Excess Returns Podcast Summary
"Investing in a Debasement Regime"
Guest: Warren Pies (314 Research)
Date: October 11, 2025
Host: Matt Zeigler
Episode Overview
In this episode, Matt Zeigler sits down with Warren Pies, founder of 314 Research, to discuss his thesis that we’ve entered a new “debasement regime” in investing. The conversation spans key macroeconomic shifts from post-GFC deflation to an environment where the preservation of purchasing power trumps concerns about capital loss, as well as detailed takes on labor, monetary policy, portfolio construction, and the role of hard assets like gold. Pies challenges much of Wall Street consensus, emphasizing technical and fundamental analysis combined with adaptive diversification.
Key Discussion Points & Insights
1. What Is a "Debasement Regime"?
(02:11 – 07:45)
- Definition: A shift away from deflationary fears (protection of principal) toward fears about loss of purchasing power, rooted in policy and psychological aftershocks from the pandemic and fiscal expansion.
- Quote: “You shift from the number one fear is protecting principle to the number one fear being protecting purchasing power.” — Warren Pies (00:00)
- Comparison to Deflation: Earlier “deflationary mindset” was tied to 0% rates, fiscal conservatism, and post-2008 trauma. Debasement is not just classic inflation; it’s a broader psychological shift.
- Investor “auto-bid” for assets now trumps caution about drawdowns.
- Investment Implication: Move away from the old 60/40 stock-bond paradigm. Embrace a wider menu including hard assets (gold, commodities), managed futures, and alternative exposures.
- Markers of Debasement Regime:
- Sharper rebounds from corrections
- Increased retail speculation and lower savings rates
- More speculative consumer behavior (gambling)
- Asset “blobs of liquidity” ebbing and flowing through different segments
2. Policy Response and Economic Cycles
(08:21 – 16:45)
- Shortcuts Instead of Pain: Political system seeks ways (rate cuts, yield curve control) to manage deficits or stimulate without tackling structural issues—often resulting in asset bubbles, not clear improvement.
- Quote: “It's a real needle you need to thread...the political process just isn’t cut out to do it. So what you end up having is shortcuts.” — Warren Pies (08:36)
- Secular vs. Cyclical Trends: Debasement is secular (multi-year), but cyclical issues like tariffs and labor slowdowns also impact outcomes.
- Stocks are debasement assets, especially with today’s S&P 500 (government-industry entanglement, concentration).
- Cyclical Deceleration: Despite wealth effect (14% of GDP increase in household net worth last six months), savings rates are low and wages are decelerating. Consumption strength may be fleeting.
- If the Supreme Court strikes down tariffs, rapid fiscal expansion could upend forecasts.
3. The Labor Market: Malignant Stasis
(16:45 – 21:21)
- Malignant Stasis: Last year was a “benign loosening” (more labor supply due to immigration), while this year is “malignant stasis”—headline numbers mask underlying weakening from demand side.
- Fewer job openings, shrinking wage gains for job switchers, residential construction payrolls declining.
- Quote: “Job openings are now below the number of unemployed Americans...That’s a very rare thing outside of recessions.” — Warren Pies (19:56)
- Recession Odds: Not calling for recession, but risks are underappreciated.
4. Bonds, Yield Curve, & Policy
(21:21 – 29:38)
- Bond Positioning: Bonds remain a crucial equity hedge despite the debasement regime. The yield curve is normalized; risk this cycle is a growth scare causing further yield drops.
- Quote: “Bonds are hedging your equities here, despite all the talk about real assets. We did not cut bonds out of that portfolio.” — Warren Pies (21:49)
- Fed Policy Outlook: Leaning toward further rate cuts but favors data-dependence. Cautions against a preset aggressive cycle. Chris Waller’s positioning praised for pragmatism.
- Quote: “I don't think that the terminal rate is much a whole lot lower than where we are. They should probably have a cutting bias and be very data dependent.” — Warren Pies (27:09)
5. What Would Cause a Bond Bear Market?
(29:38 – 34:01)
- Bear Steepener Scenario: Only plausible if growth and inflation drastically pick up—forcing the Fed to stop cutting and possibly signal hikes. For now, disinflationary tailwinds (energy, housing lag, labor slack) make this unlikely.
6. Valuation: Multiples in a Debasement Era
(34:01 – 38:40)
- Market Overvaluation: Current valuations not a bubble, even with high PEs. S&P 7,000 plausible if earnings materialize. Tech-fueled change in S&P’s composition justifies higher multiples.
- Quote: “The market really was not overvalued...If analyst earnings come through, then we don't think the market's overvalued.” — Warren Pies (36:12)
- “Classic” valuation anchors (PE levels, historical compression) less useful in this paradigm; investors who cling to them have missed upside.
7. Small Caps & Value Stocks
(38:41 – 41:49)
-
Small Cap Stance: Continues to underweight. Recent outperformance is mostly a short-covering phenomenon rather than a genuine early-cycle rotation.
- Non-profitable small caps vastly outperform profitable ones since April, indicating speculative reversal rather than sustainable leadership.
-
Value vs. Growth in Debasement: Debasement regime eventually helps “hard asset” value stocks, but timing is everything; regime effects do not play out in a straight line.
- Gold miners have their moment now, energy will have its turn, but secular moves in value are rare and cyclicality dominates.
8. Gold: How Long to Stay Bullish?
(45:12 – 50:01)
- Gold Breakout as Signal: Gold’s breakout versus foreign currencies and the US dollar in late 2023 confirmed a new secular bull market.
- Secular bull markets in gold run “farther and last longer than you expect.”
- Quote: "Once this secular bull takes place, it's going to run farther and last longer than you expect. The only way you can tell when it's over is you have to wait for a trend break." — Warren Pies (46:33)
- Risk Management: Will remain overweight until long-term trend breaks. Minor 10%+ corrections will occur but are usually buying opportunities. Targets $5,000–6,000/oz before this bull is over.
9. Portfolio Construction for the Debasement Era
(50:01 – 54:35)
- 20-Asset Diversification: Advocates for abandoning 60/40. Instead, favors a “big menu”—equities (50%), fixed income (30%), alternatives (20%: gold, bitcoin, energy equities, managed futures, etc.).
- Trend-following overlay to shift allocations as cycles evolve. Fixed income still matters as a defensive play.
- Quote: “The more assets you have open to your strategy, the better chance you'll have to find the place to hide out.” — Warren Pies (52:37)
10. AI & The Uncharted Future
(54:35 – 56:49)
- AI as Wildcard: Potential “XO machina” impacting productivity and offsetting demographic drag on growth. Already delivering productivity gains at 314 Research.
- Transformation could unfold suddenly or over a decade—openness to "things could get weird" is key.
11. What Breaks the Debasement Regime?
(57:17 – 59:50)
- Endgame: Likely ends with real economic laws reasserting via bond market crisis or through severe social unrest due to rising wealth inequality and housing unaffordability.
- Quote: “The other way it could end is through true societal unrest because we do have a wealth inequality problem. In a debasement regime it only makes it worse.” — Warren Pies (58:13)
12. Personal Investing Beliefs
(59:58 – 61:13)
- Risk Management: Use technicals/price for risk, fundamentals for conviction.
- Quote: “I really believe that you have to manage risk with technicals, with price and build conviction with fundamentals.” — Warren Pies (59:58)
- Still believes markets are not overvalued despite pushback from peers.
Notable Quotes
-
On the core of debasement:
"The fear is not having assets when they go down, but having too much cash when the assets go up." (00:00) -
On gold's secular bull:
"You have to ride it. I think there's too much money out there not to ride it. And then you have to know you're probably going to ... give a portion of that back at the end." (46:33) -
On market cycles:
“Maybe wealth plus a series of rate cuts. But that remains to be seen.” (12:51) -
On small caps:
"The truth is...that short covering has propelled the small cap space...non-profitable [names] up something like 50% from the lows in April." (39:56) -
On portfolio construction:
"You need a strategy you trust that can keep you invested through these cycles because they do tend to go farther, higher and last longer than we all expect." (53:44) -
On the end of debasement:
"...It's going to run probably until there's a serious break in some major bond market... The other way it could end is through true like societal unrest because we do have a wealth inequality problem." (57:55)
Major Timestamps
- Debasement concept & psychology: 02:11 – 07:45
- Secular vs. cyclical economic shifts: 10:45 – 16:45
- Labor market breakdown (malignant stasis): 16:45 – 21:21
- Bond market views and Fed policy: 21:21 – 29:38, 29:55 – 34:01
- Valuation in this new era: 34:01 – 38:41
- Small caps & value investing in debasement: 38:41 – 45:12
- Gold & risk parity framework: 45:12 – 50:01
- Portfolio construction for 2025+: 50:01 – 54:35
- AI’s economic impact: 54:35 – 56:49
- How debasement ends: 57:17 – 59:50
- Pies’ unique investing beliefs: 59:58 – 61:13
Conclusion
Warren Pies articulates a compelling framework for understanding today's markets, arguing the post-pandemic regime is defined by ongoing currency “debasement,” asset rotation, and the need for broad, adaptive diversification. Gold is the poster child of the regime, but adaptability, technical risk management, and trend-following are essential. Investors must abandon legacy heuristics, expect longer secular cycles, prepare for volatility, and keep an open mind as technology (AI) and macro shocks keep rewriting the rules.