Macro

Episode 27: Inflation, Deflation, Stagflation and Gold with Peter Boockvar

Ben Lakoff, CFA
January 11, 2021
51
 MIN
Listen to this episode on your favorite platform!

Inflation, Deflation, Stagflation – we hear these terms, but which scenario is most likely and why? More importantly, what that means for our investments and how to position ourselves accordingly.

Peter Boockvar is a very bright mind in this space and is frequently seen on CNBC discussing these topics. You won’t want to miss this episode with Peter Boockvar on all things Flation and what it could mean for your portfolio.

Listen on your Platform of choice:

Check out https://anchor.fm/investinalts for all the listening options (Spotify, Apple, etc.)

Show Notes

0:00:00   Welcome and context

0:01:27   What is your background?

0:02:40   What are your views on stagflation?

0:08:15   The impact of the vaccine on inflation

0:10:10   How do you see the current stagflation playing out?

0:14:21   How are these other countries opening up their economies without a vaccine?

0:16:04   Where do you see the price of gold in the future?

0:22:10   Key winds that could impact the price of gold?

0:25:03   What is the future of bonds?

0:30:11   What key factors are you monitoring regarding inflation? 0:34:39   Wage inflation trend

0:40:11   What are your thoughts on Bitcoin?

0:43:16   What is your ideal portfolio construction?

0:46:25   How can people invest in copper?

0:47:00   How do gold miners fit in a portfolio?

0:48:59   Anything else in the materials world that gets you interested?

0:51:51   Where can people find out more about you?

Show Links

Bleakley Financial Group

The Boock Report

Peter on Twitter

Episode Transcript

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff.

Hello and welcome to the all to asset allocation podcast. Today’s interview is with Peter Boockvar. Peter is a very bright mind and a frequent guest on places like CNBC and real vision.

Discussing his views on financial markets. Inflation deflation stagflation. We hear all of these terms all of the time, but which scenario is more likely and why we keep saying that these are unprecedented times, but what can we learn from history on what is a more likely outcome that will happen? What will the inevitable shift to something like NMT mean for investments?

Overall, there’s a lot of information out there, but more importantly, what did these different scenarios mean for an investments and how to position ourselves accordingly before you listen, please don’t forget to like, or subscribe to the podcast or even better leave a review. If you’re watching this on YouTube, please subscribe to the channel and, or give the video a thumbs up.

This really helps more people find the podcast and keeps this thing going. So thank you. Without further ado, Peter Boockvar on all things flation and what it means for your portfolio. Enjoy Peter, excited to have you on today. Welcome.

Peter: [00:01:25] Thank you, Benn. I appreciate having me on.

Ben: [00:01:27] Yeah. you’re frequent CNBC in a number of financial circles that a number of people play in.

But for my listeners that don’t know who you are, do you mind starting with a brief background?

Peter: [00:01:38] Sure background going to what I’m doing now and previous well, right at what I’m doing right now.  Chief Aspen officer of a weekly financial group slash advisory group, which is a a wealth management firm managing about $6 billion and manage to, and then also run the investment committee and help advisors here create the portfolios and, and and where the best places to invest in those portfolios.

I’m also a writer I’d write for the book report, which is a macro economic slash market newsletter where I’m just commenting on, on things that are relevant to, to, to both on a daily basis. And prior to this, I was the chief market analyst for the Lindsay group run by Larry Lindsey, who was a federal reserve governor in the mid nineties.

And was George W. Bush was senior economic advisor when he was elected. Awesome.

Ben: [00:02:33] Well, I’m super excited to have you on today and talk about a lot of these things because  there’s a lot going on. That’s for sure. And I definitely want to get into a lot more macro in the financial markets, but I think it’s helpful to first start on your views of stagflation.

So maybe if we start there, what your views are, what the different drivers are, and then we’ll, we’ll go from there.

Peter: [00:02:55] So I would say right now we’re in November for the lab, for the, this year, pretty much COVID when I saw what was going on with these appended supply chains and as the summer progressed and things started to reopen sort of to see pockets of, of price spikes, where there, there was the supply demand imbalance really started to see it.

At the supermarket as obviously because of, of, of the virus and the shutdowns, it got more difficult to procure items like meat, for example, and with everyone rushing to, to buy what they wanted to buy you saw these price spikes. So it started to give sort of a heads up to me that we have to start watching out for these supply demand and balances elsewhere.

And I believe that. As we now get further into the year, that belief is now being further entrenched. Now the stag part, I think, could be alleviated by the vaccine and that 2021 could see a very good economic recovery. But on the other hand, the fallacious side of that could be more enhanced than I initially saw.

And when you and I, and I like to break down the inflation into different parts because it’s not a homogeneous thing. And for years we had services inflation. Driven by medical care costs, rent increases, tuition insurance. So on that ran about 3% year over year. What offset that was deflation or disinflation on the good side that is natural, particularly in technology.

The deflation is. For for, for centuries has been the trend. Typically when you get inflation, they’re more cyclical increases. That can be short-term or it can last a couple of years, depending on what countries fiscal policy is, what their monetary policy is and, or just short term supply demand and balances.

So now we’re in a situation where. We’re beginning to see a rise on the good side of inflation. And part of that is driven by actually transportation, which is services because. Everything that gets produced in this world, ends up on a ship, a truck or an airplane. And those transportation costs are jumping double digits.

You look at air cargo, air cargo. Well, a lot of passenger planes would take cargo as. Part of a flight, a passenger doesn’t realize that they’re just going on a plane and they got their luggage down below, but there’s also cargo. So you’ve taken, you basically put a lot of planes in hangers because of COVID and you have this dearth of capacity, which has allowed FedEx and ups, for example, to aggressively raise prices and announced surcharges on.

All their holiday shipping cargo on, on ships are up sharply and trucking is having a heyday here. So that is causing and producers manufacturers are trying to, to, to tack that on and also their supply chains have been disrupted. So it’s costing them more to, to get goods and produce. And they’re passing that on to the consumer.

Now on the service side, we’ve seen a slight reduction in rents, obviously in New York, San Francisco, even LA Chicago, they’ve seen a big reduction in rent, but in the suburbs we’re seeing a continued persistent rise in rents, both multi-family, but also single family homes that Landlords are renting out.

They’re seeing a rent increases of five to 7% as people move to the boroughs, particularly millennials with, with families. So I think that the service aside will remain consistent two to 3%, and now you’re getting a rise on the good side. And I think that’s going to combine with surprises on the inflation stats.

And one more thing to add. We’ve seen a rise in commodity prices. Food prices have jumped sharply here. Soybean prices in particular at multi-year highs. We’ve seen a rise in the industrial metals. Aluminum today was treated at the highest level since March, 2019. Seeing a rise in copper we’ve seen obviously increase in gold and silver this year.

Natural gas prices are back up a three. It’s really been crude oil. That’s been the only commodity that has not. Participated here, but because of the, the sharp decline in in supply, I think that when you get into 2021 with, with, with the vaccines, that you’re going to see a sharp increase in demand, it’s going to lead to higher oil prices.

Then you’ll throw in all of that fiscal spending, which has elevated the demand side to a much greater extent than otherwise in a recession, particularly with the money that. Has been put into consumer pockets that more than offset the lost wages and income. And then obviously the fed monetizing that.

So to me, this is just a, a big mix of inflationary factors that will really begin to show its head in 2021.

Ben: [00:07:43] There’s so many moving gigantic factors here. It just makes my mind spin constantly. especially in factor in wealth inequality and all of these things, it gets overwhelming. Definitely. just to touch on the, you said the stag might go away.

The idea is that the vaccine allows the world to go back to normal and transportation and supply chains are back where they should be, so that the goods. Inflation is less than you were thinking when all of these disruptions were happening.

Peter: [00:08:13] No, don’t actually be more because the demand side is going to rush back faster than the supply side of the economy is going to be able to meet.

So even more price pressures with this rush of demand me to take airlines. For example, I mean, my I’m already today read statistics that summer travel reservations have jumped sharply this, this week. Oh my gosh. Because people will see the Pfizer news and they already booking their summer vacations because then realizing, wow, it may be safe.

Well, these airlines are not going to have. Thousands of pilots and flight attendants rushing back. They’re going to probably take their time to see how this plays out in terms of bringing back capacity. So they’re going to have pricing power. This summer hotels are gonna have pricing power this summer.

So that gets to this, this inflationary situation. So higher. Potential inflation, maybe better growth. Now the question though is, is that if you do get this higher inflation, because we’re a consumer dependent economy that in itself can then eventually slow growth. Right? Exactly. So it, it is a mix and, and, and the, the key question is, is obviously how the fed is going to respond.

If we start to see three tens, four tens, monthly, CPI PCE numbers that they’re going to be in in quite a quandary.

Ben: [00:09:25] And then CPI has its own issues, right? Obviously, as you’ve talked about it before, but this blanket and VA inflation rate, but as soon as you peel back the curtain and start looking at it, I mean, there’s massive inflation in certain aspects and massive offset by massive deflation.

Yeah, that’s there’ll be very interesting. So stagflation happened in the 1970s. I mean, as. W, how do you see this playing out? Assuming that the vaccine works we’ll still have stagflation just until the supply chains are kind of repaired and back to where they were. How do you, how do you see this playing?

Peter: [00:10:01] Yeah, it’ll, it’ll take time for the economy to sort of readjust particularly the supply side to, to, to readjust, to. All the changes that have gone on this year, and even there were changes going into this with, with the tariff war that we’ve had, where a lot of companies were diversifying their supply chains and moving things out of China, for example, and to, into Vietnam or to other.

Asian countries. And that takes time to, to make that shift. And while eventually, maybe that will create a a cheaper supply base in a more diversified one. It doesn’t necessarily lead to a more productive one cause China for all its faults was a very productive source of manufacturing from an infrastructure standpoint, from an employee reliance standpoint.

And so I. Now the demand side it’s it’s it’s, we’re not going to be snapping our fingers. Everything’s going to rush. It’s going to be, you know, an evolution as, as the months and 2021 progress. And as more people get the vaccine and more people get confident, I think a good. Case right now to watch is China.

China has, and not just China, but South Korea and Singapore and Japan and Taiwan have been very good of course, at containing the virus and limiting its spread, which in turn has allowed them to reopen their economies to a much greater extent. And. Movie theaters are packed again in China. Restaurants are packed again.

Malls are packed again, travel while not back to where it was pre COVID is about 60 to 70% back to the levels where it was. And I think that that’s going to be a good example of what we have to look forward to. And, and I do think you talked about this whole work from home thing. I think that that people are tired of working from home.

And that maybe they’ll work from home one day a week if they can, but there’s a desire to go back to the office and intermingle with people and get into their car and drive to work. And then it gets tiring and you lose. And I think we were losing productivity, but by, by working from home, I know kids are having a difficult, Oh my gosh, they need to get back to school.

So I, I think that, and people want to get back to restaurants and you can be sure that that summer concert season is going to be raging. Everyone’s going to want to get back and everyone’s going to want to go to a baseball game again. And everyone’s going to want to go on vacation now, will that one day business trip where you fly to Chicago at 8:00 AM and you’re back on the 6:00 PM back home because you want to see a client for an hour.

Well, maybe that takes place on zoom, but I think a lot of behavior, I think people will be surprised. We’ll go, we’ll go back to a lot of where it was now. Yeah. What, what a central banker should do is they should go where the pocket is as, as Wayne Gretzky said, but we had a lot of fed speakers yesterday, post the Pfizer of news and they were still so narrowly focused on the next.

Two quarters and that we all admit, yeah, we have a rough winter to get through in terms of the spread and what it means for economic growth, but there’s a major light at the end of the tunnel here. And there was no fed member that even talked about what that world is going to look like and how they’re going to be forced to adjust policy.

So it tells me that they’re just going to be so late in reversing what they’ve done. Which means that the longer end of the yield curve is going to end up tightening for them.

Ben: [00:13:35] A few things there, one, you, you had mentioned that you’re looking at China, Korea, all of these other countries that have kind of slowly went back to normal, but they’re doing this without a vaccine, right?

it seems very odd that we are just kind of holding our breath for this hail Mary vaccine. One that’s never been created for this sort of virus to come, and then we can start. Easing back into a sense of normalcy, but how, how are these other countries doing it so much better than we are?

Peter: [00:14:07] Well, they had practice back in 2003 when SARS hit in Hong Kong.

So they learned a lesson of the importance of wearing a mask and what it means to, to limit the spread and what it means to physically distance. So going into this. They knew. I mean, Hong Kong in January, before we even cared about it until late February, Hong Kong heard about a virus in China there, they were already reacting to it.

So I think they, they see wearing a mask as just putting on their, their, their shirt and pants on a daily basis. It’s just part of their wardrobe. So I, I think that that was the, the, the missing link here in the U S and, and amazingly. We still, at least parts of the country, haven’t really learned their lessons of the importance of wearing a mask.

And while it’s not, full-proof it dramatically lowers the odds of spread. Not just if one person wears, but certainly if, if a second person wears it right. You know, I guess the only benefit of seeing a sharp increase in, in, in virus spread is that people look around and say, okay, I need to start putting a mask back on and being a lot more careful.

Ben: [00:15:20] Yeah, that makes sense. transitioning a bit. Gold is up 27% this year, year to date. It was a massive rally that started, you know, mid 2018. It’s gone up a lot. Where do you see it going from here and why?

Peter: [00:15:37] I see it going much higher. I think in, in order to discuss goals, I think it’s good to have a perspective and that the, the bull market really started in 2000 after a 20 year bear.

And we went up 12 years in a row, went from two 50 to 1900 and then starting in really 2013, gold really broke down, which was ironic because it was just as the fed was doing QE infinity. But there was just this faith in the fed that we didn’t need to own gold because the fed was going to make everything just fine.

And then we bought them in December, 2015, ironically, just as we saw the end of negative, I’m sorry, the end of seven years of zero interest rates. It was just when the fed was just about to begin raising interest rates. So we’ve almost doubled from that December, 2015, love 10 50. This year, as you mentioned, it’s been a good year.

And I like to really just. Very simply look at gold and its influence on two factors, real rates and the direction of Fiat currencies. And particularly of course the dollar, since it’s mostly denominated in the dollar, I don’t look at gold as, as, as a, the world is, is falling apart hedge or. A geopolitical hedge or, you know, I need to get into my bunker with my, my macaroni and cheese.

My God and Michael at bars, I look at gold is really just a currency and they’re times to own it there times not to own it. And with what central banks have done. It’s and particularly this year, how they’ve so much further elevated the rate of QE. And, and of course the fed, lowering interest rates back to zero and the fed going, I’m sorry, the ECB going deeper with negative interest rates and, and what the bank of England has done and putting up more QA in, in the reserve bank of Australia that is even drank this, this, this, this.

Awful. Kool-Aid I, I save and though they think it tastes good, have almost zero rates and QE and thinking that this is some sort of vaccine or cure, and I don’t see how gold and, and with that in sympathy, silver, don’t go much higher from here, particularly if I’m right on inflation, because if I’m right on inflation, then you’re going to see another drop in real rates.

If you get that inflation, you’re going to see higher inflation is currency negative. You also have these. Exploding debts and deficits in the U S and you can draw a chart of the past 30 years plus, and overlay the us dollar versus the us budget deficit as a percentage GDP. And they pretty much follow each other.

And now, obviously because of the recession, that that ratio is 15%. So you have the, the, the secular Pale not tail ones headwinds for the dollar, notwithstanding some, some bursts of increases. But the dollar is going much lower in the next couple of years. So between that and this higher inflation to me is a great setup to get gold and silver prices much harming silver is, is basically half of what it was in 2011.

It’s half of what it was in 1980. Gold is just back to where it was nine years ago. And again, in this crazy monetary world where the other day you hit a record high of a dollar genome or the dollar amount of negative yielding securities around the world being around 17 trillion. You can’t, you can’t make this stuff up.

And when you look at 2011, you look at it. The fundamentals in 2011, when silver got to 15, this parabolic move and gold was 1900, no one really heard of negative interest rates in 2011, QE was sort of in its infancy. I don’t even think the ECB had started QE. It was really just the fed. The bank of England was doing it, obviously the bank of Japan, but look at central bank balance sheets.

Back in 2011 and no negative interest rates. And that’s where gold and silver were nine years ago. And then you compare to today where you have obviously the, the craziness with, with QE and negative and zero rates and silvers 50% below and gold is just back to where it was then. So the fundamental setup to me is still Pretty impressive that I think is yet to be fully realized in the upside.

Ben: [00:19:47] Yeah. But now, I mean, it’s QE infinity. It’s going to be very difficult to turn it off or do any sort of tightening or anything at this point. all roads. Basically lead to some sort of MMTs situation where, you know, we just have UBI and money’s deposited every month and this money

Peter: [00:20:08] is essentially

Ben: [00:20:09] way more so than it is now.

You know, we stopped calling it a national debt and this is just dollar creation event. And that’s how dollars are into the economy. And it’s like a rewiring of everybody’s brains. the way you see it going and does gold still outperform in this sort of scenario as well?

Peter: [00:20:27] Well, if you do have further, no, we already had, and T this year, I mean, in the U S we, we, we gave everyone checks.

We had the, the added unemployment benefits Japan, they gave people checks. So we’re already having a form of it that the fed is monetizing. What can hinder that is if we continue this or you work up the pace well, then that inflation story. Really gets enhanced next year, which then becomes should of kryptonite to that NMT because once you get higher inflation you limit, when you get higher rates in response, even though we can’t handle higher rates, well, then that limits this whole NMT experience because you know, Stephanie Kelton, who’s a big proponent of M and T.

She acknowledges that it’s once you get higher inflation, well, then that screws up the NMT and she thinks you can raise taxes to then lower inflation, but then that just deepens the economic problems. So. I first of all, NMT relies on the, the effectiveness of government spending and that’s almost an oxymoron.

But it, it would be higher inflation that would be sort of the inherent roadblocks or, or bumps in the road to NMT. At a greater extent than it is right now,

Ben: [00:21:38] but yeah, I mean talk about headwinds. If the banks and MMT proponents and effectively the government and the fed are just going to try to limit inflation with everything they can, because that’s what makes MMT unwind.

That that’s a pretty big headwind as inflation as key value to making gold go up and be bullish on it. Right.

Peter: [00:22:01] Well, it, it it’s, you know, th that, that possibility of, of greater MTV. Yeah. It it’s it’s, it would be very dollar negative. And that would be obviously then than gold positive, but, you know, the irony is with this inflation stuff, is that, you know, the fed para paradoxically wants higher inflation.

Every central bank wants higher inflation, even though it’s that higher inflation that ends up killing the bond market, which then leads to higher interest rates. I mean the, the, the bond, the bond bubble. Is the greatest bubble in the, or the biggest bubble in the history of financial markets and negative yielding bonds is, is the epitome of a bubble because the only way you make money from holding that, because it’s no longer an asset, it’s a liability because it’s costing you money to hold.

Right. Yes, don’t they keep going down off. We are full. So it’s the epitome of a bubble. Now, central banks have been able to keep this going. Certainly the bank of Japan has been hugely successful in being able to keep it going. However, if they are eventually successful in generating higher inflation, which I think in 2021, they will, well, then it just blows all of this up.

So the last thing that central banks should be rooting for. In a sense is the FMT and higher inflation because this ruined everything. I mean, you know, the, the capitalism has an amazing ability to regenerate itself because just as we get out of bed, human nature is to regenerate and business just regenerates.

So if just left to its own devices, You know, an expansion follows a recession and we don’t need all this central bank and government spending because we will eventually, I mean, the vaccine is the greatest stimulus plan. You can potentially have far exceeds any government spending and far exceeds any monetary policy and, and hope.

And Pfizer was the first step in, in, in getting that stimulus that will then really show itself next year.

Ben: [00:24:03] Yeah, hopefully, who knows? Right. talking about bonds, just being the greatest bubble ever, I mean, most of financial portfolio theory is predicated on the 60 40 portfolio.

This is part of the reason why gold is so under owned by a number of bigger Institutions and pensions and things like that. what does this mean? Bigger picture for these already underwater pensions and people that allocate a lot of their, their capital to bonds.

Peter: [00:24:33] It’s a great question.

It’s something that working at a wealth management firm, we, we, we, we juggle all the time and because we have the standard 60, 40, 70, 30 type portfolios. And what I tell the advisors here and how we’re trying to position in this, this new environment is that the, the fixed income part of that portfolio really needs to be looked at as a capital preservation.

Part of the portfolio, rather than any income producer, rather than a, a form of, of, of, of capital gains. If you have a bear market and stocks or a bumpy time in stocks, So it’s, it’s, it’s a different port in the storm this time around where, you know, you look at at the bear market and stocks and in, in late Oh seven Oh eight into early Oh nine, that w that sharp drop in interest rates generated by the fed that led to a great performance in fixed income.

You know, outside of like high yield that obviously got, got hurt, but treasuries for sure that, that those capital gains were able to mitigate the decline in inequities this time around there’s very little room for those capital gains. And really instead, you’re just clipping coupons and

Ben: [00:25:52] that are negative at times.

Peter: [00:25:54] And if the reason is for a decline in equities is because of horizon long-term interest rates. Well, then you have the potential of losing money in both bonds and stocks. So I think again, that people should be looking at the fixed income is, is being preserving capital rather than, than really growing it.

And if you’re an advisor, you gotta be really careful because you don’t want to call your clients said, yeah, we lost money in both stocks. That’s

Ben: [00:26:19] right. The pizza purpose.

Peter: [00:26:22] Right. That’s where you gotta, you know, you gotta be more sensitive to the ration and your fixed income portfolio, and you have to really seed income for, for safety because if you’re going to buy long duration bonds right now you’re going to have to really be cognizant of the risks.

I mean, you look at TLT the 20 plus year treasury ETF. Well from, from, from high to low on, on this recent correction, you know, you lost more than, than 10 to 55th. And I have to get to get numbers up to 15% of the decline that that’s seven years of, of interesting com. On that decline. So you gotta be careful, but once you’re going win, T-bills, you’re not gonna make any money, but at least you’re not going to lose anything.

And so I, I think there’s a whole new conversation that, that needs to take place here.

Ben: [00:27:12] The big storm brewing that I always see with that is. You know, these pensions that are already underwater projecting seven, 8% per year. And if they’re 60, 70% inequities and they have this30%, you know, bellwether that they just sit in cash, that’s effectively earning zero.

Like they’re, they’re definitely not going to hit that number. And with the changing demographics of the world, I mean, it’s talk about a big nasty storm brewing and those sorts of storms can. Can rash all financial markets. I mean, massive bailouts is basically the only answer to something like that.

Right.

Peter: [00:27:51] Right. And that’s from, from a, from a portfolio standpoint, even though I am positioning myself in my portfolios and clients here for that potential inflationary environment, in a way you hope, you hope that I’m wrong because that would, that would then all pans, a lot of different things. So. I hope I’m wrong on this inflation call.

And then I would have to just readjust portfolios because there, there is a bumpy road ahead. If you do get a higher inflation higher long-term rates now it’s interesting because throughout 2020 people saw the economy collapsed with the shutdowns. Obviously it was self-induced. But then they sell the stock market, go up a lot.

Why stock market doing wealthy economies now? Now of course it was bifurcated. It was really two different stock markets. It was tech that was rallying and everything else was selling up. But when people look at the S and P 500 or the NASDAQ, why is he doing well in the face of tough economy? Well, the irony is, is that 2021.

We can have a an improving economy, but a more bifurcated stock market as well. Again, because of higher rates and because of higher inflation, how that can negatively affect the high growth, high PE stocks from a perspective of valuation rethink, but then help other areas in the market. Like. Well stocks which have gotten massacred or bank stocks or other value and beaten up names,

Ben: [00:29:12] all the, all the non-tech big six

Peter: [00:29:15] basically.

Right? Yeah. And maybe they have their day next year.

Ben: [00:29:18] Yeah. But you know, this is also a by-product of passive funds and dumb money floating into these and these. There’s there’s a lot of factors. I’m, I’m curious, and this is obviously very, very difficult, but what key factors or things are you monitoring and watching that if, if these start to move the other way, we’ll kind of make you change your mind about inflation and, and, you know, okay.

We need to take a deeper look and, and start thinking maybe this, this, this was incorrect. What are you watching here?

Peter: [00:29:50] So I, I do listen to, because I own a lot of individual stocks. I do listen to a lot of conference calls, quarterly conference calls, because I want to hear what companies are saying. I want to hear what they are saying about their supply chains.

I want to hear what they are saying about their, their shipping costs or where their food costs or whatever. I want to hear what they’re saying, that their labor costs you know, you listen to. Anything related to home building and labor costs have gone up. Obviously you look at the restaurant business while their labor costs aren’t going up.

So it’s, it’s a mixed bag with respect to that. I think the economic data through this winter, it’s, it’ll, it’ll be challenged, but I think it’s going to be given a free pass because it’s all pre vaccine. Well, now we have the, the, we have, we can actually look over the Hill and see a post vaccine. World because Pfizer was able to give it to us.

And hopefully that will be followed by a murderer and AstraZeneca and Johnson and Johnson. And that, that we can now see a post vaccine post COVID world where whatever difficult winter we are going to go through will be overlooked, which means that if I’m still seeing inflationary pressures through a challenge to economy, Well, that tells me that this is only going to intensify when the economy starts to really bounce back.

And that is what I’m going to be watching now, if These supply chains sort of get right-sized and, and everyone is all ready for this big pickup in demand. And that the supply side will be able to absorb a rush of demand. Well, maybe maybe that the inflation stuff that I’m looking for may not come to pass.

Now, one of the other key things on the inflation choices, what a labor costs going to do, you can be sure that a lot of these businesses are going to be rushing to hire people back. Because if they’re going to, there’s a big pickup in demand. Well, if you’re a restaurant, you’ve got to get people back and your, you know, the airline, you’ve got to get people back and there is the potential that you’re going to have to pay higher wages, to get people to come back particularly on the, on the, you know, those that, that have the needed, the skills that you need.

So you can see labor having, having leveraged next year and says, yeah, yeah, you need me. You want me to come back? Well, you’re going to have to pay me this. And yeah, I’ll come back, but it’s going to have to be at this week. So you get higher labor costs. Well, then that, just going to further add to this inflation theme, because then companies are going to try to pass that onto the consumer and pass it on to, to us.

So there are a lot of different things that are telling me that, you know, what can, what I can be wrong on is if the economy doesn’t. Rebound swiftly in 2021. If it takes a while to get people inoculated in may and maybe the vaccine is not as effective and that maybe there’s this real change of behavior.

And that consumer is after going through a very traumatic 2020 says, you know what? I need to save more money. I’m not sure. Going out for dinner two or three nights a week, I’m still gonna stick to maybe one or two times, and I’m just going to cook more. And I want to save for a rainy day because going into this recession, I was not saving for a rainy day.

Maybe companies that extended themselves with stock buy backs and, and, and were not focused on their balance sheet. Maybe they become more focused on their balance sheet and sort of reign it in. So you don’t get that recovery that that’s where maybe I can be wrong. And, and, and maybe we won’t get that in inflationary story next year.

So, but to answer your original question, those are the things that I’m looking at as well as we go into next.

Ben: [00:33:24] There’s so many factors. So I knew it was a virtually impossible question, but very well said. I do think that the wage inflation thing. Is just a blip on the radar of this declining wage is overall a macro trend.

I mean, this is the thing that people don’t understand with. Remote work is now if I need a marketing manager and accountant or anything, I mean, it’s much cheaper to hire somebody in in another country that is willing to do the job. Very similar for, you know, a fraction of the wages and it just, it just becomes that much easier.

And that compounded like combined with automation. It’s just, UBI will be here before you know it

Peter: [00:34:09] well, well, to your point, that you’re absolutely right in certain areas, they’ll they will be, there’s plenty of supply of labor. We have to keep in mind though that for certain things, for certain jobs, it takes a certain level of skill.

That is not always so easy to find. Also on the, you know, on the, on the lower wage front I mean, look, we’ve, we’ve seen a big pickup in, in a lot of different States with minimum wage, will that raises the cost of labor? So there, there are going to be. I mean in home building, you can’t do that remotely.

You need bodies, you need bodies to hammer that nail into in, into the, into the, into the, the, the lumber. And it’s not as easy to find that you need to drive a truck from point a to point B. Well, you need bodies and those bodies have not been so easy to find. So. Yeah, it it’s, it’s not gonna be wage inflation across the board because as you say, there’ll be parts where you can outsource and some things will get automated and you can, you can sort of tap the global labor force to do what you need to do here, but there are going to be other spots that, that it’s going to be tough, where labor is going to have some leverage a couple of years ago.

So when you look at that profit pie, the, the percentage allocated to labor was the lowest. Since world war two. And that corporate profits and profit margins were very elevated because they were bearing stingy to labor. But over the last couple of years, pre COVID labor started to get a bigger piece of that pie.

They started to get leverage as the unemployment rate came down and that when the unemployment rate is three and a half percent, it’s not so easy to go find bodies. It’s not so easy to go find people. If you want to expand your business, particularly finding those people that meet the, that have the skills that meet your requirements.

It’s just not easy again, just because they’re just not, there’s not as many bodies out there and yeah, you can go find somebody overseas to code for you for example. But there are a lot of businesses that, that, that need the warm bodies here. And so now you hope. That any cyclical increase in that those wages, which will be good for the employees, but as you bring more people off the sidelines and you lower that unemployment rate, you’ll be able to, to, to, to keep those wage increases from going up too much.

But you know, it’s a process it’s, it’s, it’s, it’s something that you could get a spur of inflation because I don’t think the inflation I’m arguing is, is a forever thing. It’s it could last six, 12, maybe even 24 months, but then the economies adjust. Supply demand. Equilibrium gets back in balance and whatever price spikes you see, sort of get back in line again.

Ben: [00:36:52] Yeah, no, I think that makes a lot of sense. I just super, super longterm. I mean, trucks are going to be autonomous. Like the home builders will be a 3d mold or something, but

Peter: [00:37:06] randomness though, even with cars too, there’s still going to be a person behind the wheel. And, and, and, you know, going from New York to California on our highway system and roads to not have a person in that truck, I don’t see that situation for a while.

And so to me, autonomous. Is is I, I think is not me meaning that that truck is going to drive itself. I think that self-driving really for now and for the next 10 years is going to be a core that, yeah, it can help parallel park for you and you don’t have to touch the wheel or you can for a minute look down and, and not pay attention.

But I still think you’re going to need warm bodies for even that situation and that the. I mean, imagine in New York city, you’re not going to be able to have core driverless cars because F because every time a J Walker crosses the street, That car is going to have to stop personally,

Ben: [00:38:08] I would feel much safer if every car was autonomous talking to each other and figuring this out,

Peter: [00:38:14] we will eventually get there, but I don’t see that happening in the next 10 years, maybe in 20 years, just because it’s, it’s so logistically difficult to, to, to coordinate, I think right now the great technology of, of, of what we’re seeing is just making that car and truck safer.

Hmm, whether it’s the light that goes off on your side, do your mirror, when somebody is getting close to you or, or just making more of a break

Ben: [00:38:38] please? Little things. Yeah.

Peter: [00:38:40] I mean, it’s where the technology is. I think the driverless story is, is way down the road. Yeah.

Ben: [00:38:48] Yeah. Nice. Okay. Next  a quote from Stanley Druckenmiller.

So he said. If the gold bet works, the Bitcoin bet will probably work better because it’s thinner and more liquid and is a lot more beta to it. I do agree that Bitcoin is a bit of a more higher beta gold play. I wanted to start perhaps with Bitcoin, but also touch on silver and minors as perhaps another higher beta way to play this inflation gold play.

Peter: [00:39:22] So with, with, with respect to Bitcoin sort of a hard money advocate. I completely understand the bull case on Bitcoin without question, the limited nature of it, 21 million coins the, the creation of it, because it didn’t want to have to rely on FIA currencies and, and have something that just can be printed ad infinitum.

So I, I get the whole bull case for Bitcoin. I, I prefer gold and silver just because of the multi thousand year history of them. And I feel like I can better price it relative to central bank reserves and, and, and and, and so on. So I don’t know what Bitcoin would eventually be worth. I know that there is growing institutional demand and I am sure Bitcoin goes much higher.

But whether it goes to 20,000, again, 200,000, 2 million, I have no idea. And for all I know it goes to 20 bucks. If somebody creates another coin or if something gets hacked or, or where, you know, that’s where, or if the internet goes down and then people can’t access their Bitcoins or whatever, I don’t know.

I do think that there’s. Probably a place for it. And some people’s portfolios that have the risk appetite, but also acknowledge the risks and because of what I foresee for gold and silver, I am sure Bitcoin will we’ll be going along right with them. I just, I see the digital currency thing While Bitcoin itself is limited in its nature for all.

I know somebody is inventing another coin of some sort that will be limited in its nature that catches fire and becomes the next thing. Bitcoin I think is, is, has become well established. I’m sure it has that, that, that Sort of endurance in, in this, in this world right now in this crypto world, for sure, but what it’s going to be worth and in five to 10 years but listen, I don’t know where gold and silver will be worth in five to 10 years.

We knew where all these things would be in

Ben: [00:41:23] 10 years. We’d be, we’d be okay.

Peter: [00:41:25] I, I just think that I, that, that just, as I said earlier, that there’s a time and place to own gold and silver, and there’ll be a time and place not to own them. That’ll probably be the, the thing with Bitcoin as well. Okay. I just tend to have the price.

Ben: [00:41:40] No. Yeah. That’s fair. And how do you think of portfolio construction with gold and silver as the same basket, as you know, as an accelerant in these times that you should be holding gold, you should always have a little bit of gold. And during these other times, perhaps a little bit more and add silver, how do you think about this with, in regards to portfolios?

Peter: [00:42:00] I think in terms of actual physical goal, I think someone, people and silver should, people should always have some. Where are they stored in a safety deposit, safety deposit box or in a safe and home? I think from a trading aspect where having it in your portfolio right now is the time to own it. And whether that allocation is 5%, 10%, even 15% or more that my allocation.

For clients really starts at a 12, but those that have been in it and kind of appreciated that that allocation is, is North of 15 to 17%. I’m comfortable with that, but it depends on, on how one is an individual fields. I tell people that I look forward to the day when I sell my gold and silver.

Because I know that they’ll maybe at the time, there’s probably maybe some sanity in the world, monetary world. But I expect to selling it when I make, do make that decision, it will be at higher prices and hopefully I can redeploy that capital into other attractive value oriented type investments.

Ben: [00:43:05] God hopes that one day there’s a value that you play. That makes sense, right?

Peter: [00:43:10] Yeah. I mean right now for me, gold and silver, is that value play well? So our other commodities, so our, our oil and gas stocks to me are a tremendous value place. And so I think that the, the, they, they exist out there outside of, of technology, because like I said, we have to stock markets technology and everything else.

Ben: [00:43:29] Right. Right. And most, most commodities. I mean, do you feel the same way about copper and a number of the other commodities?

Peter: [00:43:37] Yeah. I mean, I think copper in particular, we’ve seen this year I mean, w we’re we’re in a global recession and, and coppers near multi-year highs, it tells you a lot about the supply side, where there’s been a dearth of investments over the last couple of years, and even with the decline in demand that has not been enough to offset the, the, the, the droppings in supply.

That’s been able to maintain prices. Now you get an economic rebound next year. Copper prices could go much higher. And copper is actually very interesting from a usage standpoint, is that through solar, through electric vehicle batteries, the electric vehicle battery we’ll use four to five times more copper than the internal combustion engine.

So just by going more electric vehicle, there’s going to be just a massive demand for copper. And actually silver also goes into those batteries as well. So copper is sort of a new age. Commodity and raw material that is playing the whole renewable theme that I find very interesting and, and silver as well.

So that is, is gonna be really interesting looking at over the next couple of years. And that copper is not just going to be a raw material that goes into China, building apartments that no one’s going to live in that there is going to be a lot of demand for it from the, the electric grid and renewable energy side.

Ben: [00:44:57] Interesting. And then for the average investor to take, take part in this copper bull run a potential bull run. I mean, Freeport Mac Moran, like what’s the easiest, most liquid way for most investors to play it.

Peter: [00:45:13] I happen to own for clients Southern copper. Freeport Yaz is a great play, but I happen to like Southern copper.

But yeah, that, that would be two ways of, of, of, of playing that the copper team. No question.

Ben: [00:45:24] Okay. Yeah, that makes sense. And we didn’t touch on gold miners. If you’re bullish on gold, this is kind of a higher beta play. Their operating margins get, get fatter by the, the higher gold price. How do you see those fitting into a portfolio?

Peter: [00:45:38] So the, the, for the well-run gold miners. They’re all in sustainable costs are about 900 to a thousand dollars an ounce. And they’re selling gold at 1900. I mean, these are big fat profit margins and they are gushing cash that was reflected in the earnings we saw over the last couple of weeks from Barrick and Newmont and Nick, Nico to name some of the larger ones raising their dividends and dramatically paying down debt.

And I think that they’ll be able to sustain those level of costs. So each incremental rise in the price of gold goes straight to the bottom out of your silver. These companies are seeing probably outside of some big cap software stocks, some of the fastest. For earnings growth rates out there. And I think that they’re still well undervalued.

You look at GDX the, the ETF last time in 2011, when gold was 1900 silvers. Spiking to 50 GDX was $60. Now it’s less than 40. So I still think that there’s tremendous opportunity in the minors because this is their time. This is their time. They got religion in terms of their, their businesses and cashflow and debt management.

I mean, my is a crappy business and. But now did they, they they’ve done a much better job, at least many of the companies of managing their business after being more reckless in the, in in the last bull market. And now they’re going to be reaping the benefits of higher and product prices.

Ben: [00:47:14] Nice.

And anything else within the materials, commodities world that gets you really interested?

Peter: [00:47:21] So I think ag is very interesting. I mentioned earlier that you have sharp rises in food prices with soybeans at multi-year highs. Corn backup a $4. And I think the fertilizer stocks, which have been just maddening to own maddening are finally going to have their day as a play on higher soybean, corn and wheat prices.

Uranium to me is interesting. Uranium talked about maddening it quite quite a value truck. That’s been for the last. Five years, but I think that you’re seeing a major supplant supply demand and balance it’s building in uranium. And you want to talk about clean energy. Nuclear is the cleanest baseload power.

There is a, so you want to talk about having wind solar? Well, when obviously it doesn’t the wind doesn’t blow and the sun doesn’t shine. You’re going to need baseload power and nuclear is the cleanest thing out there. So you’re seeing very large increases in nuclear reactor production in China, in India, other parts of Asia also in the middle East and Russia that there’s just not enough uranium over the next five to 10 years.

That’s being produced for that demand. Then while the us has obviously pleaded cap. It’s it’s nuclear rollout and actually closing some and Germany is obviously, I think mistakenly walked away from, from nuclear because of Fukushima. But nuclear is clean and, and, and it’s more and more, and it’s getting more and more safer.

A lot of companies have learned lessons from Fukushima and Chernobyl and other instances. At the demand for uranium relative to supply is going to surprise to the upside. There’s another commodity for people to take a look at. And as I mentioned oil and gas you have this what I think is globally, the supply side started to get caught at least on the offshore side.

After the collapse in oil prices in 2014, that was offset by sharp, increasing shale. But I don’t think for a while, if at all, we’ll get back to 2019 shell production levels. So now next year, 2021, you’re looking at a potential sharp rise in the demand for oil and the crimp and supply this year, I think is going to catch up and you’re going to see 60, $70 oil at some point next year.

Ben: [00:49:26] an easy way. So do uranium things is a whole nother discussion that that has just been maddening for me as well. But for the average investor to play oil and gas, just XLE and uranium, URM like

Peter: [00:49:40] yeah, totally individual names. You’d look at just the big integrateds is just companies that pay good dividends.

Th th th th the service names like slut, like Schlumberger. Uranium Mechanico the large Canadian producer as, as ways of playing as well. Awesome.

Ben: [00:49:56] Awesome. Well, Peter, this has been really, really awesome. I really appreciate you spending all of the time before before we go, where can people find out more about you and what you do?

Where do you, where do you want to send my listeners?

Peter: [00:50:10] So those interested on the wealth management side can go to bleakly.com and reach out to myself and, and, and from from my writings, you can go to Booker port.com. It’s B O C K report.com and get a trial of the things that I write on a daily basis then of interest.

It can be a subscriber as

Ben: [00:50:29] well. Awesome Peter. Well, really appreciate it. And thanks so much.

Peter: [00:50:33] Thank you, Ben. I appreciate you having me on.

Ben: [00:50:35] There you have it. Thank you for listening. Really appreciate your support. Show notes, transcript links, and more can be found on our [email protected]

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Happy investing.


Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.