Tactical Edge Podcast - Brought To You By TWM - Episode 9

The Tactical Edge Podcast with Raj Bhuyan returns for Episode 9 with a wide-angle look at today’s investment landscape, challenging listeners to zoom out from the daily headlines and ask a bigger question: Are we still in the late stages of the longest bull market in modern history, or are we already witnessing the transition into an entirely new market cycle?

Raj examines how seventeen years of extraordinary equity returns, expanding money supply, passive investing, and growing investor complacency may have created hidden risks beneath the surface. Using historical analogs, behavioral finance, and market structure, he explains why portfolio construction—not market prediction—may be the most important investment decision in the years ahead. Throughout the episode, Raj revisits Tactical Wealth Management’s dynamic risk management philosophy, arguing that flexibility and adaptability may prove far more valuable than simply staying fully invested.

The conversation also explores the growing divide between crowded areas of the market and overlooked opportunities. Raj discusses why passive capital flows, international equities, precious metals, energy, and high cash flow businesses could play an increasingly important role if today's macro environment continues to resemble the inflationary regimes of previous decades. He also addresses several frequently asked questions, including the outlook for oil, the Strategic Petroleum Reserve, the Federal Reserve's policy path, inflation measurement, and why gold and silver remain central pieces of Tactical Wealth Management's long-term thesis.

Topics Covered:

•  Are markets entering a new investment cycle or extending the current bull market? 
•  Why 17 years of exceptional returns may have distorted investor expectations 
•  The hidden risks of leverage, margin debt, and leveraged ETFs 
•  Passive investing, concentration risk, and the rise of "closet indexing" 
•  Behavioral investing, FOMO, and why investors continue to buy high and sell low 
•  Why dynamic risk management may outperform static portfolio allocation 
•  The case for international equities and overlooked global opportunities 
•  Energy markets, the Strategic Petroleum Reserve, and long-term supply dynamics 
•  Globalization versus onshoring and the investment implications of structural inflation 
•  The Federal Reserve, inflation policy, and the challenges facing future policymakers 
•  Money supply growth, currency debasement, and the concept of "stored energy" 
•  Why high cash flow businesses historically outperform during inflationary periods 
•  Gold, silver, mining equities, and the continued rotation into hard assets 
•  How Tactical Wealth Management uses historical analogs and quantitative signals to navigate changing market environments 

Disclaimer:
This content is for informational and educational purposes only and should not be considered financial advice. Please consult your advisor for guidance specific to your situation.

Transcript

SPEAKER_00 0:00

Hello, welcome to the ninth iteration of the TWM Tactical Ledge Podcast. I'm Raj Buyan, a managing partner at Tactical Wealth Management. And boy, it's been quite a ride so far in 2026, a little more than halfway through the year. And really, since February, it's been quite chaotic in both directions, we would argue. In recent weeks, however, we've seen some new elements emerge, both from a nominal and relative trend standpoint, as well as from a behavioral standpoint. Elements that we are finding quite compelling. So we've got a lot of things to cover in this episode. We want to warn you ahead of time. So let's buckle up and let's get into it.

SPEAKER_01 1:02

Thanks for joining us.

SPEAKER_02 1:07

Raj Buyon is a managing partner of Tactical Wealth Management. Advisory services are offered through New Edge Advisors LLC, a registered investment advisor. Opinions expressed and information shared are for informational and educational purposes only and should not be considered as a solicitation for the purchase or sale of any security. Please consult a tax or legal professional for any specific information related to those topics. Past performance may not be indicative of future returns. Investing involves risk and the possible loss of principal capital. For those seeking additional information, please visit our website at tacticalwm.com and contact us.

SPEAKER_00 1:54

Okay, here we are with episode 9, and as you can see, we've got a lot of things happening in the world, a lot of variables moving in a host of different directions, and it all adds up to just a lot of noise. And when the noise is ratcheted up to such a degree, we would normally think that the best way to kind of handle that is to kind of take a step back and zoom out. Once we get a higher elevation, we can maybe perhaps see the landscape from a different perspective and get a better sense of exactly what we're trying to do in the first place, and maybe get some insight into terms of what might be happening. So let's look at this idea through this contextualization lens. Contextualization matters from our standpoint. And the real question that is really in front of us today is are we still in this late stage bull market where you have leadership that may be vacillating a little bit, but the leadership pretty much is still in place. We could be in the eighth or ninth inning, but sometimes in an eighth or ninth inning, the team bats around a couple of times, and maybe that eighth inning lasts an hour or two. Or are we perhaps already in the transition from a rotational standpoint into a new cycle phase? That's the question we've been making this case for some time, and honestly, nothing works in a straight line. And as the data streams play out, we will hopefully gain the confidence in terms of how this may all settle in the long run. Because we do think the bull market that we've experienced the last 17 plus years has really clouded that and has really given people a false impression, perhaps, in terms of how much risk is inherent or how much energy is inherent inside their portfolio of construction. We have this eight-lane highway, we have a slow lane on this left side, the traffic's going from top to bottom, this express lane on the right side. And the question is, what lane are you in? And we think a lot of folks out there are really in the express lane and really not aware of that. Uh honestly, there hasn't been a pothole they've dealt with, there hasn't been an accident for a long period of time. And of course, there are time periods where being in the wrong lane can really lead to some trouble. For instance, in the 1960s to the early 80s, the S P 500 only made about a percent eight on a price adjusted basis, 6% including dividends, and the market spent more than a quarter of its time in Quad D. This is very different than the environment we've experienced over the last decade and a half. And the question is, is this as good as it's gonna get? We've asked this question before, and quite honestly, it's gotten a little better over the past couple of months with a couple of hiccups along the way. We're now looking at an SP 500 on a price basis has annualized at almost 15% a year for over 17 years. Now, if we drag this out over the past hundred years, only a few weeks in late 1999 did the stock market have a better 17-year annualized return than we have today. We're about 8.5% over the standard return in terms of a price standpoint over the last hundred years. If we can get one point across in this podcast, it's to really have folks appreciate just how good it's been. We've had a really strong return stream, we've had very short volatility episodes relative to historical analogs. And yes, can it continue for some time going forward? No doubt. But this is the time we'd argue to make sure you have the right type of tools to really take care of volatility episodes in the future, if in fact they turn out to be quite deep and sustained. What's new today, however, is we also have money supply growth increasing at record levels. Now we're over $23 trillion in M2, and we've seen margin debt really make a move. With the margin debt, it's not only that, we also see a lot of investors levering up on leverage ETFs, almost $80 billion in leverage ETFs. Now, leverage ETFs have a lot of sexiness to them. They move at two or three times the underlying index. But if you own them for more than a few days or outside of a very straight one up or straight down period, you really can have a return stream highly divergent from the underlying instrument. For instance, if I look at the South Korea Cosby Index and its 3X Korean stock ETF CORU, you see a very different return stream over the last six years. Even though the Korean stock market's up 220% since 2020, you have the CORU, the 3X supposedly ETF, only bringing in just over half of that return. It's because of compounding errors. As you have the back and forth movements, these 3x ETFs really induce a lot of volatility drag, and the geometric compounding really works against you. And so this is how you get a 93% decline in this ETF from late 2020 to the spring of 2025. And when you're down 93%, you have to go up something like 1600% almost just to get back to even, to which this ETF did, but even with that huge move higher, it is still only given just over half of the return of the underlying index. So when you see 3x, maybe you should think of it as 3x the volatility. And as you know, the volatility is the kryptonite of the investor. So we typically stay away from these types of instruments, but we like to track them or the interest in them and use them as contrary indicators. When folks really start loading up on these types of instruments, we could be entering something like an inflection point. Not too different from here is also when we see some type of major IPO come to the forefront. IPOs are great ways for the early adopters of a company to get some type of exit liquidity. Also, a way for companies to perhaps increase their growth trajectory. But typically, when you see a large IPO, they come at really tough times within a market cycle, at least from the short to intermediate term. If you look at the typical IPO cycle, you see on average a really large drawdown inside the first year, year and a half of that IPO. You can see this through the top 15 IPOs over the last 20 years, the average drawdown being over 50%. And so we'll see how this current one, which literally took off a few weeks ago, but it's come back to Earth over the past couple of weeks, and we'll see where this ultimately goes. Even when you have a great story, sometimes it's how much are you paying for this story, not necessarily what the story may be or what the prospects may be going forward. So here's what we have right now. It's quite uh we call it very compelling in terms of where we stand in the market cycle. We have an ever-increasing share of assets under management really run within passive instruments. We also have this third-party asset manager contingent, and in some cases, they are simply closet indexers. So, from this estimate, we're looking of upwards of almost 73% of assets under management are either passively managed or closet indexed. This could be seen as a problem, or this is also could be seen as a potential opportunity. We view it as a tremendous multi-decade opportunity, perhaps. Just don't know exactly when this is really going to start manifesting in a big way. Here's where we're coming from the SP 500, or let's say large cap US equities in 1990 basically made up about 22% of all stocks from a global market capitalization standpoint. Today that number is expanded to over 53%, almost 54%, and the rest of the world is now less than 47%. This is gonna be an opportunity if somebody can find the kind of companies that are in the rest of the world space that are really making hay, but are not getting that passive flow. It's like a fish swimming upstream. If you can find a strong fish swimming upstream, when it finally turns around and starts swimming downstream, it's gonna probably beat all of the other fish because it just knows how to handle adversity, etc. So, what are the retail investors doing today? Well, this is pretty much the same story, except we're also seeing a crescendo, perhaps. We have ever higher levels of involvement of the retail public in terms of their investment into equities as a percentage of their total net worth. And of course, as you can see, when they're at high points in the market cycle, this is typically the worst time to be all in. And they also hate the market when the markets are at really substantive lows, multi-decade lows. It's pretty amazing how that works. This is just human nature. The more we appreciate human nature and how human nature really defies us uh in terms of being a good investor, the better we're gonna be longer term. We're seeing the same thing from foreign investors who are actually a little worse, the typical US investor. Foreign investors got all in in 1968, they got all in in uh October of 2000, they hated the market in February of 2009, right before the multi-decade low. I mean, what an amazing low that was in terms of where the stock market went from there. And now they love stocks again to the almost the highest level since 1968. What we find so compelling here is that the international market indices have actually outperformed the US over the last two years. Yet with this growing artificial intelligence story, we have a lot of folks out there that want a piece of that action. So, again, if we are looking to design a portfolio for not the next six days or six weeks, but for perhaps the next six years or even more, if we can find companies outside of that spectrum that are not really being chased by US or foreign investors, now we've got something. It's that empty bull market bus, which is potentially the real wealth creator. The busy or full bull market bus are the ones we typically do not want to be in. Now, the question is when is the next stop gonna happen? Or when will something happen to that full bull market bus? There's really no way to predict in advance. Now, Sir John Templeton had something to say about along those lines. His famous quote: bull markets are born on pessimism, they grow on skepticism, they mature on optimism, and they die on euphoria. What's amazing about time is that there's been zero knowledge gained by the investing public over the years, even with all this information at our fingertips, we still collectively hurt ourselves by buying high and selling low. That is why the behavioral aspects of the investing public is an input in terms of how we try to quantify what type of environment we might be in or what type of stage of the market cycle to which we may be part of. And so looking at back at this market cycle, we have all these behavioral characteristics, and what's amazing is you get that FOMO fear of missing out near or at the top, and you get this survival or fear near or at the bottom. These are limbic instincts, these are survival instincts, these are groupthink instincts. We are herding animals, we want to be part of the crowd, we want to go to the cocktail party and brag about how many shares of an IPO we got, etc. We also are thinking about a bear the same way we look at a bear market when our portfolio is dropping. So, to the extent where entropy can be contained, where volatility, especially downside volatility, can be muted during such phases of a market cycle, we now can put an investor in a better place emotionally and mentally and actually be forward-thinking, be in a position where the prospects are what are the opportunities? Not necessarily, hey, what do I need to sell to stop this emotional pain? And we can see it in the data that nothing has changed over the last 20 years. Going back almost 20 years from 2000 to 2009, we have a very famous select fund, not gonna name names, that earned 12% a year at a time where the SP lost 4% a year, but waited for the cash flows in, cash flows out because of a very high volatility profile, a standard deviation of over 32 or 10 points higher than the stock market. At the time, you had the actual weighted return of the customers of this fund lose almost 12% a year. So think about it. The fund, you own it from day one to day 3300, you make 12% a year. But the average investor waited for their flows actually lost almost 12%. That's unbelievable. That's 24% points per year compounded over a decade of underperformance. It's astounding, but it's true, and it also still happens today. You have a portfolio or a fund during contemporary times, it's made 13% outperforming the SP by a percent in change. Yet the investors in this fund have actually lost four. So, how does it happen? Well, look at the flows going into this fund pretty close to the pinnacle. People see performance, they want to buy that performance. We extrapolate in a straight line. And honestly, the people that get in near the top or at the top, they're not really buying something because they have a lot of conviction. They're buying it because they heard about it on TV, they see it on a newspaper, or maybe their neighbors talking about it, etc. They have very little conviction and they get in. The problem is when they do get in and there is a volatility event that wasn't necessarily expected. Remember, they bought this investment because it goes higher. They didn't buy the investment because it could go lower, and when it does and it supersedes their expectations, they're usually the first ones to sell. And those are known as weak hands. But the weak hands, if you have enough of them, can really exacerbate the basically the trend. And a normal correction cycle can actually manifest into something a lot larger. So think of that full bull market bus with a lot of people standing, and the bus is having a much harder or difficult time to navigate turns because as the bus turns, people actually sway and actually can make the bus much more unstable when the bus driver is trying to make a turn in one direction or the other. This is why we are always paying attention to the flow data from a contrarian lens. So if we look at the mag 7, for instance, the mag 7 are actually lower than they were in October. They really haven't participated too much in this year's ascent in the market. But look at all those flows. We're talking about hundreds of billions of dollars going into the mag 7 ETFs uh over the past number of years. And the question is, are people gonna have a lot of patience if this sector or these types of stocks really don't really start performing anytime soon? If you look at the semiconductors, which has been in an incredible run since the end of this past March, we're looking at something like 22 times the average three-month net flows into this sector with those underlying ETFs. This is at a time when even with a decline lately over the last two or three weeks, we're still looking at an index that is over 80% above its long-term moving average. So no one loved the semiconductor stocks in April of 25. We had outflows, we had no flows in October of 2022, which was a very material low in the index. Yet everyone loves the semiconductor stocks today after they've had an incredible run in just a short span and way above a moving average where there's really no support from a price standpoint anywhere close to current levels. This is why we believe the lane you're of the highway you're in is so important. Are you in that convertible in the express lane, or are you on a chariot in the right lane, going slower than the inflation rate? We think the best way to do it right now is that high clearance SUV that can change lanes. It's obviously probabilistically based, no one has a crystal ball, but changing the lanes or having the ability to change lanes with liquid instruments, we think is the best way to handle the environment we have going forward. We're not getting paid enough, generally speaking, in bonds and money market investments to really make money after inflation in that basically safe lane. And in the convertible lane or the express lane, perhaps we're weaving through traffic a little too much when you have the chance of a major accident out there. So this high clearance SUV, we believe, is the answer. And quite honestly, in the cruise ships that are out there, the big ones, you simply can't make a lane change easily. They're too big, there's too many shares. They might throw a structured investment at you as a way in which you can diffuse some of the risk, but all that structured investment does, because it's unsecured debt, is moving the risk from market risk to essentially credit risk, maybe even a mixture of the two, and we really don't think that's gonna solve the equation. You don't want to have an insurance company that goes bankrupt when the hurricane hits. So, from our standpoint, dynamic risk budgeting is the solution, and the more people appreciate that might be the solution, I think the better people may be better off. Now, going back to the idea of these sentiment indicators, one we really like a lot is one run by the folks at Sentiment Trader. They do great work, they have subscription based data feeds, and they have tons of different data, but we love we love uh what they're able to provide to us on a daily and sometimes a weekly basis, depending on the data set. Here we have the S SP in that 2020 timeframe where the COVID low happened in March of 2020. And guess what? We had a historic low of bullishness right about the same time with the investing public. And so when you have these big drops in bullishness, not always, but typically, this is a great risk-reward point to be adding exposure, even if the markets are below their moving averages and the rubber band is quite stretched. In the 2022 market decline, we have something very similar. Nothing's perfect, but you have very low levels of bullishness with the investing public pretty close to a material low in the underlying index. And so we use these types of data points from a contrient angle to help us lean in one direction or the other. Okay, let's touch upon some FAQs. With regard to the price of oil, why isn't oil higher with the strait being essentially closed for the better part of five months? Great question. And one way to look at it, if you look at the tanker crossings in the strait going back to December of last year, yes, we've had a nice little bounce, but we've gone right back towards zero in the last couple of weeks. And we're talking well over a billion barrels of oil just have not been delivered. But it really hasn't impacted prices of oil too much for two distinct reasons. Number one, we have the Chinese have really drastically cut their imports. This was not necessarily expected. The folks at the Baker Institute did a really good analysis on this in late May, and they concluded through all of their informational studies, and they concluded that the Chinese have actually done this on purpose. They've kept their strategic reserves actually stable, and actually increased it a bit, and they reduced their refinery runs. They basically tightened their belts because they view the strategic reserves of oil as a military asset, not an economic or political one. So reserves are worth more unspent, which is highly divergent of a policy than the US is currently employing. In fact, over the last six years, the US has used the SPR as a political piggy bank. You can make the case. Back in 2022, we saw a huge decline in the SPR just to keep oil prices stable. People allege that was done in front of the 2022 midterms. And guess what? We have midterms coming up this fall, and we're seeing a big decline in the SPR also to try to keep oil prices stable. And we're actually exporting some of this crude, uh, believe it or not. This is at a time, however, where the SPR now is at its lowest level since 1983, about the time it was being created, and we're not that far above the structural baseline. There's actually a legal limit that's above in the below 200 million barrel range, but 160 million barrels-ish is where the engineers have said essentially this is the lowest these salt caverns can go without possibly compromising the structural integrity of some of these caverns in Louisiana and also some in Texas. So our SPR is down 50%, and we can see that oil demand or the demand for crude has not decreased at all, even with some measurably higher prices in the United States. We're running at 21 million barrels today. So if you think about the price discovery, price in the marketplace can be used to throttle demand. If we let prices go up to 150 to 175 dollars a barrel, we would probably see a big curtailment of demand. But it could be seen as politically unfriendly to say the least. So by releasing all of this SPR and basically keeping the global oil prices down, demand in the US has actually stayed pretty stable. In fact, it actually has increased in recent months. So this could actually create some type of issue unintendedly, so to speak, because now as the strait remains closed, apparently, we're probably going to see a pretty tight oil market or energy market. And we haven't seen the demand destruction you want to see when actually supplies get tight. This is where you see the crack spreads really exploding for a refined product. And when you have higher crack spread, is that is really an indication that demand is high and you have very, very constrained supply. So we'll see how this plays out in terms of how the energy stocks have played out. They actually have had a little consolidation, and we have actually gone to negative flows on a three-month basis since 2019. Energy ETFs have actually had to withstand a nearly $12 billion withdrawal on a net basis. So there is absolutely no interest in energy ETFs by the investing public. For a while it was a lot of crypto ETFs, now it's all this AI stuff. It was Mag 7. And so we're not sure when the hot money crowd will ultimately come back to energy, if it ever will anytime soon. But we love the risk reward here because the energy stocks are in that empty bull market bus, we would contend. Okay, now if we have this scenario where we're going from a globalization world that is promoting efficiency, which is disinflationary to say the least, and you have long-term bonds and mega crap growth stocks and real estate do really well, to a time period where we're looking at onshoring in a big way, which is a redundant platform. So if globalization is about efficiency, onshoring is about redundancy. If we are moving in that direction, where you would see materials and energy and financials and commodities do a lot better, we have an index, a stock index that is actually not prepared for such a move. Because today the SP is almost 50% technology and communications. Those are the two of the longest duration sectors in the stock market. And two of the shortest duration sectors in the stock market are less than 5% of the SP today. They were closer to 38% of the SP at the end of the big metals and energy boom of the 70s. So we're looking at almost a 90% decline almost in the size of the energy materials inside the SP as the technology and communications sectors have moved to the highest levels ever. Now, this alligator's mouth is wide open. It may be able to get even wider at some point, but if you're designing a portfolio for not the next six weeks or six months, over the next six years, maybe even the next 16 years, this is something that we would want to take into consideration. The problem is if you have all of your money in SP type instruments or managers that closet manage the SP 500 or the Nasdaq, you have a waitings problem from our standpoint. Okay, so what if we're wrong about this? What could derail this thesis? From well, from the fundamental standpoint, the biggest factor is that if the new Fed chair becomes the next coming of Paul Volcker. Paul Volcker is famously known for the Fed chairman who killed inflation in the early 1980s. And he did this really on the back of a really high decade of inflation that topped out at 13.5% in March of 1980, about the time a little after he actually took hold at the helm of the Fed. And essentially what he did is he took interest rates and actually doubled the inflation rate for a good period of time from 1980 to 1982. And that is what essentially killed the gold market, it killed off inflation and really sparked a huge new age of economic growth where you had the big bull market and equities of the 80s and 90s, a 20-year bull market. But Volcker had a luxury the current Fed chair Warsh does not have. He was looking at annual deficits of GDP of about 2.5% versus almost 6% today. And he's looking at interest payments in terms of the percentage of interest payments from tax revenue to pay the national debt at only 10%. Versus today we're going closer to almost a quarter. The current Fed share really doesn't have a lot of rope when it comes to being able to navigate this inflationary storm and try to kill off the inflation simply because the US government cannot afford to pay six, seven, eight, nine, 10% on its debt. We're talking about the debt payments or the interest payments superseding all tax revenue at some point, which would really take us into banana republic territory in a big way. So how did the current Fed chair come to be in the first place, anyway? Well, the outgoing Fed chair just simply wasn't given his job. He was job was taken away. But at the same time, people are talking about this new Fed chair to be the hawk. I know a year ago he said, hey, cutting rates would be really good for accelerating growth, but because he had that big advertised, well-advertised departure from the Fed in 2011, quitting it because he was against the idea and concept of QE2, the second iteration of quantitative easing, this is really when the Fed balance sheet really started exploding in a big way. He had the famous departure from the Fed. He is seen as more of a hawk. But the question is, can he really be one? Now, the latest inflation numbers that came out today might make his job a little bit easier. Headline inflation, supposedly three and a half year over year, it was down four tenths of a percent on a month-to-month basis. But does anyone really believe that number? Remember, Fed chair Warsh also wants to redefine inflation to a degree and go to uh from the Dallas Fed has a version that's actually even more benign than this current version. But look at the prices changes over the last 24 months for a number of items your typical middle class um family might be dealing with. From a moderate fender better damage to home electricity to gas prices to staying at a resort hotel, even the grocery bills, we're looking at an average of 18 percentage point increase or 9% annualized over the last 24 months, way above this 4% inflation annualization over the last 24 months. And so the question is can you really be that hawkish? You have the markets right now initially saying, yeah, it probably might be hawkish because the chance of the Fed rate staying stable has really plummeted since early May, from about 100% to only 16% today. And we've gone from about zero to 71% almost of a chance of at least a 25 to 50% hike between now and January. So we'll see if that plays out, but we're just not believing those numbers. Because if you see what the president said about Chairman Powell, the outgoing Chairman Powell, hey, listen, he's killing growth when it comes to not lowering rates fast enough. And a question is posed recently about hey, this new Fed chair may actually raise rates. And the president says, hey, he's a great guy, and I'm guided by what he wants. That just makes us wonder here because we don't believe the president has changed his tune on wanting to lower rates. I think they're really trying to get some credibility for the new person, and they they probably have a plan that might be a little bit covert. So we see it as hey, this is a signal as the dog that didn't bark. Sometimes a dog that sees an intruder, supposedly that doesn't bark, a non-signal could be a signal in of itself. So our common sense take is this at this stage. Number one, you have this idea where they're probably gonna have to move the goalpost. They're saying emphatically they're gonna basically fix inflation. Well, the easiest way to fix inflation is just to redefine it and bring the number down. Now the question is, can they bring the number down and still hold credibility? I don't know because I'm still astounded how many people in the media, electronic media, and print media still quote the official CPN numbers with a straight face. Everyone should know, in our opinion, I guess, that the inflation rate is actually much higher than is being quoted. Number two, what if they can get the banks to actually hold more treasuries? This would take a lot of pressure off of the Federal Reserve to be that last resort buyer of treasuries. We have something like $18 trillion in treasuries issuance, most likely coming in the next 18 months. And this would be if they get the banks to do it, maybe tell the banks you don't have to worry about your reserves and you can post these at face value and not worry about the market value. This would actually give a lot of buying power, just a lot of the debt that's coming down the road. And then also, if they can go down that road and maybe retire some of the long duration bonds and then start reducing the short end, they can steepen the curve and really try to get this economy to run hot, incentivize people to take risk, borrow money, etc. And before you go there though, this is about moving the goalposts, they've redefined inflation 10 times in a big way, 30 times using minor adjustments over the last 40 years and change. And according to John Williams of Shadow Stats, those changes have actually increased the spread between the old definition of CPI and the current definition to about eight percentage points a year. Now, whether that's right or wrong, let's say if it's even 4%, let's say they're half correct with this estimation, that's still putting the interest rates well below the inflation rate. So any money that's long-term oriented in bonds or bank CDs, you name it, you're looking at a devaluation after inflation. And the best way to see this is through this idea of quantifying the decline. So starting in 83, you have a dollar using the current rate of inflation, that dollar has fallen to about 29 cents in value, a minus 2.8% annualized decline. If you use the old definition of inflation, the pre-83 definition, that dollar has actually fallen to about three pennies. That's a 97% decline, by the way, or annualized at 854. That's astounding. So just understand that uh this could actually get worse in the next 10 years if you have your money under the mattress or have all your money in bonds, etc., you'll get the face value back. But what can you buy with the face value? What will a Ford Pinto, so to speak, cost you 10 years from now? Will it be a million dollars or some goofy number, assuming they still make pincos? I know they stopped making pintos, but I'm using that as an example. And of course, even when gold had a rough run after that big 25-fold increase in the 70s, starting in 83, gold really went nowhere for a while. But even with that said, gold still gained by about five and a half percent versus the dollar over the past 40 years, and that basically dollar priced in gold in 1983 is now worth four pennies. So the question is what's the solution? This is not going to be easy, and you can kind of see where this is gonna go here. If you look at the long-term economic growth rate, you saw the economy running hot in the 1960s and early 70s, almost 9.5%. This is a time when the SP went almost nowhere, 1.8 price, 6%, including dividends. With that said, we think the game plan is to find a way to keep the stock market up. Not sure if they could pull it off or not, but that is an incentive that's in play because we've never had the stock market be such an integral component of the US economy. And that's because as the asset prices go higher, the people that have wealth that have the assets, they get wealthier. And you can see this with the SK economy being illustrated, where the top 0.1%, you need about 50 million bucks a day to be in that 0.1% in terms of a net worth. They now account for 14% of all net worth. And the middle class, the 50 to 90th percentile, has fallen all the way down less than 30. Very different than we saw in the late 80s to early 90s. And the question is, what will the policymakers try to do to kind of keep people at bay? Because watching the really super wealthy get even more wealthy, really not going to be very politically palatable for those folks, we would argue. And we think it's gonna come through increased transfer payments. Transfer payments, including Social Security, Medicare, Medicaid, unemployment insurance, basically all those types of benefits, and of course, veterans' benefits, all that added up together. We're looking at $3.6 trillion, 18% of GDP. This is gonna be a much bigger number potentially if the people in Congress, the future administrations, try to peek keep people at bay, let them eat cape, give them some more stuff so they can afford their lives, etc. Of course, the money's not there, and this is gonna be the big question: how do we store value? In the olden days, a $20 bill was in gold coin. You had you had basically had an ounce of gold behind it, it was interchangeable, and it kept the government pretty much in check. Today, since 1971, it's electronic, almost all currency electronic today. And the problem is, you know, that gold took some time to mine, it took a lot of energy to form. Uh, a $20 bill, electronic, really doesn't take much incremental energy. And that idea is posed by the author Mickey Mani in this book, The Entropy Trap. And this is where he's making the contention we are in the midst of a phase transition where the old rules don't just weaken, they basically just disappear. And this idea of sound money to be viewed as stored energy. Love this concept. We've been kind of trying to talk like this. This is just articulated better than we were able to do uh back last fall when we did our episode on the origins of precious metals. That's episode two in October of last year. And this idea of, hey, listen, you've a stored value, uh, let's say that equals a unit of labor. Someone's cutting the grass, they cut an acre, all that work, the energy went into it, is worth something, right? And so if we were to somehow try to conceptualize that the way the Egyptians did it, they did it through the barter system, you know, 4,000 years ago. The problem with the barter system is not very efficient. If you have corn and you want some wool, but you don't have the person who has the wool doesn't want corn, that's gonna be a problem. So this idea of using a unit of exchange, a monetary equivalent, really came to bear. And the idea of stored energy really came into play with Elydians, 700 BC. They used a gold coin for the first time. And this is actually gold and silver for the next thousands of years was the basis of money in all cultures and societies. This is basically like a quarter of an ounce. So to try again, let's get a baseline here. So look at this 100-watt incandescent bulb. This is the old school bulb. Well, if we're defining energy or units of heat by joules, one megajoule or million joules, that basically equals 10,000 seconds of that watt burning or about 2.8 hours. And to get to one gigajoule or a thousand megajoules, we're looking at about three months of this light burning in this basically this bulb. So it gives you an idea of how much energy that is. Well, how much energy is in one ounce gold nugget here? Assuming you're picking it up from the bottom of a river stream, so you don't have to use all that energy to extract out of the ground, and you pick it up, you're first of all, you're holding on to something that basically precedes the solar system. But how much energy is embedded there? How much energy was needed through this nucleosynthesis or this rapid neutron capture process to actually formulate this type of element? Well, it comes out to about 24,000 gigajoules or that light. Bulb running for about 6,000 years. That's just one ounce. So you can see the captured energy there. It's hard to replicate. And therefore, it does have some sustained value. So if you look at it this way, this can really give you a different idea or a different lens to which to view money or value wealth from that standpoint. So looking at when it comes to the money we all use and it's in circulation since 1971, when the United States went off the gold standard officially, 97% of all currency looking at broad money currency has been created since 1971, growing at about 6.6%, which is way higher than GDP growth. That's the problem. The problem is how much of this economic growth has really been real growth versus just a lot of money creation. This is why the governments hate gold for the most part. At least the governments that have the reserve currency, which is our government today, because no matter what the price is, the amount of gold being extracted out of the ground has really not risen more than one or two percent a year. Money supply growth has been closer to six and a half. And if you include basically loans and other debt securities, we're looking at nearly eight percent growth rate for this underlying liquidity. And this is going to be the biggest problem going forward, we believe, because all of the variables that have essentially driven this money creation growth rate are potentially positioned to go into a whole nother level going forward. And what I mean by this is look at this $20 bill in gold coin. You need 24,000 gigajoules of nuclear buying energy to basically create one ounce of gold for this equivalent. On the right, we've got a $20 digital dollar. Okay. According to the AI agents we employed, we're looking at something like 15 minutes for the energy created from start to finish to create a $20 electronic dollar. Now, here's the problem. The problem is what if we substitute this $20 electronic dollar for a $20,000 bill? There is no incremental increase in energy needed to change that denomination from $20,000 to $20,000. That is the problem when you have a fiat currency. This is where things can really go sideways going forward when you have all these inputs and desires and will from the public and from politicians that are really going to be incentivized to increase the money stock in a very material way. This is essentially the same issue that came up during the German hyperinflation a hundred years ago. We've already talked about Rudy Havenstein, the president of the Reichsbank, in 1923. He's making a speech to the central committee, and he's kind of bragging about how they're able to increase the denominations of the German marks to basically effectively meet this increased demand. He's thinking, hey, I have all this demand for the German marks. We have to really ratchet up the printing because everyone wants more marks. He's kind of seeing it backwards. All of the money creation was leading to basically hyperinflation, which was running up the demand for marks because people all of a sudden need millions of marks to buy a loaf of bread. And eventually they needed trillions of marks to buy a loaf of bread a hundred years ago. So here's the problem we're dealing with. What do we do? We have this spectrum of different investments from broad money to public equities. There's precious metals in digital assets, bonds, real estate, uh both residential, commercial, farmland, and private equity. This is basically everything out there. And the question is, how do we handle this? Well, of course, we've already talked about the idea of having a variable approach or a dynamic risk-budgeted approach. But the one area that we think to also focus is as much as we've said that the public equities market, for instance, are really rich in valuation, it's really a small subset of the equity markets that are very expensive. Quite honestly, a large subset, the majority of equities, publicly globally speaking, are actually not very expensive. And there's some great companies in there, they're just not represented very well inside these big indexes. And at some point, if you have a fish that can swim upstream really nicely, once the direction of the stream changes, that fish going downstream is going to be able to beat all the other fish, we believe. So we're looking at this idea of through the prism of expected liquidity, expected distribution yield, and also the idea of expected duration. The lower duration or the higher short-term cash flows, the lower the market correlation, you're generally going to see because the market is very overweight, very high duration instruments today. So let's go back to this 1970s analog. Let's say we are in the 70s, we'll find out hopefully sooner than later, uh, in one direction or the other. And so if we're looking at the 1970s, the question is if we do this running hot game plan, what are the assets that actually outperform in the 70s if we have this running hot game plan that actually plays out like the 70s? What actually did well? Well, if you break the market down into two distinct segments, companies that have very high cash flow yields and companies that have very low cash flow yields, you see a very distinct difference in the type of performance we saw over this decade. And so if you look at the SP 500 with dividends, the SP bid around 6% over this time period from 64 to 82. Now, the low cash flow yielding companies actually did a little worse. And look at the return of the high cash flow yielding companies, they return almost 14% a year versus less than 5% for the low cash flow yielding companies. That is compounded over a decade and a half. And we think that is quite compelling because the companies in this high cash flow yielding sector, essentially, are not really represented inside the SP, certainly not in the Nasdaq. And if you look right now to see what are the companies that have high cash flow yields, you're looking essentially companies that have very small influence in these big market indices. Doesn't mean you go all in here, it just might mean, depending on your risk tolerance and your desire to gain alpha, how much alpha generation are you particularly looking for? You can decide how much you may want to overweight this these sectors or underweight other areas that might be very low in cash flow yields. Okay, FAQ number two. Why did the price of gold actually fall at the outbreak of war last February? You know, going back a decade, we had the central banks basically be big, huge buyers of gold. They were actually kind of net sellers of treasuries. We're talking to the tune of about four trillion dollars in delta from the fall of 2015 to essentially today. But we did see something happen in February and early March that kind of catalyzed a new wave of volatility in the precious metal space. And that was the country of Turkey actually sold initially 60 tons of gold. They import all of their oil essentially. They had very little cash. The lyria wasn't really holding up well, and to defend the lyria, they had actually had to sell a lot of gold there, actually, basically come up a lot of cash and buy a lot of oil with that newly found cash. That catalyzed a new wave of selling after a huge increase in the price of gold from the basically the start of 24 to the beginning of 2026. But if we zoom this out and look at this long term, we really see something is still pretty much intact from a trend standpoint. Here we have the Barents gold mining index going all the way back to the 1930s, and you see this big breakout in 2024. And if you go back to 2015, gold mining stocks have actually doubled almost the Dow Jones industrial average for over a decade, and yet you never would know it because gold mining stocks have actually had outflows if you look at their ETFs, and of course, we know how large cap US stocks have done uh over the last couple of decades with regard to the net flows going in, and so we've seen a little bit of retracement, but this is a log scale chart. We have seen nothing to invalidate this breakout. In fact, if we get a little more pullback in the coming days and weeks, we will actually be right back to the quote unquote scene of the crime or to the breakout level. This could be a risk-reward place to actually add exposure, because as we've said before, when you come back to these trend lines, you don't have to be wrong for long to understand that you may basically need to get out of a trade that's not necessarily working on your behalf. If you look at the performance of the mining equities versus the New York Fang index, the big Fang stocks are kind of like the Mag 7 stocks, you see a huge odd performance cycle until February of 27th of 2026, the day before the war started. And we've seen this big retracement right back to our rising moving average. Now, since February of 2019, the mining equities have Anglized at almost 61% versus 27% for the Fang Plus index. That's pretty amazing. The question is, is this a good time to be adding exposure if you already don't have some? And that's a discussion we can have on an individual basis. Why do we like these mining companies? Well, look at the difference between the big drop in free cash flow amongst these hyperscalers from 3.5% yield to less than 1% yield, and look at all that money that went into these hyperscaler type stocks through these ETFs over the past six years and change. We're talking upwards of $700 billion. Now, conversely, look at the cash flows yields of these mining companies. We're looking at something like a 7.5% yield, much higher than we saw just even a couple of years ago. Yet we're looking at outflows on a net basis from the investing public. The bull market bus is very cheap. These companies are putting out tons of cash. The duration of these companies are exceedingly short. And if we do have this inflationary cycle continuing to manifest, these are the kinds of companies that outperformed, you know, essentially during those types of periods. Now let's come back to this price of silver. Boy, silver's had what a run. On a weekly closing basis, it got as high as 103 back there in January. I think briefly it might have hit $120 intraday. It's come down 45%, still above the 1980 high, still above the 2011 high, and we're also above the rising 88-week moving average, but we've definitely had had a pretty strong comeback. We were talking about how it needed to just go nowhere for a while. And it certainly has done that to say the least. The question is, are we now at a good support level to add exposure? This is where we have to take a look at other factors. What are the allocations that people have to the sector? If they're highly underinvested, if they're down around 0, 1% and they don't have an aversion to volatility, then this definitely could be something to take a look at. But obviously, this discussion should be had on a case-by-case basis. If we look at the Fang 2.0 versus the New York Fang, we've talked about the FAING 2.0, which includes energy stocks, uranium stocks, and also defense stocks. We've also had a nice little pullback since the end of February. We still are in a relative structural bull market in terms of the Fang 2.0 versus the Fang 1.0. And question is, will we see some type of bottoming here yet to be seen here? But we are definitely getting closer to a good risk reward level as we are still above the breakout levels and we are still above the trailing moving average of importance. When it comes to the interest for precious metals by the U.S. investing public, remember we've been the reserve currency for the better part of 80 plus years. There's simply still no interest. Even though gold has outperformed stocks for 25 years, which is going back to the beginning of this century, the investing public really hasn't noticed and has about just a half a percent or so weighting towards precious metals, while over 45% of its net worth has invested in equities. So when you have all this concentration, we have all this passive investment, we have all of this hyper uh essentially valuations. Uh everything's basically on one side of the fence. Everyone is in a cruise ship, appears. We like to drive this. We just upgraded the speed boat, by the way. We have a nice little speed boat here. We could kind of navigate storms a little better, at least get out of the way of the storms potentially, and also handle more dicey environments where we have to be able to take a left turn, take a right turn, etc. We think this is the instrument that is potentially needed, especially for the environment that's in front of us. Whether the environment really manifests in a real way starting in the coming weeks, or maybe if it's in a year or two away, it really doesn't matter from our standpoint because through historical analogs, we kind of know how this movie is gonna end. Just don't know exactly the timing to which it will take. What inning are we in? How many outs are in the inning, how many batters will ultimately bat in this inning, etc. That's all still out there. No one really knows that, but we kind of have an idea of what the end result is gonna be. Okay, that's all we have for this episode. We really appreciate all of the FAQs that we receive from our clients and also others, and we will continue to do these podcasts. I'm gonna bring Marty Ruther back, and we will also look to have some other new guests in future episodes. In the meantime, take care. We wish you the best of health, and we will be in touch.