Frame out what this interest rate environment, what does it mean for this economy? What does it mean for these markets?

Yeah, I think that, um, people are generally misinterpreting what's going on.

So number one, um, the rate, uh, the yield on the 10-year is statistically, uh, the highest we've seen in 25 years.

But you need to keep the context in mind, that during the past 25 years, we've had these extraordinary events like the global financial crisis and COVID that drove the rate down to unusually low levels.

And where we are right now is about average if you look at a longer history.

And you're correct, that many people have not seen rates this high.

But you need to have a historical perspective that the rate that we're seeing today is not abnormal.

[laughs]

So

what do you have to add to that? I'm not sure optimism is the right word.

It kind of implies a bias.

I think I'm realistic about it.

And I do think it's important to look at the history of innovation.

This is a very significant innovation.

It happens to be occurring at the same time of other disruptions, which is interesting historically.

That, I think, allows us to seamlessly move between decentralized and decentralized, when we offer the people to sort of seamlessly kind of like exit the centralized intermediaries, start running their own nodes, start custodying their own funds, things like that, then we can create an overall system and ecosystem that is a bit more resilient.

So

what do you have to add to that? I'm not sure optimism is the right word.

It kind of implies a bias.

I think I'm realistic about it.

And I do think it's important to look at the history of innovation.

This is a very significant innovation.

It happens to be occurring at the same time of other disruptions, which is interesting historically.

That, I think, allows us to seamlessly move between decentralized and decentralized, when we offer the people to sort of seamlessly kind of like exit the centralized intermediaries, start running their own nodes, start custodying their own funds, things like that, then we can create an overall system and ecosystem that is a bit more resilient.

Yeah, so I

do think that the focus of the media is on the potential $2 trillion valuation of Anthropic and who knows how much for OpenAI.

It's all about, like, the money.

But something else happened in the summer that I think is way, way more important.

It got covered in the news at a very thin level about some AI cheating, and that's really not the point.

What is AI cheating? So again, just reading the standard media, you miss a lot.

So what I did is I viewed a debrief by OpenAI, and this is the so-called hugging face exploit.

What's your takeaway from this evolution of AI capabilities? So

Many governments who are concerned that high borrowing levels in the United States make holding US government debt more risky have shifted their funds elsewhere.

Many countries are diversifying away from US dollar holdings.

And we've seen that amongst central banks it is now the case that they hold more value in gold than US dollar assets.

So this is a change, a swing away from the US dollar.

And I'm not saying in the short term or even the medium term the dollar will lose its reserve currency status, but we have seen a very logical progression of diversification.

We don't want all our eggs in one basket for one country's currency and bonds.

We want to diversify.

This means it can be used as payment even when governments are isolated from the global political stage and precluded from receiving money from other nations.

Is there a threshold or a point at which you would consider it a viable store of value or even in the cons- consideration to be one if it one or two X volatile, you know, one and a half, two X volatility? What's your number?

So let's be careful here.

Um, I've been in this space a long time.

So I got into the space in 2012, so it was really early on.

And, and before that, there's no liquidity for Bitcoin, uh, trading.

So it is reasonable to look at, let's say, the past, like, 13, 14 years, where we've got some trading venues.

And if you look at the volatility of Bitcoin over that period, not 2009 and 2010, uh, the volatility hasn't changed that much.

Yeah.

If that doesn't work anymore, what does work?

Well, I think we need to look at it differently.

And traditionally, what's not a value stock is a growth stock.

Uh, and indeed, if you look at, for example, the Russell 1000 value and the Russell 1000 growth, and you put a portfolio of those two together, then you get the Russell 1000.

And that means that if the stock is not in the value portfolio, it's in the growth portfolio.

Which means, and this is kind of, uh, in a way shocking, that, uh, people will be holding expensive, and expensive I mean like high PE ratio, low growth stocks.

And that doesn't make any sense whatsoever.

Talk to us about what this kind of deal means to you and, uh, uh, one of the key issues is where does it go to neat in the various stock indices out there?

Instead, when SpaceX is added to the Nasdaq 100, it will weigh the company as if three times the number of shares are available for sale.

So you multiply by three, and you get 12%.So what this will do is increase the demand by the index investors, uh, because they need to match that 12% rather than 4%.

That basically means you make a lot of money or you're a millionaire.

So if you're rich, you get the opportunity to, number one, diversify your portfolio, which we all wanna do, and number two, you're able to get in early.

Mm-hmm.

Think of OpenAI, Anthropic.

These are giant companies.

So SpaceX, 1.75 trillion in potential market capitalization.

It would be in, in terms of the S&P, uh, like the number seven or eight, depending upon what happens at the IPO.

These are giant stocks that are not in the portfolio of the retail investor, uh, which is, uh, most of the time a non-qualified, uh, investor.

So, uh, there are rules that you need to qualify to buy this non-public equity.

So can you maybe talk about, you know, what, what's changed and, and, and why you might be skeptical today?

So, Cam, are some of the worries that are bubbling around, you know, mass job displacement A little bit premature or merited?

Again, historically, this is very interesting because many people have made the case that through history, technological disruption leads to potentially mass layoffs, unemployment.

Indeed, it's the whole idea in Karl Marx's Das Kapital, that this would be the seed of revolution.

And it didn't happen.

So technology just created new jobs.

So new innovation created new opportunities.

But I think that this time is fundamentally different.

But is there a recipe for a pretty massive deflationary shock from what you're describing?

Is the innovation we're talking about now, is it the innovation of our academics of decades ago? Or is it a new innovation?

Um, there's fundamental innovation and there's applied innovation.

Um, if you look at the actual productivity of kind of university-based innovation, you can argue that it has decreased, uh, since the heyday of the 1960s and '70s, but more than made up for in terms of what's happening with corporations.

Indeed, it's an extraordinary amount of R&D that the US is spending, and it dwarfs, uh, for example, the EU.

So we spent far more on R&D than the EU, even though the EU has a greater, uh, population.

And it's no surprise that 17 of the largest, uh-... 20 companies in the world are based, uh, in the US.

Indeed, we have companies that spend more on R&D than countries like France and Italy.

Mm.

Cam, does the- the whole Cook issue, does this really change things? Does this really change someone's outlook on the Fed, on their ability to act? I mean, you know, wha- what's the real world impact on what Trump is, um, uh, you know, basically proposing to do here?

Yeah, so it- it's pressure.

So it's political pressure, uh, and- and like in a way, what- what we really value, uh, is an independent Fed.

So I've got some recent research that asks the question, uh, how important is it to be a reserve currency? And the US has got this privilege.

So the people all over the world, central banks hold US dollars, they hold not just the cash, but Treasury bonds.

And that demand for the bonds, um, actually reduces the yield.

So it allows the US to have lower interest service cost on their debt, it allows the US to have leverage.

Is that really what we're talking about here?

Campbell Harvey on the American consumer.

Most of our models in economics, uh, have a- what's called a representative consumer, which, uh, is code for everybody's the same.

And, and that's just not the case anymore.

So-

Right.

... we are very heterogeneous.

And I've argued that, that part of kind of the decreasing volatility of the business cycle, so our business cycles are way milder than in the past, even considering the global financial crisis and COVID.

So they're less frequent and they're milder, and this is because there are-

Yep.

Yep.Uh, the vice president has accused, um, the chair of the Fed of conducting monetary mis- malpractice.

So, so this is kind of serious, uh, sort of schism between the executive branch and the supposedly independent Fed.

So, the way that I look at it, uh, and this is, this is nothing new, um, I'm actually in favor of aggressive cuts.

And indeed, I've been in favor of cuts for, for over a year.

So, so I do believe the rate is too high, and, and we need to fix that.

And, and the reason I think, um, is fairly evident.

How do you think about tariffs and the impact on maybe economic growth, maybe inflation?

Central banks are stocking up too, in hopes the investment will endure this moment of economic uncertainty.

Gold has this very long track record of holding its value.

Millennia even.

For most investors, their horizon is more like five to 10 years.

Cam Harvey joins us, Professor of Finance at the Huchel School of Business at Duke University. Cam, one of the things we're noticing here in this world over the last, I don't know, couple of months and the uncertainty that's been injected into this marketplace is, people still flock to gold here as, I guess, a safe haven. $3,037 per ounce here. What do you make of our friends buying gold here?

Yeah, so this is the subject of my research, um, and it's kind of interesting that there are two factors. Um, there's kind of a medium-term factor and a short-term factor. So the short term is the increase in uncertainty. The medium-term factor was what happened after Russia invaded Ukraine. And essentially, the U.S. dollar was weaponized. So with the sanctions, it made it very difficult for Russia to do business, because the numeraire currency in the world is the U.S. dollar. And China took notice of this. So China strategically wants to de-risk, meaning that they need their own currency to be credible. They cannot continue to rely, as they had been, on the U.S. dollar. So to ensure or to build the credibility of the Chinese currency, they've been buying gold. And given that there's a limited production of gold, uh, every year, like last year was 3,300 metric tons, that increase in demand has been driving the gold price up. So that is factor number one. And factor number two is unraveling today, given the uncertainty that has been induced by this new administration, um, that people are looking for a safe haven.

Cam, uh, I guess really over the last couple of months, what's been the, uh, the key issue driving these markets has been just the talks of tariffs. When you get in front of your students down at Duke, how do you frame out tariffs, uh, as an economic policy?

So, the first thing to realize is that the U.S. exposure to kind of trade is small. And what I do in my class is like a quiz question, if we, if we look at trade exposure as exports plus imports divided by GDP...Um, how does the U.S. rank in terms of a, like, um, 179 countries in the world? And it turns out that U.S. ranks, um, you know, 177. So, it, it's got very low trade exposure. So, think of imports as being only 14% of GDP. So, it turns out that other countries have much more serious exposure to the U.S. policy than the U.S. So, the issue, I think, is not just the tariffs, um, but the uncertainty about how the tariffs are going to be applied. So, if we knew what the policy was, like 25% across the board, we could actually figure out the hit in inflation and the hit in GDP. And it, it is a hit, it is a negative, but it's not a large negative. And I think a lot of the problems are the tariffs on, tariffs off, and different numbers being thrown out. We just don't know. That creates uncertainty.