Episode 33: Investing with Inflation on the rise with Ronnie Stöferle

Ben Lakoff, CFA
February 22, 2021
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Is your portfolio prepared for Inflation? Ronnie Stöferle has written the In Gold We Trust report for 14 years now, and has some pretty unique views on why we should worry more about inflation and its impacts on our portfolios.

In this conversation we discuss many things inflation, including: why Ronnie believes it’s coming, what to watch out for, and how to adjust your asset allocation appropriately..

The world’s investment landscape is changing, you won’t want to miss this episode with Ronnie Stöferle.

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Show Notes

0:00:00   Welcome and context

0:02:07   What is your background?

0:06:20   What are your thoughts on a more macro scale?

0:12:05   Are we speeding towards MMT?

0:17:40   How do you think through the current situation?

0:23:31   What are your thoughts on inflation?

0:28:54   Why do you think inflation hasn’t kicked in yet?

0:36:30   What is the Incrementum Inflation Signal?

0:41:33   Inflation prognosis

0:48:31   What are inflationary asset managers doing differently?

0:51:59   What is pricing power?

0:55:41   Why include silver in the In Gold We Trust report?

0:57:56   What is the best way to buy silver?

0:59:55   How do you position Bitcoin?

1:04:00   What could change your mind about precious metals?

1:08:59   Where can people find out more about you?

Show Links

In Gold We Trust Report

Russel Napier

Incrementum Inflation Signal

Ron 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 Lakeoff.

Welcome to the alts asset allocation podcast. Today’s interview is with Ronnie Stoferle. He has written the. In gold. We trust report for 14 years now, and it has some pretty unique views on why we should worry more about inflation and its impacts on our portfolios.

Overall, is your portfolio prepared for inflation? Did you know the average investment advisor is 54 years old. This means during their professional careers, they’ve never had to manage portfolios in an inflationary environment. We’ve talked at length about the death of the 60, 40 portfolio, but what does this actually mean?

One interesting takeaway I had from the conversation was the advice to look at or follow investment strategies of an emerging market. Investment advisor. These guys in Turkey, Argentina, Brazil, they deal with inflation in their investment decisions all the time. I found that very interesting in this conversation, we discussed many things inflation, including why Ronnie believes it’s coming, what to watch out for how to adjust your asset allocation appropriately.

And many more. We talk about what sort of investments do well in inflationary environments. Things like precious metal, but what about equities with pricing power? You won’t want to miss those tidbits before you listen, please. Don’t forget to like subscribe to the podcast or even better leave a review.

If you’re watching this on YouTube, please subscribe to the channel and, or like the video, this really helps other people find the channel. The world’s investment landscape is changing and with MMT and inflation coming, or maybe not, you won’t want to miss this episode with Mr. Ronnie Stoferle. Enjoy

Ronnie excited to have you on today. Welcome.

Ron: [00:02:04] Thanks a lot for having me. It’s a pleasure.

Ben: [00:02:07] Well, we were catching up a bit beforehand and it’s late November and I had told you that I actually have Corona virus right now. We turned off the video because both of us are wearing masks. We’re unsure, transmitted through zoom. No, but really thanks.

Thanks for taking the time. We’re excited to have you so. A lot of my listeners probably already know who you are. But before we go into a number of these things, do you want to just start off with a little bit of your background, who you are, where you are?

Ron: [00:02:36] Sure. Sure. Well, first of all, Ben get well soon.

I hope that you’ll recover very soon. Thanks for, for, for, for inviting me. You’re sitting in, in Los Angeles, I’m sitting in Vienna where yeah, we are experiencing our second lockdown over here in, in Austria. Which is, you know people get used to stuff like that, but you know, for the whole family, but also, you know, when it comes to social context with, with friends and family, it’s, it’s, it’s, it’s quite demanding, I would say.

And I really hope that this is going to be over soon. Well, who am I? My, my name is Ronnie stir for them. I am. I just turned 40. I am managing partner at incremental, which is based in Liston Stein and we’re an asset manager. Focusing on three different things. First of all, fund management, where we manage a couple of funds primarily in the real estate real, real asset space.

So we manage money in the commodity space, mining, equities, gold, silver uranium, you name it. So that’s that’s, that’s what we’re. Good ads. The second thing is private wealth management for her net worth individuals. And the third area of our expertise is research and I’m publishing the in gold with trust report.

Now for 14 years, I started. Publishing or writing about gold back in the days when I still was a, was a young and kind of naive analyst sitting in a big Austrian bank. And I went to my boss and said, Hey, I’ve got this mining stock that is doing so well. I’ve got it on my private account. I’d love to like, learn more about gold it’s it seems to be an interesting topic.

And he said, Go ahead. And yeah, that’s basically what, when, when, when the whole started, and I actually had no clue that that’s, you know how do you say digging into the rabbit’s hole? W w would start with, you know, analyzing gold and, and, and getting a feeling for our monetary system, understanding how our monetary system works.

Understanding the Austrian school of economics that is not taught at all over here in Australia, unfortunately. Yeah. Over the years. Yes. It became the most widely followed publication on gold. So we are publishing the, in gold with trust report now in, in German, in English, but also in Mandarin. And yeah, that’s, that’s, that’s who I am.

I’m proud. Father of three little daughters. Hopefully they’re sleep already. So if you hear some, some yelling and crying and screaming, it’s, it’s probably my, my girls that don’t want to go to bed.

Ben: [00:05:32] Well, awesome man. so much has happened since that initial minor that you were following. And I’ll definitely link your gold report in the show notes because it’s fantastic and it’s, it’s gigantic.

I mean, the amount of the amount of information that you have in there, and this is completely for free on your website. It’s it’s outstanding. there’s no wonder that so many people follow it. That’s for sure. Well given, given what you do. I mean, so a lot of, a lot of this, and we’ll, we’ll jump into more you know commodities and real assets and these things, but just zooming out a bit kind of macro view of the markets when you’re talking to your private wealth management clients, like, can you kind of zoom out, give us an overall view right now?

Ron: [00:06:16] Well, I think that 2020 is, is really. A year when, when basically all to booze, well, we’re broken. It is, it is just, you know, for me, I have to say, it’s, it’s been a super fascinating year. I think, you know crisis bring out the best and worst in people. And, and, and I thought, okay, this is just a. Big challenge, you know, for, for me as a as a businessman.

But also of course, as a family father and, and, and an asset manager, and I think navigating through these markets with this enormous amount of volatility, those, those huge stimulus measures. Both from the fiscal side, but also from the monetary side. It’s, it’s really unprecedented. And, and, and, and, and, sorry, I think it’s, it’s really been a year when, when, when some stuff sort of a paradigm shift started now, what do I mean by, by this paradigm shift?

I think primarily we’re seeing. Move from from, from monetary QE in the direction of fiscal QE. I think the fact that. This time around the fiscal stimulus is, is so much more important than monetary stimulus. That that’s really the big difference compared to 2008, 2009. Just, just to give you a number.

So far this year, we have seen fiscal and monetary stimulus at 30 31 trillion. I just got the numbers from the IIF which is a big multi-national Institute. And they came out with, with the numbers for global debt and they expect the number of global debt to be at 277 trillion at the end of 2020.

And at 360 trillion by 2030. Now, if we convert 277 trillion into seconds, it is the equivalent of 8.8 million years. So I think those numbers, nobody can really comprehend them anymore. And I think now as these numbers are so big, now, it seems that, you know, politicians, they just don’t care about the numbers anymore because tax payers.

They don’t that they don’t get it anymore. So, so I think What is the saying in German, we say Easter and my , I think in, in English, it’s something like

Ben: [00:08:59] I wrote it down from another one. Once your worldly reputation is in tatters, the opinion of others hardly matters. So that’s my great German translation.

Don’t you worry.

Ron: [00:09:11] And, and, and, you know, it’s, it, it seems that W we saw lots of, lots of things that, that people probably haven’t realized what, what, what their consequences will be such as, you know, average inflation targeting and this move from, from monetary QE to fiscal QE. The fact that. We are seeing an enormous amount of credit guarantees by the government.

So basically they try to, to circumvent the commercial banks now, which is from my point of view, really, really a big development. Now to answer your question, I think seeing from, from clients and colleagues in the industry, I think that the big change this year is really. That inflation is becoming more and more of a concern.

And nobody really cared about inflation over the last couple of years, while I think that, you know, we are seeing a tremendous amount of inflation, but it’s just not in those in those baskets that central bank has like to calculate. So we saw enormous amount of. Of asset price inflation over the last couple of years.

And now I think we’re really at a tipping point in the direction of, of price inflation, perhaps we’re, we’re in some sort of a crack boom phase at the beginning of the Greg Cracker boom. Now so I think this is, this is really crucial and this tells me that the traditional 60, 40 portfolio You won’t have too much success with with a 60, 40 portfolio over the next couple of years because bonds just won’t do the job anymore.

As a, as a portfolio hedge.

Ben: [00:10:59] Yeah, and that’s, that’s a great intro and there’s a lot there. But like you said, this is a very unprecedented year and COVID was kind of the, the catalyst to get a lot of these things or accelerate a lot of these things that were already moving and accelerate them a lot more quickly.

I love that saying and I have no idea how to say it in German, but once your worldly reputation is in tatters, the opinion of others hardly matters. And the idea there are, from what I’ve gathered from you and other interviews is that. All, all bets are off at this point. It’s you know, these numbers 200 and what’d you say 208 77, $77 trillion of global data.

8.8 million years. If that was in seconds, I mean, it’s too big to even fathom. Throw all these ideas and these sacred cows out and you know, what, what else can we try? I think this is a good segue perhaps. The idea now. I mean, I’ve, I’ve been diving in a lot more deeply into MMT and Stephanie Kelton and it’s that this rephrasing this global debt that it’s, it’s not that you don’t run it like a household.

what are your thoughts on this? This just seemed crazy to me at first, but it seems like we’re speeding toward MMT, whether we like it or not.

Ron: [00:12:23] Yes, that’s, that’s, that’s definitely something that, that I see as well. I think that, well, I w we, we have a charge in our upcoming special report on inflation and.

And, and, and it’s where we are showing the, the Google search requests when it comes to an inequality, but also when it comes to MMT and you can see that interest in both topics is off the charts. It’s increasing, increasing massively. And I always said if, if Joe Biden should win and, and I forecasted last year in November, that that Biden would make it I said that that MMT will get more and more realistic because Stephanie Kelton, I mean, she, she, she, she is a strong supporter of, of, of Joe Biden.

I don’t know if she will have any official role, but it is pretty obvious that that the, the Biden team is, is, is going into the, into that direction. Well, I think, you know, that the first thing that I. That I, that came to my mind when I heard about the theories of, of M and T was, was a quote by a friend of mine.

And he said the amount of energy necessary to refute bullshit is an order of magnitude bigger than to produce it. Now pardon my French. But, but I think, you know this is something, you know, the, the magical money tree that Dave Rosenberg described it. It’s just, it’s just naive and it’s it lacks any comprehensive comprehension of our monetary past.

But. But as I saw on Bloomberg, a fantastic quote from, from the movie inception where, where actually dumb cop who’s played by Leonardo DiCaprio says, he says an idea is like a virus it’s highly contagious. So I think that this MMT policy is it’s really something that. That that, that that’s whose time has, has basically come.

And if there is a very, very simple and clear answer to a complex problem, I always get a bit yeah, I get a bit worried now. I think. Coming back to your question again. I think it’s, it’s, it’s pretty certain that we will get some sort of MMT, universal, basic income, helicopter money, all those policies.

They have been very, very, I would say at the fringe and only for very, very leftist economists, but now they’re really. Appeared in our arrived in the, in, in, in the center of the discussion. And I think this is also one crucial change that we saw in 2020. W when we wrote about MMT already, the first time in 2016 in our angle with trust report, this was really something, you know, something new and something that nobody would, would have forecasted.

But now I think it’s not a question of if. But rather a question of when. So my concern is that that capitalism seems to have really died over the last couple of months and that this this enormous amount of, of, of interventionism that we’re seeing will just continue and, and therefore I’m very, very critical when it comes to to MMT.

I think it is a very flawed concept. I think it is something that will dramatically change asset location. And I think it is something that sooner or later will, will be introduced.

Ben: [00:16:21] Yeah.  it’s definitely not a matter of if these days it’s wind. it does change an investor’s approach to asset allocation, but.

But how, how does, how do people think through this? If money is, is completely re-imagined how do you think through what are you watching? What changes do you want to make? Assuming that MMT plays out the way that we think it will.

Ron: [00:16:45] Well, first of all, I think that D the announcement that Shannon at Yellen is the candidate of Joe Biden for the treasury.

I think that’s, that’s not a piece of the puzzle that confirms my view you know, yell. She was she was the head of the FMC. She, she trained on the economist, James Tobin at Yale. And she always followed James Tobin throughout her, her whole career. And basic Tobin was w w was a definite support, very, very easy money of generous, generous social spending financed by tax increases.

Now. I think Janet DL really believes in, in the Keynesian victim that the federal spending spurs economic growth and the more federal spending the better. And, and I think that this, this this, the fact that she was, she will become a treasury secretary confirms. That we will see a much, much closer relationship between fiscal policy and monetary policy.

It is not a flirt anymore. It is. It looks rather like a marriage of fiscal policy and monetary policy. Now. I think that if, if we should really see that the fed is returning to this role, that it’s played before, the, the, the, the change the famous accord in 1951, where they basically said the board of governance agreed with the treasury to separate its financing of government debt from monetary policy.

If we should really see that. I think this is this, this is a paradigm shift that, that, that, that describes my that, that confirms my view. So it means that. I think the mom could, will slowly move into the direction of of inflation and we’re already seeing inflation expectations rising significantly.

It’s no coincidence that tips arising. It’s no coincidence that gold and silver still have a tremendous 2020 we’re seeing. Base metals, agricultural commodities, and now also energy doing extremely well. And I think, you know, if, if, if, if those measures continue to be taken basically limitless fiscal stimulus and, and basically limitless monetary stimulus, I think at some point, this, this won’t work anymore because we’re seeing this declining, marginal utility.

Of measures. And I think this will be the point when those very, very direct measures like MMT, like helicopter money, whatever will be introduced. I’ve got no idea about the technicalities. But for example stuff like CBDC central bank, digital currencies, this was also a topic that was being basically for, yeah.

Kind of a topic four, four, four geeks in, in, in, in our sphere. But now this is also coming to the center and. You know, why shouldn’t you have at some point of federal reserve wallet or an ECB wallet. And if you want to have some government stimulus, you’ll have to have a wallet of those central banks.

I mean, that’s, that’s definitely something that I can think of now. If you have if you, if we’re going in those directions, I think it will be much, much easier to also implement negative negative interest rates. Now. I know that, you know, CBDC but also MMT helicopter money. Those are all things that, that are, that are not exactly the same.

But what I want to tell you and your listeners is that in 2020, we have moved onto this path. So we, we, we, there was a fork in the road road, and I think now we’re really going into this direction. Perhaps it will be a combination of those measures, perhaps it will just be one of them. But I think this is really something that all investors should prepare for.

And as I’ve said, I think that inflation expectations are already signals signaling us that inflation might become a topic going forward.

Ben: [00:21:24] Absolutely. Yeah, we have gone down this fork and there, there is no turning back at this point. So before I want to get into inflation in more detail, just a question from what I understand about MMT, it seems like.

The enemy of MMT, that thing that they fear the most with MMT is inflation. you have big, big forces that are pushing him empty and fiscal stimulus. And they’re watching inflation and trying not to have inflation tick up. how can you be so bold? maybe we talk more about your bold thesis for inflation in general?

Massive monetary stimulus, but like, if, if we’re moving towards MMT and they are wanting to monitor inflation and keep it under control, it seems, it seems like you’re fighting a big force to be bullish on inflation. So I’d be curious what your thoughts are on that.

Ron: [00:22:26] Well, that’s, that’s a very good, good point, Ben.

I think, you know, the fact that one of my, my absolute favorite market strategists Russell Napier is really, you should read everything that he puts out and watch his video. He’s really fantastic Russell. He was a deflationists for, for many, many years, and now he became really aggressive regarding inflation now.

And this tells me quite a lot. And, and, and, and, and, and also folks like Dave Rosenberg, I mean, he, he seeing inflation, not around the corner, but on the horizon. He wrote that, you know, talking about inflation, Now is like talking about the dessert when, when, when you just got the appetizer. So, so it might be a bit premature, but, but I think the foundation is clearly being late now.

W when it comes to the, to the inflation targets of, of MMT. Well, I think, you know, politicians and central bankers always find an excuse for changing the rules. So, so I think it is, it is pretty obvious that that basically everybody wants to. Inflation to surprise on the upside. Now this year in summer, I already mentioned it briefly.

We saw this, this big strategic move by the federal reserve from. Saying basically 2% is the ceiling for, for inflation. Once we go above 2%, we’ll have to consider raising rates. Now we’re doing Everage inflation targeting. So this means if inflation rates were under shooting over the last couple of years, we can allow it to overshoot.

For some time without having to think about raising nominal rates. And I think this is this is pretty, pretty important. Strategy changed at, we saw it was kind of on the report that because everybody was still on vacation when or try to clear his head. When, when, when, when Powell announced that at the virtual Checks the whole summit, but I think this is really something important and yeah.

You know, let, let let’s face it. I, I, I, you mentioned the numbers, you know, 277 trillion global debt at the end of 2020 and 360. Trillion at the end of 200 2030. I’m not sure if we will be able to grow out those that statistics are. I kind of doubted I have to, I have to say because what would we need to see to, to, to make really a positive.

Case for, for, for growing out of this enormous debt pile. I think

it is thing that, that, that many, many economists still see, but I, I just think that, you know, having a look at cycles of, of the last couple of years, it just tells me, you know, growing out. Of the debt problem is, is something that is just, just not likely. So at some point we will have to come to a solution from my point of view.

Inflation is something that. That was always the quote unquote solution. And I think we will choose this part, this solution again, this time now you know, we’ve, we’ve been pushing the inflation to go up for quite a while already. It hasn’t happened yet, but it doesn’t mean that it won’t happen in the future.

And as I’ve said, I think markets are already telling us that inflation is becoming a really big topic

Ben: [00:26:32] 100 percent. Yeah.  inflation seems to be the way out these, these debt levels are just astounding. I can’t even wrap my head around them. Most people can’t, they’ve just become this, this, this arbitrary crazy number for a lot of people.

a lot of people have been calling for inflation for a while now, and I. Maybe it’s, it’s transpired in different areas like asset prices and healthcare and you know education, but why, why do you suppose it hasn’t ticked up yet?

Ron: [00:27:02] I think the, the main reason is. Is first of all the, the correct definition of inflation.

Yeah. I think this is really what well, where we differentiate ourselves from, from, from many other colleagues in the industry. We wrote a book called Austrian school for investors, Austrian investing between the forces of inflation and deflation, where we basically describe. Our view on the topic of, of inflation, I think, you know starting every, every discussion It makes sense to, to, to, to, to acquaint yourself with the proper definition.

And it’s weird. Yeah. I would say tier ends of the Austrian school of economics, I would say the, the, the, the, the easiest or the, the, the classic difference is that the Austrian school basically it’s a bit simplified, sees inflation as an increase in an economist.  Money supply. Now, there are many flaws of the mainstream different definition with, with a CPI.

I mean, it was changed over 20 times since 1980. We’re seeing those hedonic adjustments. We’re seeing many, many things that, that we could discuss at length. But I think, you know, for foreign, from an investor standpoint, a price level aggregate doesn’t really make too much sense because it just tells you how price has developed over the last couple of months.

And as an investor, you want to know what’s going to happen in the future. You want, you don’t want to you want to look through the windshield. So. We have created this incremental inflation signal that is telling us what our market’s actually actually telling us when it comes to inflation. And the incremental inflation signal is screaming inflation at the moment.

Now, what is the big difference compared to 2008, 2009? I think the biggest difference of course, is that. This time around, we’re already also seeing M to grave growth, so broader monetary aggregates going through the roof. We’re seeing it growing at more than 20% in the Eurozone, but also for the United States in 2008, 2009 actually brought a monetary aggregates were collapsing.

So. I don’t want to defend central banks, but I think that the federal reserve and other central banks, they basically just want to compensate for. The lack of credit demand that we saw in 2008, 2009, but this time around it is much more aggressive and also faster monetary stimulus. But now, as I’ve said, it’s also very, very aggressive fiscal stimulus.

And, and I think that that. Politicians have kind of yeah, experienced that you know, monetary policy doesn’t really, isn’t really able to create inflation because for the broader monetary aggregates that are mainly influenced by, by credit growth. They are just stagnating for, for, for, for many different reasons.

Now they want to go much more direct. And, and this is the reason why, why, first of all, we’re seeing those measures that we saw that we discussed before, like MMT, like helicopter money, but also why we’re seeing this enormous amount of fiscal. Stimulus. And just to give you some, some, some, some numbers again, because as I said, it’s just, it’s just staggering.

What would you guess, which, which countries so far has the biggest stimulus relative to GDP? Well,

Ben: [00:30:58] I know the U S was massive, but I’m not sure who is it?

Ron: [00:31:02] It is Japan actually.  Of course Japan is going with 21% of the GDP and the X’s Canada, 16%. Then it’s Australia. 14% and then comes to United States at 13%.

And China for example, is interesting 7%. So, so I think, you know, those, those numbers are. Are big. And I think it’s, it will be some sort of a race who can inject more fiscal stimulus at, at, at one point just to get GDP growth going. And I said at a, at a conference recently, this is called the keynote is called all roads lead to gold when I said, and that was.

Beginning of this beginning of November, I had a conversation with with a CEO of a big mining company and he asked me, well, Ronnie, you know, if we should get the vaccine, that that would be super bearish for gold. Right. And I said, no, it would be quite the opposite. Because if we get the vaccine and we, we, we got now three or four of them, and I think there will be more positive news coming out over the next couple of weeks.

Of course, I think once we get the vaccine, the worst will be probably behind us. I think we will all see light at the end of the tunnel. And this means that the velocity of money. We’ll start rising again. And now that the loss of teeth that has collapsed over the last couple of months, we’ll meet a huge amount of, of, of, of liquidity that was created.

So. Basically at this point, when confidence comes back in markets and, you know, just to have a look at the asset rotation that we saw over the last, last couple of trading days, I think this confidence in the economy is really coming back. And this means velocities should, should start rising. Now, this is the recipe for rising inflation from my point of view.

So actually central bank and politicians. Would have to become hawkish now. And say, okay, well we’ve done our job now. We’ll we’ll leave you alone. We know that markets that I’m basically trained, like Pavlovian dogs. Won’t appreciate those news and they would sell off. So, so I think that essential banks will be.

Way too hawkish way behind the curve as always. And I think this combination of growing confidence and the huge amount of liquidity now meeting rising rising velocity. I think this is really the recipe for inflation.

Ben: [00:33:56] Yeah, that, makes a lot of sense. I want to get into that. You mentioned the incremental inflation signal, and this is something that you’re watching to, to kind of monitor when inflation is coming.

Can you, can you provide a little bit more light of what that is, what’s involved in those, those calculations.

Ron: [00:34:16] Yeah, well, I mean, of course it’s, it’s, it’s proprietary and we worked on it for, for, for many, many months. And actually, you know, it is. Telling us when to play offense and when to play defense.

So over the last couple of years, actually, since we started increment two in 2013 actually we were playing defense for, for quite a while which is sometimes frustrating, but How does the saying go in, in, in, in, in, in football, I think it’s offense wins games, but defense wins championships. So especially when you’re investing in, in highly, highly volatile asset classes, like, like mining equities and, and, and, and, and gold and silver stocks, I think, you know, you have to control your defense.

And that’s, that’s basically that, that was the. The reason why we did start researching such a inflation signal now. It is basically telling us if inflation rates and, and rather than momentum is rising falling, or if it’s neutral. And, you know, I can tell you that the exact calculation of course, but I can tell you some ingredients E w what we have included is first of all, the price of gold that is, you know, discounting so much information.

So I think a trend change in gold tells you tells you quite a lot, then we’re using some ratios because nowadays with so much intervention happening in, in asset markets, I think that absolute prices tell you. Much less nowadays then ratios. So we use, for example, the gold to silver ratio, I’m telling you falling gold.

Silver ratio is first of all, a very good confirmation for the, for the trend in gold itself. Because normally within the cause of a strong bull market, silver should outperform gold. But then silver is also more of a of a inflate metal. So if we see the gold silver ratio falling, it means that it’s more of the inflation traits that is being seen by market participants.

Then we use commodity prices. We use some ratio charts between mining stocks and the broad. Equity space. So like the, the, the S and P 500, and then we’re working technically with channel breakouts and yeah, it’s served us very, very well. It has warned of us, of, you know, the big, big shifts in, in F inflation expectations.

And therefore, we, we, of course we stick to this model as it just works very well. And why did we come up with, with those ratios and those numbers and those indicators? Basically, we, we, we dig through. The literature, we crunched the numbers and, and we said, okay, we have to, to see what really works once we see this change from this inflation or deflation to inflation.

And once we see this big trend change, we just want to ride this inflation trends. And as I’ve said, Gold silver already started telling us that inflation might be around the corner and now it it’s been the commodity space, but also especially the energy space that is screaming inflation and.

If you go to a, to an investors conference, I think, you know, being bullish commodities is probably still the most contrarian call. And from my point of view, we might be at the beginning of a commodity Supercycle,

Ben: [00:38:14] For the longest time. I mean being bullish on commodities, that was probably not, not the sexy thing.

Yeah, exactly. That’s for sure. Okay. The thought here is that velocity of money increases. Once we have confirmation that the vaccine is out and that this is behind us and that all this pent up demand kind of unleashes itself, is that the kind of idea. And then, and, and then because of that we’ll, we’ll just have rampant inflation in the.

Early next year kind of thing.

Ron: [00:38:48] Yeah. I mean, I would be, I would be yeah. Full with, with rampant inflation. Yeah. I mean, I think even if we go to three or 4%, I think this will basically catch most market market participants on the wrong foot. It would mean a really, really big shift. So. I think it’s it’s, it’s, it’s, it’s the things that we, that, that we discussed.

So MMT gaining in popularity. It is this accelerated in debtedness due to fiscal populism It is the fact that we are seeing a very, very aggressive expansion of the broad monetary aggregates. Like we’ve basically never seen them before. eBridge inflation targeting and this move from monetary QA to fiscal QE.

I think those are very, very strong forces very powerful forces that are now coming into play. And, and, and, and therefore I think, you know the Austrian school is always a bit hesitant when it comes to to, to forecast. They’re very, very humble, but from my point of view, you know, making the case for inflation, as I’ve said, it is a very, very contrarian call.

And, and I think this, this time really has come now. We w the light motif of our upcoming report on inflation is the boy who cried Wolf you know, the, the, the, the, the story. And I think, you know, Ignoring the warning signs and just continuing with the strategies of the parse. This means to ignore the, the third, which was the crucial cry of the Wolf.

So nobody’s seeing inflation quite a lot has happened in, into this direction. And therefore I think it’s yeah, from my point of view, it’s, it’s one of my strongest convictions, but we also have to say, and that’s a great quote by Margaret Fetcher. The lesson is really clear, inflation devalues us all.

So that’s a very, very dangerous path. If we want to follow that the inflationary path, not just for, for our portfolios, but also for our societies.

Ben: [00:41:01] Expand on that a little bit more, if you don’t mind. I mean, what do you mean in terms of society? Just because the value of your dollar is shrinking so rapidly, rush out to buy our groceries as quick as you can.

And like the reverberating effects of something like that.

Ron: [00:41:16] Well, because inflation basically is, is attacks and, and as we have seen over the last couple of of month, Basically this gap between rich and poor, it, it grow. It grew even more because who’s paying profiting from this enormous amount of asset price inflation.

You know, it is those people who are massively invested of course, in inequities, in bonds and real estate in, in the art markets in commodities, whatever. So, so, so I think this, this gap between the haves and the have nots is also. Massively influenced and caused by all monetary system. And there’s a fabulous webpage called WTF happened in 1971.

And I think the many, many problems that we’re facing at the moment the root causes basically can be found on 28th of August in 1971. I think it’s really important to tell people. That this is not a cyclical crisis, but rather a systemic crisis. And if you, if you understand our monetary system and, and if you understand how leveraging works and how dependent we are on more and more debt on one more credit to to continue I think then, then it, it really opens your eyes.

And, and I always said at some point there will be. To, to be very diplomatic, a reorganization of our monetary system you know, over there in the, in the U S this is something that is probably not something that many people have in mind, but over here in Europe, you know my grandparents, they lived through, I think, four or five currency reforms.

And, and of course, if you’re were mainly invested in paper assets you lost everything. Through these reforms. And therefore I think that, you know, having some goals for this transition period from one monetary system to the next monetary system is, is, is really something that that you should have.

And I think Dan, we will not. Discuss. If, if gold is trading at 1700 or 19 hundreds, I think then the numbers will be significantly larger. If we should see at some point, this revaluation of gold in fact, to, to create trust into. A new currency that will be introduced at some point. And, and there were some, some, some fantastic quotes coming from from central banks evens, for example, the Dutch national bank, they said gold is the trust anchor of a currency.

And if, if, if there, if there’s volatility, if there’s stress in the system, gold helps the seller central bank to preserve trust. So that’s basically some sort of my end game that has that I’m seeing a relocation of our monetary system where gold will probably be revalued.

Ben: [00:44:26] Yeah. There’s a lot there. I think an interesting way I’d want to go is, for the average American or European we’ve, we’ve just lived in this environment since 1971 or world war II, you know, and some stat that you had mentioned And then in another interview, is that the average investment advisors?

54 years old. in his professional career or her professional career, they’ve never had to manage portfolios in this sort of inflationary environment that it’s looking like we’re going down. something you had mentioned was. You know, taking a page out of the playbook of emerging market investment advisors, or how those people in a more inflationary environment, such as Argentina, Brazil, Turkey are managing money.

how do they manage money differently than us or European capital allocators? It’s it’s mainly gold it’s currency diversification. how does the think through this.

Ron: [00:45:23] W, well, I think that for, for those asset managers Inflation is just on the top of their minds. And, and I think, you know having to deal with very weak currencies and, and, and high inflation rates definitely gives you a different perspective on, on government debts in local currency, but also of course, on, on cash holdings and.

You know, Ben, every time I traveled to countries like, like Turkey, Brazil some Eastern European countries where, where, where they experienced high rates of inflation, you know, talking to people about the lessons of the Austrian school, but also about the topic of gold is something much, much more intuitive for people there while over here, you know?

If you like gold, you’re like, you know, hardcore gold bark. And, you know, you’re like living in the past and, and, and stuff like that. And this is because people don’t have they don’t have any any experiencing in navigating through markets in a highly inflationary time. So, so as I’ve said, 45 is the average investment advisor.

I think many, many investment advisors will. You know, they, they, they will not Realize that inflation might not be the biggest threat for your portfolio. And, and we also crunched the numbers on that at length analyzing which asset classes do well and, and too poorly in times of rising in terms of falling in terms of neutral inflation direction.

And I think it’s interesting that most people think that stocks being a real asset. They are doing tremendously well in times of inflation or stagflation. Well, that’s, that’s not really true. It is really a matter of pricing power. Does the company have, have pricing power? How can it deal with rising input prices?

So, so I think, you know Starks. Being as I’ve said, it depends on the sector, but, but I think we will see new winners coming out of an inflationary regime, you know, like commodities, preps, inflation, linked bonds In the FX, perhaps you could consider a long commodity producers versus importers.

And on the equity side, I think it will be more in the direction of Belu more in the direction of pricing power versus margin pressure and more in direction of high fixed rate debt. So, so, so those are all things that many people in the asset management industry, I think haven’t realized yet that we should.

Be applying more of a, of a real assets principle.

Ben: [00:48:14] Yeah. That’s, that’s really interesting. And when you say have good graphs on pricing power, I mean, walk me through what one of these is. It’s controlling the price of their inputs and their output, the selling price, but shine a little bit more light on that for me, please.

Ron: [00:48:32] Well, well, it, it basically means that.  If, if you’re you have to ask yourself as, as a businessman, are you a price taker or a price, price giver? So, so basically you have to ask yourself if your, your product and your industry is, is so well that that’s. That you can hand over those price increases that you’re seeing on, on, on the incoming side that you can hand it over to the consumer basically, but I think, you know I sh I think we should kind of broaden this concept.

It’s it’s it’s pricing power versus margin pressure. So I think that the, the main thing would be for such a new paradigm. Everage profit margins were highs, obviously. Good. Then you should have a close look at labor share of costs. Also low is good. You can have a look at, at, at, at market concentration, a so-called half in dollar index then of course, commodity producers, which means pricing power versus commodity bias margin pressure.

And, and, and, and then I think it’s, it’s, it’s. You know, nominal debt levels that will get inflated away by higher inflation. So you should have a close look. If, if businesses with high fixed rate to debt equity ratios, that that would benefit And this, this just tells me that perhaps we should yeah, that, that cyclicals will, will lose to defensives in, in such an environment where we’re inflation really becomes a topic because there’s There’s like a level between, let’s say 0.5% until 2.5% inflation rate.

And I’m talking a PCE. I think this is a like an, an area where. Well, stocks don’t really have big, big headwinds, but I think as soon as we go above this song and we’re explaining this sewn in our upcoming inflation report, I think that market participants really, really, really realize that well, perhaps I should have a very close look at my stocks and the sector, the sectors that I’m holding in my portfolio and move.

As I’ve said from, from, from one side to the outer side.

Ben: [00:50:56] That makes sense. pivoting a bit. inflationary, taking a deeper look at your, the type of equities that you’re holding, but I thought something that was interesting. gold, obviously it has a place in your portfolio. Bitcoin. I want to get into a little bit later, but something that I wanted to talk about was in the in Goldwood trust report.

You’ve written this for 14 years. And I think I heard, you mentioned that this was the first year you had a chapter or a section on silver. So why silver? Why now? I guess.

Ron: [00:51:31] Well first of all we thought that at at at a silver ratio of hundred and 25. So I’m meaning that with one ounce of gold, you can buy 125 ounces of silver. We thought, well, that’s okay. I think we’ve, we’ve never seen such a, such a ratio in history in history of mankind. So it w it was extremely from a contrarian point of view, I think it was a pretty, pretty safe bet.

To say that we’ll see at some point a mean reversion, but we also said. This year that this bull market in gold is is, is, is now much stronger than, than in the years before. And, and, and based on our quantitative research, silver always outperforms gold in a gold bull market. And I think we, we, we seeing it this year quite well, that.

Gold is now up, I think, a year to date in dollar terms, it’s up 16 or 17% in, in in Euro terms, which I think in, in us dollar terms, it’s up 20% roughly, but on the other hand, silver. It, it was already up 50% now. It’s still up 32%. So silver is outperforming gold this year and it’s, it’s a very, very strong sign and there’s I think a fundamental case.

So not only from, from From a technical and cyclical point of view, where we just see silver as some sort of momentum play and the leveraged play on the gold bull market, but also from a fundamental supply demand view. I think there’s lots of different things. Lots of positive things. Going on in the silver space that should support prices and, and, and we analyze those those imbalances of the supply demand picture in this report.

And I think, you know, the case for silver is, is actually stronger than ever. Interesting.

Ben: [00:53:36] And for the average investor to play silver, are you thinking silver miners just by like the ETF SLV or what’s kind of the best way for the average investor to play that?

Ron: [00:53:47] Well, you know, th that depends on your Risk tolerance.

Silver is just highly volatile. We know that you know, it’s, it’s said that if gold rises one, silver rises three, but it’s the same to the downside as well as unfortunately. So you have to live with this volatility and have to deal with it. From my point of view, volatility is something fantastic.

I think if you. You should make use of volatility and there’s nothing more, more boring than no volatility for, for me as a, from an asset management point of view. But silver is, it’s definitely something that yeah shows us that the market is is a maximizer of pain. So I think, you know, When it comes to mind the mining stocks, we’re seeing lots of interesting names in the silver space for the large caps for the mid caps, but also for the juniors.

But it’s really up to up to the investor itself how much risk he wants. And he’s able to take,

Ben: [00:54:50] I’m curious, you’ve written before being bullish on Bitcoin. Do you view this more as a. A higher beta play on gold. And it’s the same gold thesis. Or do you see this as, you know, the potential new monetary world order at an option to opt out?

Like what’s kind of your general view on Bitcoin.

Ron: [00:55:15] Well actually we started writing about Bitcoin in 2012, I think so. So we, we, we learned about it very early on and, and I off, I think. When Bitcoin was trading at 60 or 70, we first heard about it, something like that. And, and, you know, I would have never thought that that will go to 20,000 and that that now really the institutional side is, gets it getting so, so heavily involved, but it is fascinating.

And, and, and we just launched a fund this year that combines physical gold. With digital gold, big Bitcoin, and then uses an option strategy. And I think that’s, that’s, that’s a great combination in these markets. I think, you know, from a fundamental point of view, I see many, many similarities between gold and Bitcoin.

First of all, the stock to flow ratio, we are having some sort of a guaranteed inflation rate, which is roughly the same for gold and for Bitcoin at the moment, which is 1.6% in 2024. We’ll see, another half thing. And then the inflation rate of Pittcon will be lower. Then inflation rate of gold.

Now what you want to have in, in this environment is of course assets that are non inflatable as my, my dear colleague Mark, bollock always says so, so, so I think this relative scarcity is really something that. That that is something that’s that investors will, will look out for. So, so, so I think that the case for, for Bitcoin going forward is, is, is very, very strong.

And we’re now really seeing this adaption of, of institutional players. We’re seeing the greatest of all Stanley Druckenmiller Becoming very bullish on, on, on Bitcoin, but also on gold. We’re seeing Paul Tudor Jones making a case for gold for Bitcoin saying it feels like gold in the year, 1976.

So I think from my point of view it is something that has many, many similarities. Of course Bitcoin is significantly smaller. I think the market kept now is like 350 billion while for gold. It is roughly 10 trillion. So, you know, it can pick up of course, but what I am seeing Bitcoin, just as a. It’s it fascinates me like, like, like gold fascinates me every day.

And, and I love the fact that so many young people and, and, and, and, you know, coming perhaps more from the technical side learning about. About money. They, they, they ask the question, why is gold better than Bitcoin? Why’s Bitcoin better than gold. Why is Bitcoin better than the U S dollar? So, so they are.

Yeah, they’re, they’re asking these questions that are highly important. And you know, for me, I think, you know, Bitcoin and gold have definitely, they’re not brother and sister, they’re perhaps cousins, but, but I think, you know, there’s a place for both in your portfolio and that’s, that’s actually how we manage this new fund.

Ben: [00:58:33] And I think that’s a okay. Good view back to what you said earlier from the inception movie, an idea is like a virus it’s highly contagious. And I think that’s exactly what Bitcoin is. I mean, it was for me, right? Like I read about Bitcoin and then start questioning everything and start buying gold and start reading all of these these other things, asking about currency, why it exists the way that it does.

it’s certainly love that analogy, especially when it pertains to Bitcoin. I’m curious, what would change your mind? What are you monitoring? What, like what big change would change your mind being so bullish on precious metals that these inflation plays things like Bitcoin?

Ron: [00:59:13] Well, you know, gold likes negative, real yields.

So. If we should see highly positive real yields again, then, then, and, you know if you get like four or five or 6% on your savings account then it would become very cautious because it’s, our research tells us. It is really a real yields being the most, most important driver for the price of gold.

So in the 1970s we saw of course an inflation or even a stagflationary environment with real yield speed, negative. Most of the time then Paul Folker came in and 1980s and nineties, we saw primarily positive real rates. And now since since the year. 2002, basically, we’re seeing primarily the negative, real rates again now.

Do I think it’s, it’s really positive possible that we will see rising, real leads over the next couple of years. No, I think we, we simply cannot afford it. And you know, w we saw a small. A rate hike cycle in the U S and it was the smallest that we ever saw in the, in the history of the federal reserve.

But on the other hand, you know, the fed did much better than the ECB who didn’t make any move so far. So from my point of view, it is, it is very, very unlikely that that real rates will really become a danger for gold going forward. I think of course. If, if this if this, this, this, if we have a look at the current correction, I, I think it’s, it is frustrating when it comes to gold.

I tweeted out quite a, quite a lot today. You know, some, some technical charts showing that, you know, sentiment got very, very negative. That’s that we’re basically seeing panic levels already. And therefore, I think from a contrarian point of view, it, it might be a good addition too. I think that gold will you know, that is this institutional trend that has just started.

That this would be reversed. I don’t think so. I don’t think so. Just to give you a perspective at the moment, 0.1, 5% of institutional money is allocated in the gold space. So that’s, that’s basically nothing and talking to institutional players over the last couple of months. I know that most of them, they want to get some, some gold exposure.

Now, of course it’s the price of gold was falling. They’re all peeing in their pants. They need some, some price confirmation. They need rising prices, which makes it easier for them to justify their decisions because you know, institutional players are awful, very bureaucratic institutions. So, so I think, you know, this correction in gold you know, it, it can go on for, for a couple of more weeks, but what should you do in a bull market?

And I’m certain that we’re still in a bull market, you should buy the dips. And as I’ve said, you know, the fundamental case is strong. The technical case is pretty strong from a contrarian point. Yeah. So, you know, now you have to do your whole work by the good names that were, that were killed over the last, last couple of weeks.

And yeah, just go against the trend.

Ben: [01:02:44] Yeah. I mean, this is one of my key investment thesis for, for gold. Well, one, I think inflation is coming and it’s under owned as an asset, that class across all portfolios. I think eventually, yeah, you need some price confirmation, but then people will start, start picking it up.

it is kind of nasty right now. It’s pulled back quite a bit, but yes. Like, like you said, I mean, I think a long-term a bull market, so this means picking up things like gold now, as well as gold miners, maybe silver, things like that. good to confirm that Well, Ronnie, I really appreciate we’re bumping up against the time, but it’s been wonderful having you on and talking about all of these things before we go, I mean, where can people find out more about you more about your work?

Where do you want to send it? My listeners,

Ron: [01:03:34] well, first of all, thanks for having me, Ben. It’s been a. It’s been a great discussion and I hope that you and your listeners enjoyed it. Well, you can have a look at our webpage. It’s incremental dot L I, which stands for listen style. You can download all our research, especially the gold with trust report, but also our chart books on gold.

On our webpage in gold, we And yeah, I’m pretty active on Twitter. My handle is at Ron stowaway fella. Perhaps you can, can, can put a link to the video and yeah, that’s, that’s basically it. And, and, and, you know, w we’ve written two books, one is called the zero interest rate trap, and Tiara is called Austrian school for investors.

So if you need a goods gift for Christmas yeah, that’s, that’s basically it. And yeah. Thank you very much for having me.

Ben: [01:04:35] Ronnie really appreciate it. I’ll link all of those things in the show notes stay safe and healthy and really appreciate it again.

Ron: [01:04:43] Yeah. Get well soon, Ben, and again, thanks for having me all the best.

Ben: [01:04:47] There you have it. Thank you for listening. I really appreciate your support. Show notes, transcript links, and more can be found on our [email protected]. If you’d be so kind, please share this with anyone you think might be interested or get some value from this conversation. If you have any questions or comments, please reach out.

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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.