The Most Important Paradigm Shift in Markets Since the 1980s—Are We Entering a New Era?

Most investors are clinging to strategies rooted in a 40-year era of falling interest rates and soaring valuations — but what if that paradigm has shifted forever? Jesse Felder, a seasoned market analyst and contrarian thinker, reveals why the old playbook no longer applies and what real assets will surprisingly outperform in the new environment. 

This episode digs into Jesse's journey from Wall Street to independent investing and the invaluable lessons learned during market chaos from the tech bubble to the housing bust. You'll discover how cycles, sentiment, and macro shifts shape opportunities others miss — from the dangerous bubbles of today to the overlooked value in energy, commodities, and gold. Jesse explains why high valuations, rising inflation, and escalating debt demand a fresh view of how to protect your portfolio.

 We break down key topics: the crucial importance of valuation and sentiment, the influence of geopolitics on interest rates, and how to navigate inflation as a real asset investor. Jesse shares his insights on portfolio diversification, the risks of overreliance on growth assets, and the specific role of commodities and energy in hedging the coming inflationary storm. If you’re an investor or a finance enthusiast puzzled by the divergence from historic norms, this episode is essential.

 Hit play — your portfolio will thank you.

Transcript

SPEAKER_00 0:00

I think number one is just the collected letters of Warren Buffett. I think, you know, you have a half century of writing from the greatest investor who ever lived. And, you know, I that was one of the first things I did when I entered the businesses. I I'm just gonna print out every letter, read through them, highlight, you know, and and basically he's he's telling you this, he's giving you the secret to his success. All right. And very rarely do you have that from somebody who's literally the greatest of all time. And he's going year by year and telling you what worked, what didn't work, and and what, you know. And so, yeah, to me, they they collected, and you can just get those for free on BerkshireHathaway.com. I think you can get them as a compendium in a book. Also, another situation I remember was Apple after Steve Jobs passed away. Everybody thought that Samsung was going to take over the world and eat Apple's lunch and they were never gonna sell another iPhone. It was trading at five times cash flow back in 2012-13 timeframe. I mean, it's hard to believe now because the stock trades 35 times cash flow, but it literally traded five times cash flow. And they really hadn't, you know, penetrated the Chinese market yet in a meaningful way, so they had tons of growth ahead of them. But what had been priced in was that Apple was done. Without Steve Jobs, they're not gonna make it. When you know the financial media says something is uninvestable, right? A few years ago, China became uninvestable, and that was a very, you know, good signal to maybe this is a good buying opportunity.

SPEAKER_01 1:28

Welcome to the most important thing. The podcast where leading voices in finance, economics, investment, and geopolitics share the one idea they believe matters most. Renowned broadcaster Ivan Yeats and finance expert Dr. Alan O'Sullivan will uncover for you what actually matters. In a noisy world, clarity is power. Here, we focus on the principles and insights that endure long after the headlines fade. This is the most important thing.

SPEAKER_02 1:58

Hello, Ivan Yates here. Want to tell you about my latest podcast series that I'm co-hosting with Dr. Alan O'Sullivan. It's called The Most Important Thing. What is it? It's a series of conversations with the world's best brains, people who have managed billions of dollars in euros. So we're gonna go from New York to London, across Europe, even to Hong Kong and Asia. And we're gonna talk and learn their most important thing about money when it comes to geopolitics, when it comes to markets, and comes to investment. Come on a journey with us and you will end up wiser about money. So in today's episode, we're gonna focus on markets and assets and some of the investment choices you have. And Alan has been speaking to Jesse Felder all the way from Oregon in the USA state. And he is actually making those real life choices as a fund manager previously, but now he is an analyst and a commentator on some of the contemporary issues in terms of those choices. So tell me a bit of background, first of all, on Jesse Felder.

SPEAKER_03 3:18

Yeah, thanks, Ivan. So again, Jesse uh was a hedge fund manager. Uh again, uh what is a hedge fund? A hedge fund manager is is a manager that manages uh uh a number of different assets, but unlike a typical standard portfolio manager, hedge funds are supposed to provide positive return in all market conditions. So they've got a bit more flexibility in terms of the assets they can go long and short, they can use uh derivatives, they can use other more sophisticated, supposedly, more sophisticated assets to hedge out or or reduce market volatility.

SPEAKER_02 3:51

So it's about balancing risk and reward.

SPEAKER_03 3:53

It's always about balancing risk and reward, okay. Uh, but but but but what a hedge fund will says on on their label is that they will do a better job uh typically than managing the downside, than managing the risk. No, you've got a you've got a fees, you've got extra additional fees to consider when you're talking about hedge funds, that's important to say as well.

SPEAKER_02 4:13

When I when I think of hedge fund managers, and what I'll be watching out for here is that I've done a lot of finance conferences and events. And if I was to distill the last 20 years of what I learned, I would be told, diversify, you know, across different markets. But actually, when it comes to individual funds, you won't beat the index. So that's called the SP 500 based in the US. Or you could have the Dow Jones Index. So instead of backing individual horses, you back the best of the market. What's his view in relation to that kind of strategy as an investor?

SPEAKER_03 4:53

Jesse is very uh contrarian in his outlook. What does that mean? He takes a different view to what the market would say. That philosophy, that approach that you talked about by investing in the index, the best known index is the SP 500, the top 500 companies by size, let's say market capitalization in the US, would have worked fantastically well over any decade over the last 40 years. Interestingly, what Jesse says is that we're at a at a tipping point now, right? And it's down to valuations. The this index and other index, but particularly the SP 500, because of the massive uh roll-up in technology stocks, the Magnificent 7 in particular, uh may not be the winning strategy for the next decade or decades. So he focuses on all alternative assets and a particular focus on hard assets. And I can talk more about that. Okay.

SPEAKER_02 5:47

So with that brief uh introduction, let's listen to Alan O'Sullivan talking to Jesse Felder.

SPEAKER_03 6:00

I'm delighted to be joined by Jesse Felder today. Uh Jesse is the author and editor of the Felder Report. He also has a very successful podcast, um, Super Investors in the Art of Worldly Wisdom. I'm a subscriber to Jesse's work for a number of years. Find his work fascinating. It's contrarian in nature, which is very, very important in this uh current market setup. Uh somebody that's going against the consensus is really, really important to have a really broad uh based view on things. Um Jesse, thanks very much for being here. It's a pleasure, Alan. Thanks for having me. So the focus, I suppose, of this podcast is really to talk about the most important thing. It's a very narrow focus. I you know, we were bombarded with information, we're bombarded with on the news cycle, and many different commentators will have different views about what's actually driving markets. If if we will get into what the most important thing is, but uh before that it'd be good maybe to get a sense of your own background briefly, in terms of I know you you you started the industry nearly 30 years ago, 1996, but maybe just walk us through a little bit of that.

SPEAKER_00 7:13

Sure. Yeah, I mean I I was always interested in markets, actually, from the time I was a kid. Uh, you know, this will date me a little bit, but uh when I was about eight years old, my dad bought the first Apple home computer and uh, you know, got me a couple of games to kind of just get me interested in computers, and one of them was a game called Millionaire, and it's the most boring game you'll ever come across. If you could look it up on YouTube now, it's essentially a stock market simulator. And uh, you know, it didn't get me super into computers, uh, but it did get me into investing and eventually got a subscription to Barron's and was kind of tracking markets on a on a weekly basis, just looking up stock prices in Barron's uh, you know, once a week. And so when I when I um uh graduated from college, I decided I, you know, that was a career path I wanted to pursue. And so I I was fortunate to get a job at Bear Stearns for uh for a gentleman who was basically running uh a hedge fund um within within Bear. Uh I worked for him for only about a year before he and I left and started our own hedge fund firm. And so I was kind of quickly thrown into the fire in a small hedge fund shop where I was the head trader and co-portfolio manager at a pretty young age. And that was the late 1990s. We had we started three hedge funds with about $100 million at the time, and one of them was a short-only fund, another was a long short fund, and another was more of like an income-focused, uh focused fund. But to kind of be, you know, the head trader of a short-only hedge fund in the middle of the dot-com, you know, into the peak of the dot-com bubble was quite a lesson in markets. Um, and so yeah, so I did that for a few years. Um decided literally in March of 2000 at the at the top of the dot-com bubble to I I quit because we started having disagreements over uh you know, we had a value mandate and our fund, and I thought we were straying from that and embracing more of the bubble kind of stocks at right at the wrong time. And so so I left that I and I basically in uh in 2000. And since then, yeah, I've essentially been just you know managing my own money, and I started writing about markets in about 2005, near the peak of the housing bubble. After five years later, I'm like, wait, are we going through this all over again? I just saw this, had a front row seat to the dot-com bubble, and now we've got a housing bubble, and it's and it's just a I I can't believe it. And so that's when I started writing about markets, and that really evolved into the research product it is today about 10 years later. So it's been about 10 years, really since 2015, that I've been writing um you know, professionally about markets.

SPEAKER_03 10:04

You focus in on the sentiment cycle, the behavioral psychology of investors. In in relation to your own psychology, right? I mean, I've I thought it was interesting talking to uh students recently uh about this kind of rolling crisis that we're in. Uh, since 2016, we had Brexit, we had the first Trump trade war uh uh with China in 2018, then we rolled into COVID and you know a number of other things. But from your career perspective, you had 96, then you had the Asian debt crisis, you rolled right into the tech wreck in 1999, 9-11, uh two years later. We kind of tend to assume everything is is is is unique in in our current environment. I wondered in those early years, which were pretty chaotic, did that inform your your approach or your view on markets, do you think?

SPEAKER_00 10:56

Absolutely. I mean one of the one of the I guess key things I I I guess uh maybe kind of like a mental construct is I like to think of losses in the markets as tuition at the school of trading or tuition at the school of investing. And I paid some some real tuition over the years, right? I I think one of I remember I was really uh heavily invested in in value stocks in the late 90s, which was really a difficult time to be focused in that. And and and I actually was on my honeymoon in the middle of the the a when the Asian crisis kind of went full bore. Uh, you know, I was on a on an island with no communications at all and and came back and uh to discover that you know markets had been hammered, and you know, one of the stocks that I had bought was a uh a mortgage rate, and I thought this thing has a nice dividend, you know, and the thing got was down 50, 60 percent, you know, while I was on my honeymoon, came back to find, discover it was hammered, you know. And uh, you know, so I I think you go through lessons like that, you go through times, you know, buying stocks, uh, you know, a lot of those value stocks were were really difficult to buy and hold on to through that 2000 time period. Then in the middle of 2000, they really turned around rapidly. So it was like you had to be positioned beforehand in order to take advantage of the switch from growth to value that happened in 2000. If you decided to do that after the fact, you had already lost 50-60% on your gross NASDAQ stocks, and the value stocks that had started to take off were already up 50-60%. Um, you know, there were there were value stocks in 2000 that, you know, doubled and tripled in a short period of time when that mass amount of capital said, okay, we were coming out of the NASDAQ, where do we go? And we go right back into these old economy stocks that are trading five, six times earnings. So yeah, I think a lot of that kind of experience teaches you to understand that you know nothing lasts forever, everything moves in cycles, and uh, you know, it's it's uh and you just have to you have to be patient and you also have to you know manage your risk in the short run.

SPEAKER_03 13:13

A lot of parallels are being made of the 2000 uh tech rec, the dot com bubble, and today's uh AI boom. Uh you know, parallels maybe between the likes of Cisco that you know went up, I think it was $85, $86, something like that, and uh uh the stock collapsed in share price, but still had very strong earnings, still a good company, but just a terrible stock to buy at that time. What's your view with the comparison? And if they're not exactly the same, uh is it the macro regime, the the out type the the external debt situation?

SPEAKER_00 13:49

Well, what is different? I think what's different is you know, during the dot-com bubble, many of the companies that uh benefited uh had no earnings. You know, they were valued on eyeballs, and they had no no very little revenues actually. And so, you know, it was a lot, I think, more similar to kind of what we saw in 2021 during the meme stock bubble, where you had stocks that literally had no fundamental reason to explode higher, um, you know, really kind of going to the moon. And everyone's talking about yeah, moonshots with these stocks that you know had had really no business in going up a thousand percent, uh, and they did that. You know, this time, obviously, these companies have terrific revenues and they have great, great underlying business models, even if the AI business model hasn't really quite been figured out yet. So, you know, a company like Microsoft, uh, you know, the these hyperscalers, Alphabet, um, you know, they they they've had wonderful businesses for a long time now with great margins and good revenue growth. Um so I think that is that is one real difference. But I think maybe what people don't appreciate today is the fact that their business models in town now have been incredibly capital light. They've they've uh what's what's enabled them to have such terrific margins and things is the fact that they don't really need to invest anything in the business to generate incremental revenue. And so they have wonderful free cash flow. What's going on with the AI today is just the opposite. They're massively investing in this very capital-intense business of building out these data centers, hundreds of billions of dollars, very capital-intensive, and they're not generating really much in the way of revenue from that actual business. And so it's essentially the exact opposite of the business model that got them where they are today, at least so far. They have not, you know, I mean, you look at a company like OpenAI, loses money on literally every transaction. It, you know, anytime you run a Chat GBT query, they lose money because you're paying them less than it costs to run the compute. So, you know, the these business models, people are essentially, you know, buying the stocks today at the same valuations they've had for the last five years, which are the high end of their historical valuations, is the carries a built-in assumption that they're going to be able to monetize and profit from this new this new technology to the same degree that they have over the last 10 or 20 years. And I think that is perhaps a faulty assumption.

SPEAKER_03 16:27

So I'm I'm hearing from our discussion so far uh a lot of focus on valuation, you know, fundamental valuation, the rolling up the sleeves, the Warren Buffett type work uh that was boring and I suppose wasn't sexy for a long time, it's now becoming sexy again. Um, talking about bubbles, um, they're always going to be there as long as human beings exist. But now we get to the main point of our conversation, Jesse, around the most important thing. It's very difficult for somebody like you that has such a broad spectrum of what you look at. But what is your most important thing, I suppose, from a priority perspective when you look at financial markets?

SPEAKER_00 17:08

Well I recorded a podcast interview with Vincent Delaware on the topic of a paradigm shift in markets. And I believe we've seen uh a paradigm shift, you know. You I I love the title of this podcast, The Most Important Thing. Howard Marx's book is one of my favorites, uh, you know, and and I and Howard has made the point in recent years. He uses the term sea change rather than a paradigm shift. Now we've seen a sea change in recent years that that is a uh a stark departure from what we became used to over the last 40 years prior to the pandemic. This this era of fall of disinflation and falling interest rates that's been really good for financial assets. It's been really good for stocks. Cost of capital has come down, you know, and discount rates on equities, on equity valuations have come down, supporting valuations. Obviously, uh disinflation is good for the bond market. Um interest rates come down. You not only get the you know the the payments of interest on your bonds, you get you know some capital appreciation too as long-term bonds rise in value. So, you know, that has really been since the very early 80s, kind of the the order of the day, that the paradigm that investors have gotten used to for a very long time. Um there are so many signs uh of change in the world that suggest that that that era is over. That era of disinflation, of falling interest rates, of rising equity valuations, of really good returns from financial assets has come to an end. It's just it's in the rearview mirror. What does the world look like going forward? I think it's probably an environment of higher inflation. Uh the low in interest rates that we saw in in uh 2020 was probably a uh a generational low, and interest rates have been trending higher since then. So you have demographics, uh, you know, basically a shrinking uh, you know, labor, uh labor force relative to the overall population that push pressure on wages, cost of production, these types of things. Added to that is deglobalization, the shift to, okay, instead of finding the lowest cost producer, we're we have other interests in mind. And so it's going to raise the cost of production in that respect. Those things are inflationary. So I think in that type of an environment where we have a very expensive uh equity market here in the United States, highest valuations, you know, we've seen uh, you know, we're we're at the at least the high end, whether you're using trailing price earnings ratios, if you're using something like the Buffett Yardstick or uh, you know, uh CAPE ratio, you know, we're we're at close to as high as we've ever been. So you have extremely high valuations, and at the same time you have potentially rising discount rate uh, you know, from and rising inflation. So um I I I do think that the the most important thing is investors recognize the playbook that works so well over those that 40-year period is unlikely to be the optimal playbook for the years going forward.

SPEAKER_03 20:25

I'm gonna read you a quote, and you've probably heard this quote, Jesse, okay? It's from Jeffrey Goodlack, um CEO of Doubline, famous bond investor. So what he says is what if everything we understand about financial markets has been informed by a secular decline in interest rates that is no longer the case? And essentially that is what you're saying, that since 19 since Volker took a hammer to interest uh uh uh took a hammer to inflation and raised interest rates, and then interest rates came down to this great moderation period that the Ben Bernanke called, that it it didn't matter what you invested in, uh, bonds, stocks, you saw this appreciation. And now for several reasons, and I'd like to get into the reasons why. I I mean it debt is the obvious one, but I think about geopolitics as well. I think about the rise of nationalism in relation to why this secular regime and interest rates it has changed dramatically. Can we talk a bit about that?

SPEAKER_00 21:29

Sure. You know, I I I I think that um yeah, uh, you know, part of I I you could argue that the single greatest disinflationary factor, I think, that we've seen over the last 40 years is the offshoring of production to the lowest cost producer, right? Let's let's ship jobs and production to China or wherever in order to, you know, get the the cheapest cost of production. In doing that, right, I think what we found, in fact. This is something that Warren Buffett uh wrote about in at the height of the dot-com bubble, where he talked about corporate profit margins um being at the high end of their historical range and the labor share of income being at the low end. And he said that, you know, this this cannot persist for very long without causing political problems. What we've seen in the 25 years since he wrote that was corporate profit margins go even higher and labor share go even lower. And so I think what Warren Buffett would say is the political problems that we're seeing right now are a direct result of this dynamic of corporations uh you know focusing on profit margin to the degree that it undermines the social fabric of the nation. And so people are upset that it's really much harder today to make a living wage, to, to, you know, to be to be, you know, work your way into the middle class, have a comfortable lifestyle and earn it earn a comfortable living. I think it's m you know to buy a house, right? Uh house prices are through the roof. And we've done, you know, not just all this work to to offshore production and hollow out the middle class, we've also supported the equity market and the real estate market through activist monetary policy in a way that it's made it much harder for people to be able to buy a house. And when you come to the rescue, you have an activist Fed uh that comes to the rescue of markets over and over and over and will not allow any kind of normalization in asset prices or in the markets, you get these uh, you know, unaffordability in the housing markets. You know, it's a combination of a lot of these things. And so, you know, uh to have a rebalancing, right, which is really what the economy needs. And I think this is why Donald Trump got elected, is you know, basically what he's saying is we need to uh to rectify this somehow. We need to raise labor share and reduce corporate profit margins. Um, you know, that's he's not gonna say that out loud because he's gonna, you know, he's not gonna be able to raise money. But uh but I think that's that's literally what the populace hears when he's when he's campaigning and why he got elected. And that that's where we are, I think, in that geopolitical cycle, at least in the United States, is that uh political problems have gone to the point where the labor share is going to vote for enough change to kind of try and bring some balance back to that corporate profits versus labor share. And to the extent that you know that has been you know that that growing trend has been disinflationary, a reversal in that trend back toward labor share is inflationary.

SPEAKER_03 24:53

Yeah, I think I I heard an interview with Kim Carson and Jim Bianco recently, and Kim Carson was making the point that, you know, this all started with Obama actually in 2008, the hope phase, and then that transitioned into Trump won. And now those voters are, you know, 45, 50 uh that actually have the capacity to vote and are more engaged. You see it in Ireland, and what you see is young people can't get on the housing ladder, right? There's a whole generation that can't afford uh a property uh because uh uh uh house prices have been inflated up. And and a lot of it is down to interest rates. Just in relation to, as you mentioned about interest rates, when you are keep interest rates artificially low for a prolonged period of time, you create distortions and mispricing. So you got a situation only up till a couple of years ago where you had Irish investors, the older generation in their 60s who had the wealth, actually buying property, investing in property, competing with the younger generation because they were getting zero on their deposits, right? Right. So a complete distortion of what really should be going on.

SPEAKER_00 26:06

Absolutely. Yeah. And I think that that also has you know political consequences. Where, you know, talking with Peter Atwater in uh you know one of my recent uh interviews um that I've done for my podcast, he frames it in terms of confidence. And when when confidence is really high, um, you know, people don't, you know, people are happy to vote for the status quo. And when confidence is low, right, um and people feel despondent, they want change, right? Almost any change from the status quo is what they're gonna vote for. It almost doesn't matter what it is, but anything that's not my current situation is what I'm gonna vote for. And so I think that's kind of one of the main drivers, is people feel so despondent about where they are in terms of their ability to earn, provide for their family, buy a house, these types of things, and even afford, especially with inflation, has made it worse recently in the last number of years. The impetus is okay, we just need something different than what we've gotten for the last 10, 20, 30 years.

SPEAKER_03 27:09

Okay, so if I'm an investor and I'm looking to build a portfolio then, and you know, the average investor isn't investing for tomorrow. They're investing for, you know, 10, 15, 20 years, their retirement perhaps. And you look at what happened with 2022, with bonds and equities falling together in that potentially uh stagflationary environment. What type of r uh real assets can an investor build into their portfolio to protect them in this new macro regime?

SPEAKER_00 27:39

Yeah. Well, I think the first thing is to recognize that there is a place for real assets. You know, most people, most people, uh, you know, it seems today um don't even own bonds, right? The 60-40 balanced portfolio is a thing of the past. I just want 80-90% of my money in the stock market, in the US stock market, right? So the idea of diversification to a lot of people is, you know, uh anathema. And so they they think, uh, okay, I just want 80-90% of my money in the U.S. stock market, and maybe I'll have some money market fund for the rest. Diversification, I think, is the first key. It's going to make a big comeback. And we've seen it with overseas stock markets performing much better than the U.S. stock market. So diversifying across equity markets and then diversifying into bonds, but then also recognizing that real assets play a key, a key role uh in an overall asset allocation model. Because I think a lot of people just think diversification, oh, well, maybe I'll sprinkle in some overseas equities and some bonds and I'm diversified. That might have worked well over the last 40 years. But in other types of environments, right, you talk about Ray Dalio and looking at uh cycles over 100 years or longer. Um, there are times when you know real assets are absolutely critical to balancing a portfolio when financial assets don't do well. And so, you know, what that means is uh, you know, I need to own some commodities, I need to own some energy stocks, I need to own some tips, treasury and inflation-protected securities, um, I need to own some real estate and make sure that that allocation of my portfolio is not insignificant.

SPEAKER_03 29:24

Okay, so we're talking about real assets that have an inflation hedge, property, rental income is tied to inflation, obviously. Um are we talking about dividend-paying stocks? You're obviously you're talking about gold from a from an alternatives commodity perspective. You mentioned bonds, okay, but what if we're in we're into the situation where uh which is looking, we look at bond markets this week, where we we we see yields rising, and it's not just the US, by the way, we see yields rising on the on the long end for sure. What happens in that environment?

SPEAKER_00 30:00

Yeah, well, I I think what we've seen um is uh you know, I in fact you and I were emailing about this not too long ago, is that uh if you look at uh you know the the gold uh prices of precious metals over the last 10 years, they've dramatically outperformed a 60-40 portfolio. If you just do a 60-40 portfolio of gold and silver, it's significantly outperformed a balanced stock bond portfolio in the United States over the last 10 years. And I think that that's a clear message to investors that now is the time to make sure you own some of these things that do well when financial assets do poorly. So I think it's precious metals. I think it's making sure you have an allocation there. I think it's also very interesting to me that the best performing sector in the stock market in a stagflationary environment is the energy sector. And today, the energy sector in the S B 500 is less than 3% of the total index. Historically, it's averaged about 8%, right? And then during times of, you know, when oil's done really well, it gets more, you know, it can get up to 15% of the S B 500. Essentially, you know, if you believe we are already in a stagflationary environment, as I do, uh, you know, the bet the thing you want to own most is the least owned thing in the market right now. And I would just point out that uh, you know, the the one thing, Warren Buffett's famously built up $350 billion of cash. He's put it in T-bills. Uh but the one other thing he's been buying in recent years is uh Occidental Petroleum, has a decent position in Chevron. You have somebody like Paul Singer, who's uh you know one of the most successful activist investors on the planet, uh taking a big position in BP and Philip66, and uh there's uh Carlos Slim, the wealthiest man in Mexico, and buying PBF energy. So you have a lot of these smart money investors who are trying to take advantage, they're trying to be greedy when others are fearful in the energy sector. That's another message that I think uh you know investors should probably have an overweight in energy, not an underweight, like they do today.

SPEAKER_03 32:09

It's interesting you you mentioned uh Buffett and his allocation to to bills as opposed to bonds, as opposed to to longer dated uh debt instruments, which is which is telling in itself. But in relation to back to this whole portfolio building uh perspective, okay, so we know we know that gold is very volatile itself. It is a volatile asset. And I often hear people talking about oh, I'm gonna add gold as a hedge uh in my portfolio. And and we know that the correlation can go to one quite quickly with gold. Uh yes, it does have that uh in a stressed environment, that negative correlation in a stressed environment. But you know, um what kind of concerns would you have about the the overall resiliency of a portfolio in terms of a high weighting in gold and equities and your and your bonds? I mean, do you have would you have a cap on how much exposure to precious metals in in this environment?

SPEAKER_00 33:14

Yeah, right now, you know, I I have been heavily overweight gold until the last you know few months, really. I think towards the end of last year, I started really scaling back and and over the last month I really you know basically took off all of my overweight precious metals positions for that reason. That it's had a terrific run. It's no longer, you know, uh fearful, people are no longer fearful about gold. It's had it's had a wonderful thing. And the way that it trades is essentially the opposite of the stock market, is the stock market tops out kind of in a slow rolling process and then has these sharp V bottoms. Gold is the opposite, where it has these rolling, you know, rolling bottoms and then sharp, you know, peaks uh when it when it tops out. And so, you know, yeah, I think that you know, gold, you know, should be probably at least a 5% allocation in a portfolio, um, you know, could but could probably go as high as 15%, um, you know, in it if if that's your preferred real asset. I think real assets probably should be about a third of the portfolio all told. You know, like I said, that you it could be a little precious metals, it could be some tips, it could be commodities, real estate, all those things qualify. And, you know, if you put essentially 5% into each of those, that's a 20% overall allocation in the portfolio, which adds some pretty good ballast, or at least an inflation hedge. Uh you know, I would like I said, I'd probably be more comfortable 25 to 35% in real assets, especially in the the current environment. Having that ballast in the portfolio um uh is very, very helpful in times when uh rising interest rates, rising inflation threaten the value of of equities and traditional bonds.

SPEAKER_03 35:01

Yeah, and and you you mentioned 35%, even from my own experience the in portfolios I've seen, uh it's it's generally alternatives, uh real assets, commodities are very underrated, and there's this there's this um over reliance on so called growth assets. Well, you mentioned diversification. I think uh something that investors miss is this concept of naive diversification where we saw during the financial crisis where investors were in stocks, corporate bonds, REITs, you know, um