A (3:20)

So what was different then during the tariff turmoil of last year? Because some of these traditional safe havens seemed a bit less attractive.

B (3:27)

Yeah. So I think the way to think about is that safe haven ness is something that kicks in at specific times. And so let's go back to the tariffs. Did it create a true crisis? Crisis, as in like a run on the banks, et cetera? No, not really. There was a lot of anxiety and so forth. But the net effect of tariffs were for many people around the world, the US Looked like a less attractive place to invest. It would be more costly to do business here and so forth. And so in, you saw the dollar weakening. Right. This really did not have much to do with its safe haven properties per se. It was just the dollar being another currency. And investors around the world looked and say, okay, this is not great for economic management. I don't really want to put more assets on the ground in the US because importing goods in the factories and so forth will be more expensive. And so then they sell dollars. Now you fast forward to the war in Iran and this is very different. The dimensions of the currency are not about broader conditions. There is a war going on. We do not know how long this war is going to go on. Wars spiral out of control even if they're meant to be contained. This is a historical fact. In that environment, people are not thinking about, is the US a good place to invest Right now, they're thinking, I am scared. I want to have my money in something that is likely to roughly retain its value for a year now, five years from now, et cetera. And by that measure, the dollar is a relatively attractive option. So at times, these what we call safe haven assets perform differently. In 2025, the dollar performed like an investment asset. I don't really want to hold it so much because The US is a less attractive environment today. The dollar looks good. It's a safe haven asset. Not because the US is a great place to invest per se, but because those properties, those safe haven properties have kicked in.

A (5:31)

How does that work then in this moment for Treasuries?

B (5:34)

Yeah, another great question, what makes Treasuries a safe haven? Obviously it's the fact that the US is very credit worthy, that the US borrows in its own currency. So therefore there is no prospect of the treasury running out of money. It can always print it and so forth. And so what gives Treasuries a safe haven property is the fact that that payment is guaranteed by the US Government. Now another factor in the pricing of Treasuries is inflation. And so if you have like, let's say, you know, a Treasury that pays a 4% coupon, you get a 4% yield every year. But inflation, let's say it goes to 6%, that is a money losing investment. Right? The real value of that treasury, that coupon payment does not keeping up with inflation. So you don't want to hold it. With the war, people are worried about inflation. I mean, obviously we've seen oil prices spikes. Wars are costly just from a sort of budgetary standpoint. They require more fiscal expenditure, they put strains on resources of all sorts. We may have to massively ramp up missile production, that puts strains on the real economy. All of these things taken to be per se inflationary. So then you look and you're like, if you're an investor, someone's selling you a Treasury, you're thinking, you know what, I want a higher yield to compensate for this inflation. So it's the type of thing once again where the same asset in a different environment, the safe haven properties aren't kicking in for that moment. Now I do think it's worth noting that you can watch, say the vix, for example, measure of financial conditions and sort of a pure measure of how anxious people are feeling. If you get a major VIX spike, there is a good chance that people will buy Treasuries. And so what I'm saying is, I mentioned all the concerns with Treasuries, however, maybe that's a price people are willing to pay just for that security. And so there's a push pull here. I like the fact that the payment is guaranteed. I don't like the fact that the payment is going to keep up with inflation. If things are really breaking down, you might say, you know what, I'm willing to take a price loss, I'm willing to accept a coupon payment that is less than inflation. Because the fact that I get paid anything at all and the fact that I will get my principal back at the end of the term, whether it's a ten year treasury, is worth so much, much to me in this period of extreme anxiety that I will use a Treasury as a safe haven, even if it's a money losing investment. An analogy that I like to make is a safe deposit box. You pay the bank for the right to hold something in a safe deposit box. De facto that means that a safe deposit box has a negative yield and yet it is often part of someone's safe haven portfolio. I'm going to put my valuables in there despite the fact that it costs me a little bit of money every year, because the fact that I will be able to take them out one day is worth quite a bit of peace of mind.

A (8:36)

Can you then explain to us what happened with gold? Because if we look at a gold chart for the past few years and we've talked about it at length, you know, number go up to absolutely quote our colleague Zeke Fox and his book about crypto. But this time around we haven't seen the same rally in gold during the Iran war. Why?

B (8:54)

So first of all, as you said, gold has rallied a lot over the last several years and it's rallied during a period of, I would say, sustained high inflation. The rate of inflation's come down, but inflation all around the world is still fairly high. People are worried about the paper currencies holding their value. It's gone up during a period of geopolitical tension, obviously multiple wars around the world since 2022. And so once again there's this anxiety about sovereignty and some pretty fundamental questions. And so this is the type of environment in which people want to reach foreign ass that once again transcends time, it transcends space, it transcends nation states and so forth. It's a form of money that's kind of understood everywhere in the world and throughout history. So the last several years have been a really good environment for people wanting to have some allocation to that people want to hold a dollar alternative. If you think back to 2022, Russia got sanctioned and lost access to a lot of the dollars that it had. And I think people around the world were looking at that. And you're like, you know what? Maybe I want to hold fewer dollars because this could happen to me too. Want to hold gold in a vault. Now we get the war and gold hasn't done as well. I think there's probably a couple of factors. Something that happens in an extreme spike, and this is a little bit counterintuitive, is when you have real fear. Dollars suddenly become more interesting to you because you start thinking, I have a rent bill to pay. I have a Bloomberg bill to pay. I have to pay for my terminal. I have to pay for the lights. I have to pay for everything. You want to just survive to the next month and the way you survive to the next, making sure that your bills are paid. Can't pay your bills in gold. And so you think to yourself, okay, there's big liquidations happening. I do want to hold gold long term, but in the short term, I need to come up with some dollars. And so gold, having done extremely well over the last few years, it may be something that you sell in this environment. There's another drawback to gold, which is that it's costly to move, right?

A (10:59)

Heavy.

B (10:59)

It's heavy. Unlike, say, bitcoin or unlike, say, the dollar, you can't just withdraw it anywhere in the world. If you have your gold in a vault in Switzerland and you move to Singapore, that gold is not available to you at a moment's notice. And so you have to think about, how are you going to get it there? Or if things really go bad, how do you get your gold out of that vault? These are questions that gold investors actually have to think about sometimes. And I do wonder, given the closure of the Strait of Hormuz, and given the fact that we don't know how wide the war is going to spend, maybe there is a little bit of cost to holding something in which the ability to physically move it to where you are is part of its appeal. And so perhaps at the margins, this is a negative factor in gold, which is here is a type of money that has to be physically moved at a time when physical movement is under stress.

A (11:52)

Joe, fascinating stuff. Thanks so much for joining us. Joe Weisenthal, host of Bloomberg's Odd Lots podcast. For more explanations like this from our team of 3,000 journalists and analysts around the world, go to Bloomberg.com explainers. I'm Stephen Carroll. This is here's why. I'll be back next week with more. Thanks for listening.