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Tavi Costa

lines on the record: 82
first: 2023-05-19
most recent: 2023-05-19
sittings or episodes: 1
sources: podcast

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“Soon, along with a macro institutional fund as well. It's actually one of the longest macro funds that have been successful over the years in the space. And we're very proud of it. And I think there's a lot of opportunities to be a macro investor today. And especially given all those big macro trends being unleashed in this environment. So I'm really excited about the future. And I hope I provided some good ideas for investors in general. Thanks for having me.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Thanks for having me on your show, and my apologies for the long answers. I get really caught into my views. And I love sharing some of those as well. You can find my work on Twitter at Tavi Costa. I've been doing a new version of my post recently, which I've been trying to elaborate a little more on my views. Let me know if you guys like that. But that's sort of a new thing that I've been working on as well. And you can also find our work if you like more in-depth research that are long letters and ideas about how to maybe assess this macro environment. My views at least you can find it at Crescet.net Crescet is the fund or the company that I'm a partner and we run three funds, a global macro fund, a long short fund, and a precious metals focus fund. And we'll be launching a commodity institutional fund here.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“That opportunity has been masked by the political leadership right now, which a lot of people are bearish on. But it's important to remember that in the early 2000s when we had a commodity bull market, in fact, happened when Lula, the same precedence today, Enter or became the leader of that time. And so I think there's a lot of similarities with that period. And especially given the fact of how cheap they are relative to equity markets, which is the chart that you brought in today. So I like to own Brazilian assets. And I think there's a lot of also asymmetric opportunities in that space as well.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“So, I think Brazil is likely to benefit tremendously from those commodity trends. I think you have to also consider commodity-led economies versus commodity importers. China, on the other hand, if commodity prices rise drastically, different than what everyone thinks, they have an upper hand in the commodity markets. I don't think so at all. I think that could potentially see social unrest. That could potentially see major devaluation of the currency. That could potentially see a shift in the political environment. You know, those things are not priced in the Chinese market today, in my opinion. So I much rather own Brazilian asset, South American assets. And it's a portion of a portfolio. It's not a huge portion of it, but it's a growing portion of a portfolio. And I can see it growing over time. And I'm very bullish about Brazil. And I love the fact that it's...”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Inner space was collapsing, oil prices were collapsing. That really created the narrative that you needed for the populism that you saw in Venezuela to create that situation. And then the political environment worsened. You'll have the inflationary pressure because their currency devalues. Everything is related. Then you have social unrest. And then you have a populist that comes in and brings up this authoritarian agenda. I think we're not going to see that again in South America given the fact that commodities are unlikely to go to a bust of another 10 years like we saw from the 1910s to now. In fact, go back just for an idea quickly to that whole thought about how we've had the best earnings season in the 2010s was also a time when all commodities are basically falling during a period. That's not my view today, right?”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Became a very hot market in the mining spaces specifically driven by this openness to foreign investors to invest in the space. And I think Bolivia is basically not priced for that, right? I understand the risks of Brazil believe in all that, or at least I appreciate the fact that there are risks that maybe could be impacting how cheap those assets are. Now, I think those assets in general are not, broadly speaking, are not considering any improvements whatsoever on the political environment. And people think a lot about the political side of it rather than economical side of it. And the economical side usually leads the way, meaning what happened with Venezuela, for instance, just to use it as an example here, was exacerbated by the fact that energy was in a collapse. And meaning the energy”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“What you're going to find is that there is a very strong correlation between the two positive correlation. And recently we're seeing a gap on that since elections and so forth. Brazil has been sort of sideways recently while commodity equity markets have been basically been moving a lot higher, especially driven by energy, which is a huge part of exposure in the Brazilian economy as well. I think there's some really interesting opportunities in the Brazilian market. I think you can also, again, strapolate that as well into South America. Not every South America is a place we invest. Now, we recently increased an exposure to Bolivia, which I think is in the processes of opening up their economy very similar to what we saw with Peru back in the 90s, where”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“It's an opportunity. I think the political risk is real. So it requires a change in terms of allocation of how you allocate those assets into your portfolio. I don't think it requires a very large percentage of your portfolio because if you're right, those things are so cheap. The potential for return could be exponential. And look, everything has a price. You don't just avoid risk at all costs. I mean, you just there's risk reward in everything. And in this case, the reward is very mispriced relative to the risk. I think the risk is completely priced into most of those equities. And I find that a very interesting opportunity.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“For this backdrop that is positive for tangible assets specifically commodities, but also because of how cheap and historically undervalue those assets are in Brazil. Give an example. If you look at the banks, which are not necessarily tie into directly to the natural resource industries, although we all know if an economy is a commodity-led economy, you should think that indirectly a bank that is operating in Brazil should be impacted by a commodity bull market. And it is, if you look throughout history, the banking industry does very well during those periods as well where commodities do perform better than other periods. And what you're going to find there is that they're trading at one of the lowest multiples in terms of prices relative to fundamentals that we've seen throughout history. And so I think...”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Country over the last 30 years. I'm not even talking about the last year or so, I'm talking about the last 30 years. So it was very difficult for me to sort of put away those biases and become bullish in the space. So just so you understand the context a little bit of how it was difficult for me to become bullish in the whole country. But understanding the commodity markets and the likelihood of the beginning of a commodity cycle, which by the way is trigger in different ways. Sometimes it starts, in this case it started with energy and then it's sort of a domino effect. And then it triggers agricultural commodities rise. And then we've had a pause in gold prices over the last two years. And now gold prices begin to rise all of a sudden. And so every time there's going to be one section of the commodity market and you have to be, I think diversified into the space. And the Brazilian market attracts me not only”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And a very large one, in fact. And then you have Brazil in this kind of different environment where it has exposure to every commodity I can think of, large exposure to agriculture, metals and mining, energy, even water. Most of the Brazilian economy is related to natural resources. And so at the same time, it is almost like the Switzerland of the BRICS in terms of geopolitically speaking. It's very neutral. It will sell things to China, will also sell things to the US, even sell things to Russia, really. And it is very interesting that today, because of the political leadership in Brazil, and to be fair, I am from Brazil, I couldn't not been more skeptic about the political environment, but also the corruption scandals and corruption history of the”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Of commodities, not in that exporter. You've got Russia, which is a net exporter of commodities, but a total geopolitical mass that I don't think any institutional, large institutional capital will ever chase that in the next five to ten years. You've got India, which is less of a geopolitical mass than the other two, doesn't have an authoritarian regime.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And very rarely you're going to see someone trying to play where we are playing in terms of the micro cap names in the space. And even companies are not even public cap. And as you dive into the potential ways of expressing that long commodity view in the markets, what you find is at some point they're going to find, look for countries that are likely to benefit from that environment. And when I thought about that, I thought about emerging markets. And I think emerging markets, we immediately think about bricks. And bricks could not be, that's probably one of the worst ways to think about this as an opportunity because the bricks are so different from each other. It's not a block of economy. It's actually very segregated and very different in the nature of those countries of how they run. You got China that is authoritarian regime that is a net importer.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“It is, I would say, the biggest thing that really brought to our attention this opportunity to invest in Brazil has to do with the fact of as we learn about this natural resource space better and better and as we really research this through all history, what we found is the market is very small. It's a very thin market to spread your wings around, especially if you're a large institution looking to find significant exposure. So let's just say I'm right about 60, 40s and now we're going to have a 20% allocation or 15% allocation towards commodities one day. You can only go so far if you're a pension fund managing billions and billions of dollars into that space. You can buy the companies that are in developed economies. You can buy energy companies. It's probably the easiest way to start getting to the metals and mining space.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“This opportunity. And I love that factor, how contrarian this is. And we will see if this is going to be proven right or wrong. But hedge funds are paid to take risk. And I think this is a high conviction risk that I like to take”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“What I did recently. Well, we purchased the seventh largest silver mine in the world. Is there a better way to leverage up your trade than that without, well, we actually, this was a leverage buyout. And so it's literally leveraging up a trade. I don't know of anything. Every dollar that silver goes higher, the free cash flow of this mine goes up by 15 to 20 million dollars. So what if we see gold of silver prices and triple digits one day? I don't think that's out of reality. I mean, that's probably going to go higher than $50, which was the prior peak. And then we're off to the races and probably going to go much higher than that and make new highs and historical highs and probably head towards triple digits at some point. And so I am trying to think ahead of time here. I know that this is speaking out of terms and maybe difficult for people to”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Given my macro views. And I think it requires a lot of understanding. I mean, I've been in this industry now for three to four years. And I would say that the level of understanding of this continues in terms of the learning curve, continues to be steeper and steeper. I continue to learn about this. And our portfolio, I think, looks much better than it looked three years ago. And I hope that's the case five years from now will continue to improve that way. I think that we'll be in demand as well, this level of knowledge of this space with, you know, especially across institutions. And at some point, they will realize, in my opinion, that that's really the opportunity. And so that's why we did what we did. And that's why I'm so excited about, you know, I've been talking about silver for so long, right? Or gold. And, you know, guess.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Scalable and economically viable, and I can provide that to the majors at some point. And maybe we don't want to do that. I don't know. Those are all options that are, I think, one of the most important things for investors to be successful is to have optionality. I can think of a time when I can find more optionality than this. I think this is one of the best ways I find to really create wealth, generational wealth, in an environment that not a lot of people care about. I don't go to a restaurant or a bar and hear people talking about acquiring gold properties or copper related properties or a silver discovery or anything like that. I do hear people talking about technology and crypto. So to me, this is one of the most contrarian and interesting ways of asymmetrically tackling an opportunity that I have very high conviction.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Conviction that they are onto major discoveries. One of the main reasons is because they drilled and they found gold. Very high grade gold and not just once. They drilled in some cases of those deposits have been drilled. And so what you find there is that, wow, then why would they be priced in such a depressed level when gold prices are higher? And to me, it's sort of like a no-brainer. And so that's why I after going deep into this and knowing that the major companies are in desperate need at some point will have pressure from investors to improve, again, the quality of their own reserves, not central banks, just the miners, they need to improve their own reserves, their existing reserves, the quality of those. If I am now the largest investor of a lot of those major discoveries that are high grade,”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Early stage projects that then became major discoveries or major or company maker types of projects. That on the back of that was the beginning of Newmont that started really in 1920s. So it's not we're trying to replicate that specifically the same way. It's not like we were trying to turn Crescent into a mining company or anything like that. Although we like to keep the optionality open. The fact that no one is spending time and effort to go deep intellectually deep into this space and understand the level of opportunity we have, it's kind of funny how you have either I'm very wrong or I'm going to be very right because why would you see gold prices at record levels and a property that has very likely a major discovery of that metal? And we have statistically very good ways to give us”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“A place where we can't invest in maybe 100 companies or so, where all we need is one or two of those businesses to be very successful, meaning becoming unicorns or multi-billion dollar companies on the back of major discoveries, knowing that the value of those businesses are today priced for failure already. There's a lack of understanding of that industry overall. What if I come in with a more intellectual and institutional approach towards this rather than the current participants in this market and really exploit those inefficiencies and own the best quality assets I can find in exploration side of it and really build a business on top of that? Just to be fair, this is the model that Newman became Newmont. Newmont's the largest gold companies in the world and they started as a fund. They own a bunch of”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“When thinking about this, we thought, well, isn't this very similar to the technology space? Most of the billionaires made their money and startup companies that then became multi-billionaire businesses. And that's how they made most of their capital at that initial phase. The growth came from that startup phase part of the industry. What if we replicate the success of venture capital and the success of private equity in general, which includes venture capital, of investing in what I think it's the beginning of a trend, meaning natural resources in this case, specifically metals and mining, because that's where I would say our niche is and our knowledge is across the team and working with geologists and so forth. What we've built is in metals and mining. What if we create”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“On discoveries. Remember producing, development, and also the explorers. Most of the capital made in this industry was actually made on exploration. Basically, it was a property that some of those billionaires acquired or invested in a company that owned the property that then found a major discovery that became a company maker deposit. That's what we call when there's something that is very economically viable, scalable, high grade and successful over time creates such a level of profitability during that speculation period of going from a very low value of owning a property or a mineral rights over that property to then finding a major discovery, that increase of speculation, that creation of value that you build during that phase of the mining industry is what makes most of the billionaires in this industry.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“That what we are trying to accomplish is easy. We are investing in very small cap names in the mining space. There is over 3,000 companies in this part of the industry. And what I would say is that 90 or 95% of them will fail. So the thing is, the quality companies and the bad run companies are basically being priced at the same level today. So you can find a company that trades a sub 20 million market cap that is onto very likely onto a major discovery of gold. And investors don't care about infected price that along with another company that most likely won't have anything in the following years as they follow up on those projects. So what we found is that there is a plan. Oh, and by the way, majority of the billionaires in this industry throughout history have made their money.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Deserves improving the quality of those reserves, finding new discoveries, being bold at a time of a beginning of a gold cycle instead, they're just letting those assets run their course and the average grades of those assets have been in the also a multi-year decline. So what's the vision here? It's creating, in my opinion, one of the best opportunities for an investor to be creative, to maybe build the next new mod, the next barrack of this cycle. That's what I'm trying to do. So the way I think it's going to happen is you have producers, developers, and explorers. Majority of people, when they talk about miners, they're really talking about producers. If you're looking at GDX, the ETF, or the GDXJ, both ETFs are basically all producers. So you're not seeing the real opportunity here. I'm not here to claim”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Across those firms. If you look at Barrack's production for gold over the last decade, you're going to see a secular decline. If you look at Kinros, you're going to see the same. Anglo-gold, the same idea. Newmont, same gold production since we've seen 16 years ago. So why would an institution buy those assets if all they're doing is retiring those assets over time, their own projects that are producing assets? And then what they do with the capital because of the pressure from some investors and even their own board members on cost saving is that what they do is they take that capital, that profitability they're generating because gold prices are record levels and then they return that capital back to shareholders at record levels, meaning they should be spending money on focusing on replenishing their existing”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Be made. So, if you think about the biggest reason why we're seeing this chronic underperformance across the majors, it has to do with the fact of how they're running those businesses. If you looked at just a chart of gold prices relative to revenues of those companies, you're going to find a major divergence where gold prices rising and their revenues are not rising. Why? Well, you can't even explain that by saying operating cost is higher because we're looking at top line. We're not even declining, not even subtracting by operating costs whatsoever. So the main reason for that, it has to do with the fact that most of the major companies are all the major companies have aging assets with deteriorating quality of those assets and also a total lack and vision for growth. There is no production growth happening.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so I think in order to understand the gold space, you need to have some also historical. Our strategy of investing in natural resource businesses and trying to exploit those inefficiencies. And what we find is the biggest question, most popular question we get is why do you see gold prices making new highs? But you're not seeing the miners following suit. It's such an important question because the majority of the indices that track gold miners are indices that use the composition of those indices are really driven by larger miners, the barracks, the new months, the Kin Rosses of the world. And in my view, that does not reflect the opportunity in this decade in the space, although they might, for other reasons, do very well. And if gold prices rise, I don't think that's ultimately where the large amounts of money will be.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Lot of trends that will be successful here. It probably won't be the sexy technology space or the treasury market or the 60-40 portfolios or the software companies or even maybe the overall crypto market. I don't think it will be. I think there will be other things that maybe will look more attractive for the future. Natural resources is one example. Value companies going back to understanding fundamental analysis is going to be in demand. Understanding short sellers how they do their craft, which would be very handy and high demand to understand the downside risk of markets. So everything is interconnected in a way and the treasury market to me is fascinating. It basically holds the key for an entire stability of the financial sector and not sector with financial assets in general. And it's something that I'm paying very, very close attention.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Step in is the FAD's responsibility to try to avoid the instability of financial system. And so if the treasury market is linked to everything in the financial markets and causes that turmoil, then the Fed is going to have to step in. And it's not something we haven't seen. What QE is exactly that. It's then buying those bonds, creating the demand for those bonds, is essentially monetizing the debt. Now, just because I said that some people may have issues with the technicality of that and say it's not really monetizing the debt. Well, it is. At the end of the day, it will be monetizing the debt. And even if I was a policymaker, I get that question a lot. What would you do differently? I don't think there's a way to do anything different. I think they're trapped. And so investors need to be thinking about that context and saying, how do I exploit those issues in order to capitalize on that? And I think there's”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Which think about this? Well, the banking problem does not really cause by collateral prices falling that caused a mismarking of those assets in their balance sheets. And then the unintended consequences of the treasury market decline. What happens if we have a $500 billion to a trillion dollars issuance of treasuries at a time when 60-40 portfolios belief is somewhat broken? You have central banks not buying those treasuries. And who is going to be the buyer individuals? Are they going to create, I don't know, green energy bonds and people will be buying them at record levels? I don't know. I don't think so. If I look at probabilities, I think there's a high chance that we may see some big issues in the treasury markets sometime, like similar to what we saw in the BOE in the Bank of England last year. And the Fed is going to have...”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“I don't think we all have an answer for that just yet, but it will happen. It has to happen. And so what does that mean? How will the market absorb this? It's a very, very important question because we just went through 2022, which was a total collapse of the 6040 belief. Despite the fact there was a big decline in prices too, it was really a collapse or a break of belief in this portfolio allocation, which it's interesting that in the first quarter of 2023, we've had this sort of come back with mega caps doing well, treasuries rallying, and that portfolio actually did very well. But to me, this is almost like a bear market rally of that portfolio positioning. We'll see if I'm right here in years from now, but I do think that the age of the 60-40s is over. And if that's the case and you have on top of all this, the banking problem.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“We're running was over 300 billion. So in one month, we could dry up the entire cash balance. That cash balance is basically used for day-to-day operations is basically what funds the treasury deficit that we have currently. So once the agreement happens and every time we've had a debt ceiling, basically if you look at the amount of debt outstanding in the US, if you look at a chart of debt outstanding, you see a straight line which is caused by the debt ceiling. In other words, the government's not allowed to issue treasuries. Once that gets resolved, you see a jump in treasuries or a jump in treasuries outstanding. That means that they're issuing treasuries. We don't know if it's going to happen in long duration, short duration, meaning it's going to be two-year yield treasury is going to be issued, 10 years, 30 years. I don't know. I don't have an answer for that. I have a feeling it's going to be a mix.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Been basically irrelevant for markets every time someone claims that this is going to be relevant. This time, however, it's not the debt ceiling itself that matters. It's not the agreement between the Republicans and Democrats if they need to extend the debt situation or not. That has to happen, like it or not, like it. We may see a technical default or something like that, but that's not really relevant because they will ultimately extend the debt limit because otherwise everything is going to be collapsing and imploding in the US. Assuming that's going to happen at some point, The question now is how can the market absorb a large amount of treasury issuances once we do have that agreement in place? So the Treasury cash balance today is running at one of its lowest levels in history. Today it's at about 200 billion just to give you some perspective. In March, the amount of fiscal deficit that”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“I don't know how bad things are going to be, but today I would say that those issues with treasuries are probably one of the worst we've seen in history. Number one, we haven't even seen the same degree of or the same need for deficits to be running as high as it was in the 40s. It was a war happening, a world war happening unfolding at that time. Today, that could happen. And we would start that war already a very record leverage ratios in terms of the government side, which was very scary in general. But this is the case with every developed economy, including China, which you may say it's not a developed, it's more an emerging market, or maybe it's in between and so forth. But the biggest issue with treasuries today, to your question, has to do with the amount of treasury issuances that are happening in the market. Recently, we've had something called the debt ceiling. The debt ceiling has”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“That was a significant portion of the demand driven by treasuries at that time. The second thing that happened was that the Fed instructed the banks to buy U.S. treasuries too. And so that created another demand for treasuries that it's not the case as much today. And then we also reinstituted this yield curve control that is also really popular topic today, the potential for that happening and I think it will happen at some point inevitably. But it's important to go back that the need for financial repression given the fact that you have such a high levels of debt also will play into this inflationary problem. But ultimately, yields had to move higher. And we've had a move up in yields all the way to the 70s and 80s that then peaked in the 80s. And then we've had a 30-year period of decline in interest rates.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And so I think it's important to go back to the 40s because today, despite the fact that we like to go back to decades that we had inflation like the 1970s, the debt problem today is a lot more severe than what we've had during that decade. And the 1940s is a good example of a time when leverage was an issue as well. It was a different reason back then. The reason back then had to do with the war. The war drove leverage in the government side to levels that we have currently. And who financed at that time? Well, there's a lot of things that happened during that period. Number one, we've had, and I think that was one of the most important things, was really the individuals are buying war bonds. So individuals in the US were actually financing the war, number one, but financing that debt that we've had during that period, that buildup of that debt.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Becoming more, I would say, relevant over time. And I think what's happening is clearly with the deglobalization trends of most central banks now thinking about should I own debt from another indebted economy like owning US treasuries or should I own a neutral asset like gold that has very long history of a track record of being that asset that creates that quality of international reserves that a central bank requires in order to completely lose value of their fiat currencies and create some level of credibility. So we're at the beginning of this process of central banks having to improve the quality of their international reserves. This is why we're seeing gold being purchased by most central banks recently at a record levels really. And it's something that drives entire gold cycle at the end of the day.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Really. And the most credible central banks in the world were the ones that bought treasuries, were the ones that actually accumulated U.S. treasuries over time. And like it or not, like it, this was certainly what occurred. And on top of it, we've had also the 60-40 portfolio is happening at the same time, which also helped to fulfill that demand that was required to create such a bull market that we've had in treasuries over the last 30 years. More recently, given the fact of the deglobalization trends, the inflation issue, the default issue starting to rise, questions about interest rates to cost of capital needs to be higher over time. Can they maintain those interest rates to be as low as they were back in 20, 30 years ago? Do we need to see higher historical standards for cost of capital? All those questions are”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Which was a, I would say, a normal argument across the gold community, but it became, I would say, a lot more popular of an argument of questioning what really backs the US dollar and other fiat currencies today after we've had this Bitcoin and crypto movement across the younger generations first and foremost. And what is important to note is that back in the 70s Gold was about 70% of those international reserves. Those are the quality assets that central banks used to own in order to support their own currency systems. Well, after the 70s and the 80s or so, we peaked in that ratio of gold relative to other international reserves. And we've been in a decline, which has been almost a 30 years.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“I think if we go back to the 70s again and understand what the composition of central bank assets look like back then versus today is maybe very relevant to answer your question. Initially, when I looked at that, first thing you find is that gold as a percentage of international reserves by central banks, well, first of all, let's understand what central banks do before we answer that question. Central banks, they usually run a monetary system. So you have in case here not a central bank, but a currency system. The euro in this case or European currencies, you've got the US dollar, the Canadian dollar, the Japanese yen, you know, the euro really started in the 90s. So there obviously there's changes in terms of that in those monetary systems. So every monetary system requires high quality assets to back those currencies. That topic became a thing recently because of Bitcoin.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Of the lack of discoveries, and I think there's a lot of inefficiencies not in the mining industry overall, but really first and foremost in smaller businesses, which there's a lack of people that understand the space very well. Again, this is all linked to the idea of why commodities are so cheap and equities are so expensive and why I think that we're probably going to see a hard lending, a recession, and also a contraction of earnings over time. And one of the most important macro indicators to look at is For the next, call it 18 months or so.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“10 years from now. And I don't think the answer to me was to own gold. Gold is sort of a boring asset. And it's not news for anyone. Gold is not something you're going to get rich by buying that. It is truly a defensive asset. It's truly something that has history and credibility in terms of being having that track record of being a defensive asset during periods when you need that protection. And so especially at times during inflation, secular inflationary forces, you know, higher cost of capital and things like the nature that we're seeing today. So I do think that it is one of the most important questions that I ask myself. I have a lot of potential answers of how to express that view in the markets. After three years thinking about this, we've created even a fund to invest in, I think there's an issue in the industry itself.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And so I do think that there's going to be some pressure in US treasuries in the following years. And this is going to be driven by the large amount of supply of treasuries that we may see given the fact that we're running large deficits. And we're also seeing less demand from large central banks and institutions given of what I just said of this shift towards making more room for gold and commodities relative to what they currently have of fixed income and equity allocation. And all that is going to play a role into driving gold prices higher. So we can touch on this later. But to me, when I solve this research, it made me such a bull in gold prices for the next five to ten years that I wanted to understand how do I find the most asymmetric ways to express that view that gold prices are going to go higher, not lower.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Are falling over time. At some point, you start seeing the fact that you're actually able to get some yield and gold doesn't yield anything. And so why would you own gold when treasury yields are higher? Well, the reason for that is because the risk perceived in the markets by owning treasuries starts to change. Today, we've separate the risk of owning treasuries by three things. It's a default risk. There's inflation risk. There's interest rate risk. In the last 30 years, we didn't have any of those factors really playing an important aspect here of pricing those instruments. In the 70s, we did see that. We had the interest rate risk rising. We had the fact that we had inflation rising. And the fault risk wasn't really high. Today, we kind of have the three kind of working as I would say strong counter-arguments for owning U.S. treasuries as his defense.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Two portfolios, but it means that they need to make room for things like gold and other commodities to be part of those portfolios. And if you just look at the downside volatility of the treasury market today relative to the downside volatility of owning gold, especially in the last 20 months or so, what you're going to find is that by far treasuries throughout history, we've never seen the spread between the two where treasuries are much riskier than gold from a downside perspective than we've seen in the last 30 years or so, which in my view, as people will start to see those types of researches going around, will start realizing that gold does play a role as a defensive asset for most portfolios. I think the biggest pushback you get across this is when you see treasury yields rising because treasury is”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And institutions begin to really understand that gold is going to play a role as a defensive asset for most portfolios. And we're at the beginning of those institutions realizing that and they will be allocating capital towards this. And remember, central banks lead the way what institutions are likely to do. Central banks are already in process of what I call this period of improving the quality of their international reserves. I don't want to digress and we can probably talk about this in the next questions, but really what's happening is as central banks are buying gold. And so I do think that the 60-40 portfolios that we have today, their most popular portfolio positioning that we've had over the last 20 or 30 years, are not going to be popular 10 years from now. And it doesn't mean equity and bonds are not going to play a big role in.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Strong case to be made of why precious metals in general could perform very well relative to equity markets. And those two cases specifically, it wasn't just gold. Silver did well. The miners did very well. Other commodity producers did very well. So we, I think, as investors need to stop looking at 08 as the only time in history that will replicate what likely will happen here because of a potential for a recession or a downturn in the economy and need to go back further and see what asset correlations we may have given the structural changes that we're seeing in the macro drivers, especially during inflationary periods like the 70s and seeing what those market relations look like during those downturns. And treasuries did not serve as a haven asset. Gold did very well. And so if that's the case,”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“But again, there are times when gold goes up and S&P 500 actually goes up as well. There are times when gold declines, but the equity markets decline further. And so the ratio rises. And there are times in history when both flags of this trade work together, meaning gold rises with equity markets falling. This is such an important point because if you again go back and study which ones are those periods where both lags of this trade work very well, guess what? One of them was during a stagflationary period in that 1973-74. And the other one was during the tech bust. If you go back to the commodities to equity ratio chart, you're going to see that both periods also align with the times when commodities are depressed relative to overall equities. Does that sound familiar? And so I do think there is a very, very strong”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And so that also is not very helpful because recessions, when you signal a recession itself, usually that tends to be the case that you're actually at the bottom of the market. When people are talking about the recession, everything, especially the government, the downturn already occurred. And for portfolio positioning, what I found is, okay, so every time we got the 70%, we have a hard lending. There are even some periods where equity markets rally during after the 70% handle. So how do I manage money after this? Well, I backtested a lot of asset classes, treasuries, oil, gold, the S&P 500. And they all have different performances, especially in different macro regimes. But what you find is that the goal to S&P 500 ratio is by far the best portfolio position after the 70% handle is triggered. Be fair, we've had this”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT