Hedgeye Podcasts

Most investors will dismissively tell you gold prices are entirely driven by greed and fear, and that the only way gold works as an investable asset is if the world ends.That’s simple-minded. Gold is a stable store of value. It’s money.“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney. Wieler continues:“We don’t think that gold will make you rich but it will help you retain your purchasing power. So yes it has gone up several thousand percent since the demonetization of gold but it still buys you the same amount of oil or the same size house it’s just very good money.”In the HedgeyeTV video interview above, Wieler and Hedgeye CEO Keith McCullough discuss…What drives gold prices (“real interest rates and energy prices,” Wieler says)The impact of upcoming Fed rate hikes and what that means for gold pricesAnd on the U.S. economy: “Even in an absolute goldilocks scenario, gold prices would only come off a little bit until we hit the next recession and the Fed has to lower rates,” Wieler says.For more, check out our interview with Goldmoney co-founder Josh Crumb, “GOLD: The Complete Investor’s Guide From the Smartest Guy In the Room.”

It is an age of heightened global angst and uncertainty, an era of discontent. An age which gives birth to brazen, Never-In-a-Million-Years political outsiders like Donald Trump. And Brexit, Britain’s equally shocking decision to exit the EU. Political “elites” might argue recent voting decisions of their electorate are chaotic, or mad. Whatever you call it, it’s the reality we must grapple with today, says Pippa Malmgren, founder of economic consultancy DRPM Group and author of the best-selling book “Signals.” “The philosophical question of our time is are you a globalist or are you a patriot,” she says. “And can you be a global patriot or a patriotic globalist?” Once you accept that the global zeitgeist is divided along these two competing interests, Malmgren says, the world falls more neatly into place. Malmgren knows a thing or two about simplifying the complex. She’s had a storied career on Wall Street and in Washington, having served as special assistant to President George W. Bush for economic policy on the National Economic Council. She also has considerable experience interpreting financial markets, serving as Deputy Head of Global Strategy at UBS and Chief Currency Strategist for Bankers Trust.“What I find is that people in financial markets love to go around blind in one eye. They only look at things through a mathematical or data lens,” Malmgren says in the Real Conversations interview above with Hedgeye CEO Keith McCullough. These people miss a lot of things. On Brexit or Trump’s victory, Malmgren had the foresight to see both coming long before these events shocked markets.“What’s fascinating is that you see this populist uprising everywhere in the world and everywhere people think it’s a local issue,” Malmgren says.The underlying driver is really simple. The debt burden is so big it can’t be paid down so that causes lack of jobs, slow economic growth and kills your hope for the future, she says.Meanwhile, the only solution policymakers have come up with is to inflate away that debt by devaluing the currency. This hurts domestic purchasing power as citizens see their paychecks worth less and less.“The question then becomes how come my wealth is being distributed to some other guy and not me?” Malmgren says.That leads to a final question that should frighten any career politician desperately clinging onto their post, “Why are you in charge?”If you follow this line of logic the rise of Trump in the U.S. or Le Pen and Macron in France isn’t a big leap. Malmgren has some intriguing ideas on Trump:“I’ve been describing Trump as the “Uber of politics.” It’s important to think this way because he is literally disrupting, displacing, disintermediating the traditional power structures. That includes the media. It also includes the fundraisers, because there’s no need for them if you can win the presidency without them. It’s the technocracy, where I come from, and where people are normally hired into the senior jobs in bureaucracy and expect to get big titles. They’ve all been told we can run the government without you.”Populist tides are clearly rising in Europe too. Malmgren lives with her family in London. She watched as the Brexit vote unfolded in real-time. As freaked-out investors watched at home, Malmgren watched with curiosity as Italian banks got whacked in early morning trading as British voters repudiated their EU membership. The market was sending a clear message to politicians across the continent. Get your act together or more countries could leave the Eurozone.The reaction also served as a self-perpetuating feedback loop. With share prices tumbling, the pressure was on Italian banks to come up with more capital. The government stepped in:“Italian politicians said we’ve got to have a bailout because this is such a structurally important institution. And the public heard this and said ‘We’re going to find $5 billion to bail out a bank

It’s simple really. Inside the hallowed halls of the Federal Reserve, unelected, largely unaccountable bureaucrats decide whether the economy is running too hot or too cold, then tinker with monetary policy accordingly. It’s a tremendous amount of power. A generous reading of history suggests the Fed has a dubious track record of forecasting where the U.S. economy is headed. In fact, many are searching for a better way – an alternative to a broken system. None is in more earnest pursuit than Danielle DiMartino Booth, whose brand new book “Fed Up” explains why the current Federal Reserve system is due for a serious revamp. Few are as critical or as qualified to suggest fixes. DiMartino Booth joined Richard Fisher’s Dallas Federal Reserve shortly after the cracks in the financial system were beginning to show. The Fed spent much of 2007 vehemently denying these cracks even existed. Recall in July 2005, that when asked about an impending housing bubble bursting, one that might trigger recession, then Fed chair Ben Bernanke famously said, “I guess I don't buy your premise. It's a pretty unlikely possibility.”During her decade or so at the Dallas Fed, DiMartino Booth recalls feeling initially “daunted” by all these “brilliant people” who could “do calculus in their sleep.” She quickly became disillusioned by how insular the organization was. Sure, the halls were packed with Ph.D’s but many of these academics really didn’t understand the ins and outs of markets. “Generally, if you say stock market to a Ph.D. economist it’s like saying ‘Boo!’ on Halloween. They get all freaked out,” DiMartino Booth says. As the housing market was rolling over and Bear Stearns blew up, “it felt like a hospital,” she says. “Nobody was really worried.”Unsurprisingly, the Fed’s cloistered monasticism has come under tremendous scrutiny and criticism. Many things need to change. “I think the first step should be an acknowledgement of their own fallibility,” she says. “They really are espousing one view of economic thought that would make even Keynes rotate in his grave.”What else? DiMartino Booth suggests a number practical reforms. “We’re no longer the same nation that we were in 1913 when the Federal Reserve act was initially conceived,” she says. In other words, let’s bring the Fed into the realities of the 21st Century.• Reduce the Fed’s mandate to just minimizing inflation. • Take the labor mandate out of the equation and put it back in the hands of the private sector. • Reduce regional Fed offices to ten districts (from twelve currently) by adding a regional Federal Reserve office (or two) on the West Coast and absorbing Minneapolis, St. Louis and Cleveland into Chicago. • Give every district a permanent vote to minimize the power of votes in New York and Washington D.C.• The Fed should hire a more diverse staff with more financial market familiarity and experience• The Fed needs a better appreciation of monetary policy rules, like the Taylor Rule, which would help serve as a system of checks and balancesThere’s hope. By June of 2018, vocal Fed critic President Donald Trump will be able to nominate as many as five Federal Open Market Committee (FOMC) members, DiMartino Booth notes. Meanwhile, accomplished former Goldman Sachs execs like Treasury Secretary Steven Mnuchin and director of the National Economic Council Gary Cohn have Trump’s ear on fixing the Fed. “They are clearly the two most powerful people when it comes to the economy and finance,” DiMartino Booth says. The crusade to fix the Fed continues. Change is coming.

“The virtuous cycle of capital has broken down,” says Dan Alpert, Managing Partner at Westwood Capital in this new edition of Real Conversations.That’s not hyperbole. Alpert wrote the book, “The Age of Oversupply.” In it, he argues that a global labor glut, excess productive capacity, and a rising ocean of cheap capital have kept the economies of the first world (notably the United States) mired in underemployment and anemic growth. In the “age of oversupply,” companies are unlikely to reinvest profits due to all this excess capacity. “When you have a global capital glut, capital starts to back up and say ‘Geez, you know I can’t make a dime taking risk free returns anywhere,’” Alpert says.As a result, instead of reinvesting profits in their businesses, companies buy back stock and purchase competitors. Money finds its way into equity markets rather than factories, equipment, and more manpower. “You don’t need additional primary investment so that capital becomes hyper activated in the secondary markets,” Alpert says in the video interview above with Hedgeye CEO Keith McCullough.Sound familiar?That’s why the $24 trillion worth in central bank asset purchases global have been a drop in the bucket. Growth in productive capacity has been anemic so global economic growth continues to slow. According to the IMF, global growth for 2016 is expected to be 3.1% versus 3.2% in 2015. Advanced economies fared even worse, posting 1.9% growth versus 2.1% in 2015.There’s hope. In the video interview above, Alpert suggests a solution that the Trump Administration is already predisposed to endorse:“If you have a massive glut of capital and it’s not flowing back into the U.S. economy in the form of productive plants and equipment, you really ought to take it using the agency that can borrow it cheaply, the U.S. government. Use it to pull up wages by reemploying a large number of steel workers, and construction workers and all of the support industries to rebuild our domestic infrastructure that is the shot in the arm that this country requires.”On the campaign trail, President Donald Trump proposed $1 trillion in infrastructure spending. “Trump is absolutely right on about the need for an aggressive infrastructure program in the U.S.,” Alpert says. The reason this stimulates economic growth is relatively simple to understand, Alpert says. By increasing the demand for skilled labor at the top, you employ the underemployed and create demand for other workers to fill those vacated positions and employ the unemployed. Alpert calls this “trickle down labor demand.” “Take the former construction worker who’s now a bartender and give him a hammer back. Well, now you need a new guy to tend bar.”Logistics… A fiscal spending program like the one proposed by Trump are typically spread out over a period of five years, Alpert says, so $200 billion each year. “If you spend $200 billion in this economy in additional government infrastructure spending, rebuild bridges, airports and railways, especially if it’s well targeted. This economy is going to go crazy. It’s going to do great.”Bottom line? If Trump gets his way and passes a targeted fiscal stimulus program, the U.S. economy is “going to go crazy.”

Is America’s Social Security system bankrupt? Well, not exactly.It is, however, significantly underfunded. No shocker there. What’s perhaps more interesting is that we have the tools to fix the problem right now, says retirement guru Bradley Belt. He knows a thing or two. Belt used to run the Pension Benefit Guaranty Corporation (PBGC) where he was responsible for leading the federal pension insurance program and overseeing a $60 billion investment portfolio.The bigger challenge? Getting flimsy politicians on board. (No shocker there either.) As Belt says in the HedgeyeTV Real Conversations interview above:“Social Security is actually pretty easy to solve from a math standpoint. There are a few levers that you can adjust that actually most reasonable, rational people when you sit them down in a room would say, ‘Yes that’s a reasonable rational trade off.’ And you can actually solve for the fiscal deficit over the long term, but it’s more about the political willingness to change things.”SOCIAL SECURITY: HERE ARE THE NUMBERS The Social Security Board of Trustees estimates that the Social Security trust fund will be depleted by 2034. After that, under current law, just three quarters of scheduled benefits are projected to be payable to each retiring recipient from 2035 onward. Projecting that out 75 years, if Congress does nothing the expected benefits deficit would reach a staggering $11.4 trillion.These are obviously massive numbers, which explains why the issue is such a political hot potato. But Belt suggests some fixes in the video above. While Belt is now vice chairman of alternative asset manager Orchard Global Asset Management, he has spent much of his career working on retirement issues in the public sector.Belt served as executive director of the PBGC under President George W. Bush, which was set up by the U.S. government to fill the gap of employer pension plans that cannot afford to fulfill promised benefits. It’s an even bigger problems these days, Belt says. Private pension shortfalls will be exacerbated over the coming years by global trends, related to low productivity and population growth, he says. This suggests “lower returns over the medium to longer term.” On the public pension side, Belt is equally qualified to suggest fixes to Social Security. After serving on a Congressional commission called the National Commission on Retirement Policy during the Clinton Presidency, Belt and others put forth proposals like raising the retirement age – and indexing for gains in longevity.Belt’s discussion with Hedgeye CEO Keith McCullough above is thought-provoking. And should help you get up to speed on an issue affects all Americans.

On the one hand, you've got the gold bugs. They long for the good old days when the U.S. dollar was backed by the precious metal. On the other hand you've got clueless financial journalists derisively dismissing it as "just a rock." Both may be missing the point. Gold is a currency, says Goldmoney co-founder Josh Crumb. He knows a thing or two about metals. In addition to being a former Goldman Sachs metals strategist, Crumb holds a masters degree in Mineral Economics from the Colorado School of Mines. As Hedgeye CEO Keith McCullough says in the interview above, "Josh is probably the best gold analyst there is." Most investors don't truly understand the long-term case for owning gold, according to Crumb. "People want to bean count gold like it's oil or copper," Crumb says. That's misguided. There's roughly $7 trillion of gold money stock and inventory, he says, and, unlike other commodities, gold is scarce and non-perishable. So that $7 trillion in inventory is basically the last 5,000 years of production. "I like the math of gold. It's got this deep simplicity" as money stock, Crumb says. According to Crumb, that’s why investors bid up gold prices in 2016. At its peak last year, gold was up more than 20%. It was a year of “extraordinary monetary policy” experiments, Crumb says. Last year beats out even 2010 and 2011, which saw the introduction of quantitative easing, he says. Consider a few of the facts. The European Central Bank deepened its negative interest rate policy. India banned what amounted to 50% of circulated cash to curb corruption and tax evasion. The Bank of Japan fixed the yield curve of the country’s 10-year bonds at 0%. Investors were desperately searching for alternatives to the euro, yen and rupee. WHY HAVE GOLD PRICES FALLEN THE LAST SIX MONTHS? Crumb thinks recent selling in gold is a temporary distraction brought on by the surprise Election Day victory of Donald Trump. The exuberance radically shifted investor expectations. But once this initial honeymoon period wears off, investors will go back to worrying about central banks again, he says. As they should. The hubris among global central bankers is palpable. “We can’t predict the weather tomorrow. But we’re going to tell you what interest rates are going to be 30 years from now.” A few weeks ago, Crumb debated the case for gold as money with a panel which included some prominent central bankers. The panelists were all arguing that money is “a construct of our minds.” In other words, you have to believe that it has value and that someone else is willing to accept it. That’s misguided. As Crumb retorts: “Just because the central bank’s models are more and more wrong doesn’t make the economy more and more subjective.” The best proof of gold’s stability as a currency is that, in the more than four decades since abandoning the Gold Standard, gold has maintained its value. In fact, a Goldmoney study from 2015, celebrating the 30th anniversary of the movie Back to the Future, shows that gold has maintained its per ounce value across a variety of consumer goods, from Big Macs to sports cars, even in the face of rising inflation. “It wasn’t by central bank decree. It wasn’t the Gold Standard, or because of the Bank of England. None of them actually made gold work. Gold worked without them. That’s the most important fact we have.” This is why people should own gold, Crumb says. The stability of gold over long periods of time,is compelling, especially in an era of increased central bank meddling. Crumb suggests slowly adding your gold position on pullbacks like we've just had. “Just like we’ve been trained to buy the dip on anything else investors should be in that accumulation phase for gold,” he says. Watch the entire interview between Crumb and Hedgeye CEO Keith McCullough in the video above.

Even financial market legends, from Dalio to Druckenmiller, can’t claim a market call that’s played out precisely as predicted over the next 40 years. But Gary Shilling can claim exactly that. Shilling is, of course, the President and Founder of institutional investor consultancy A. Gary Shilling, and the Godfather of the Long-Term Treasury Bond call. In 1981, Shilling proclaimed that the bond market was on the precipice of “the bond rally of a lifetime.” That was a long time ago. Back then, Ronald Reagan was in the early innings of his first term. Paul Volcker was only two years into his war against rampant inflation. The 30-year Treasury bond yield was an unbelievable 15.2%. Today, it’s 3%. Since Shilling’s “rally of a lifetime” call, the long bond has outperformed the S&P 500 by 5.5 times. Talk about beating your benchmark.SHILLING'S MARKET OUTLOOK: TRUMP, FED & DEFLATIONIn this HedgeyeTV exclusive, Hedgeye CEO Keith McCullough sits down with Shilling for a Real Conversation to discuss what we’re to make of the precipitous 26% rise in the 10-year Treasury yield, from 1.857% to today's 2.346%, following the Election Day victory of Donald Trump. Shilling is dismissive of pumped up market expectations about a Trump presidency. He thinks Wall Street’s excitement over proposed infrastructure spending will prove underwhelming. Shilling offers some amusing insight on the topic: “If you look at the fiscal spending in 2009, part of that fiscal stimulus was infrastructure spending that was supposed to be shovel-ready projects. Well, it turned out they hadn’t even made the shovels yet and they were probably going to be made in china. Two years afterward only 30% of that money had been allocated.”On long-term bonds, Shilling says the post-Election Day selloff has everything to do with Trump-inspired inflation expectations. He’s skeptical about this too. “I don’t see inflation because there’s too much supply in the world.”Ultimately, Shilling doesn’t think bureaucrats can actually get the job done. Deflation will prove pervasive, he says, especially once the Trump expectations wear off. Importantly, Shilling thinks the Federal Reserve can’t do much about this and won’t be able to devalue the dollar and stimulate asset prices once again:“When did these guys have that much power? They overrate their ability. Their forecasting has been absolutely atrocious. These guys think they have a lot more impact on not just the U.S. but the world than they actually do.” Shilling sees it all ending rather poorly. Furthermore, the Fed has tacitly admitted that “monetary policy is impotent,” Shilling says, since they’ve been “screaming for fiscal stimulus” for some time now. He thinks Yellen & Co. will implicitly encourage Donald Trump to run deficits by buying Treasuries to finance all the extra spending. “That’s called helicopter money,” he says.THE BOND BULL MARKET ISN'T OVERIn other words, long-term bond yields go down once again. So no, the 40-year bond bull market isn’t dead, Shilling says. It’s taken a brief hiatus as Wall Street celebrates the coronation of Donald Trump.But Shilling says this doesn’t end well for bond bears. Since the 1980s, “Wall Street has been saying it’s done with every backup in yields all the way down,” Shilling says. Time will tell, of course, but this is must-see TV with the Long Bond Godfather. The guy who’s seen it all before.

Behavioral finance expert Dr. Richard Peterson, a board-certified psychiatrist and CEO of MarketPsych, sits down with Hedgeye CEO Keith McCullough in this edition of Real Conversations. An expert on financial market psychology, Peterson discusses how to potentially time stock market turns by analyzing investor behavior and social media. His firm produces sentiment and macroeconomic indices derived from language analysis of global news and social media. His latest book Trading on Sentiment digs underneath technicals and fundamentals to explain the primary mover of market prices - the global information flow and how investors react to it.

Industry veteran and portfolio manager Michael Aronstein, CIO of Marketfield Asset Management, sits down with private investor Buddy Carter and Hedgeye CEO Keith McCullough in this edition of “Real Conversations.” The trio discusses critical developments facing investors right now and why the markets and economy look increasingly vulnerable.

In this edition of “Real Conversations,” AQR Capital Management principal and Efficiently Inefficient author Lasse H. Pedersen sits down with Hedgeye CEO Keith McCullough to demystify the “secret” world of active investing. Pedersen, who is also a finance professor at Copenhagen Business School and NYU Stern School of Business, describes some of the key trading strategies used by top hedge fund managers, many of whom he interviewed one-one-one for his book.