1: have a hit to book value. They pay more dividends FRANKL.
• 21:07
  Speaker 1: Nevada than all any other gold mining company in the world.
• 21:10
  Speaker 1: So it just goes to superior business model. All right,
• 21:14
  Speaker 1: We're gonna leave it there, Thanks very much, Frank Holmes.
• 21:17
  Speaker 1: He is the chief executive and the chief investment officer
• 21:20
  Speaker 1: for US Global Investors, managing the Gold and Precious Metals
• 21:25
  Speaker 1: Fund U s e r X. We have heard a
• 21:43
  Speaker 1: lot about possible sanctions on Russia. Will President Trump issue more?
• 21:50
  Speaker 1: Looks like perhaps not. To make some sense of all
• 21:53
  Speaker 1: of this back and forth, I want to bring in
• 21:55
  Speaker 1: Richard Kahn, managing partner at Eurasia Advisors, which is based
• 21:58
  Speaker 1: in New York, and Richard has vast technicles, working with
• 22:03
  Speaker 1: Russian businesses and Russian and US alliances, So he is
• 22:06
  Speaker 1: a perfect person awagh in on this. Uh does this matter? First?
• 22:10
  Speaker 1: I should ask should we even be talking about sort
• 22:13
  Speaker 1: of the will will the US or won't the US
• 22:16
  Speaker 1: add sanctions to Russia? Well? Thanks, Lisa. I think certainly
• 22:21
  Speaker 1: it should be on our minds because it goes to
• 22:23
  Speaker 1: the issues of how we view the Trump administration and
• 22:27
  Speaker 1: their relationship with Russia. Um. But I you know, in
• 22:32
  Speaker 1: my view, that's if you will, a side show to
• 22:35
  Speaker 1: the main events which relate to investigation looking for evidence
• 22:39
  Speaker 1: of interference and links and coordination with Russia, which is
• 22:43
  Speaker 1: what Mueller is looking at. Now. This is potentially, at
• 22:47
  Speaker 1: least in some people's mind, evidence of proclivity to favor
• 22:53
  Speaker 1: Russia and perhaps evidence that Russia remains in a position
• 22:56
  Speaker 1: to affect Trump. Just to be clear, the fact that
• 23:00
  Speaker 1: President Trump seemingly walked back what Nicki Haley had said
• 23:03
  Speaker 1: earlier about possible additional sanctions is that what you're talking about.
• 23:07
  Speaker 1: I am referring to that. It certainly plays into that narrative.
• 23:09
  Speaker 1: Of course, there may be other explanations for it, but
• 23:12
  Speaker 1: this is part of a pattern of Trump from the
• 23:16
  Speaker 1: very early stages of his campaign of making nice with
• 23:20
  Speaker 1: Putin and being unwilling to take on Russia as he
• 23:23
  Speaker 1: has taken on many other countries, particularly some of our allies. Richard,
• 23:27
  Speaker 1: I wonder if you could just give us the perspective
• 23:30
  Speaker 1: of what it's like to be in Russia at the
• 23:33
  Speaker 1: current moment. I mean, if you go online, you can
• 23:35
  Speaker 1: see a variety of photographs around the Internet showing a
• 23:39
  Speaker 1: lot of food that has been banned because of Russian
• 23:43
  Speaker 1: retaliation to Western sanctions. The food being banned is then
• 23:47
  Speaker 1: destroyed in landfills, and indeed, even the Russian cabinet is
• 23:51
  Speaker 1: said to consider a special agency in order to counter
• 23:55
  Speaker 1: foreign sanctions. What are the sanctions doing to the daily
• 23:59
  Speaker 1: lives of Russians and what do they hear about the
• 24:03
  Speaker 1: back and forth between because it's not just the United
• 24:05
  Speaker 1: States and sanctions, it's many other countries. Well, First, I
• 24:09
  Speaker 1: note the sort of the little joke that was making
• 24:12
  Speaker 1: a rounds a while back that Puttin and Medvede felt
• 24:14
  Speaker 1: really upset about, you know, being left out in connection
• 24:18
  Speaker 1: with Russian sanctions, so they decided to put sanctions on
• 24:20
  Speaker 1: Russia as well. Uh and uh, and that was accomplished.
• 24:25
  Speaker 1: Of course, I'm referring to what you just mentioned, which
• 24:28
  Speaker 1: is the restriction of imports into Russia, which is obviously
• 24:31
  Speaker 1: very harmful to to the Russian people themselves. Look, you know,
• 24:36
  Speaker 1: Russia is a very different structure in nation than than ours,
• 24:40
  Speaker 1: is very different history, Their relationship with their government is
• 24:44
  Speaker 1: totally different, and they you know, as a country, they
• 24:47
  Speaker 1: tend to think more in terms of supporting the state
• 24:51
  Speaker 1: and that that's sort of what the country is about,
• 24:53
  Speaker 1: rather than the more of a US model where we
• 24:56
  Speaker 1: these historically have viewed our public representatives as representing US
• 25:00
  Speaker 1: in the country being about the citizens. So they are
• 25:04
  Speaker 1: generally speaking very supportive of their government and the no
• 25:08
  Speaker 1: matter what is done in the West, the governments in
• 25:11
  Speaker 1: an ideal position due to its control of media, etcetera.
• 25:14
  Speaker 1: To present that as an attack on Russia, it's been
• 25:16
  Speaker 1: a constant theme in Russian history. So, you know, Russia
• 25:20
  Speaker 1: is now in a mode where, at least as I
• 25:22
  Speaker 1: see it, they're really often playing uh, tactics of a
• 25:27
  Speaker 1: rogue state. And I don't think that's something they wanted
• 25:31
  Speaker 1: to do back even even five six years or so ago.
• 25:36
  Speaker 1: But I think they're pretty firmly ingrained in that now,
• 25:38
  Speaker 1: and I do believe they're looking to at some point trade,
• 25:42
  Speaker 1: if you will, to leverage their gaining by playing that
• 25:45
  Speaker 1: role to perhaps over time get back into a more
• 25:48
  Speaker 1: normal relationship in the West. But from their perspective, both
• 25:51
  Speaker 1: the citizens and the government, they feel that we call
• 25:54
  Speaker 1: the tune here, that would be their way of looking
• 25:56
  Speaker 1: at it, that we've pushed them into this corner. Uh.
• 25:59
  Speaker 1: They see either you know, retaliation through interference and in
• 26:02
  Speaker 1: the election, trying to get people more amenable to better
• 26:05
  Speaker 1: relations with them as appropriate. Um, they're not going to
• 26:09
  Speaker 1: admit they did it, but certainly they know it well.
• 26:11
  Speaker 1: I do have to wonder. I mean, so the Moller
• 26:13
  Speaker 1: investigation and President Trump's relationship with Russia is one thing.
• 26:17
  Speaker 1: Arguably some events that have been much more important to
• 26:21
  Speaker 1: world peace is what's going on in Syria and Russia's
• 26:24
  Speaker 1: involvement there. Recently Russia saying that perhaps it will supply
• 26:29
  Speaker 1: Syria with state of the art air defense, which has
• 26:33
  Speaker 1: rung some alarms, Uh, particularly in Israel. How concerning is
• 26:38
  Speaker 1: all of this and Russia's involvement in the Syrian conflict. Look,
• 26:42
  Speaker 1: it's a huge problem. I just returned from a meeting
• 26:44
  Speaker 1: of the Crisis Group in UH in Berlin, where you know,
• 26:48
  Speaker 1: the subject of the Russia's involvement both in Syria and
• 26:51
  Speaker 1: in other parts of the world and the role they're
• 26:53
  Speaker 1: playing is is a big part of a conversation, as
• 26:56
  Speaker 1: well as the inability of the Trump admen Llustration to
• 27:00
  Speaker 1: interact in a manner that we in the US can
• 27:03
  Speaker 1: trust and be certain what their interests are. It dramatically
• 27:07
  Speaker 1: complicates the game and it's truly a frightening dynamic to have,
• 27:12
  Speaker 1: you know, our forces in such proximity with Russia with
• 27:15
  Speaker 1: different saber rattling. You know, Trump is engaged with that. Uh.
• 27:19
  Speaker 1: We have had instances, as you know, in the history
• 27:22
  Speaker 1: of the Cold War, where there were real risks of conflict,
• 27:27
  Speaker 1: including nuclear conflict, which were averted by individuals making key decisions.
• 27:31
  Speaker 1: There three or four instances of that. We don't want
• 27:33
  Speaker 1: to be in postures where we're enhancing the risk of conflict.
• 27:38
  Speaker 1: We should instead be you know, trying to minimize those situations.
• 27:42
  Speaker 1: And uh, you know, I don't have a sense that
• 27:44
  Speaker 1: Trump currently has a particular strategy in Syria. Uh. I
• 27:48
  Speaker 1: think it's generally a pr sort of play on his part. Uh,
• 27:53
  Speaker 1: So is it something I worry about, Yes, constantly having
• 27:55
  Speaker 1: that type of dynamic with all of our forces there
• 27:58
  Speaker 1: we already had, by the way, as you know, a
• 28:00
  Speaker 1: situation where we ended up killing two hundred Russians, you know,
• 28:04
  Speaker 1: when they attacked you know, one of our you know,
• 28:07
  Speaker 1: one of our bases. That was played down by both
• 28:10
  Speaker 1: the US and Russia. But I think most of us
• 28:12
  Speaker 1: would agree this is not a healthy situation, and we
• 28:15
  Speaker 1: want to have some adults in the room trying to
• 28:17
  Speaker 1: deal with that and take it out of domestic US politics.
• 28:21
  Speaker 1: I just also want to note that you are the
• 28:22
  Speaker 1: author of a new book. It is uh really about
• 28:27
  Speaker 1: a topic that many people are interested in. It is
• 28:29
  Speaker 1: called The Earthbound Parent, How and Why to raise your
• 28:33
  Speaker 1: Little Angels without religion. So congratulations on the production of
• 28:37
  Speaker 1: your of your new book about the science and uh
• 28:41
  Speaker 1: using that as part of an educational foundation. Thanks Pim.
• 28:44
  Speaker 1: It is tied into these very concepts of of the role,
• 28:48
  Speaker 1: if you will, of principle over loyalty m and how
• 28:52
  Speaker 1: that ties into religious upbringing. And so it does tie in,
• 28:55
  Speaker 1: if you will, with these political discussions. But at his heart,
• 28:58
  Speaker 1: it's a book that's you know, suggesting to parents in
• 29:01
  Speaker 1: a gentle way that they consider the benefits of raising children,
• 29:04
  Speaker 1: certainly without the supernatural, to be critical thinkers rather too
• 29:09
  Speaker 1: than embracing delusional concepts that can sort of set their
• 29:12
  Speaker 1: children in the wrong direction. I want to thank you
• 29:14
  Speaker 1: very much for joining us. Sir Richard Cohn is Managing
• 29:17
  Speaker 1: partner for Eurasia Advisers, joining us to talk about the Russia.
• 29:21
  Speaker 1: And once again, congratulations on the publication of your new book.
• 29:24
  Speaker 1: It is entitled The Earth Pound Parent, How and Why
• 29:27
  Speaker 1: to Raise Your Little Angels Without Religion. Thanks for listening
• 29:34
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 29:37
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 29:41
  Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter
• 29:45
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 29:48
  Speaker 1: one before the podcast. You can always catch us worldwide
• 29:51
  Speaker 1: on Bloomberg Radio.