A New Digital Gold Rush?

0:00People are going to lose their minds. This is a moment in history unlike anything humanity has gone through. It's a very different world for humans to come. Take a step back and see the broad picture, which is the way all these technologies are interlinked. Because this is all about exponentiality, and humans can't think in exponential terms. How consequential do you want to say machine intelligence is? It's almost certainly as consequential as writing. How long did writing take to disseminate through the human population? You know, hundreds, thousands of years. And we're dealing with it now on a scale of months.

0:33But in this kind of world, you're compounding 100 % growth every year, and the numbers become astronomical. AI is going to spot patterns in the world that were just completely invisible to us. Even if you think that the AI and the robots are your demise, you might as well bloody invest in them and make some money out of it. If not, you're just going to be angry man shaking your fists at the clouds.

1:09Is this a new digital gold rush? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Paul Hodges, author of the PH Report and chairman of New Normal Consulting. Hi, Paul. It's great to see you again. Well, thank you for having me, Maggie. So we kicked off the week. We're in our first full week of trading week of December. And we kicked off the week with some consolidation in US stocks. Not surprising, perhaps after five weeks of gains, the Dow, S &P, and NASDAQ all giving back some ground. The Russell 2000 bucked the trend, but it was the only index that was up. Treasury yields edged higher, but it was gold that was the real mover today, briefly touching 2 ,100 before falling back.

1:49And we saw crypto continue to march higher as well. Bitcoin up around 6 % at last check, above 42 ,000. Paul, I know that you watch gold and commodities closely. What do you make of the price action in gold? MARK BLYTHERNANI - We're prepared to become positive on gold, I think. The environment is so uncertain out there that I think there's some argument for gold as part of the portfolio. And certainly, when you look at the investor interest, it seems very low. So there's investor interest in Asia, of course, and that's taking it through. There's probably some central bank interest, but general investor interest in the States and Europe isn't very high.

2:39So if that were to change, you could see a real breakout. I mean, if you ask me, what do I think the action is at the moment? I think the action is a typical, we're not quite sure whether we're going to tiptoe over into a new high. So we'll go up and, oh, no, no, no, we'll just go down again. Oh, wait a minute. Oh, yeah, that's OK. Yeah, maybe try it again. Yeah, it has been kind of bouncing around. Everyone's been waiting for that big breakout. A lot of the folks we have on are kind of feeling like it could be a moment for gold. I don't think you watch crypto, do you? Because there has been a sort of debate.

3:12If people are looking for diversification, do they go to something like gold? Or do they go to what some people are calling digital gold or crypto, that maybe they finally are not correlated so closely with risk assets? Is it piquing your interest at all here, or is this still something that you're - That's too scary for me. Things that suddenly go up 5 % in a minute or something, or down 5%, I go, yes, I can't cope with this. That's a lot of people still say that. Even now, even if they're interested, it's something that they feel like they can't get their head around. It's going to be interesting to see if that changes if we get that ETF.

3:54the price action has certainly been more constructive. When you look across the global economy, we're at this point where we saw this big rally. There's definitely people feeling differently about the Fed and central banks. There seemed to be a lot of enthusiasm, but if we're in a different regime, what does that say about the global economy? How are you looking at the global economy right now? I'm sorry, we're coming up to Christmas. I don't want to be a party pooper. It looks awful. I mean, I've been around here a long time, and I've never seen it this bad. And people that I talk to have been around 40 or 50 years have never, ever seen it this bad.

4:39I mean, we've talked about the chemical industry as the leading indicator for the global economy, you see the quarter three results from the big names, the Dow Chemicals, the Bayers, the Lionel Barzels, and so on, the BASFs, for goodness sake, the largest company. They are awful, absolutely awful. And nobody has any sense that this is going to get better. Wow, that's a pretty sobering assessment. And especially because this is where I think people are trying to figure out what happens next? Because we saw all this enthusiasm at, okay, the Fed's done hiking, but if they're done hiking, maybe it's for reasons that should give us pause for concern.

5:21It certainly sounds like that's the camp that you're in. Why are things so bad? What are you hearing? Where's the weakness? Well, I think, first of all, Maggie, I think you can disregard the Fed. Some of the central banks are starting to realize that there's a world outside their models, but the Fed has not moved in any way out there. So the Fed has no clue as to what's happening. It was telling us inflation was transitory when we were screaming from the rooftops, as you know, on Real Vision and elsewhere, saying there's massive inflation because of supply chain problems and so on. Oh, yeah. Oh, there's so now we have a year, 18 months of pushing up rates.

6:04Now, Powell, I mean, the guy's a joke. But the important thing is if you look at what's happening in the real world, which is really where the chemical industry comes in, if you look at what's happening to housing and construction, it's awful. There's some to-ing and fro-ing in the States around interest rates, which are very low if you took out a mortgage two years ago, so you're not moving. But if you look at what's happened to new home sales, well, they're down, I think it was 17 % or something, 17%, 1, 7%. If you look at what's happening in Germany, biggest economy in Europe, the prices for multi-apartments down 24%.

6:52Prices for single apartments down enormous great problems in the construction industry there. Same, obviously, China. I mean, they can't even get a resolution of Evergrande, which we all know is bankrupt. And they've cancelled now the third plenum, which is normally the policy setting agenda for the next five years. They can't have it, which tells you they don't know what to do. Which has got to be cause for concern, because it's essentially a controlled economy. I mean, this is where this should be found. Because of its stimulus,$42 trillion of stimulus in the last 15 years, plus all the money they threw outside of the central bank, $42 trillion, that was the growth engine of the global economy.

7:42And it's gone, fuck, as would happen. You know, if you get, you know, houses, house prices in the tier one cities, Shenzhen, Beijing, Shanghai, all the names, you know, at double or treble the levels in New York, London and Paris, obviously it's a bubble. Obviously, it's going to burst. You don't have to be very clever to say, well, it's going to burst. You don't have to be very clever to say, well, I'll, you know, I'll take my money out now. And I mean, the carnage on the streets, you know, you talk to anybody who lives now in those streets and they say, yeah, there's people out there. Yeah, everybody's still living, but there's no confidence at all.

8:20Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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9:33So I think there's some people that look into, to see the GDP number that came out in the US and say, well, the US economy is doing well. Can the US and Europe, for that matter, be insulated from what's happening in China? Well, I mean, I think what's happened in the US and in Europe in the last six or nine months has been very clear. You have this vast amount of stimulus money, furlough payments and so on. For many people, they got more in furlough payments than they were getting originally. They weren't able to travel. They weren't able to see their friends. They weren't even able to go outdoors at some points.

10:16So when things do clear up, and thank goodness they did, well, obviously, people book holidays. People go and see their friends. They go out to restaurants and so on, all of those things. So it's no surprise at all that in those areas, things have been doing double-digit rates. but you know if you look if you talk to you know the the san francisco fed does some numbers on it uh the rest of the street firms do numbers on it all that money is gone and you look now what's happening with stores you look at what what the big stores are telling you about their customers i mean i've got a son who works in retail and one of the things he says that you know is when you when when somebody gets to the to the checkout counter and they they get out they put put out their basket.

11:01And then they go, oh, no, and they put one or two items back because they can't afford it. And that's where we are today. We were there in 1981. We were there in 1992. We were there in 2001. We were there in 2008. And we're here now in spades. So against that backdrop, does it make sense that we just saw a five-week really strong rally in US equities? Well, look at what's happened to the exchanges over our lifetimes. These were set up originally by business people in Chicago, in New York and so on, where they pooled their money in order to fund the investment in new businesses. It was a very serious, very well thought out plan.

11:52They risked their own money to do it. Then the exchanges went public. So what did they do? They allowed the modern-day highwaymen, the high-frequency traders, to actually park their computers next to the exchange so that they would get a millisecond advantage so that they could, well, we can't say spoof. Obviously, it wasn't spoofing. It was just perfectly fair and everything else. But somehow, they never, ever lose money. And the exchanges have allowed a class of investors to never, ever lose money. and then just in case you thought you weren't dealing with a casino they say oh by the way you can do one day options i mean you know you don't need to bet on you know who's got what's going to happen on on the next round or you know is is is he going to kick or punt you know you can just go into this you know so the exchanges you know but what is very interesting you've talked we've talked about this you've talked about it with other people maggie is that with With all of this, what's happened is the ordinary shares have actually really gone nowhere in recently.

12:56It's only been the six or seven. And people just fast on that. And it's just like, it was before my time, but you can read the stories, just like the nifty 50 in the early 70s. You know, oh, these are one-stop shop buys. You just buy them and put them away. Memorex, IBM and so on. They'll never, ever go down. Oh, right. Okay, well, it wasn't 50 this time. It's seven. Well, come back here next year, I don't think we'll be seeing those seven doing very well at all. And when they go, the rest of the market goes. So there isn't any sort of broadening out or any sectors that you see picking up leadership at this point?

13:36I mean, the market is trying to tell us something. We only care about what's happening in the real world. We don't really care about money supply, because that doesn't affect the real world. We talk about what's happening in energy markets. We talk about what's happening in geopolitics. And we talk about what's happening in demographics. Now, you've got two major wars going on, one in Ukraine, one in Israel and Gaza. When wars start in the Middle East, they tend to go on for a long time. So, you know, and Netanyahu, the premier, is saying, you know, this is going to go on until I've killed everybody.

14:14Well, you know, we tried, people tried doing that in Northern Ireland in the 70s. Didn't work out very well. So, you know, that's going to go on Ukraine and Russia. Putin has made it clear. He wants to take back the Soviet Union. So he wants Poland. He wants all of those East European countries back under the Soviet Union. But now, of course, they're NATO countries. So will NATO intervene or not? Are we going, you know, massive problems there. Demographics. You know, if you look at the states, the main source, the major source of population growth in the States now is the over 55s. And the over 55s, the perennials, are lovely people, but they are a replacement economy.

14:56They're not having kids. When they get a bit older, they're retiring, so their incomes go down, but they already own everything. So the only reason you've had any increase in GDP over the last 15 years has been this absurd stimulus program. and what's the end result of the stimulus program? Vast debt. Now, sorry, but what is debt? Debt is bringing forward demand from the future. And now, this is why I'm absolutely convinced that we're really starting to see a major downturn starting to happen. And I wouldn't be averse to using the word depression. We've not used the word recession before, depression before, but we talked about recession.

15:40But there are all the signs here that if people don't wise up pretty quickly, we're in a depression, a global depression, which would not be very much fun. And you look at what's happened. You've brought forward demand from the future. You've now got much higher interest rates. And for the first time in history, the main source of population growth is people who aren't actually in the market to buy anything. People like myself. now how do you how do you pay back that that debt look at what's happening look look at the commercial and real estate markets look at them yeah they look at the vacancy rates in all the major cities yes people are still you know we've seen this lots and lots of times over the years pretend and extend i can't afford to take the loss you've come to me so let's pretend you're going to pay me back and i'll lend you a bit more money so that you can keep going and let's not you You know, we're both in this together.

16:41I'm sure it will be all right. You're a brilliant real estate developer, Maggie. Just go and do your best. And that works for a while. But in the end, pretend is pretend. And there isn't the demand there. You know, that's what I'm saying. If you look at all these big areas, look at what's happening to the auto market. Auto markets are fine if you're giving people free cars. You know, you have as much money as you like. And you can afford to pay$750 a month to buy a new car and so on. But if it's your money that you've now got to spend, if it's your earnings, you haven't got$750. You haven't got$2 ,000 for the insurance.

17:18All these things. So reality is coming back now. And the Fed hasn't got a clue. Yeah, this is the unravel of that low, and not just the COVID stimulus, but this is the unravel of decades of 0 % interest rates. you're talking about. I mean, we're looking at a world which you can say maybe it began with Y2K, if viewers remember Y2K. When we thought the world was going to stop moving. That's it. I mean, I was working for one of the major chemical companies. I knew that in 1991, we had realized, I was the second largest chemical company in the world after DuPont, we realized that this was going to happen.

18:00We set up task forces, industry set up task forces, government set up task forces. By 1997, one of the guys I carpooled with was leading our task force. I knew all about it. And by 1997, it was all done. You had a couple of years to test it all out and so on. And then people started to issue travel advisory. Oh, isn't a great story? So I can tell you that nobody would ever have thought that that could go wrong. It was all coped with. But when you get Greenspan decided, oh, well, let's fill the market with money in case the ATMs don't work. Well, pretty crazy idea, but OK, he did it. So we had the Y2K bubble, and it collapsed.

18:40But then what happened after that? He did the same again, 2003. We got the subprime bubble, but it was bigger and potentially more devastating. So what does Belanke do? He doubles down again. I've had a policy that's failed twice, so let's do it a third time, but on a bigger scale. Well, you can't expect, as Einstein is alleged to have said, if you keep doing the same thing, you can't expect to get a different result. That's the first sign of lunacy. And this is, we're talking about what happened in the US, but this is a global phenomenon. And in your last report, I saw a headline that you're talking about a ring of fire, which caught my eye.

19:25Walk us through that. What does that mean when we have a global economy that's kind of created, the risks are creating this ring of fire? And we have a graphic up here. Thank you. Well, the idea first came to us when I was writing something for the Financial Times in London. and we're looking at Los Angeles. And then somehow I got onto a site where they were tracking the fault lines around the West Coast. And somebody had just done some work, it's a few years ago, and we just done some work where they, unfortunately, they thought the fault lines were in one place, but actually they were in another place and all the hospitals and all the schools and everything were right on top of the fault lines.

20:05And I thought, that's an interesting example of what's happened to the global economy. And so you look at where the debt is, and you look at where, take Japan, for example. Japan, we believe, is going to be the epicenter of the volcano that's coming up. If I told you that I wanted to talk about a country whose currency had fallen 50 % against the dollar in the last couple of years, you'd say, what are you talking about? Zimbabwe or Argentina or Turkey or something? You'd probably be right. But I'm talking about Japan, the third largest economy in the world, and its currency has fallen by 50 % against the dollar.

20:55obviously things are not going very well in japan well they have the oldest population in the world of course that's one of the things they haven't got any growth they've tried they've even mad stimulus programs craziest policy ever there um and it hasn't worked so now they've got all this debt 265 percent of gdp they've got an aging population they've got a declining population. And they've got their currency falling. So now they're in a situation where they either have to allow interest rates to rise more to world levels, they've been below, they were negative for a long time, then they were forced to put them to half a percent, then they were forced to put them, oh my goodness, I can hardly say this, to 1%.

21:40But supposing they went to 3%, well, the country's bankrupt. The third largest economy in the world is bankrupt. So supposing they don't put, well, then the exchange rate probably goes to 200 from 150. So then the country is bankrupt. Which way do you want to go here? There isn't an option as far as I can see. They can play for time, but all the time you play for time, you're putting more chips on the table and actually the house keeps winning. And then, of course, once investors get the idea that putting their money into Japan, they might not be looking at return on capital. They might be looking and worrying about return of capital.

22:23They'll probably look across Northeast Asia to China, which has got even more debt and has got a collapsing real estate market, which was 29 % of GDP. It's been nearly a third of GDP. And they've got a The government, which clearly lost the confidence of the people over zero COVID, clearly doesn't have an economic policy. So that's Northeast Asia. That's your second and third largest economy. Now, I can then build the picture. You go to South Africa. You can't even get its electricity supply right. Go to Brazil, vast debt burden, political risks. Look at the political risks just to the south of it with Argentina, this new president.

23:09I mean, who has any idea what he's going to do? Probably not even himself. But he certainly says he's going to stop the economy for a while. Whether he can restart it again afterwards will be interesting to see. Then, of course, you go up from Japan, you go into Russia. Well, 1.3 million people now conscripted to fight in Ukraine. all its money going into that not being very successful massive brain drain massive brain drain and so on uh middle east we've got the the gaza israel war which i think will go on for a long time unfortunately major oil market tensions they keep having to cut production in order to keep oil prices high supposing the oil supposing they fail supposing you know you know the you know we have a repeat of what happened in 2020, and the oil price starts to fall.

24:05What does that do to the Middle Eastern economy? Because that's the only source of money at the moment. And then, of course, in Europe, we've got the geopolitical risks of the Ukraine war, and we've got recession. I mean, the property market, the construction market in Germany is an absolute disaster. I'm using words that I've never used before, Maggie. I'm not the kind of person who goes around trying to grab a headline. If I say something is a disaster, it's because unfortunately, I've thought about this a very long time and I've tried to work out why it couldn't be a disaster, why there could be.

24:41I'm going, this is a disaster. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

24:55Wow, we've made a right mess of it when you loop around the world. and the problems we're facing. We haven't done very well as people. But so I guess the question is, what do we do with this information? So a couple of interesting questions, I think, as we all kind of push against the sort of day-to-day market action we see when we think about some of these longer-term, bigger picture problems that you really so eloquently just painted for us. AJ asking, do you think equity markets have already discounted this global slowdown of the economy. It sounds like based on what you're saying, no. I mean, have we even begun to price in the scale of the problems that you just described?

25:40I don't think anywhere near. I mean, we talk to investors almost all day, every day sort of thing. And what we've noticed in the past four to six weeks, for the first time, for the first time, we've been having fairly senior people coming along and asking us, do you really think this industry or that industry is going to collapse? As simple as that, right? I'm obviously not going to name names or anything, but the mood music from the people who really have the money is real concern. Now, there are things that could be done. If you look at the demographics, if you forget the idea that money supply matters, if you forget all this stimulus stuff, and you say, look, you've actually got a totally new generation of people, the perennials over 55s, who didn't exist 100 years ago.

26:33People died at the age of 50, average. At the end of the war in 1945, they died at pension age at 65, right? Now they're dying at 80. So you've got a whole new generation of people. Now, the fact that they're not needing very much because they're a replacement economy, but they have fabulous skills. They've got the ability to, you know, everybody gets bored with what they're doing. I mean, obviously, you wouldn't, Maggie, but I mean, other people not having quite the opportunity. Most people get bored of the 40s or 50s or whatever. Why aren't we putting money into retraining these people so that they can do things that they want to do?

27:11I mean, many people go into caring, for example, but other people go into the arts. other people go into they take up things that they've always wanted to do but because they had to earn money it was felt you better go and do that and so on so you've got this and of course the thing is and some of the stores are doing this you know they're getting in older staff because they have the discipline of actually turning up to work at eight o 'clock and staying at work and not listening to all their favorite musics and so on and they can help the kids to get that discipline. So there's all sorts of things one could do here, as long as you don't believe that Jay Powell and the Fed are anything to do with actually running the economy.