All right, the bond market is wrestling with oil and inflation again today. Now, the 10-year yield, take a look at this chart. It just touched that two-month high before easing just a little bit here. Oil remains elevated as the conflict in Iran continues. And I mean the dollar is also quite firm. Now, my next guest spent years managing money at BlackRock and now reads moments like this differently from the crowd. His current read runs from a coming credit crunch all the way to $10,000 gold. So with gold selling off hard and then snapping back, consolidating a little bit, what's he seeing right now? And is this the pullback he finally starts buying? Let's get his read, Ed Dowd, up next.
SPEAKER_02Kitco News in Focus with Jeremy Stafford.
SPEAKER_03Okay, welcome back to Kitco News. I'm Jeremy Stafford. Now, my guest today is one of the sharpest, most contrarian macro voices this audience has heard, and a rare one who puts his calls on the record. Ed Dowd joining us now from Finance Technologies. Ed, good to have you back. Great to be here, Jeremy. Thanks for having me on. Yeah, of course. Uh and we haven't had you on in a in a minute. I was just looking this morning over at our interview uh from December, and I kind of wanted to start where we left off there, because the last time we had you on this show, you kind of said back then that a layman-type credit event could knock gold down 20 to 40 percent and that you'd you know buy that uh decline kind of hand over fist. And the decline obviously was here a little bit. Gold's about 27% off its January high. It's dipped below $4,000 uh just briefly last week. But the credit event hasn't at least shown up in the mainstream yet. So walk me through it. Is this price enough for you? Are you holding up for both?
SPEAKER_00Uh I I would I would be cautious on gold here a little bit, but long term we still think it's 10,000. Uh when we're in the teeth of this uh global slowdown, which we we we forecast that's coming, uh there'll be there'll be uh policy responses from the Fed and fiscal policy responses. But that that's out in the future, and that will uh set up the the next leg of the gold move into 2030 for 10,000. Uh unless unless there's a new monetary system, which I don't see anytime soon. It's out on the distance. But there's a crisis coming, and uh we're gonna have to see what the policy response is. But right now, uh the mainstream media and the uh investors at large are still uh celebrating the AI bubble and think everything's hunky-dory for the moment. But we're starting to see signs. Uh the credit markets are starting to question the profitability of AI. And uh Pimco, uh, one of the largest fixed income investors a couple months ago, said that we're at the beginning of the credit default cycle.
SPEAKER_03Now, I gotta ask you, I mean, let's talk about a little bit about that missing piece for the credit event. I mean, what would that actually look like a little bit in today's markets? And how would you recognize it when it comes, Ed?
SPEAKER_00Well, there's already signposts. Yeah. Uh, you know, you know, we're seeing the private credit market is undergoing uh withdrawals and inflows are slowing down. So that's all you need for a credit event to start to begin. We have a housing problem we can talk about later, but let's just focus on private credit. Private credit had tremendous growth the last two years in 24 and 25. It grew by some estimates 50 to 75 percent. And if you look at the uh the loans issued by the commercial banks, the marginal credit producer for the last two years was to non-depository financial institutions, which is private credit and private equity. So we had a credit impulse the last two years. It was in a sector that isn't is known for its uh opacity, its lack of transparency, and uh lack of liquidity. And that's all fine uh when flows are are coming in and and the asset class is growing. It's now in a pause mode. We've seen some uh notable bankruptcies start to uh hit the tape in the fourth quarter of last year, and that started the questioning of the private credit markets by some investors. And so we've been seeing people requesting their money back, but then the you know a lot of these uh credit funds threw up the gates. So now the flows are on the second derivative slowing, pausing, and we'll see what happens. But uh the other the other thing you can look at in the credit markets is Oracle. Oracle's uh credit default swaps are exploding, the stock has been getting hammered. So the the credit the credit folks always inevitably end the party in any kind of uh uh you know capex cycle. They did it in the dot-com bubble, the junk bond markets revolted eventually uh because they started questioning the uh the the the ROI and a lot of the telecom infrastructure build out. And we have the same thing going on now. It's happening in real time. We're seeing a lot of uh people in the credit markets questioning what's going on. And the credit guys usually end the party, the equity guys will figure it out eventually.
SPEAKER_03That's an interesting point. And uh, I guess on the bigger picture, I mean you you also laid it out in December a little bit on that recession risk uh credit strain uh strain, the AI bubble a little bit, but just update it for me here. I mean, what's actually playing out and just as important, what isn't? Because you know, the SP is still near that record, jobless claims are you know low according to government data, and recession is in the headline data, yeah. But where where does your read kind of stand today?
SPEAKER_00Well, the real economy is obviously uh not doing well. We see the consumer 80% of 80% of the population is struggling, especially with the most recent oil price shock. Uh consumer credit defaults continue to tick up, auto delinquencies continue to creep up, and we're starting to see the beginning of home foreclosures rising. It's from a small number, so it's not alarming yet, but the trend is changing. And I focus on trend changes. So the trend is beginning. Home prices are about 30% overvalued, that's 20% of our economy. The real estate market is essentially frozen. Uh, homes for sale versus home sold, the gap's never been wider. 75% of all real estate agents haven't made a sale in a year. So we're we're basically frozen. There's kind of a buyer's strike. Uh, you know, the the younger folks, the millennials, can't uh afford the homes. We figure affordability is 30% uh too high, prices are too high, they need to reset, and they will eventually. Uh new home, new homes, uh uh uh new home sales are are are plummeting because uh they have a lot of inventory. We have nine months of inventory, same same amount we had right before the great financial crisis. So the real estate market's weak, it's continuing to weaken. We're seeing the most most of the price declines have occurred in the south the southwest and southeast, closer to the border. The blue cities are still holding up, but eventually that they'll crack as well. We're also seeing the beginnings of a multifamily housing problem. Uh, there was a huge uh uh build-out of multifamily housing, the likes of which we haven't seen since the 70s. That was due to immigration, and immigration's halted. No mass deportations yet. If those were to pick up, that would only make our forecast that much more worse. Right, right.
SPEAKER_03You know, you you you got into it there. You were kind of pointing out the new home sales are now selling less than existing homes, something you described as is unprecedented. I just want to go back there because in flame English, I mean, explain Ed, why does that matter? Is it an early kind of warning side from housing, or could it simply reflect, you know, the builders cutting prices more aggressively? And what forces that reset if existing homeowners refuse to sell and supply stays tight?
SPEAKER_00Well, you know, uh the existing home sellers tend to be older. About 60% of these uh homes that are for sale are from boomers. And oftentimes they're second homes. Um we suspect that if there is a NASDAQ correction, that'll accelerate some of the price cuts from the boomers. Uh so right now it's just a frozen market, and that that's just a lack of economic activity. Uh that doesn't mean that home prices will crater soon, but they're slowly going to creep lower and lower. We have a demographic problem. Uh the the there's gonna be more boomers dying and and homes put on the market as time goes on versus millennials. Unless the unless the price the pricing clears, and if the pricing clears and we get you know, home prices go down lower, that's actually good for the economy longer term. Uh, you know, the new household formation amongst a younger person is much more beneficial to the economy than than someone who's retired. They the the spending profile is completely different.
SPEAKER_03Yeah, I was gonna ask you on the demographic. I mean, who becomes kind of the marginal seller? Is it the retiring boomers? Is it those over-leveraged investors, or is it households whose income just can no longer support the mortgage?
SPEAKER_00It's it's all of them. I mean, the uh the the when you have prices this high and and incomes not rising, in fact, falling due to inflation and throwing an oil price shock. It it it's it's it's it's a toxic brew. And the the qu the question is uh one what what gets what gets the price cuts really really rolling? I think it's a combination of just a bunch of different factors. If we get the private credit markets freezing and and there's a problem there, that'll have knock-on effects in the rest of the banking system. Uh there'll be a credit crunch, it'll affect consumer and industrial, commercial and industrial loans and consumer loans. In fact, we did see uh consumer credit uh decrease in in the month of May. I suspect that was due to the oil price shock. So uh we're we're we're at the beginning stages of a feedback loop situation.
SPEAKER_03Does that, you know, you brought up the Nasdaq there. We all know passive investors, but I mean, does that kind of make the Nasdaq the the real leading indicator for housing in the consumer now?
SPEAKER_00It could be. Uh look, we've never seen this kind of concentration before. The market cap of the S P 500 is 45% AI and AI adjacent. And I've seen this story before. I saw it in the dot-com bubble. I saw it going into the great financial crisis before the stock market peaked. There was a China theme. The only things that were working in 07 were was a very concentrated mix of themes related to China growth. Same thing now, except it's even more concentrated. And I want to I want to note something. When the semiconductor industry becomes 19% of the SP 500, notoriously boom and bust, that that doesn't auger or bode well for the uh future returns of the SP 500. And at the at these valuations, we've done the work, other people have done the work, we're not the only ones saying this. At these valuations, your 10-year forward returns are projected to be uh zero, including dividends, which implies a big drawdown between now and then.
SPEAKER_03Yeah, yeah. And you know, uh, I do want to get into because we're we're seeing this news about Kimmy and stuff, and I'm gonna go into AI, but just before we do, one of the things I respect about you is you'll actually say when you got it wrong. I mean, you told us yourself you kind of missed 2023 recession that never came because you didn't see the immigration wave holding the economy up. In that same honest spirit, what could be kind of propping this economy up right now that you might not be seeing?
SPEAKER_00Well, this time it's the lot the last gasp here is the credit impulse and the AI data set are spent. Right. Uh that's been it's it's huge. And now the credit markets are questioning that. Let's talk about AI real quick. There's there's three things we're seeing right now in real time. There's this Kimmy model that quite it calls into question the profitability of the whole space. That that had started already, but now that's that's alarming to a lot of new new folks. We've got enterprises hitting the pause button after the token maxing episode of the first quarter, where people realized they were spending way too much money on AI. Alex Carp of Palantir came out and said that you know, he speaks with enterprises. He said they're furious at the fact that the uh the uh Enthropic and OpenAI were charging so much money and also uh you know taking their precious uh um you know IP and using it to train their own models. So there's a there's a pause button from enterprise spending, and the ROI had already been coming into question. So we have enterprises pausing, we have uh competitive pricing from Kimmy, and uh we have the credit markets questioning the whole situation. So there's these three things kind of conspiring all at once to basically, I think, hit the pause button on the capex and then throw in the other uh fourth factor. The power just isn't there to plug these data centers into. And so that's gonna pause CapEx naturally because there's just not enough power to turn these things on. Yeah.
SPEAKER_03You the Kimmy K3, you know, it obviously rattled the confidence in the economics supporting American AI evaluations last week. Uh, semiconductor shares are rallying again today, which seems like people are buying the dip. I mean, was that kind of the start of that structural repricing that you're talking about, or just maybe another deep seat style scare in this rebalance?
SPEAKER_00Well, before Kimmy came out, uh the semiconductors had already peaked. We had a parabolic moves, and Micron reported uh tremendous margins and tremendous earnings. The stock had gone from a thirty billion market cap 13 months ago to a trillion. So, congratulations to those who who rode that up. But I've seen the semiconductor hyperbolic moves before. And when you have peak margins on a commodity producer like Micron, that's usually uh the end. And so those stocks started to um go into free fall after Micron reported several weeks ago. And also, I don't know if people have been noticing, but the the Korean stock market is essentially 50% of that market cap is two stocks. Samsung, which has semiconductor uh division, and uh um the the other the other one that escapes my my uh my memory at the moment, but two semiconductor stocks are 50% of the market cap of the of the Korean index, and that index is down uh 30% in a couple weeks.
SPEAKER_03I actually had a couple people yesterday on the show write in and ask me about Korea, so I need to go back to it. Before we do that, on the debt kind of behind it, I was reading Goldman this morning. They came out with this report and they said that the largest technology companies have issued more than $170 billion in corporate debt this year. I mean, more than four times their annual average before the AI boom. So I mean, what would kind of tell you the credit markets are shifting from funding growth to demanding that ROI that you talked about? They're demanding clear evidence of returns.
SPEAKER_00Well, you just have to look at the spreads. The bond market's demanding higher yields, and that becomes in and of itself a problem because the the uh financing can be become prohibitively expensive. The other problem, we're seeing inflation in semiconductor, especially memory chip prices. They're 30% higher than they were last year. So all of a sudden we have AI inflation, which makes the cost of building everything out even that much more expensive, which then feeds back to the ROI. So we kind of have this, you know, problem where the chip, the pick and shovel guys, the the chip guys, which have been making all the money because the debt that's been created has been used to buy uh chips and and build out infrastructure, the costs are going up. So the whole ROI question, it's a feedback loop, and the credit guys are beginning to like want higher yields to compensate, and the higher yields themselves could stop this whole uh capex build out.
SPEAKER_03So you you're a good man to talk to about this, Ed, because I mean here's the part that kind of reaches the ordinary people of the show, too. I mean, Wall Street is really packaging stakes and private credit funds into you know bonds, then using issuance uh insurance guarantees to improve their ratings. I mean, those securities can end up inside insurers, annuities, pension portfolios. Is that how private credit losses eventually reach you know ordinary retirement savings?
SPEAKER_00Yeah, so the the the the the little trick that happened, and it it didn't it wasn't intentional, it just happened. You know, look, the private credit industry started uh in earnest after the great financial crisis. And like all niche uh financial instruments, it it met a need and it and it worked. The problem is the fees were fat and big because it became eventually the new junk bond market. People don't understand this, but junk bonds are publicly traded. Uh there's a lot more transparency uh going on, and you can you get a public quote, so you know what's going on in the market. Uh the junk bond market lost share to the private credit market because the issuers uh were traditionally uh even uh riskier, and they they get confidentiality, no mark-to-market, and that's all good and fine when the flows are going. It kind of supports the whole thing. But the flows have paused, and now you're seeing uh the uh Wall Street alchemists, and I hate the word alchemy because that triggers me. Uh, when I was at BlackRock, uh BlackRock had a small CDO operation, not nothing as big as the other big guys, but uh the head of that uh that that that division notoriously said, I turned SHIT into gold, which is alchemy. That that didn't end up well. So now the the the latest thing we're seeing is they're trying to wrap up uh the these current private credit funds into loans to sell to insurance companies with an insurance wrapper. And that that smells awful lot like the great financial crisis, and eventually it doesn't end well. And so the the people that the the private credit market is basically resides in insurance balance sheets, asset manager balance sheets, uh high net worth balance sheets, and pension and endowment balance sheets. And when that goes south, uh that's that's where the losses are gonna be, and those people are gonna get all uh, you know, well, we don't know yet. We have the this whole space is gonna be stress tested. So we don't know what the losses are gonna be, but I suspect they'll be higher than what they're projecting.
SPEAKER_03I guess you could say, are they trying to solve a liquidity problem or are they just disguising assets that investors would no longer buy at their true market price?
SPEAKER_00Yeah, the lack, the lack of a public uh quote is a big problem because traditionally you would see spreads widening in the junk bond market as an investor, and then you would know uh something's going on, and you might become cautious, you know, in the whole the whole space. This this is a black hole, and we only get we only know that things are going south because the flows are going the wrong way and they're throwing up gates. Otherwise, it's a black hole of information.
SPEAKER_03And to be clear, I mean, the when I mean, where does the risk ultimately land when the cash flow stops that you talked about? Is it the private credit fund? Is it the insurer guaranteeing the bonds or or the pension fund that owns them?
SPEAKER_00It it could be all three. Uh the ultimate, I think, I think the ultimate loser are the people who who um uh the you know the private endowments, the pension funds, the insurers, and the high high net worth individuals are the uh the ultimate losers. Uh the banks, the commercial banks that loan to these private credit funds sit on top of all of it. They're gonna they they have first uh uh you know they're their first uh poll position in in recoveries. So the banks will be hurt, but not the the the ultimate investors are the ones who lose who lose the most.
SPEAKER_03Let's look at where this pressure kind of shows up first. So you pointed to Korea, which sits at the center of the semiconductor and AI kind of supply chain. What's happening in that market right now? What's it telling you about where the cycle goes next?
SPEAKER_00Well, it's telling us that there's been a 30% drawdown in in several weeks, which is a which is not normal for a country index. But you know, given that 50% of their index was two stocks, I I it makes a little bit of sense. Well, what there's gonna be a rally, and it you right now there's no structure to say that the top is in, even though it's down 30%. We need to see a counter-trend rally to attempt to go to new highs. If that fails, and then we take out the lows that we put in uh that we just put in potentially, then we're in a bear market in the semiconductor industry. But we don't know yet. It's it's it's it's it's tenuous though, but a 30% drawdown should alarm everyone because that that's not normal index behavior.
SPEAKER_03Now, uh I'm just seeing this fresh out of Bloomberg right now, so it's fresh, and I just wanted to bring it up with you because they're reporting that Moonshot, the company behind Kimmy K3, is preparing to seek funding at a valuation of as much as uh $50 billion, even as its revenue and demand are accelerating. Uh does that kind of strengthen your bubble concern, or or does it show that genuine growth is starting to support these valuations, or is it just one more?
SPEAKER_00Well, you know, look, the problem has always been there's no business uh model for anthropic and open AI because they unfortunately are in a commodity industry. And and and Kimmy uh is telling you that open AI pricing and deep seek, you throw deep seek in there, it's a commodity. And commodity like pricing is going to leave a lot of the investment that we've seen stranded. Now, this is long term, this is a this is great for I look, I I'm negative on AI investments, I'm positive on AI as a technology. And I uh I'm I was positive on the internet, but I I knew there was overinvesting. There'll be winners, uh, tremendous winners in the future from this lower commodity like uh pricing and a lot of uh productivity gains, but the infrastructure build has to reset in price, and it will. And and and and the growth is gonna slow because of the factors we mentioned before power constraints, enterprise demand, pausing. And it's it's not the end of the world. It's actually sets us up for tremendous gains, you know, five, ten years down the road. But in the near term, there's gonna be a lot of a lot of financial pain because every tech cycle, every infrastructure. Build like this is a hype cycle. And bubbles are a feature of capitalism, not a bug. And bubbles built the railroads, bubbles built uh the telecom uh infrastructure build out, and the the long-term beneficial, but short-term pay.
SPEAKER_03Right, right. And I mean, we could point to the dollar too. It I mean, currency volatility is kind of near a cycle low, and the carry trade is enjoying its strongest run in decades, according to Bloomberg. That traders kind of borrowing where money is cheap to chase yield elsewhere, obviously. I'm curious. I mean, how does that extraordinary kind of calm fit with the liquidity stress thesis? Is it is it showing resilience or is it just allowing more leverage to build underneath the surface, I guess?
SPEAKER_00Yeah, look, the carry trade is is something that we're everyone's been worrying about for a while. In August of 2024, there was a scare, uh, then swap lines were set up uh between the US and Japan and kind of papered it over. That's that's a black swan that's out there that you know it's impossible to call the timing. Um but what I will say is watch the US dollar. Uh in a global slowdown, uh the US dollar will strengthen because uh there'll be a scramble for dollar liquidity. And I think the dollar put in a very important cycle low in January and it broke out above its uh it went to a new 52-week high about a month ago. It back tested that breakout and now it's rising again. And uh dollar liquidity, I think, is a problem globally. We have a very negative thesis on China. We think China is in the acute phase of its real estate crisis and they're struggling in their economy. Their GDP came out last quarter, it's the weakest it's been since 2022. Uh so you know, China, the factory of the world, when it slows down, it'll have knock-on effects and cause uh a global dollar liquidity shortage, which we think is starting to manifest, the dollar's strengthening. And watch the dollar, because the higher the dollar goes, the worse it is for risk assets long term.
SPEAKER_03Okay. Uh I gotta ask you about uh I keep looking at our time, and it always goes too fast when I talk to you. I could ask you a million questions, but uh let's go to inflation just briefly because uh your sequence is kind of an oil-driven inflation shock, followed by demand destruction, recession, and eventually deflation, right? Is that is that correct?
SPEAKER_00Yeah, a deflation scare because the the the monetary authorities will print, print, print if there is a deflation scare, and there will be. Um, we modeled uh we we we we did a very good job in modeling the inflation. We had two scenarios. We had the the it we get resolution uh by May, which we did, oil prices came down. We had inflation peaking at around 4.67 percent, and then uh rolling over. Um unfortunately, right now it's 10 the MOU's been torn up, so we could get a reacceleration of the oil price if this isn't isn't figured out pretty quick. But the the the the oil price shock causes ultimately demand destruction, and we're seeing um rents coming down and housing prices rolling over, and that's 40% plus of the CPI index. Our core inflation is lower out 12 months. And uh we think the Fed is jaw bony that they're gonna hike, but we ultimately believe they're gonna end up cutting rates once uh the global slowdown starts to manifest. So it's it's kind of a it's kind of a whipsaw. It's like whip inflation up and then we go down.
SPEAKER_03Right. Yeah, I mean, several Fed officials in the Bank of America are now warning about hikes. Well, obviously they're you know the market's pricing still sees a July move, is unlikely. On that thought, I mean, we talk about wars quickly, but if the Fed kind of stays on hold and instead of cutting, I mean, how long can the credit system withstand rates at these levels that you talk about?
SPEAKER_00Not much longer. So I no, uh uh holding rates is actually uh a de facto tightening. Uh and and so uh the the the the cred the credit's gonna only get tighter and tighter, especially with the private credit markets frozen. And again, I want I want to reemphasize that that was um the marginal credit producer uh for the last two years. That was where all the marginal credit was created. People talk about the Fed printing money, the Fed hasn't printed any money. The money printing was done in the private credit and private equity space. That's where the credit creation came, facilitated by the commercial banks loaning to them. So that that's that that that sector is is is on pause at uh you know at best. And uh the Fed the Fed not lowering interest rates is only going to exacerbate that problem as we roll forward.
SPEAKER_03Now, let me pull out for a little bit here, just for the main audience. I mean, because you you frame this the you know, the mix is inflation in the in the people things need, right? I mean, food, gas, power, deflation in the things that they own, so stocks or homes. Uh for a family kind of watching this, I mean, what what does that split actually feel like? And how do you protect against both at once?
SPEAKER_00Well, look, the the the average consumer is asset-like. A lot of people don't even own homes. So their their biggest asset is their paycheck. And, you know, I've been saying, look, if if you believe what I'm saying, you want to make yourself as important to your employer as you can, because if there are uh economic slowdowns across the globe, there will be reduction in force and layoffs. You want to be the person that they don't lay off. If you're uh if if if if you're just dialing it in, uh expect to get a pink slip. So protect yourself, remain employable, work overtime, just make yourself as valuable as you can so you have at least your income uh protected through the recession. That's the best you can do is if you're you know, if you're asset like if you're if you're asset rich, uh you should be raising uh cash to take advantage of the opportunities that are coming your way. More Warren Buffett's at 40% cash. David Tepper of Appalooza is at 40% cash, the largest amount of cash he's ever had. Jamie Diamond's out today cautioning people on stocks. So a lot of professionals are starting to notice what I'm noticing. And it's summer, a lot of people are on vacation. I suspect the mainstream media will start to figure this out sometime in the fall, uh, early winter.
SPEAKER_03And for the Kiko audience, it I mean, I wanted to kind of spend some real time on the path because what happens between here and $10,000 gold matters just as much as that final number. Just walk us through a little bit about that actual sequence that kind of gets us there. And where in it does gold get hurt before it gets great?
SPEAKER_00Well, so gold had a you know a tremendous run up going up into January of this year. And in many ways, it maybe kind of um discounted the war was coming, some some geopolitical events and had a parabolic move, uh, which I don't believe is the end. Uh, then it started to consolidate, and then the war started and gold uh started to go down, and that's because a lot of the countries that were affected needed a liquidity right away and they sold what they could, which was some gold. Turkey uh uh sold many tons of gold. So that that was a short-term pressure on gold. If there's a risk off trade, uh generally speaking, uh gold may get hit some more, but that's you know you want to buy that uh that sell-off because we know what's gonna happen. We know that the Fed and the governments of the world are gonna print and spend and that will reinflate, and then gold should do fine after that.
SPEAKER_03Yeah. Yeah. I mean, to your point, the central banks have been relentless with their bids. China alone for 20 months straight. So uh we all know about de dollarization, at least on this channel, it's what we talk about. But is is this what the audience kind of keeps hearing about? Nations swapping treasuries for gold. And more importantly, on the flip side, uh, like you talked about there with Turkey. I mean, if central banks are the marginal buyer, what happens if they sell in a crisis to raise dollars?
SPEAKER_00Yeah, again, it's a short, it's a short-term panic. Just a bit. Long term, long term, yeah, you have to understand it's game theory. We know the crisis will generate, you know, even though Warsh doesn't want to use the balance sheet of the Federal Reserve, he's on record saying that. In a crisis, he's gonna get tested. We'll see what he does. And our guess is they're gonna do QE again. Uh, and the amount of QE they're gonna have to do is gonna be bigger than COVID, we think. And uh that that will that will set up gold for the next five, seven years. Wow.
SPEAKER_03You got any thoughts on silver? I mean, it's up more than four percent today, but still roughly half below its high. We saw that run up even quicker. I mean, is that extraordinary value? What are you what are your thoughts?
SPEAKER_00Silver long term is fine. It you know, it will go up, but it's very volatile. And I also want to warn people that it is an industrial metal. So, in in an economic slowdown, it'll get sold. Probably it'll do a lot work, uh a lot more worse than gold. But you know, if you have a strong stomach, you buy some more. Again, gold and silver should only be five to ten percent of your overall overall portfolio. Uh, and and it's a it's a buy and hold situation. Not you you don't want to get into the trading aspect of it. If if you're young, just stack it. If you're older and you need liquidity, maybe you know, start feeding some some out. But uh I love it long term.
SPEAKER_03This is good because I mean you've been you've been open about uh as anyone, I guess, with your own book. You're your heavy cash, a little bit like Buffett there. You got some gold, some long-deaded treasuries, essentially. No stocks. Is that correct? Is that still where you are, or is this bounce shifted in?
SPEAKER_00No stocks. I mean, look, uh I I eat what I cook. Um, I've been early to that call. Uh last year when I was making this call, the SP went up another uh 17% uh from uh June of last year. I think it's in the last gasps. And uh in a 40 to 50 percent drawdown, uh that's when the investment math works the the other way. 50 drawdown, you need to go up 100% to get back to break-even. That's why drawdowns are so deadly.
SPEAKER_03Right. Yeah. And you're also long what uh long-dated treasuries, because you you'd expect yields eventually to fall, right? And yields have recently moved against that. Yeah.
SPEAKER_00Everybody, every in a deflation scare, the the 30-year bond and the 10-year bond only care about two things inflation expectations and growth expectations. And uh the the inflation we're getting is a is a is a price shock. It's not uh wage-driven growth inflation, it's not demographically driven inflation, it's it's a price shock which creates demand destruction, which will create a growth slowdown on the other side. So uh I'm I'm I'm bullish those two sectors. Uh and uh but you know, look, if you want to be more cautious and you and you're not an institutional investor, yeah, I mean, cash is fine. Uh you don't you don't need to go buy the 30-year treasury bill if you're a retail investor. That's more for institutions.
SPEAKER_03Yeah, that's a good point because for the ordinary saver-watching, I mean, raise raise cash is kind of the advice everyone gives. But go a little bit deeper because what's the one thing you'd kind of tell them to actually do in the next six months that they probably haven't even thought about?
SPEAKER_00Well, I I've been I've been talking to some uh I do some personal consulting on my website at Dow.com. And uh a lot of the people um, you know, are either already uh believers in what I'm saying and they have healthy amounts of cash, and I tell them to sit tight and wait, or they come to me and they're 80% equities, and I said, well, you know, you should reba at a minimum, you should rebalance, get to 6040, uh, and uh, you know, take that 20% and stick it in cash and wait. So cash, cash is uh either government money market funds or T bills.
SPEAKER_03I like it. And then eventually the cash goes to work. All right, Ed Dowd, appreciate your time today as always. Uh interesting time in the markets. I guess it's it's a little bit of a quieter summer. No, no rate cut or hike coming this next month, I suppose.
SPEAKER_00Yeah, correct. And also, I just uh started a new substack, Ed Dowd Beyond the Narrative. Check that out. I'll be communicating a lot more there in you know, 1,000 to 1,500 word essays. I love it.
SPEAKER_03Yeah, no, I will. We'll send uh we'll also put up that link, Ed, for the audience to go. You can find out more in the description. Appreciate your time. We'll be keeping an eye on what happens here. Thanks again for the time. Thank you. All right, that was Ed Doubt, his read on where the economy and the medals go from here and how he's playing a gold market that just fell hard and then bounced again. Agree or not. He's one of the few who says exactly what he thinks, so we'll have him back on to keep the conversation going. Now, if you want more conversations that go deeper than the headline, subscribe. We do this every day. Tell me in the comments. Are you raising cash with Ed or are you buying this dip? I'm Jeremy Stafford for all of us here at Kitco News. Thanks for watching.
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