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- [00:00]
Vinny Lingham
We're over three right now, so you can't bet that it won't go to four.
- [00:03]
Ram Alawalia
I will bet you that it will not go to four. I will have to do that.
- [00:06]
Vinny Lingham
If you look at the charts around M2 money supply, it appears that bitcoin and gold are the two best assets to own in a market where there is infinite supply of fiat currencies.
- [00:15]
Ram Alawalia
The story of human history has been the story of human discovery, innovation, entrepreneurship, and forming cooperative enterprises to serve others and make the world a better place.
- [00:29]
Vinny Lingham
My point is, like, on a long enough timescale, something's going to break.
- [00:35]
Steve Ehrlich
Hi, good morning, good afternoon, good evening, everyone. Thank you for joining us for what should be a really fun discussion. I am Steve Ehrlich, executive editor here at Unchained, and you have two very special guests, Ram Alawalia from Limited Capital and then Vinny Lingham from Praxis Capital. Thanks guys for joining this conversation. We're going to really debate the merits of gold versus stocks, the S&P 500. For those of you that are regular watchers of the show, it stems from a debate that Vinnie and Ram had during our episode, I believe, about two weeks ago. And it was so exciting that the debate actually carried on in our private chat during the live stream. So afterwards we all kind of decided it would make sense to give them the proper venue to really kind of hash it out. So really excited to do that. We're going to start in a minute, but just quick disclaimers. As always, nothing that you're going to hear should be seen as investment or financial advice. For all necessary disclosures, please check out our website. Unchained crypto.com bitsandbps the crypto world is buzzing.
- [01:47]
Sponsor/Advertisement Voice
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- [02:26]
Steve Ehrlich
To get started with that, let's just kind of get into it. I mean, you guys really sort of went at it in a fun way about the various narratives of stocks versus gold, how they perform during periods of inflation, during periods of crisis right now. Everything seems to be doing well, although gold is sort of lapping in some ways. Stocks and bitcoin up, I believe, 43% so far year to date. A pretty sizable jump. But I mean, Rahm, as you know, too, indices are setting all time high records on a daily basis as well. So I think there's a lot of questions. A lot of people watching and listening are wondering, what should we do with our money? What's the right type of allocation? What are the real kind of like, driving theses that should impact investment decision decisions? And that's what this whole conversation's about. So, Ram, why don't. Why don't we start with you? I just. I have questions prepared and we'll go through all them. And then for everyone listening, too, I am reserving some time to take audience questions as well. So please keep them coming. I might sprinkle them in during the discussion, but I'll probably. I'll try to save some time at the end as well to dedicate it to audience questions. But with that, Ram, let's, let's dive in. Give us, like, quote, unquote, your opening statement. Like, like, why are you so bullish on stocks?
- [03:50]
Ram Alawalia
Well, first off, I'd say it's. I'm glad that we're having a debate. We need a culture where people have a debate that's collegial and be intellectually honest, especially in the wake of, like, Charlie Kurt's murder. Like, I think important to have, like a civil debate. You can remain friends and have an honest conversation about that. So thank you, Vinnie, for joining me. Really appreciate and respect Vinnie's views, too. It should be fun. Hopefully we both walk away having learned something. We can make a better decision. The second thing is I want to know who Martin Shkreli is in this debate. I hope that's me. So a lot of debates happening recently. So this will be fun. So let me lay it out for you. I think there's an economic case to be made for stocks over gold. And I think there's a principled case for assets other than gold, including bitcoin, by the way. Okay, so I'll start off with. With stocks and stocks. You know, the S P500 index has a stronger track record than gold, and there's no. So there shouldn't be surprise there. And the reason why is stocks are productive assets. They generate earnings, they generate free cash flow. They can invest in new projects. They can buy back their own stock. There are companies that can adapt and pivot around the world. Gold is not that. Gold is a commodity. Gold is benefiting from the fact that China is buying gold. China has changed the purchasing behavior from primarily buying Treasuries to finance their exports to buying gold. So their gold trade is really about front running China. That's a, that's a tactical consideration. It's not a long term, multi decade consideration. So I think that matters. Gold is more of a trade than it is a strategic asset allocation. Gold has benefited from Europeans and international investors saying they want to diversify from the US I'm actually making Vinnie's argument here, but that's very different than talking about the role of stocks in a portfolio. Stocks over the long run have outperformed gold. They will continue to outperform gold. And I think very tactically, where we are now, very tactically, notwithstanding the bid that China has, now is probably the exact worst time to buy gold because it's overextended and it's overbought. So I wouldn't want to be buying gold where we stand today. And gold has other deficiencies for Those that remember nano surrender in the Great Depression, but in 1933, the present at the time, FDR essentially made it illegal to hold gold in your safe deposit box. And they forced a conversion from the fair market value price of gold to a much lower price of gold. It was essentially as a way of government taking wealth from its own citizens. And it wasn't until 1974 that it was then legal to own gold bullion. So when you're owning gold in an etf, you don't actually own gold. You're owning a claim through an ETF process that then has a claim on a custodian that has some gold in a vault. So it's just not as secure as say, a decentralized digital asset that is portable, that's protected by cryptography as opposed to the promises of some sovereign. So that's my opening statement. I'll pass the ball to Vinnie.
- [07:20]
Vinny Lingham
Well, thanks, Bram. I should have been writing down notes because there's a bunch of things you said that I'd like to contest. But from memory, let me try and debunk some of these things. First of all, agree that gold was illegal for a long period of time. I think we're in a different era now where gold is held very widely across multiple countries. Asia, so you have China, India, obviously throughout Europe as well. And so you've got this, this sort of decentralization of gold holdings. I get the ETF claims on gold, but I think if we get down to sort of brass tax around this. I think gold is almost as probably even more so decentralized in holdings as something like Bitcoin. Probably more so. Right. More people around the world hold it. They have it physically in their vaults and they're safe. They have gold coins. There are tons of gold dealers on every street corner. So gold is very decentralized. It really is. And it's disconnected from the Internet. It's a physical item and its properties cannot be changed. Bitcoin can actually be changed. Gold can't be changed. Bitcoin, the developers are having a war right now between knots and core because there's some changes that need to happen on the node software and there's a big argument about it. But it's a community consensus driven protocol. It is not a, it's not atomically secure. Gold cannot be changed. You could maybe get a, a large hadron collider and try and change one atom at a time or something like that, but it can't be changed. I think we, we know that. So I think when it goes to stocks versus gold as a sort of strategic defensive reserve, think about things differently. I think about the world right now in terms of finite assets and infinite assets, right? So fiat is an infinite asset. You can print as much of it as you want. You can just load up $2 trillion worth of debt, which is what the US is doing every year, and put that fiat currency into the market and then that currency gets used to buy things. Now when you're buying a stock, you're buying a future claim to the cash flows that company can generate from a combination of current money supply in the system and future money supply. So stocks do exceptionally well because stocks that are highly capital efficient at harvesting fiat out of the system will do really well. Stocks that aren't obviously won't. And when you have this money still chasing finite assets, things like property does well, gold as well, silver does well, commodities, anything that's fixed in nature that cannot be, we can't produce more of resources, et cetera. And so this is where the debate comes in, right? Is gold a sponge for excess liquidity or not? And if you look at the charts around empty money supply, it appears that bitcoin and gold are the two best assets to own in a market where there's infinite supply of fiat currencies. And that's not just US dollars, that's foreign currency as well. The Chinese have been buying gold like crazy, and so the Indians, and so you got this global demand. So you know, when you Say it's overboard. I, I, I actually spoke to a gold trader friend of mine who spent 20 years trading gold and he was talking me out of my position at 2700 because he said gold was overbought. He's been a trader for 20 years. He knows this market. We're at 3800 right now. You know, he's been absolutely wrong for the past thousand bucks. And I think he'll continue to be wrong because there's been a paradigm shift in, in, in the macroeconomic view, macroeconomic structure of the world right now. And I think that we're just going to see excess equity pouring into stocks, real estate, assets. The real question is how hard do you want to go? The hardest finite asset on earth is gold. And then you could argue maybe bitcoin and then stocks and then, well, real estate, then stocks, et cetera, because you can't create more of, of these things, right? There's only one Apple, there's only one Google, there's only one Tesla right now. And, and you know, these companies can screw up as well. I mean, you know, Enron was good example of how a company screws up. Their cash flows can go down, they may not produce good products. So yeah, yeah, you know, like I think when it comes to absorption of excess liquidity, stocks are great, but they're not guaranteed because there's still people in government and regulations that interplay there. So governments can produce rules that make it harder for companies to operate. They could ban certain things, I mean, look at what TikTok's going through, etc. So, so equities have some level of risk. But for me, the lowest risk asset right now, if you want to preserve purchasing power and wealth is gold.
- [12:09]
Ram Alawalia
Let's go point by point. Let's go point by point. There's a lot here and each of these points deserve kind of dwelling upon, right? So first off, just on the decentralized, my point, like gold has been around for millennia. Human beings as a civilization have looked at gold as a store of value. My point around gold is not that it's not decentralized. My point around gold is that if you access it through an ETF, or you put in your safe deposit at a bank, or you custody it, you're making a trust assumption on a sovereign. And even the United States government has in the past, in 1933.
- [12:53]
Vinny Lingham
They made.
- [12:54]
Ram Alawalia
It illegal to hold gold and it was a forced expropriation of punnett citizens. And this has been done around the world, by the way, In Argentina in 2001, they devalued their local currency. And you know, one day people went to bed, they thought they had X Argentine pesos in the account. They woke up the next day and was slashed by a significant amount. So if you own gold, unless you hold it in a secure area and you're not disclosing it in some way, which puts you into other issues with the state, you are trusting a sovereign. I'd rather trust cryptography for security. If you want to move money, if you've got to flee the jurisdiction you're in due to some destabilization, you better have a portable asset. I'll share a story with you of a friend who was born in Iran. His parents left Iran over the northern border and his mom essentially created some headdress and put these emeralds in her headdress. And then they'd sold their local business and that's how they transported the wealth and they got through the security. Right. They got lucky. If they were interdicted, they'd be in jail. They wouldn't have left around who knows what their life would have been. A decentralized digital asset doesn't have that kind of deficiency. So that was the first point around gold you're making for the vast majority of people. You're making a trust assumption on the sovereign. Now, I think it's okay to make those trust assumptions today. I think things are actually more stable than people think. I don't think this is a war about to happen. Okay, trying to put things into perspective here. But there is a principle based distinction between security from cryptography and security from trust in a sovereign. There's a big difference between the two. Now, second point, you made a point around infinite versus finite assets. I think it's a fantastic point. This is why fiat devalues over time. This is why inflation goes up. This is why Coke used to be 5 cents a bottle and now it's $3 a bottle. So the reason why stocks are interesting is like real estate. They are real assets, which means that they reprice with inflation. They're a real asset. It's not fiat. Right. Fiat's a sinking asset. Real assets reprice in real terms, meaning purchasing power, adjusted terms. Okay, so what I'm looking at here is a stock of Apple. This is the shares outstanding for Apple. You can see the share counts come down from 26 billion to 14 billion over time. It's almost cut in half. So not only so they're infinite assets, they're finite assets, and then they're finite assets. That decrease over time. We call those Viax. In this year alone, There will be $1 trillion of stock buybacks. This is the magic of earnings. So it's not just about harvesting fiat from the system. It's about earnings. When you have earnings you can buy back her shares. When you have earnings, you can plow back into new investments that are productive and grow more earnings in the future. Gold as a common can do that. It's an inert metallic object. It has got some, there's some value there, acknowledged some cultural value there. But the gold supply is increasing year over year. It is an inflationary supply. Each year the growth of the supply of gold is about one and a half percent. That's inflationary. If you own good companies that generate free cash on earnings and don't have to dilute their investors by issuing shares, you own a better asset. So I'll pause there. I think there are other topics we should get into but wanted to keep it kind of focused.
- [16:41]
Vinny Lingham
So I'd love to just dive into sort of maybe an altruistic type of view on this or wouldn't say altruistic, but like maybe a non capitalistic view. I think one of the problems with share buybacks in my opinion is it actually deprives the state and the country of taxes, tax revenue. So we have this situation where instead of having dividends being distributed to people and I come from South Africa originally and in South Africa share buybacks are actually illegal for a long time or they weren't allowed to be done. Companies couldn't buy back their own shares. I don't know whether that's changed or not since I left. But to buy back shares was a big process. It wasn't, it just wasn't done. And what happens when you do share buybacks is you inflate the, the price or you increase the price obviously of the, of the share and you don't distribute the money to, to the investors and they don't pay taxes. So they just get this, this capital, this tax free kind of capital gain return over time. And this is what's causing I think the left to really get. And I said the left because I'm an independent. So I just look at things from an apolitical view. The left gets really upset about taxing the rich, taxing the wealthy, etc. Because what's happening is we're using cash flows from these companies to basically push the price of the shares up. And then people are able to take lines of credit with their banks and not sell the shares. And effectively live tax free. And so that's causing an imbalance in society where we actually do have these massive government deficits. Now government overspends for sure, there's no argument there. But it's a combination of the two things where I think that depriving the state that runs everything of tax revenue and effectively I think actually causes a lot of inflation in a sense because now the government has to print more money which weakens the middle class and the lower class is an issue for me, I think that's fundamentally a big issue with stocks is we've created this mechanism where we can extract value from almost like a vicious cycle. We're extracting value from the economy, we're delivering it to the wealthy who own the stocks for the large part. And maybe those are the people who are retired who have long term stocks. They just see this massive capital appreciation but that's being funded right now by massive federal deficits. And let's just talk about the US I can't comment to other countries, I haven't lived in any other than South Africa. But I think that this, what you've just explained right now is why I'm bullish gold is because we are, we are in this vicious cycle which no one is able to see through and realizing that we're destroying the US middle class. And you know, the middle class is basically being wiped out. The people who don't own assets are suffering and we can't extract tax revenue from shareholders and we're giving them this unfettered growth in, in capital appreciation without paying any taxes. And, and we're opening up the books to, to exactly what, what I've said now. And by the way, I bank with private bank and I know how this stuff works and I can get really cheap so for plus one type lines of credit against assets. And other people can't get access to this cheap credit. And so this is a very big problem because of the stock buyback issue.
- [20:01]
Ram Alawalia
You gave me a great layup, I got a great swing here about to come through. So. Oh yeah, yeah, a few things. The number one, you're making a policy statement, you're saying, hey, buybacks are bad. The reality is buybacks are legal and permitted in that world. You just made the point that yeah, people get wealthy with buybacks. I prefer buybacks rather than companies spending unproductive projects or spending on corporate jets. So if a company, this is a corporate finance decision to buy back shares or issue dividends and it's more tax efficient to do a buyback than A dividend. I don't want ordinary income tax. Apple scuttle, their, their Apple car project. That means they're not investing, therefore they've got excess capital, therefore they should buy back shares. They're making a rational decision now. Second point, second point. Hey, once I get second point, a lot of people on the left, I know you're independent that say hey, this is bad, it's creating wealth inequality by the way I made it and yeah, I own stock and I got a private bank. But let me tell you what's better for you, right? Everyone on this call isn't Warren Buffett, they're not Stanley Druckenmiller, they're not George Soros. Anyone listening right now is not that they want to create wealth. They're listening in to make a better decision for themselves. And over the vast span of stocks the data shows that's an excellent way to grow wealth because you're investing. If you invest in the s and P500 or you pick great businesses, you're owning a claim on the growth of the economy. And the driver of that growth, it isn't like fiat. That would be no gain in real income actually that would just be inflation repricing assets. That's not actually what it is. It's innovation. Google, Meta, Nvidia and other companies are creating legitimate innovation which reduce costs in the economy like marketing costs or distribution costs and create a higher quality life. So you're buying into innovation and earnings growth. And that's a great story. I want to own that. And that's why the United States stock market has beaten other markets globally because of a culture of entrepreneurship and innovation.
- [22:21]
Vinny Lingham
So, so, so, so, so here's the issue from is we've created this perverse set of incentives for executives to deploy cash to buybacks, not you know, and obviously not dividends in mass. We've also disincentivized M and A in a big way for multiple reasons, FTC issues and whatever else. But we don't have this culture of M and A that we had many, many years ago, a decade ago because you know, when you get your, your pay package and you incentive package from the board, the compensation committee at whatever public company you're at. We one of the issues right now is that like well should I was used money to buy back shares and pump the price, you know, pump my bags or go and buy a couple of startups, be more innovative, etc. We're talking about the use of excess capital here. We're not talking about the use of Ordinary course of business, R and D stuff. We're saying excess capital and excess capital is not being used, pumped into the sort of startup ecosystem. And what actually winds up happening is they, they diverting the capital to share buybacks. And I think that's, that's actually harming the tech ecosystem in a big way as well because we have too many companies where the executives would rather buy back shares and you know, and pump this, the price, pump their bags basically than, than be innovative. You know, again, excess capital. They're, they're, you know, they're running some R and D and whatever else. Look, what I'm just coming from a different perspective. I'm coming from a perspective that I'd like America to succeed on the back of meritocracy and I'd like America to succeed on the back of, you know, a lower federal deficit and less money printing and, and, but what I'm seeing right now and what I mean to gold is that I think that something's going to break and we're going to have a crisis of capital. And at that point we're going to point to, you know, hard assets like gold. And I think you're going to see companies falter and earnings drop and you know, we could be in a major, major recession. And you know, maybe that's a better buying opportunity. In the right now I wouldn't be buying stocks. I'd be rather buying gold. And maybe I care less about gold confiscation. And the same thing happening in the 30s. Again, I think that's way beyond behind us right now. At least living in America, maybe other countries is different. So I'd rather just sit in a barbell approach. Basically Treasuries and gold and just wait. And Treasuries, short term, not long term, long term Treasuries, I think are in big trouble and wait for a better buying opportunity. I think the Buffett indicators, flying high, everything looks really, we're priced to perfection until the bond market pukes and basically the bond vigilantes get in and punish the government because they cannot keep spending at this level. And even the shutdown right now, basically that's slowing down the deficits. But the only way that we reopen is we're spending more money and that's going to push the price of gold and Bitcoin and everything else up. But again, the party is going to end, Ron, like no matter which way you look at it, the party for stocks is going to end in particular. But I think the rest, you know, the global economy is very interconnected. I just think that I can't predict what is going to happen to break the economy. I do think that gold is the hardest asset on earth.
- [25:31]
Steve Ehrlich
Ron, before you rebut do need to just take a very quick break to hear from the sponsors who make this show possible.
- [25:37]
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- [27:27]
Steve Ehrlich
To pick up Rob. I'm going to come to you, I promise. But I do want to just maybe just also tease something Vinnie said, which is, which is interesting. I mean the party's gonna end that the stocks are unsustainably high. They're propped up by, by massive deficit spending that is going to, I think as the most objective observers become exacerbated with this new domestic policy bill and the trillions of dollars that are going to come from that. But at the same point in time, I've been hearing these doomsday scenarios for years at this point and stocks continue to go up and they have this big new driver of innovation in the form of AI and everything that that entails. So I'd like. I mean, Ron, react.
- [28:11]
Ram Alawalia
I thought you're the neutral moderator. Stephen, what happened, buddy?
- [28:16]
Steve Ehrlich
I am neutral. My last name means honest.
- [28:19]
Ram Alawalia
It was a great segue for me. So I agree, I agree. I just shared a screenshot here, if you can share that. So there's never been a better time to be alive. Okay. The only better time to be alive than today is tomorrow. If you had to take a step back and ask yourself what moment in human history would you rather be born into? The answer is today or tomorrow. Okay? Things have been worse socially and politically during the era of the. Where the civil rights era was a tremendous amount of political and social chaos. You know, Philadelphia was burning. You had the Million Dollar March. You had a president was assassinated, MLK was assassinated. So even though this feels like there's a lot of stress happening, it's not like it was back then. You don't have a Vietnam war, you don't have that stagflation. It's hard for us to conceive of that because we weren't there. Okay? Now this chart shows why there's never been a better time to be alive. The story of human history has been the story of human discovery, innovation, entrepreneurship, and forming cooperative enterprises to serve others and make the world a better place. From the wheel to the printing press to penicillin to barbed wire fences made good neighbors to the Model T to the airplane, from the Wright brothers to the semiconductions, from Fairchild to the operating system, that's the marker of human progress. So this shows the S P. This is total job openings is one color here. That's the line in white. And The S&P 500 is a line in red. And ChatGPT release data here. I'm still trying to analyze this, by the way. I don't know if this is causality or coincidence, but I think it's worth talking about. So AI is driving higher productivity. We haven't seen the current productivity rates in the economy since the late 90s. The late 90s is when we saw another incredible innovation emerge called the Internet that emerged in the late 90s. And productivity is the only free lunch in economics. It's the only time a company can raise, increase earnings and pay more for labor. So for you, either an owner of capital, provider of labor, or both, both sides win. It's win, win. That's why productivity growth is the ultimate tonic, can also combat inflation. So AI is here. AI is real. We're still in the early days of adoption. The adoption is real. We are seeing ROI on AI spend. The doomers are wrong around that. Google's got double digit cloud growth, so does Amazon. Meta's got ROI and their ad spend. So you're going to keep seeing more of that and companies are seeing real benefit. I spoke to the CTO. One of the CTOs at Bank of America apps that used to take six months to launch internal apps now takes six weeks due to all the coding productivity gains. So this is going to improve real outcomes for Americans. It will make Americans wealthier, it'll make Americans that own stocks wealthier. So this is a great thing. And then it in 5, 6, 7, 10 years you're going to see the onset of Humanoids which will take this to the next level. You're going to see driverless cars become more ubiquitous which will reduce fatalities, improve productivity. You're going to see the cost of housing construction diminish from, from humanoids also. So all this improves quality of life. You know, 50 years ago you didn't have this kind of quality of life. Everyone's got a washer dryer, a subscription to Hulu, Netflix, Paramount, access to travel and leisure, access to content, entertainment, access to the gym. So it's just human nature. Human nature likes to, you know, we have amygdalas. Biologically we have the fear center of the brain. We're hardwired to look for risks and we're over sensitized to risk. And there are bull markets and bear markets, sure, but most of the time you're in a bull market. You're in a bull market if earnings are going up, if interest rates are steady, if inflation is steady or declining. Fiscal deficits are actually good for corporate earnings. I wish the government would be more restrained, but the sky's not falling. The United States, the least dirty laundry shirt in the world. There's no other government issued bond that's better than the United States. So the world is good. This is where the center of innovation is happening. And you're better off participating in that economic transformation by owning stocks.
- [33:23]
Steve Ehrlich
Vinny, I want you to respond to that. But in addition, just to kind of get down to some practicalities for our listeners, stocks are up 40x percent so far year to date. Can you, as you're replying to ram, just talk about where that demand's coming from. You mentioned the decentralized nature of gold ownership.
- [33:47]
Ram Alawalia
There's a lot of, a lot of.
- [33:49]
Steve Ehrlich
People watching central banks and looking at what their gold purchases are vis a vis US Treasuries. Where is that demand coming from? And really this is a, so far it's a bumper year for gold. How's it going to continue? People don't want to feel like they're buying into the top.
- [34:09]
Vinny Lingham
There's a lot of, so there's a lot of passive buying in the market that's happening right now. Unfortunately I'm on my iPad. My computer had some water damage so I can't share some charts but I saw a chart, I think Luke Groen posted it where it shows, you know, basically gold is, you know, sorry, long term treasuries are being offloaded by foreign governments in favor of gold. And you can see that very clearly happening that basically, you know, U S Treasuries as much as you as ram as you'd say, it's, it's, it's, you know, it's the best in the world. Nobody wants it, people are dumping it, they're buying gold and central banks are buying gold en masse. I opened with yeah, yeah, so, so the fact that central banks are rotating into gold right now and not US Treasuries, I don't think gold is even close to topped. I think, I think I'll make a prediction. Yeah, I think we hit $10,000 per ounce within the next two years. So I think on a, a risk adjusted basis gold's going to be up.
- [35:09]
Ram Alawalia
Clarification. I don't own U.S. treasuries. I'm saying U.S. bonds versus other sovereign bonds. U.S. is Japan versus Europe.
- [35:18]
Vinny Lingham
That's there's going to be a crisis, there's going to be a credit crisis, there's going to be a crisis of collateral. The Global debt to GDP ratio is 370%. Last I checked. It's off the charts. And so I think at some point people just say and we're seeing this, I mean gold is sending a warning right now to us as well. Japan's 250% but it's all, they own the debt themselves. So government owned debt. So it's all internally owned and controlled.
- [35:47]
Ram Alawalia
And there's a failed auction which is what you're saying, you're saying you're going to get a failed auction one day.
- [35:52]
Vinny Lingham
Oh it's not about, it's not about it being a failed auction. I think it's just about the fact that purchasing power is going to drop from the local currencies on a global scale and gold holds the value.
- [36:04]
Ram Alawalia
So you're saying okay, so if there's a failed auction a central bank can always choose to monetize its debt. So that's why they'll never be a failed auction.
- [36:13]
Vinny Lingham
Just, just what happened exactly.
- [36:16]
Ram Alawalia
Honest. That there could be.
- [36:20]
Vinny Lingham
Purchasing power goes down.
- [36:21]
Ram Alawalia
That's the issue was that side purchasing. Yeah, it's called inflation. This is why you need to have enough fiat and this is why, this.
- [36:30]
Vinny Lingham
Is why the carry trade in Japan is going to unwind pretty badly. Because we have a situation where the Japanese cannot lower rates. They have to, they have to raise rates or at least maintain where they are. Inflation is, is seeping into the economy and the US has to lower rates because the economy is suffering right now with high rates.
- [36:48]
Ram Alawalia
And so yeah, there are parts of the economy suffering from high rates like commercial real estate. The market's seen at all time highs.
- [36:55]
Vinny Lingham
But again the, my point is like on a long enough timescale, something's going to break.
- [37:01]
Ram Alawalia
Boomers are benefiting from higher rates if.
- [37:03]
Vinny Lingham
You raise the income going up. Yeah, they got 30 year bonds and they got 20 year bonds probably and these bonds. So look, there's a big, there's a big chunk of the market right now where we've got like seven, $700 billion hole in the Fed's balance sheet because a bunch of banks are holding long term bonds which are held to maturity and marked at, not mark to market. Right. They marked at. You know, they're, well, they held it, marked it, they're marking it to, to the notional value of the bonds not marked to market, which creates about a 700 billion dollar hole. You know about this Ram. This is not news. And so guys like I, I, you know, I've spoken and I've read a lot macroeconomics and no one person in the world has a complete view of what's going on in the entire world. Okay, this is not possible. This is too many nooks and crannies in the macroeconomic plumbing of the world. So even the best macroeconomists, they're often.
- [38:04]
Ram Alawalia
Wrong because they, they're trends and there's policy. Share this screen real quick. Steve, you can share that. So I'll make Vinnie's point here by the way. So I think this point is legitimate. And look, the issue with the debate, by the way, it's very easy to say it's 0 or 1. It's not really that like Vinnie's right, that gold as a percentage of central bank reserves increasing. And I think that's going to keep increasing actually. And the gold trade is really front running China. That's what it is. That's the big trend I think if you look at the obvious thing and focus on the primary trends, you'll do okay. So, you know, gold as a percentage of. Of international reserves was coming down here. And this is the age of US American hegemony, when everyone got on board with us and Bretton woods and the World Trade Organization and really trust in the United States. And so the demand for gold declined because the demand for treasure is going up here. That's reversed. This is Vinnie's point. So, like, I agree with that point. Right. This is also the point again, told in a different kind of way. Okay. Now there's a difference though, between, you know, confidence in the United States and, and Treasuries. And I'm not a big fan of bonds as well, versus what will do well in the long run. What will do well in the long run? Stocks that grow. Sure, sure.
- [39:28]
Vinny Lingham
A bit round. Like this is where the long run stuff comes into question. Like if you bought, if you bought stocks in 2009, okay. After 2008, crash, you would have done way better. And if you bought them in 2007 or six. Right. Just because there's this huge dip in the market, there's a liquidity crisis, etc. All I'm saying is that maybe I'm just. I've got time to time the market. I just think that buying into something that's going to preserve purchasing power for me and not be exposed to excess market risk right now is, is my preferred way forward. Now I get that I'm trying to preserve wealth and other people are trying to create wealth and it's a very different mindset. But my advice to a lot of my friends is, look, if you know that you're going to get, you know, maybe, you know, even if you say goals is just, just do 10 a year for the next couple of years and wait around for a crisis to happen, that for me is better than putting all your eggs into stocks and watching a 40, 50% drawdown, which is what I'm expecting to happen at some point.
- [40:29]
Ram Alawalia
I don't see a 40% drawdown happening. Just. You got to have some shock to the system. There's no crisis that's going to happen that's caused oa.
- [40:38]
Vinny Lingham
But it's inflated. It's inflated right now.
- [40:40]
Steve Ehrlich
Then if I could come back one second. Rom Vinny, I'd love it if you could just explain what you think that catalyst would be that would lead to this drop, because I know people are looking for.
- [40:52]
Vinny Lingham
So I think we should keep an eye on the carry trade between Japan and the US that's one. I think we need to look at what happens at the long end of the curve in the bond market and what happens with inflation in the U.S. this is multifactorial. There's no one factor that you can, can take into account. And, and the, the long end is going to blow out. You know, if, if they, if, if inflation goes up and rates come down, the long end is going to blow up.
- [41:19]
Ram Alawalia
I think, okay, a few things. One is we did have a carry trade unwind. It happened in August of last year.
- [41:27]
Vinny Lingham
Yeah, I know.
- [41:28]
Ram Alawalia
And best time to buy stocks was then. Another time that happened was in the second week of February in 2007. It comes and it goes. Those are both viable opportunities. So the value of an asset in equilibrium is ultimately a function of this claim of earnings discounted. There's always that someone's got cash.
- [41:49]
Vinny Lingham
But are you familiar with fiscal dominance? Right. Do you believe we're in a fiscal dominance situation?
- [41:54]
Ram Alawalia
Fiscal dominance is why you should be bullish.
- [41:57]
Vinny Lingham
Okay, but do you think the fiscal dominance lasts forever?
- [42:01]
Ram Alawalia
No. And unfortunately.
- [42:02]
Vinny Lingham
So what happens when it ends? What happens when it ends?
- [42:05]
Ram Alawalia
I will assess it at that time. It's not happening now. I'll assess it. The great thing about a government is they announce in public what they're doing. They debate it in public. You have elections in Argentina, for example, they elected someone or not elected, but they're shifting away from lay. You can start to see that coming and you can de risk ahead of that. Right now the United States is saying full court press, deregulation, privatized Fannie Mae, Freddie Mac, increased federal spending. That's all bullish. If we see a change in policy, like the reason in part why we had the correction in February is because every single policy lever is going the exact opposite direction. So markets corrected. Right. But right now it's full steam ahead. In fact, Trump is saying when he bring rates down to 1%, he's not the Fed, of course.
- [42:55]
Vinny Lingham
Well, but this is the point, like the Mirren's in right now and we know come May he's going to be trying to drop rates. And that's his. No, no, but so do you think so the market's always forecasting six months ahead and as it gets six months towards, you know, closer to Mehren's term, starting in May, do you think that a spike in inflation is going to stop them from cutting rates? I don't. I think inflation goes through three and a half, four percent, four and a half. They're going to cut rates.
- [43:27]
Ram Alawalia
The inflation is going to go up that level again.
- [43:30]
Vinny Lingham
Well, we're over three. We're over three right now. So, so you can't, you, you can't bet, you can't bet that it won't go to four.
- [43:36]
Ram Alawalia
I will bet you that it will not go to four. I will have to happily do that with you. Yes.
- [43:40]
Vinny Lingham
Okay, so I'll take a bit live here. Within 12 months from now, I'll bet you $10,000 that we will see inflation hit.
- [43:46]
Ram Alawalia
I'll do the trading places that with.
- [43:48]
Steve Ehrlich
You actually it's got to be $10,000 in gold or that that's all you have to Pay or Vice 4%.
- [43:53]
Ram Alawalia
Okay. 4% one year from now. You think okay, make it a thousand.
- [43:57]
Vinny Lingham
Make it a thousand bucks.
- [43:59]
Ram Alawalia
I like. I think you're okay. Let's define the bet first. Let's define it very.
- [44:04]
Vinny Lingham
Okay, so, so, so, so, so core CPI. Yeah, CPI or you know, or PCE hits 4%. One of the three, one of those.
- [44:16]
Ram Alawalia
Three measures at one point or at the terminal point in 12 months or which one?
- [44:20]
Vinny Lingham
At some point in 12 months?
- [44:21]
Ram Alawalia
No, I'll do at the end of 12 months at some point.
- [44:25]
Vinny Lingham
So here's the thing. There's reflexivity, right? So if it happens in the next two months and they make adjustments, then maybe you can course correct. But my point is inflation is going to go up. I don't know when it happens, when it hits, but the question really is.
- [44:39]
Ram Alawalia
It won't get to 4%. Look, I think in the next three.
- [44:42]
Vinny Lingham
Months you could have an economic collapse. Inflation goes down like that can happen as well.
- [44:48]
Ram Alawalia
What's your view?
- [44:50]
Vinny Lingham
I, we. I don't think it's predictable at this point.
- [44:52]
Ram Alawalia
There's so much view like what am I betting a goner for, against? I don't know. I can. My view is in 12 months time inflation will be below 4%. High conviction. High conviction. It's possible.
- [45:05]
Vinny Lingham
If there's a collapse, there's a crash. Is there a crash inflation? This is my point. If there's a crash, inflation obviously goes down.
- [45:15]
Ram Alawalia
You're going to have a temporary whiff of inflation now due to the impact of tariffs. But it's a one time shock that'll be behind us come January.
- [45:24]
Vinny Lingham
Again, there's so many factors that go into the way the economy is being run right now. I don't think you can predict. So you know, a point in time.
- [45:35]
Ram Alawalia
How do you have a view on goal if you don't have a view on inflation?
- [45:37]
Vinny Lingham
Okay, how about this. I'll bet you that. I'll bet you that gold breaks 5,000 within the next 12 months.
- [45:42]
Ram Alawalia
I actually told you that I think there is a bid for gold. So the difference I'm making is that I'm making the view that stocks should be the primary asset you have in your portfolio.
- [45:55]
Vinny Lingham
What do you think stocks will. What do you think stocks will return over the next 12 months?
- [46:00]
Ram Alawalia
I think you could see from where we are now. I think you could see, you know, a 7 to 15% return in stocks where we are now.
- [46:08]
Vinny Lingham
Okay. I will bet you that gold will outperform from today in 12 months.
- [46:14]
Ram Alawalia
The s and P. I don't know. I think I'm making a different kind of argument. I'm making a claim about asset allocation, role in the portfolio and timing and all this other stuff. So it's. It's like. I don't know, maybe that's true. I would say I want to be surprised China's buying stuff.
- [46:28]
Vinny Lingham
But, you know, this is my point. But this is my point. Like, my. My point is that if you want, you know, for me, the. The safest bet for the next 12 months is gold, because I think it will outperform S and P. And I think it's got less downside than stocks.
- [46:41]
Ram Alawalia
I'll make a Trading Places wager on that one. Just for fun. Keep it interesting. Have you guys seen Trading Places? Yeah, the two guys overturn this guy's life. I'd be more interested in making the 4% inflation bet. I. I would do that with a little bit more volume, but. All right, so I thought about a Vinnie. I'll take you up on that. Okay.
- [47:02]
Vinny Lingham
Okay.
- [47:02]
Ram Alawalia
In one year's time, I'll make the claim that the s and P500 will be gold. We have to define that. Defined as xau divided by USD in one year's time, S P will beat that. Second, we got to set up a polymarker for this. We can track the real time probability.
- [47:19]
Steve Ehrlich
Yeah, that was my exact. That was gonna be the next thing if I'm wrong.
- [47:25]
Vinny Lingham
Just put this. Put this on the channel and tag polymarket.
- [47:28]
Ram Alawalia
$10,000 I'm getting with that.
- [47:30]
Vinny Lingham
$10,000.
- [47:31]
Ram Alawalia
Okay.
- [47:31]
Vinny Lingham
I got 10 grand as of. As of today's date, Thursday, second October.
- [47:39]
Ram Alawalia
Let's paper it in a contract. Let's make sure there's no contingencies or Ms. We're not. Right. But I don't get the intention of what we're trying to say here.
- [47:46]
Vinny Lingham
I don't think we need a contract.
- [47:50]
Ram Alawalia
How about instead of 12 months though, we'll do it 9 months. 9 months. Have a better view on let's do 12 months.
- [47:56]
Vinny Lingham
Let's do 12 months from today.
- [47:57]
Ram Alawalia
9 months.
- [47:58]
Vinny Lingham
I'm new. You, you, you're a long term guy. Let's do 12 months.
- [48:01]
Ram Alawalia
Long term is 10 years, not let's do three years.
- [48:03]
Vinny Lingham
Exactly. So why y' all gave her three extra miles?
- [48:06]
Ram Alawalia
Nine months. So we'll do say July 16th is July 4th. July 4th, Independence Day. Done. I'll do in July. Independence Day.
- [48:16]
Vinny Lingham
Yeah. You know I'm not a big fan of summer because the summer gets a little woozy.
- [48:21]
Ram Alawalia
It gets rhoads everything.
- [48:22]
Vinny Lingham
My final five summer.
- [48:24]
Ram Alawalia
Fine.
- [48:24]
Vinny Lingham
So July 4th, all right. No contract. We can put this up on the tweet and I can distribute from my account and that's it.
- [48:33]
Steve Ehrlich
I like rom. I have one more question for you just related to stocks because you spent a lot of time talking about innovation as a driver and walked us through sort of the canonical history of that. I know there's a concern though about essentially how much capex is being expended on AI and that it's writing some pretty big checks that are going to have to be cashed in in the next couple of years. Right now there are some firms that are making bank just because they're providing the infrastructure to do all this. The old picks and shovels argument. But at some point stock expectations, price expectations are rooted in this huge sort of utopia of innovation that comes from everyone having their own chatbot assistant. What happens if that doesn't occur?
- [49:19]
Ram Alawalia
Yeah, then bad things happen. The bubble bursts. And Vinny's right now I'll lose my bet next year, that's what will happen. Right. So the dot com bubble burst when earnings estimates were missed. Right. So Global Crossing, Seagate Computer, all these companies, Fiber Complex, Exodus Communications, they fail to meet investor expectations. Right now we're not there. Nvidia for example is beat beat race coreed winning deals. Meta getting ROI on their capex spend, meaning the capex spend is productive. The productive means they make money when they invest in the capex. When AWS invests in capex, what does that mean? Means they're building another data center and they rent it to Meta who also makes money. The value chain is making money. That's not going to stop. So now you've got defense spending is starting to incorporate AI. Healthcare hasn't really started. Financial service has adopted AI. They're going to keep spending too. So yeah, I think we're still early inning. This is like 1996 for AI. 1995 was Netscape Navigator. That was a chatgpt moment. I think you're still early on in the transformation and adoption of AI I think, I think nine months. I think I have a pretty good setup here actually. I like that, Vinny. A lot of me to avoid the negative seasonality from August, September. So thank you for that. That was great. Give me a little bit, a little bit more edge. A little bit more edge. July 16 would have been a little bit better. But let me show you a little bit more on gold. Okay, so gold, look, you know, we, we agree that China's the bid and central banks are buying gold, right?
- [51:00]
Vinny Lingham
Oh, it's not just a bit. It's, it's the treasury unwind. That's an, that's the issue. Yeah. So the rest of the world, the rest of the world is unwinding its positions in U. S Treasuries and, and taking positions in gold as you know, call it pristine collateral. And that's what they're doing.
- [51:19]
Ram Alawalia
Yeah, they, it's true. And central banks are especially those that are antagonistic candidates and shell shocked Europeans that don't understand America first are also rotating to gold like that's the bid. And then you have momentum traders. Right.
- [51:38]
Vinny Lingham
And just to just remember one more thing like central banks are not equipped to go buy bitcoin. Right. So if there's a crisis in the world that happens anytime the next 12 months, they don't, they're not, they don't have the mandates, they're not allowed to buy it. There will be a gold rush because they can't buy bitcoin physically. So they have to basically buy gold and add it to the balance sheets and the reserves. I mean, look, let's not, you know, again I say to this, you know, I'm like, I'm a total independent. I think some of the stuff that the Trump administration is doing right now is actually very, very good for the U.S. economy. And I think we're going to see some really positive things flowing through, you know, with regards to productivity deregulation. I'm really happy and excited to see those things happen. But we still have a macroeconomic issue. We're burning through $2 trillion plus per year. I was very disappointed to see Elon leave in terms of his, his, his, you know, with those trying to cut costs and stuff, we need more, we need more cost cutting. We need, we need to bring things in line. But there seems to be no world to do this. And this is the problem. And so you know, from a purely macro perspective, the rest of the world is losing faith in the US Government's ability. We, regardless of which administration's running it, to, you know, to not, not, not, not run up the debt. And they, they dumping bond, they're dumping US Treasuries, they're dumping long term treasuries in favor of short term and, and gold. And that's what they're doing.
- [53:05]
Ram Alawalia
So two, a few things I agree. Mr. Like we, we've all seen a national debt run up, run up, run up since we were kids. Stock market keeps running up and up.
- [53:12]
Vinny Lingham
And this time is, but this time is different, Rob. This, this time is different because this time we have the Highest debt to GDP ratio we've ever seen in the US over 120%. High debt to GDP. The only way out, by the way, is inflation. So the only way out of this problem that we have is to inflate the value of all our assets in dollar terms. So in real terms it's going to go down.
- [53:35]
Ram Alawalia
That's one way out. The other way is growth and entitlement reform.
- [53:39]
Vinny Lingham
Productivity growth is going to lead to massive job losses and that's just the way it's going to be right now. I think short term, you, long term, you may recover. Rescale. We also have an overhang in terms.
- [53:49]
Ram Alawalia
Of the boomers, the model horse and buggies, easy paths, create a new productive job.
- [53:54]
Vinny Lingham
We had a different demographic structure back then. We have a very, we have an aging population and we have negative population growth. So like these are two factors which I think you have to take into account. It is different this time. The problem with the history books is we think this time it's going to be the same and, and this time actually it is different, but we have to wrap up.
- [54:15]
Steve Ehrlich
So I think, yeah, I think that's a good segue. Thank you, Vinnie. Into closing arguments. Ram, I think you went first with opening arguments. So, so Vinnie, I'll, I'll let you just please continue. Any final thoughts you'd like to share? I think clearly we're going to be doing this at least once more before we settle the bet.
- [54:37]
Vinny Lingham
So you know, my closing argument is this, as you can see, that the dollar is losing its value, it's weakening and as a result, you know, assets again, finite assets like gold, bitcoin, all rallying on the basic back of that the dollar could strengthen at some point. But if we're going to go into a cutting cycle where we cut more rates more and more, which it Looks like is most likely you can expect it to be a massive run up in, in, in gold, Bitcoin and stocks. I think until there is some sort of economic, whether it's a US centric one or a global emerging crisis or something like that, in which case stocks, you know, they're all interconnected things just get, get hit hard. So as someone who's, who's taking the view that I want to preserve wealth and I want to, I want to hold on to purchasing power. I'm going to take a view of being barbell, which is basically cash shorts from treasuries and gold for the most part with obviously some crypto exposure as well. And you know, and I think that everyone is in a different stage of their life. So what I'm doing is not necessarily the same for someone who's worth, you know, less and needs to sort of, you know, invest more aggressively. But I'm taking the risk off approach and I think gold is the best, best risk off approach you can take in your portfolio right now.
- [55:52]
Steve Ehrlich
Go ahead, Rob.
- [55:53]
Ram Alawalia
Okay. Over the last 20 years the NASDAQ has gone up 1500%. Gold's gone up about half of that 761%. I'm not picking arbitrary time frames. You can do the same study over five decades or three decades. You're going to find that common stocks outperform gold. Okay, that's one over the broad arc of human history. Okay. Gold is not a front of asset. And by the way, Bitcoin's competing for more attention for the reasons we discussed earlier. That's one. What does the NASDAQ mean or the S and P means? You're betting that Microsoftly bigger meta, Google, Amazon, Apple, Tesla and then hundreds of other companies because they're growing their businesses and they'll continue to grow because really. Well one, they're leading market positions. Well, in terms of innovation technology, that's not going to change. The second point I'll make around gold. Is this practically enough you can share my screen, Stephen? Oh, there's some typing there in the background. But if you share my screen real quick. So if you take a look at, this is a chart of XAU USD gold. This is the bet we're making. Actually it's around this index XCAU USD. I'll give Vinnie one out right now. Vinny, you want to take it out? You can take the out. Okay. But here, this is the relative strength on gold. You can see that's what I mean. Tactically we're overbought the Last time we had this level of being Overbought was in April 2024 is right around here and still in a bull market. But it's just a terrible, terrible, terrible time to buy. Tactically, you'd rather buy when there was, you know, the RSI was below was oversold, ending an uptrend like somewhere near here. These are better entry points. I think this entry point on gold is just downright terrible. In fact, maybe even is terrible to the day. Like the gold is down today as the S P is literally up today. Today. Right. I think it's a terrible entry point. Like you can be long the gold trade and say, yeah, I don't think I want to buy that. Meaning meanwhile you look at other securities in the market, like Meta. Meta looks viable. I'm pretty sure this will go up alongside Meta's earnings. I could probably tell a similar story with other securities out there. So I think tactically, the. I think tactically I have an edge where we initiate the bet today.
- [58:24]
Vinny Lingham
So why don't you give me better odds? Like you know you want what you.
- [58:28]
Ram Alawalia
Know you want better not. We did one for one, right?
- [58:31]
Vinny Lingham
You make it all. You make the argument. My timing's bad, so why don't you give me better odds?
- [58:34]
Ram Alawalia
Well, that's why I'm on my side of the bat. You can join my side. Stephen can take the other side.
- [58:41]
Vinny Lingham
Of.
- [58:41]
Steve Ehrlich
Money to bet and stuff.
- [58:43]
Vinny Lingham
Be.
- [58:43]
Ram Alawalia
Let's do poly market. Let's get a polymarket bet going to track this bet. Okay. It'll be interesting to see what the market probabilities are, but I think where we are nine months, July 4th, you got to pick is it the Friday before July 4th or the Monday after. We got to get precise.
- [59:00]
Vinny Lingham
I gotta run. But we, we gotta, we, we go with that.
- [59:03]
Steve Ehrlich
We'll work out those details. But yeah, Vinnie Rom, this was really enjoyable. I hope everybody watching, like listening, enjoyed it as well. We'll definitely do it again. And yeah, thanks everyone for your time and your attention.