In a dialog exploring the collision of conventional finance and futuristic expertise, high Wall Road strategist Tom Lee sketched out a wild “black swan” state of affairs through which the worldwide monetary system is upended not by the Federal Reserve, however by Elon Musk.
Talking at a dwell recording of SoFi’s The Essential Half podcast at WNYC, the Fundstrat cofounder and head of analysis raised his eyebrows and provided numerous ideas on the asset, wowing the group and drawing smiles and laughs from co-panelist Michael Lewis, writer of The Huge Brief, and podcast host Liz Thomas, head of funding technique at SoFi. Not solely is gold a “Lindy impact” asset, Lee mentioned, however it’s additionally a “demographic” story, in Lee’s opinion, that has to do with nostalgia. All that, and he sees a “black swan” tail threat that entails Musk, the world’s richest man, discovering a brand new asteroid and turning into the world’s central banker.
In Lee’s opinion, gold is “in all probability a demographic story,” noting Fundstrat does a variety of demographic analysis, and it’s discovered “preferences skip a era.” As an example, each 50 years you get one other peak in RV, or recreation automobile, gross sales. Noting the height in RV gross sales in the course of the pandemic, he mentioned the final time gross sales have been so sturdy was in the course of the Nineteen Fifties heyday of I Love Lucy.
“Children don’t purchase what their dad and mom like,” he mentioned, “however they purchase what their grandparents like.” And gold, he concluded, was “actually a giant funding for the boomers,” whereas Gen X went into hedge funds and options.
Lee mentioned gold was comparable in measurement to the inventory market, with knowledge backing him up, gold having a complete “above floor” valuation of $29 trillion to $34 trillion, which compares to the Magnificent 7’s roughly $21 trillion market cap.
“By the way in which,” he added, “all of it suits in a swimming pool, all of the gold on the earth.”
Lewis commented his palms have been beginning to sweat, “simply imagining” this concept. “Saliva begins coming to your thoughts,” he mentioned.
Lee continued on, saying gold is a “Lindy impact” asset: one thing that, as a result of it’s been agreed upon as a retailer of worth for a few years, continues to be accepted in that method. What might disrupt this? That is the place it will get to Musk.
Gold’s black swan eventualities
One key threat for gold is the above-ground facet.
“There’s 1,000,000 occasions extra gold underground than above floor immediately,” Lee estimated, nodding to estimates that a lot of the gold on earth is inaccessible. If gold will get too costly, he argued it might create perverse incentives. “Like, actually, Magazine 7 is simply going to get into the gold mining enterprise, proper? Since you would possibly as properly simply dig for gold. It’s extra invaluable than something.”
One other key threat, he added, is gold is “all extraterrestrial,” nodding to gold’s origin as coming from meteorites smashing into earth. This implies area corporations might uncover extra gold floating out in area, he mentioned. “SpaceX would possibly do a mission to Mars after which run right into a gold asteroid,” Lee informed the viewers. “And Elon Musk, if he… would personal all of the gold, he would turn out to be the brand new central financial institution.”
When requested about manufactured gold, Lee agreed that was the third threat: alchemy.
At any price, Lee added, gold has in all probability “topped,” based mostly on Fundstrat analysis. Fundstrat checked out 100 years of gold to inventory market capitalization and it usually reaches 150% earlier than falling again. Noting it fell 9% on Jan. 30, Fundstrat seemed again and located solely three different occasions gold had a single-day decline greater than 9%, and all 3 times marked a peak.
“So I don’t know, but when historical past is a information, it’s in all probability topped,” he mentioned.
Then Lewis revealed how he got here to take a stake within the gold commerce, very profitably, by means of an previous poker buddy from New Orleans.
The previous poker buddy
“After I personal it, I believe I’m lengthy worry,” Lewis mentioned concerning the yellow metallic. “It’s an Armageddon commerce.”
Lewis revealed that regardless of being a proponent of passive index fund investing, he gathered a big gold place after a dialog with a former poker buddy turned fund supervisor, who he misplaced contact with for a few years earlier than reconnecting whereas reporting The Huge Brief. Lewis recalled seeing his buddy’s assortment of previous Roman cash.
“He confirmed me the way in which the emperors debased the foreign money over time. And the silver content material was much less and fewer and fewer. After which he gave me a protracted argument for purchasing gold,” he recalled. “And it was so persuasive. Like, I don’t do this. I don’t purchase gold. It’s insane. It’s like insane. However I couldn’t get it out of my head.”
Lastly, three years in the past, Lewis mentioned, he “purchased a bunch of gold.”
“And it’s simply gone up and up, up, and up,” Lewis mentioned, including he felt so responsible and he wasn’t advising anybody to do that both, however he determined to take a position this a refund in his buddy’s fund.
“And what he’s doing, and he’s a lot smarter about this than I’m, is shopping for gold mining shares,” he added. “It’s a less expensive method to purchase gold.”
Lewis cited the “unstable political state of affairs” and normal international nervousness as his major drivers for holding the metallic.
“I don’t see any motive to not be scared,” Lewis admitted. “And I believe worry shouldn’t be a nasty factor to be lengthy proper now.”
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