What Are The Safe Haven Plays In This Messy Market? w/ Amelia Bordeau

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1:24And now to the top analysis of today's markets.

1:35What are the safe haven plays in this messy market? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Amelia Bordeaux, Managing Director of Market Strategy at Diamond Standard Company. Hi, Amelia. It's great to see you. Hi. It's great to be here. Thanks for the invite. Absolutely. So before we jump in, why don't you just tell us a little bit about yourself for those who may not be familiar? So I worked over 18 years on Wall Street, based in New York. My background is macro. So I've always worked in macro global markets and FIC, primarily in foreign exchange trading and sales.

2:11And I just recently moved to Diamond Standard in New York City as well as where it's based. And Diamond Standard and its founder, Cormac Kinney, created the world's first regulated diamond commodity. And we are working on financializing it. Oh, amazing. So when we talk about our commodity basket, we have to include that then because we tend to do precious metals, gold, energy, but we haven't been talking about diamonds, but it sounds like we're going to have to add that to the list. You have to add it in. We think of ourselves similar to gold. Amazing. Okay. Well, there's certainly, I mean, it's a hot topic because as we started out saying, in all of this turmoil, a lot of people are trying to figure out, what do I do?

2:52Where do I go? Where do I hide? And in some cases, what do I chase? Because that's kind of what's happening today, right? We have some cross-currents investors certainly looking at the debt ceiling, which is still not resolved as we head into the holiday weekend. We had some stronger than expected US data, which kind of put the Fed back in focus. But I think all of that was overshadowed by this raging rally in tech. NVIDIA up 25 % today as we close out here in the US. I mean, that's an incredible number. And it helped lift the NASDAQ just about 2%. So let's sort of tackle them a little bit one by one.

3:27And we'll start with tech. I know you're not an equity analyst per se, but when you look at this landscape, what do you make of this rally in tech? Well, tech's definitely been the shiny ball that's distracting investors from the growing macro problems, whether they're geopolitical or possible recession in bond market volatility, banking turmoil. But anyway, getting back to tech, NASDAQ is up over 21 % for the year. Bond markets have been volatile, but you tend to find that any time those yields come down, that's better for long-term growth stocks. And yeah, I mean, there's so much focus now, AI with ChatGPT coming out.

4:13I was just at the SALT conference last week in New York, and that was a big topic, AI, and how quickly it's being integrated into finance and into other industries as well. So it's clearly the future, and it's clearly something that you need to look at a longer-term horizon for, not just this kind of short-term rally that's based off of NVIDIA. And I think that's what people worry about. NVIDIA is certainly the poster child for that. So for everyone listening, we're curious if you hold NVIDIA and if you do, would you be a buyer at these levels or no? And the no means you're probably taking profit or if you missed it, you're not getting in.

4:56Brian's going to drop a poll in the YouTube chat because I'm curious. It's been the question that's the hardest to answer because a lot of people have been left out of the rally. There were a lot of doubters in the beginning of the year. We heard all about the fact that what worked before isn't going to work now. It's not mega cap tech stocks. It's not FANG. And if you weren't in it, you lost out. So do you worry that we're going to have the situation where people, including professionals, are trying to make up lost ground? How does that dynamic work? Well, the US economy, we're late cycle, right?

5:32So for most, I would say, equities, they can continue to rally. But the rally is going to be capped relative to the downside. I think what tech has going for it is eventually there'll be rate cuts, we think, and that could support it. You don't usually see equity market volatility, though, until unemployment picks up. So I think that's what your investors or people investing in tech now, and that could be one of the signals. So we get employment next Friday. It's still expected to be an orderly decline, like 175 or something is consensus. But should you get the first or when you get the first payroll report that really disappoints consensus, I think equity vol is going to pick up.

6:21And that's when you can see a drop in equity. So that's so interesting. I want to. So some people are weighing in and some with remorse. Roger and John both saying missed it. We'll see what everybody else comes back with. I feel like everyone's nervous. Those who missed it are, you know, disappointed they missed it. And those who were in it are sort of like tortured thinking, is this a time to take profits? I just want to flag for those who are members and are regular viewers, you know, we have a show called Three Ideas where we have guests give their three best trades at that time. Back on January 10th, Beth Kindig came on and made a very convicted call about NVIDIA.

7:01This is January 10th. Let's listen to a clip from that. So NVIDIA is so far in the future that they're able to release, you know, GPUs that capture not only all of this hyperscaler CapEx. So when obviously Meta has a huge CapEx budget, things like that, NVIDIA serving that CapEx budget, super important because how many budgets are that big? And then secondly, they're able to capture this new wave of AI development. So that makes them, in my opinion, the number one AI stock. And the reason why that's super important is because mobile was about a$5 trillion market. AI is going to be a minimum$15 trillion market.

7:43Mobile gave you Apple, obviously. Google, once a computer was in your pocket, the search engine, YouTube, Google Maps, everything exploded for Google around that time. And then Meta or Facebook, they'd exploded with its native mobile app. So when you take the$5 trillion market that gave us some solid fangs, you times it by three, and you've got NVIDIA right there. I mean, if you ask me what will get me to change my NVIDIA thesis, I'm literally going to tell you nothing. So, I mean, we've got to give Beth a shout out for that. We track all the trades that are mentioned on this show, and we keep them and post them for everyone.

8:21And no surprise, Beth is the best performer of everyone who's been on since that show aired. The stock is up 167%, which is sort of mind-blowing. The question now, of course, that we all have and that we're asking is, is that good news all priced in? I mean, Beth laid out a pretty good thesis there. We're going to have Beth back on very soon, next week or the beginning of the week after, we hope, to give us her thoughts on NVIDIA. So she's going to do an update to her three trades. You can see the other two that she mentioned. And then she'll talk about three new ones she has. So keep a lookout for that.

8:56We'll let everybody know when that's going to air. And if you're not a member, you need to be. So scan the QR code so you can join us for these great programs. And we'll talk about the poll in a second because a lot of you are weighing in. So, Amelia, while we have everybody, you know, give their thoughts about NVIDIA, the other looming issue, and it's a big one. I mean, just because there's NVIDIA is so crazy today, otherwise we would have started the show with this, is the debt ceiling. There's still no agreement. Members of Washington are going home for Memorial Day weekend, for the long weekend, you know, as Fitch and everyone else is warning that this is going to be trouble.

9:29We know the conventional wisdom is that they're going to get it done. But so how are you thinking about this? And are you getting more worried? I mean, it's definitely worrying. The thing that's most worrying too, for me, is that it's just such a headline driven market right now. So trading conditions are very choppy. You have to obviously be tactical. And McCarthy says one thing, Biden says another thing. It's just moving everything around until we had that Nvidia news. And then the whole market seemed to concentrate on that. So we had a break from these debt ceiling headlines. But it's obviously a looming issue.

10:03The market seems to think that that X date is June 1. So we'll see. The one-month T-bill is trading above 5%. So nobody really wants to hold anything in June, it seems like. And so, yeah, you do have to really be aware of it. I mean, they've always kind of kicked the can down the road or come to some sort of agreement before because the economic consequences are pretty much catastrophic if they don't. So you would think that that would give them more of an incentive to not do this partisanship, you know, going to the brink. But, you know, it's exciting to trade and exciting to watch. But you do have to have your safe haven trades, you know, ready in the event that it goes to the 11th hour or in the event that they kind of kick the can down the road or have to prioritize payments.

10:57You know, the government has to prioritize payments. Hey, 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.

11:13Yeah, and when that starts to happen, there will be a point where even because it's not a very clear, I mean, you bring up a great point. It's not a very clear deadline. It's kind of this moving target and people disagree a little bit on it. So the closer we get, the more you run the risk of an unintentional error, I think, is the best way to put it, right? That things start happening. And that's where you have the potential for real market volatility. So what are the safe havens? And this is really important because this is what we get asked all the time. How can I protect myself against this?

11:50So what are you looking at as potential safe havens? Well, as you mentioned, the bond market volatility, which people should be watching as well, just the move index, it's been high, not as high as it was in March with the banking sector turmoil, the failure of SVP, but it's been high and sticky. So the bond market is actually very volatile, more volatile than equities, which in and of itself historically is a bit unusual. So turning to safe havens, ironically, the US dollar is a safe haven. We want to take a look at those safe haven currencies. So the dollar, the Swiss, the yen, and of course, gold.

12:28So because the problem is obviously centered in the United States, you know, the dollar is going to have some mixed reaction. So I would say against the higher beta currencies, meaning the risk-seeking currencies like the dollar block or EM, I would say the US dollar would actually appreciate. But against the G10 or certainly the other safe haven currencies, yen and Swiss, it would depreciate. So I tend to think that the safest trade here would be short dollar Swiss and people would want to be looking at that. And I think it was last Friday when the Republicans perhaps had ended negotiations on that day, at least.

13:09And it impacted markets. Dollar Swiss did fall. I think Swiss appreciated like 0.5 % against the dollar when that headline came. So when you're talking about yen, that's interesting because we're also, you know, at markets have a way of doing this. We're also kind of lining up to a pretty important time coming in Japan, right? We've got questions about whether you have a new governor of the Bank of Japan and questions about whether they are going to tweak or change their yield curve control range. And we sort of forgot all about that. We talked a lot about it when he was named, when the changeover happened.

13:45But it's kind of fallen to the back burner. Is that something we need to think about or do we need to get through the debt ceiling first if we're looking at the yen as a potential haven? And how do you think about that cross? It is. The yen is a bit tough. I mean, I think for the yen to appreciate, you probably need U.S. yields to fall. Once again, treasuries can be a safe haven as well. So their yields will come down in a rally, obviously. But yeah, that's why I prefer the Swiss over the yen at this point, because we do have some issues, obviously, coming up with the BOJ. And so if I wanted the safest place, I would do Swiss.

14:22And I would also be long gold. Long gold is the safe haven precious metal. And it tends to perform well in periods of market volatility. It can diversify a portfolio as well, more so, I think, than currencies can diversify a portfolio. It just matters how you trade it. And our diamond commodity as well, we count that in the precious metals category. and so how we think about that is very low vol and gold is low vol too but um it also has lack of correlation so you want something that's not very correlated that can be a safe haven and so you look into gold the diamond commodity you look into swiss so um things that your typical i would say risk aversion i guess this is it's really like a classic we don't have to make it too complicated If this happens, this is a classic risk aversion reaction that I think the markets would have.

15:24I think equity is down, bonds rally, dollar strengthens against EM, the risk-seeking currencies, and then the safe havens appreciate against the dollar, gold rallies. Yeah. So it's interesting because that's also kind of counter to what people had been anticipating, at least before we get to this, if it's sparked by crisis, certainly. But everyone said we've heard over and over again, the dollar's reign is done, right? The U.S. dollar is headed lower. That is kind of the narrative that a lot of people have locked onto. But is it just that the dollar is a safe haven in the very short term? If we hit crisis, what happens if the debt ceiling is resolved?

16:07Yeah, I mean, the dollar has been trading in a very tight range. So the DXY index has been looking just against the majors. And it had been like 101 to 102.40 until mid-May. So I've been to April to mid-May when it started breaking higher. And I think we're above 104 today. Even dollar-yen broke topside 140 late in the afternoon now. So when you say that the dollar has weakened, it has weakened. But it's weakened from very strong levels. So it's still strong relative to history. history. And in terms of, there's a lot of talk now about, you know, central banks diversifying their reserves and other reserved currencies and the dollar maybe on the decline or that de-dollarization, you know, that's going all around FinTwit and it's a big topic of discussion.

16:55And there really isn't, you know, there really isn't, you know, an alternative to the US dollar. You know, for years, you know, the euro obviously has been in existence. Next year, 25 years for the euro. And June 1 is the 25th anniversary, actually, of the ECB. But in any event, you know, the euro is about 20 % of reserves. The dollar is well over 50 % of, you know, global central bank reserves. And people tend to turn to the Chinese, you know, yuan. And it's about like just around 2.5%, maybe 2.7 % of global reserves, so much lower. You know, and that has gone up over a decade, but not by much.

17:34And so, you know, part of the problem that you think of when you think of the dollar or you think of reserve currencies is the investors, the central banks hold the bonds to back the currencies, and they invest in the bonds. So right now, we just continue to see basically outflows of China bonds. So until people really want to hold China bonds, I think it's difficult for it to become a reserve currency. It's also a managed currency. There's not a lot of alternatives to the dollar. I mean, you could see a flight to quality into the German bond market, German funds, for instance. That could also be another type of reaction that you would see.

18:14And lastly, just to point out, I'm sure everyone knows, but central banks have been building their gold reserves. They've been buying gold throughout the first quarter. And into April, we have some data from the World Gold Council that starts to show April and starts to show continued purchases of gold by central banks. And so that's been an important component that has lifted gold. And it's also, you know, one of the reasons why people are talking about de-dollarization, because if a country or an economy is not kind of politically aligned or value aligned with the U.S., they start to seek, you know, some alternative to the dollar to maybe avoid the problem that Russia had with, you know, the sanctions and the SWIFT system back when the Russia-Ukraine war started.

19:02Yeah. No, those are great points. And it's really important to point out that there's a narrative that people have, and then there's sort of the reality. The reality. Yeah. Some of the points you brought up, again, Jim Rogers talking to us earlier this week said the same thing. He said, I'm looking for an alternative because of the debt issues, but there's not one right now. And so that's a problem. And I think I'll give you a clear example of this. And ironically, well, it's something that's in my wheelhouse, the diamond standard. There's an example of this with the diamond market. So, you know, the G7 has been trying to sanction Russian diamonds, and they mentioned that in the statement last week.

19:41Albrosa is a state-owned diamond industry in Russia. And they mine about just about 30%, a little bit over, of the world's diamonds. So it's a significant provider of the diamond market. But in any event, Russia had been looking with India, because India is a polisher of diamonds, to do a deal where it's a Russian ruble-rupee deal to pay in rupees, basically. And talks fell apart, because Russia didn't want to take those billions of dollars of rupees onto their balance sheet. So, you know, that's a you know, you say there's reality and that's an example of reality trying to avoid the U.S. dollar.

20:22But it's tough. Yeah, I absolutely. And that's great. Thank you for giving us example, because there are tangibles that people bring up. And I think it's important because the conversation is so loud on Twitter sometimes and in certain circles. And there's not to take anything away from the argument they make. But, you know, when you plug it in and you think the dollar is going to go down on it, that's a completely different story. I want to get your thoughts on gold, because gold is one of those things that's been frustrating to people. It had some price moves, and it seems like it can never get quite above that level.

20:51That 2000 level. Yeah, and somebody, I think in the chat the other day, said, who keeps stepping on it? Like, who keeps stepping on it there? I have some ideas about that. So I mentioned the central bank buying, so that's been an important base for gold. I would say there's probably retail buying because of all the, even before this debt ceiling talk, There was just a lot of geopolitical macro risk. You know, geopolitical people can't agree about the timing and the depth of a recession in the United States, about the timing of Fed fund, you know, rate cuts. And we're talking about, you know, really smart people, either from markets and hedge funds, and they can't agree.

21:31I mean, I'm reading stuff like we're going into an inflationary spiral. And then I'm reading we're going into a deflationary spiral. So there's really opposite opinions, which means that there's probably going to be sometime this year some sort of macro dislocation in the market that the market has to reckon with. But getting and that's why there has been some gold buying. Getting back to why we can't seem to break that. We can't seem to get to gold's new highs. There's two things happening with gold. It's trading very closely with U.S. yields. So if you graph it against U.S. yields or if you graph it against the U.S.

22:04dollar, and I mentioned at the start of the show, the bond market has been very volatile. So gold has actually been volatile because it's moving with the bond market. And the bond market, you know, it's just been shifting all over the place since the start of the year, both on Fed views and then the bank failures and now the debt ceiling. So, yeah, gold is moving with U.S. yields. And the dollar, but more so U.S. yields. So you have that volatility component of gold, which doesn't usually be as choppy. And then the last thing is ETF flows into gold. So that's really the institutional money. And ironically, over this period of, you know, this time of market volatility, you could have made a lot of money, right?

22:50We started the top of the show with NVIDIA or the NASDAQ is up 21 % this year. So if you're along the next, you know, there's these pockets of risk-seeking in the market that if you hit them, you know, that would have been great for your portfolio of your portfolio manager. So that institutional money hasn't gone into gold. The ETF flows have been negative into gold from North American institutions until probably early April, where we start to seeing a turn in them. And these data you can find on World Gold Council as well. And they, you know, they do discuss this. But that institutional money is not in gold, which is what you need to drive it to new highs.

23:30And so far, it hasn't been there because, right, you can sit in 5 % for cash right now. 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.

23:48Yeah, no, that's a great point. And it is historically very low. I talked to Rick Rule about this some time ago, because even if you have an adjustment back to anything, like a little bit, not even traditionally what the holdings are, if you even have a little bit of a slide back, then it would be pretty supportive for gold. But as you say, we haven't seen it. So the question is does it come? Is there a catalyst? Or is this the new regime that we're in that you just don't have that kind of allocation? That seems to be a question. So we have some questions here. One of them is from Trillion X. So we might as well tackle it because we're talking about precious metals.

24:30He's asking, how do diamonds fit into a diversified portfolio? What are the other correlations. What are the correlations with other asset classes? I think you said they are not correlated, which is - They're not correlated. Diamond hasn't been financialized yet. So there is no correlation. And that's why it's a very attractive investment right now, as is the precious metal space, as is gold. You really need portfolio diversifiers right now. We talked about specific safe havens, but I think we should also talk about and consider a portfolio because that's probably more realistic, you know, and how you can diversify and protect your portfolio coming up with all of these types of macro risks instead of individual, you know, trades.

25:17But diamonds, gold, they act as safe havens. They act as their low volatility, and they act as a diversifier because they're uncorrelated. So those are things you should be looking at right now. Just in general, I think markets and both individuals and institutions are under-allocated to the precious metal space. Do you have a view that inflation is going to be stickier than we think? I think inflation is coming down, but I think we're not really going to return to the 2 % target. We could settle in maybe around that 3.5 % to 4%, which is is not where we want to be, because people talk about very opposite deflation, inflation, there's stagflation, right?