And how does that compare with what we're experiencing with the AI bubble right now? How are things similar in some sense and how are things different?

Yeah.

Um, We had a long-short hedge fund, we had an income-based hedge fund, and we had a short-only hedge fund that we ran through the top of the dot-com bubble.

So imagine trying to run a short-only portfolio in 1999.

It was extremely difficult.

I will say one of the things that was different back then The bubble in kind of semiconductor stocks today, I think is much greater than it was back then.

Back then, it was really interesting that I think the insider transactions that had an even greater, there was a greater signal to noise ratio.

Do you see the AI bubble creating something of a similar effect?

... you gotta imagine that everything that you just mentioned, that sort of post-Iran, right, the draining of all the reserves and all that, you know, that's just gonna exac- It's basically just gonna pull in that date with destiny, correct?

Yeah, absolutely.

And I, and I think it really comes back to the capital cycle.

If you look at the capital cycle, you know, th- that is the, the, the, probably the most important, um, determining factor for these kind of secular bull markets.

And I think we're in a clear, you know, you wanna call it a commodity super cycle, whatever, it comes back to the capital cycle.

It comes back to how much have we invested in new supplies of commodities broadly, and energy specifically, over the last 10, 15 years.

Well, the oil price crashed in 2014, and there's been zero investment [laughs] in new supplies in the last 12 years.

Do you expect that to be in the playbook the next time there's a really big crisis?

Because we all want to figure out what we do from an investment point of view, right? Is there anything you're bullish on or what asset classes do you overweight or perform well in that kind of environment? You're describing a run it hot, high inflationary regime, right?

Yeah.

Yeah.

Well, I think, you know, we probably are starting to see a shift towards more defensive type of names, consumer staples, health care.

These types of things have actually started to show some life.

You know, this is.

Obviously a problem for markets because the consumer discretionary sector is already the worst performing sector in the market this year.

How do you think about that narrative?

Is that maybe the longer end that Scott Besson has to vacuum up here?

yeah i mean you know that's that's that's really where this intervention came from right is if is what we're seeing in in japan is okay if you want to uh basically depress yields you know across the curve which like japan did right we're gonna have zero percentage traits of the front end and we're going to you know use you know quantitative easing to lower interest rates at the long end um and inflation's going to rise then you see what happens in the currency right the yen has gone straight down and been super super weak and that creates problems of its own right that can exacerbate inflation um you know with with uh import you know cost of imported goods it gets gets more expensive And it's made people really unhappy in Japan.

I visited Japan a year ago with my son, and it was extremely cheap to go tour around Japan.

And so they've been overrun with tourists as a part of this currency dynamic, too, which has made The people of Japan really unhappy with kind of being overrun and dealing with inflation.

And so, yeah, you know, to really, you know, to kind of protect the currency or try and stabilize the currency, you know, they've had to really kind of accelerate perhaps the path of normalization of of interest rates.

And so otherwise intervening in the currency, as Japan has done, to come and kind of prop up the yen, they are forced to sell treasuries out of their holdings in order to sell dollars and buy yen and try and support the currency.

That obviously made Scott Besson unhappy with pressure on interest rates and yields already higher.

So all in all, like if you were to draw a line, it's all positive for gold.

Are Treasury yields moving higher because people are worried about inflation and commodity prices, or are they moving higher because people are losing faith in governments and their ability to handle these debt levels?

Yeah, I, I really just think it's, I think it's a combination of, of several things.

I think there's just a supply-demand issue, right? When you have a, uh, fiscal deficit of 6% of GDP during an economic expansion, we've really never seen this in, in modern US history, where we have such a low unemployment rate, super healthy economy, and super wide, you know, essentially a fiscal deficit that's as wide as, you know, previous recessions.

Um, you know, or, or big- wider than, than kind of most recessions.

So, you know, there's a supply problem, right? We have to-- I think it's, what, $2 trillion.

Uh, that's a $2 trillion, uh, a year of new supply that needs to come into the market.

Right now, with all of these hyperscalers kind of coming out into the market too, and going from companies that were generating a bunch of cash and buying back their stock to now we're gonna spend all of our cash flow and then some.

Um, are you surprised at how long this has gone on? Do you see this ending at some point, or are we kind of in this blow-off period where this can continue a little longer?

In combination with this, you know, supposed energy spike that we had, does this kind of create more inflation or is the fact that he was very clear about inflation being one of their major focuses for this next, let's say, Fed era, is that something that you're looking at very closely is this either inflationary slash maybe stagflationary

environment.

Yeah, I think it's absolutely, it's one of the most important dynamics to pay attention to right now.

I think, I don't know how many people remember, but when Jay Powell took over the Fed in 2018, he came out hawkish, right? His first couple of Fed meetings, I don't remember which one it was, but it was in mid 2018, maybe summer of 2018.

I think Fed funds rate was at 2%.

And he said at a press conference, we're nowhere near neutral, right? That kind of people interpreted that to mean they need to go from two to three, three and a half, you know, something like this.

And took that as, wow, this guy's a super hawk, right? What happened? You know, actually that was, I think September, right around the end of September, 2018.

And they're not exactly the price setter that any of the Mag7 was, right?

But what are your thoughts on how private equity and private credit tie into this whole AI bubble that's been building over the last couple of years?

Well, I mean, obviously, these big private credit firms have become big players in the data center build out, right? First, they became big players in financing software companies over the last five years and thought, okay, wow, these software companies have basically switched to subscription model revenues.

We can project the revenues and profitability years out of the future.

That makes them ideal for leveraging up.

and now here comes ai and realizing that you know leveraging these companies up is probably a really bad idea so you're seeing some you know distress in the software sector and in a lot of those loans that private credit made now they've moved on to data centers and it's become you know they've become one of the major players in financing um in a lot of these data center projects i think you know You mentioned that I think it was the investment committee at PIMCO recently came out and said they think we're at the beginning of a new credit cycle.

PIMCO is probably one of the biggest players in the entire global credit market.

So that's probably important.

But what are your kind of thoughts on where all this ties in to the policy side of things, what the federal government's doing, what the Fed is doing, what the Treasury is doing, all that?

When you kind of look at, at it all from a 30,000-foot view, what's your current assessment both of the macro side and the market side?

Yeah.

And I think we're in a, a, uh, a, a prolonged, um, topping process in the stock market that's taken longer obviously than I thought it would take for it to play out, um, especially with this latest move in semiconductors.

This, this kind of final blow-off phase, I think, is what we're kind of in the midst of.

I still do think this is all kind of m- in the midst of a major topping process.

Um, and so, you know, earnings growth is, uh, you know, extreme, and it's being extrapolated out into the future, you know, indefinitely.

Um, but a lot of that is just accounting kind of, uh, you know, you can't really call it accounting shenanigans, but it's the timing of, you know, a, a tech build-out, uh, you know, boom, where, you know, revenues are recognized immediately and expenses are recognized, you know, later on.

See site for details.

Do you think we're in an AI bubble and are you avoiding tech stocks altogether or that area altogether? Or do you see great potential there, but also feel like you have to have the real asset side too? Is it one or the other for you or is it that's a problem, that's a bubble and...

I think AI is a bubble and I think the earnings estimates right now are a huge... you know, red herring, maybe the best way to put it, that it looks as if earnings are going to be really, really good going forward.

But when you look at the earnings quality of the hyperscalers, it has dramatically declined in the last four, six quarters.

And so the way I'm looking at it is basically just compare free cash flow to earnings, right? High quality earnings means free cash flow and earnings are going up together.

What we've seen with the hyperscalers is earnings are going up great.

Their free cash flow is literally going towards zero.

That's basically just a reflection of the CapEx spending that they're doing.

I keep threatening people with this.

And if so, what metrics you're looking at or where you sort of expect to see it appear? Is it in that, you know, earnings, earnings, earnings transcripts or is it in, you know, headline numbers? Like, how are you thinking about that?

Yeah.

You know, I think that's a terrific point that that, you know, this Iran war is is just another symptom of.

or just another inflationary aspect of a number of things that are already in place.

You know, you could, I guess you could call them the four Ds.

You have demographics, right? So the retiring of the baby boomers and the rising of the dependency ratio.

So you have more people out of the labor force and a shrinking number of people actually responsible for producing GDP puts greater pressure on wages and greater pressure on those types of things.

of the tips and tricks or just what do you look at to see, OK, hey, are we really is this is this really happening like right now or is this a next quarter, next year kind of a thing?

Sorry, passive flows or foreign flows?

I'm sorry, foreign flows.

Thank you.

You know, the foreign flows, you know, peaked back during the dot-com bubble in 2000, rolled over just at the same time as the kind of the dot-com bubble began to burst and went into a massive bear market.

You know, it's really a good real-time indicator of where you are in the cycle.

And so the huge inflows that we've seen by foreign flows are on their own, I think a good signal of where we are in terms of the cycle.

And I would just point out too, we don't even need to see outflows to affect stock prices.

Do you have an opinion as to, even though the metals have just been kind of monkey hammered here, do the miners still look attractive to you? Or would you not touch them until the metals start showing signs of life again?