Q4 Macro Update with Vincent Deluard, Director of Global Macro Strategy at StoneX Group

[00:00:00.07] - Speaker 1
Sam.

[00:00:40.29] - Speaker 2
Good morning, everyone. Welcome to this live session together with a few guests today. Very excited to have you here. So we have, obviously Ryan. Ryan Darnell for those who have followed us before, and Vincent Delaware from Stonex Group. So nice to have you, Vincent. Very excited to get. Today we're going to talk about macro, but before we go, maybe if you guys want to introduce yourself to the audience, for those who don't know you.

[00:01:10.08] - Speaker 1
Maybe I'll go. So, hi, my name is Vincent Deliar. I'm in charge of global macro at Stonex. I've been doing that for almost 10 years. I used to cover Europe for Net Davis Research before. And I guess the. Maybe some of you, some of you know me, it's probably for an early call on, on secular inflation and the fact that recessions are a thing of the past. They canceled. That's it.

[00:01:42.05] - Speaker 3
And hello again, Ryan Darnell. I've been in the industry 17 years as a market maker and derivatives trader. Finance and financing and various other things. If it's, I tell people if it's a risk in the commodity supply chain or derivatives, I've, I've probably managed it.

[00:01:59.19] - Speaker 1
Nice.

[00:02:01.07] - Speaker 2
So basically, Vincent, just to give you a background, a lot of our traders or users are kind of like retail investors, retail traders, futures traders. But I think the macro environment, especially for the end of the year and looking forward to next year, is going to be very important. So I know we're getting close to Thanksgiving, which is normally a period where market kind of like dies down and volatility is kind of lower, but maybe this year is going to be a little bit different. So maybe share with us what are the things that you look for and what are the things. What's your micro view for the end of the year and maybe going into 2026?

[00:02:38.11] - Speaker 1
Well, so I'm gonna maybe start by sharing something that I missed. I thought so. I've been generally bullish, bullish stocks this year, but I thought we'd have a full correction. And I think I'm, I'm taking the L on that one. And I think I'm not the only one taking the loss. Uh, I think a lot of people, right. We saw certainly markets, uh, rally pretty hard after Liberation Day. Part of that was initially made sense. I think by the summer people were getting nervous and, you know, we saw volatility spike October. But, yeah, stock's not correct. So, you know, at some point you got to cut your losses. Now I look at, as you mentioned, seasonality is usually pretty good. As you know, I'M I'm kind of, you know, I think all these recession stories are overblown and the surprise once more will be that Americans are going to do what they do best. They'll shop. Earnings are growing, the Fed is cutting rates, monetary conditions are easy and we have that nice round 7,000 number on the S&P 500. And I suspect a lot of people like me who were hoping to buy the Jeep in October and there was no deep to buy, so that might lead to some kind of chase in the last month of the year.

[00:04:03.06] - Speaker 3
So I think it's been a common theme when I've talked to other risk managers and options traders is everyone's worried about the tails. Everyone's worried about, you know, a crisis. And you see those on the news every day, right? Someone's calling for a crisis or is this looks like 1929 or this looks like 2007, you know, so maybe two part question that, I mean my first one is do you see any of those parallels that people are warning about? And then the second one, the more nuanced question to me is, you know, a lot of people are saying with valuations this high, it's going to be hard to have long term forever forward returns that we've grown accustomed to. And, but that doesn't necessarily mean we have to have a crash either. So how, you know, do you think that that whole long term return story is wrong? You think the Goldmans of the world who are talking about kind of 1% real returns are just missing the boat? Or do you think that there's some sort of soft landing scenario? How do you kind of balance those tails versus these kind of expensive valuations.

[00:05:06.00] - Speaker 1
Right on the tail risks? I mean they are there, they're always there. But I, to the, I think they're receding. I mean the terrorists were always, you know, things that had to do with trade negotiations. And we certainly see a much more conciliatory approach from uh, from Trump and the, yeah, the other tale, to me the big, the biggest tale really is, you know, long term bond yields and you know, the fiscal situation and you know, at some point I think we'll see long term yields above 5% and that I think that would be the kind of bull market vigilantes, if you will. And that would be a problem for, for valuations, you know, when you have stocks at like 25, 26 times earnings. But we're not there yet. I mean, that's the point, right? I mean I, I can't really explain why because I look at what's going on in Europe. In Japan I see this kind of rising term premiums and then higher yields. But in the US we are, you know, I mean today is a bit up, but we're at 4%. So we still have time for, for, for the bull to run in terms of the valuations question.

[00:06:28.27] - Speaker 1
And there are huge, you know, I mean is certainly areas of the market that are massively overvalued. You get some, you know, nuclear stocks with no revenues, you know, multi billion dollar. You look at, you know, crypto treasury companies. The Ponzi is on top of Ponzi. Obviously there is now, you know, it does. The fact that, you know, some things are overvalued doesn't mean that they're going to pop right away. And I would to some extent, I mean, I hate to sound, you know, Irving Fisher had this famous quote in 1929 about a permanently higher plateau for stocks. So I'm gonna, I'm gonna take inspiration from the greats here and I'm gonna say maybe we are at a permanently higher plateau for valuations. So my basic macro thesis for the past five years since COVID is that we kind of reset to a world of higher growth because you have permanent stimulus. And we certainly see that, right? I mean that we have a deficit of 7% of GDP at the time of expansion. We have a Fed that cuts before he gets even. The, you know, things might slow down in 15. Insane, right?

[00:07:43.26] - Speaker 1
I mean you have inflation at 3% and the promoter at 4 and then the cutting. So you know, if you, if you believe that and, and I think we also have financial repression. I think that's one of the reason why we see long term meals so well behaved is because, you know, you can't let them go up. So if all these things are true at the same time, stocks, you know, that basically removes that tail of a recession. And if you think earnings are, there's no recession, that means earnings are going to, you know, grow anywhere between, you know, 6 and 10%. You know, what's, what's a reasonable p. You pay for that when one deals are the 4%. I mean you can pay 25. So as a whole, I, I don't think the market is, is necessarily that overvalued.

[00:08:37.26] - Speaker 3
Yeah, you bring up a great point too. I, I mean it's always scary to say that this, this time things are different. It's easy to end up with egg on your face. But I, I do agree with the, you know, you know, the big thing that you know I've always been a long term, okay, you know, buy stocks. And these are the reasons it's going to work and these are the reasons the market's fairly efficient. I think one of the things that's really concerning is with these Mark, is financial advisors who have been kind of repeating that for, for decades have really been successful. And if you look at it, people are just passively buying market cap weighted funds and they're not really changing that. Right. Like I think recently, I think it was the Wall Street Journal put out some analysis during the spring and summer that retail investors who historically might have panicked and sold when we had a big sell off, didn't they just kind of continued to passively slap money into their 401ks and IRAs. And so I do think there's some legitimate points that maybe people just don't see their, the need for as high of a risk premium on the stock market anymore because they've kind of seen how it bounces and, and recovers.

[00:09:43.12] - Speaker 3
And the way that people are using it is just a piggy bank now, which is good. I mean that's what we've been encouraging, right. For a long time in the finance industry. And so if that's been successful, how does that change things? Right?

[00:09:55.21] - Speaker 1
Yeah. So two thoughts on that. One is that, yeah, I believe there has been a structural change in, in the market. I mean we are investing, you know, the, you know, idea is you should put 10% of your income in your 401k every year with a match that's 1% of GDP every month. And, and we're doing this in a completely passive automated way. Right. And you mentioned the buying, the dip. I'm not sure. I mean, so there is some deep buying like the, the btfd, whatever. But I think that the biggest story, if you think about, you know, like trillions of dollars, is this whale going into a Vanguard target date funds. And, and, and just by, by the, the structure it buys the dip mechanically, right? Because if you have a target date phone and you're, let's say you're you know, 40 something and you're you 7030 and stocks are down by 10, 10% or like they were in April, they down, you know, 20, your 70, 30 now is, you know, 65, 35. So you got to buy stocks, right? And you're not looking at valuations, you're not looking at the Fed, you're not looking at earnings, you're just looking, oh, that's my target.

[00:10:59.17] - Speaker 1
That's what I need to do. And, and we're talking indeed a massive flow, right again, 1% of GD month flowing into these vehicles. And yeah, it makes sense that my, my buddy Mike Green, I'm sure you, you've heard of it. And you know, it's, it's, it's this, it's, the more we move in that direction, the higher the variations go. Now you can make a case that it's all going to end in tears and, and the markets are going to dysfunction. But I, maybe, but my point is we're not, we're not there yet. And I, I don't see a reason for it to break like next year is going to happen again. I mean the only difference is this year we have a trillion dollar in capital gains. And that, you know, it's, it's kind of this miracle of, and that's why I remain is kind of high growth camp, this miracle of inflationary growth. Like assets go up, people have money, they spend, consumption stronger than people expect. And then the tax receipts are, are, are stronger. Tax receipts are very strong. So the government can keep spending. And, and to me, the wheels are still spinning.

[00:12:04.07] - Speaker 3
I mean, so one of the things you were saying about, you know, multiple things can be true at once and kind of all these things, I think, you know, one of the things that's remarkable to me that we were talking about last Thursday was, you know, usually you would expect, with all, with the story you've just kind of told and everything being so good, you would think that alternative assets, you know, and traditional hedges like gold would be really weak.

[00:12:27.19] - Speaker 1
Right.

[00:12:28.00] - Speaker 3
And I know again, you know, there's a lot to talk about, but it's kind of like, okay, well what's the protection? What's the tail risk? Because gold is telling us that, you know, that we're in full on crisis mode. And I know there's some supply and demand factors, but I'd love to hear how you reconcile those things.

[00:12:46.18] - Speaker 1
So generally I've been a big, big believer in the gold story. Obviously had this view of, you know, kind of secular inflation plus financial repression, plus permanent stimulus. So very happy to do what it's on. Also crypto. I, I also think in that kind of new environment that I was describing where you have structurally higher growth, the risk, the main risk is that the economy runs too hot. And when, when that's your main risk, bonds are not a good diversifier. So your 6040 portfolio is kind of broken and you're looking for alternative. And I think that's been quite a bit, a lot of that bit for, for gold and, and crypto is, you know diversification is harder to get and you know, gone are the days when you could get paid, you know, 2% real yield to own something that would go up when the stock market goes down which used to be long term treasuries. So very happy about the way it played out. Probably I would say still long term bullish on gold but obviously we had the kind of this blow off top. I mean it was insane, right? I mean we saw these like you know, hundred dollar moves day, day out, day in.

[00:13:56.04] - Speaker 1
So I don't know, I mean if you, if you have an allocation to go, I would absolutely, you know, keep it. If you don't have one, I think you absolutely should have one. Now is it, is it where you want to deploy capital? I, I, I would look at other parts of the commodity world in generally I think gold is always trying to telling you a message and only time reveals what that message is going to be. If you look at how the gold price acts, you know it rose a lot before it ran a lot before COVID and then it corrected before the Fed started. Much before the Fed started to high grade. So gold kind of had like this 6 to 12 month lead time. You see gold do something and you're like why, why is cold selling off? You know the Fed is printing money and buying MBS and like that. I remember you know, in 2021 because gold was sniffing out the, the rate hikes. I think gold is, is sniffing out something for, for 2026. I, I worry that that's something is going to be higher energy prices. And I, I think from a equity standpoint really what could, what could unravel the physics.

[00:15:16.20] - Speaker 1
I was describing this kind of perpetual motion machine that we seem to have created, right. With more money in 401k we have a higher price seasoning to higher consumption. We can always sell an AI bubble. We, we have the circle of financing like it works now. What could break it would be I think if we had a meaningful rise in inflation which I, I believe is still not contained. You know you look at that super core, it's at 4% now. What's helping inflation right now is the fact that commodity prices have been so weak. But if for whatever reason we had higher commodity prices, we wouldn't be right now. The Fed still has credible cover to say that yeah, it's ish, you know. Yeah, like that was what power was saying ish where you know, when you take the PC 2.5 ish you know, whatever. Right. Well if, if you have like, you know, a, an increase in energy prices, you, you cannot do that. So I would. And again that would be generally the pattern. Like typically in commodities, commodity prices move in waves and I worry that that kind of surge in gold prices is paving the way for higher commodity prices.

[00:16:28.14] - Speaker 1
And I think again that's the main risk for 2026. I would still be long equities even though I'm very nervous. But I think one way to hedge that is with a long position in energy stocks.

[00:16:41.17] - Speaker 3
Oh, interesting.

[00:16:42.12] - Speaker 1
Yeah.

[00:16:42.22] - Speaker 3
Because I think I completely agree with you. It's remarkable how the Fed is just quietly backed off of their inflation target and just kind of said well it's not that important. I mean to your point, they kind of wishy washy about it and they're still leaning on the Volcker credibility and the kind of past credibility. And with some would argue that they're getting smarter and that they're being more forward looking and trying to not be chasing from behind. But from my seat it definitely looks like they're also just pretty happy to keep the good times going. Right. And keep the bull running. Yeah, you bring up a lot of, a lot of great points. I guess I do have. So you brought up a really interesting point about how, you know, gold and crypto can, can benefit as people are trying to change the 6040 portfolio and taking money out of bonds to do that and because that was going to be my kind of next question about gold, you know, from, from my seat, I'm always kind of long term value guy and, and what I've looked at consistently is for gold for crypto to go up since they're not inherently assets in the sense that they're not producing more of something like farmland or gold mining.

[00:17:57.08] - Speaker 3
For them to grow, you really need to kind of make the case that capital flows are going to continue to move into them. Right. And increase demand for those assets. And so yeah. Where do you think that's coming from? Do you think it's going to continue to come out of bonds? Do you think at some point it can shift from equities or at some point do they just run out of the next buyer, the next marginal buyer for those assets? My understanding for gold is that it's been more central banks being the marginal buyer right now with this kind of de dollarization and people trying to reduce their exposure to Trump. But I guess that's my question. Do you think we can continue to shift from. It sounds like you don't think it's happening from equities. I agree with you. I don't think it's coming out of equities. So then the question is, you know, can it continue to come out of bonds?

[00:18:43.23] - Speaker 1
So on the flow perspective I think I have a better picture for, for gold and than crypto. I'm a bit worried to be honest on the crypto side because I, we had so much good. You know, everything that could go on was so good, right? We had what scarred 60 billion go into crypto ETFs. We had the treasury, bitcoin. Treasury companies raise ungodly amounts of money and, and weak action. It's always something that you know, tells you that something's happening, right? There must be distribution if you see a lot of new money flowing to an asset and prices don't move. So yeah, crypto, I'm not sure where that marginal buyer is, is coming from for gold. Yeah, I mean the narrative is, is pretty you know, straightforward and you know people have made it on many podcasts before. It's at central banks, right? I mean we, we seized the Russian reserves in, in 2014. Every central bank that has a, you know, a large allocation to treasury started to feel nervous and yeah, I don't think it's over. I mean if you look at most of the central bank buying it's come from so they do People's bank of China but they started from very, very low.

[00:19:57.14] - Speaker 1
Like that was a big anomaly in terms of the Chinese gold reserves. They were like less than 2%. I mean and you average, I think maybe the bank of Italia, the bank de France they have like 10, 15%. So you could actually this, this could keep going for, for quite a bit from the Chinese being obviously there's this geopolitical concern for them where it's like you know, they may, they're not certainly not a value driven player, right. They don't, they don't buy gold because they think gold is cheap. I mean they go, they have, they have like strategic goals but outside of it it's been kind of like second rate players. You know, like Poland, Kazakhstan, Turkey. I don't think we've seen the big guns. I've seen this, this chart of right at the peak, you know when goals are like 4300 you could say oh, it's a higher share of, of central bank reserves and I think the Euro like wow, it's old price appreciation. You know what happened is you know, long term bonds have gone down, gold is gonna, but it's, it's not really Dollar moving. I think my, my buddy Brent Johnson from Santiago Capital actually got the number from the World Council and it's not that much.

[00:21:09.14] - Speaker 1
I mean the demand from gold has really been as far as I can tell, it's like Indian moms buying dowries for their daughters and Chinese, you know, grandparents who are, you know, lost a bunch of money in real estate, feel nervous about stocks because Chinese stocks, you know, they, they go, they spike up and down and, and rates are very low. So it's, it's still kind of been, again, we haven't seen as much central bank buying as you would think. And certainly in the U.S. i mean you look at the shares outstanding of, of GLD or gdx actually for gdx, I think think it's gone down, which is insane. Like, I mean, because you, you look at the price action of miners. I mean, I don't think we've ever seen such a disconnect like a sector like, you know, when we have like booms like, oh, AI, you see the, the Cathy woods, you see the money flow. This is a very rare case of an asset that just completely takes off amidst continued outflows. So I think long term the picture is still actually quite, quite bullish. Again, that doesn't mean that, you know, this correction cannot last.

[00:22:15.23] - Speaker 1
I obviously, I wouldn't allocate your money to gold at this point.

[00:22:21.04] - Speaker 3
Right, right. Yeah. I mean to me the biggest risk with all those things and this is where gold got a lot of folks back in 2008, 9, 10, when equity started to rally. I'm very skeptical that those things are going to fall a lot just because I don't see that pool of demand going away. I think the bigger question is can they just kind of sit. Because the problem with compounding returns, right, is that you need to keep doing it. And equities have shown this ability to resiliently do 8, 10% a year lately even higher. And so personally my worry for Bitcoin or gold is that they just have a few kind of just flatline years and then you start to see those compounding returns actually drop pretty significantly because you add a few zeros in and that 50% return suddenly becomes 10% and then 5% and 2. And then that's when you really worry if people start kind of pulling out because then they're like, oh, I'm not keeping up with equities. That's always the hard part. So you made some really interesting points about there not actually being that much demand. I'm not sure how into the weeds you get on kind of supply and demand of gold.

[00:23:31.03] - Speaker 3
But I'm curious, in terms of kind of the gap, how much do you think this is Just steady kind of permanent acquiring, like annual acquiring of gold versus there's kind of an immediate shortfall that gold miners need to rush to fill. And is there a sort of time frame that we need to fill it? So I came from the. My background is on the ag and energy side. And we'd say, okay, there's a gap, there's a shortfall, and it has to come from X investment. We need to add Y acres or we need to increase, you know, kind of drilling or fracking by, you know, this many acres and barrels. So I'm curious if you see from the gold side, you know, something similar that needs to happen to fill it or. Or what?

[00:24:16.10] - Speaker 1
Well, I mean, the, the big difference between the, you know, the. The gold market and other commodities is kind of stock versus flow argument. I'm gonna mess up the numbers, but I'm gonna go for it anyway. You know, you have to think about like the. How much inventory do you have versus new new supply? Right. And typically for the old market, I'm gonna mess it up, but it's probably like 30 days, I think, of. Of inventory. And then, you know, we produce and consume about 100 million barrels a day.

[00:24:50.23] - Speaker 3
Yeah, it's definitely that order of magnitude. It's not a lot of like.

[00:24:53.21] - Speaker 1
Right.

[00:24:54.11] - Speaker 3
We can hold like several months or we can hold a year's worth. But for energy, yeah, it's typically a month or so.

[00:25:00.26] - Speaker 1
Gold is the opposite. Right. The supply is extraordinary elastic. And that's why gold has remained kind of a store value for so long. It's very hard to find. Right. It's hidden in the mantle of the earth. And, you know, it takes a long time to open a mine and get the permits and all that stuff. So that. That's a huge difference between the gold market and other markets is that your new production is 1%. So most of the. Most of the gold is above ground already. And the question is, I guess, Do we see. So why we're trying to go with that is I guess you worry about. Okay, so we have. Okay, the idea was, we. Which I agree with you, that, that commodities tend to do have these spikes up and then they go nowhere for a long time. And as we go nowhere for a long time, people kind of give up on their holdings and then these kind of. The Indian moms start selling their jewels and. Yeah, I mean, it's. It's possible. I mean obviously anything's possible. I, I still don't, I mean I, I don't think that. Like if we have the kind of world that I, that, that I believe in, you know, where, where things run too hot and where the biggest risk is inflation and overspending, they will, I think that will create that demand.

[00:26:42.09] - Speaker 1
Like if I, if I look at, you know, people's portfolios, what are they most overweight? I mean, you know, we had 40 years of falling yields and you know, in Europe we had trillions of negative yielding bonds. That's somebody's still holding that crap, you know, and, and then, you know, if you want to take the kind of the equity angle, it's like, well, we have, you know, 40% of the stock market in seven stocks. These are the things that worry me in terms of over allocation now is it, you know, I still think most people have very little allocation to gold or precious metals. So I, yeah, it could be over time but yeah, I, I think I have more.

[00:27:28.26] - Speaker 3
Well, what I think is interesting is I, I still think the allocation to gold is small or was last I looked and crypto is pretty small. I do think gold plus crypto is if you view them as both kind of, you know, reserves or you know, safety against US dollar and bonds. I think the two aggregate is actually fairly large though. And so I'm, so I think that's the big question is, is crypto its own segment of the portfolio or is it competing with gold? I thought what you said about competing with bonds was really interesting though because that's a new angle from my perspective because I think if it's competing with gold, it's hard to see them both doing so well while equities are doing well. But if they're competing with bonds and you can continue to see fight from bonds, that could be the answer and that could go on for pretty extended time period.

[00:28:20.00] - Speaker 1
Right, Yeah, I agree. One thing that worries me a little bit with both, well, crypto and lately gold has been this rising correlation. I mean certainly with crypto you see it, if you look like a long term, you know, correlation of crypto versus stocks or even the 6040 portfolio, I mean it used to be negative or zero and that's the typical pattern as an asset get adopted and you see ETFs and our, you know, IRAs pitching into the boomer clients, you are seeing this discordation start to rise. And I think that was also a tell sign for, for gold. Gold started to do the same thing as well in, in that run up and that I think that's, that's, that's when it told me that we, we got to that, you know, stupid like that, that last pop, like when we just rushed through 4,000, that, that was really like, I mean crypto. You kind of expect that to be a little bit, you know, NASDAQ on leverage. Right. Just because of the, of the players. But you see gold acting like NASDAQ on leverage. I mean, wow, we have, we have a problem. So in a way, I mean I kind of welcome this, you know, this, this breather.

[00:29:30.17] - Speaker 1
You know, you had a, again, you know, healthy bull markets are, you know, don't, don't go up by 3, 5% every day. @ some point you need to, to shake the weekends. And I, I suspect that that's what we're doing. We had a lot of both in gold and crypto people who should not necessarily been there who didn't have the, the strongest hand too much leverage. So we're washing it out. And again, that doesn't mean that the long term case for it is, is still, is, is negative. On, on the other hand that makes it stronger. And yeah, I think the competition ultimately is, is with bonds, not, not equities. Equities will do what they're going to do. It's not, I'm not on the kind of secular bear market, you know, view of equities. I think we still the biggest problem, you know, if you look at your menu of assets is, is on the treasury side, is on the government bond side. This is where the supply is overwhelming. This is where we have all these fiscal issues. This is where we have, you know, central banks, independence being. That's, that's the troubleshot in the.

[00:30:43.14] - Speaker 3
Portfolio. Yeah, I agree with you. I mean and the correlations thing. So you know, my, the fund that I run is a risk parity style of things fund. And those have historically the whole bet is on these sort of negative or lower correlations. And so it's a little scary as a fund manager right now. Where can you go if everything's correlated? It also makes me worry if we ever do get a pullback that if everything pulls back together, what's that going to say for people with leverage in the system? Are they going to have to start liquidating gold to finance their, you know, their equity calls and you know, margin calls and all that stuff? It's hard to say, you know, but it is definitely scary as a fund manager getting harder and harder to protect against tail risks because it seems like Each time something that seems intriguing, you know, goes to the moon and it's like, all right, where's the next one? So I loved it. I loved the energy stock call because, you know, you made a great point that so much of this capital of the macro portfolio, portfolio is tied up in really just a few stocks, and those are not energy stocks.

[00:31:48.22] - Speaker 3
And energy stocks have been very much out of favor, you know, with this kind of decarbonization, reducing carbon footprint. There's always been this question of, yeah, you know, there's, there's a lot of cash getting thrown out of these energy companies, but how, for how much longer, you know, and how do you balance that now? I think the pendulum starting to swing, right? Because with Trump and a lot of pushback against kind of climate change, you know, even I saw Bill Gates came out yesterday and said something, or the last couple of weeks, you know, he came out and said, well, we're going to have to live with climate change now and we're going to have to figure out, you know, how to mitigate it and kind of what's the balance. So I think, I think, I'm not going to say things are swinging the opposite way, but they're certainly moderating to where people are trying to figure out how much oil is going to be in the stack, how much coal is going to be in the stack, as opposed to we're going to zero. So I'm curious, you know, how you would balance, you know, those different things and what you see from a global macro view, you know, particularly when you, because when you speak globally, it's so fascinating.

[00:32:53.05] - Speaker 3
People talk about, well, China adding more electric, you know, power than the US and they're also adding more coal than the entire rest of the world and more and more natural gas. So it's like, you know, they need so much stuff and that gets lost in the mix.

[00:33:07.11] - Speaker 1
Sometimes. Yeah, these are, these are all great points. I mean, the case I was making initially for energy was really just a risk management standpoint. Like, if I look at the picture of what could go wrong in 2026 and how we can edge that. That was my point. But I, I do have some fundamental view and, and yeah, I, I would, I found the point you made about, you know, energy is interesting. Clean energy and transition to renewable. I was actually looking at, in the context of, of AI, Right. So you hear all these, you know, data center built up and, and, you know, of course, it's, it's, you know, it's massive, massive demand for energy. And I was Wondering how does the EIA is the International Energy Agency and they produce kind of supply and demand model of global energy demand. I was wondering okay, how do they, you know, how do they factor that? And then. And they've actually done quite a good job in terms of modeling it. Now they forecast that data centers are going to consume. I think it's between India and the UK in terms of consumption. So probably like you add a, a G7 economy just for data centers and that was, that's twice as much as they expected two years ago.

[00:34:30.25] - Speaker 1
So my point is that it can go up and I'm like okay, well how, how do we reconcile? Because you look at the EIF forecast in general, they, they have this view that the, the old market is in surplus. Well it's because they think if you look at the projection they think that more than half of the extra demand for energy is going to come from renewable sources. And I would be very skeptical of that because we've seen these forecasts again and again and you look at the share of renewable in the global energy mix. I mean we thrown trillions of dollars at the problem and we still are pretty much the same energy mix. Now you could say for AI you see these deals where it's, it's trying to go nuclear. But again it takes many, many years to build this facility. So it could be that maybe the EIA is right by, by 2030, but we need to get to 2030. So yeah, I would see that as a potential kind of underappreciated risk. And it's not just the, the consumption from these data centers themselves. It's also the, the building of them like it's huge, takes a lot of energy to build stuff.

[00:35:49.08] - Speaker 1
And these are, I think people kind of work off a model that's based off kind of industrial facilities where actually data centers are quite different. They have a lot more cooling needs, they have a lot more walls which means the, the building is, is less energy efficient. So if you just do a square meter it's like oh well you compare to like other kind of capex surge and you kind of estimate this is how much energy is. It's actually going to be a lot higher just the built because the building itself, the construction of the building requires more energy. And then the, the last thought that I I wanted to share on this there's kind of a long term thought on, on relative prices. My impression of the of the 2010s is that the biggest one of the big revolution revolution was we found ways to produce energy More cheaply. That was, that was fracking horizontal drilling. We came from this, you know, 150, $100 oil prices and then 2014, 2015, it collapses to basically halving more than half thing of energy prices. Now what did that do anything that rate that lowered the relative price of energy and then increase the relative price of everything else.

[00:37:05.17] - Speaker 1
Right. So if you look at energy as a share of of S P market cap, it just collapsed because yeah, you could use that cheap energy to make more things with that. I'm wondering if we're not doing the exact opposite thing in the 2020s like will AI make everything else cheaper? Right. It's cheaper to go see a doctor, it's cheaper to handle a customer request, it's cheaper to make a movie. So one thing though, that you know, you cannot ask ChatGPT to drill an oil well for you. Like that's the one sector where I could see very little impact also because it's a highly capital intensive sector. Like there's not a lot of labor that you can automate. So my idea is, you know, 2010 is the price of energy relative to everything else falls. 2020 is the price of everything else if AI is true will fall. The only relatively speaking that means that energy becomes more valuable. So again that would be a case for, for having a, an overweight energy going in.

[00:38:00.17] - Speaker 3
2026. Yeah, I agree with all that. I mean I think you made so many great points there and I, and I do think that that was the single biggest shock and the whole green story is struggling with. I mean to your point about the energy mix not changing, that's not actually, I would say that renewable production has actually massively surprised to the upside, I think. But the problem was overall energy demand to your point grew just as fast or faster and so that's why it wasn't able to change the stack or the mix. And that's to me the really fascinating part and that's the fundamental economics conundrum, right? Like the more green, the more renewable energy that you bring online, more you increase supply, cheaper energy is going to find new homes for demand. And this time it was crypto and AI. Maybe it will continue to be those data centers, maybe it's going to be something else. But it's gonna, you know, it's, maybe it's gonna be now to help mine more gold because obviously energy helps get gold out of the ground too. Right. So you know, I think all those things are, are.

[00:39:07.02] - Speaker 1
Fascinating, you.

[00:39:10.01] - Speaker 3
Know. Yeah. So I, I love it. I do have one Big question though for me and this is what I wonder, and this isn't specific to energy, but since you brought up energy, I'll kind of pick on it. I wonder now with this market cap weighting stuff that we've been talking about and all this demand chasing. Just a few, a few stocks. Let's say you're right about energy stocks really, you know, seeing a big boost in profitability. But what is the catalyst? Can they go to high valuations? Because if people just fundamentally when they buy more stocks that money is getting plowed into the biggest market cap names and they've lost a lot of market cap share. How does the stock regain? And so this is really a bigger question because if you go back now about 15 years, all these sort of fama French quantitative equity shops, all the fundamental based shops have been saying okay, all these stocks are cheap and guess what, they're still cheap relative, on a relative basis they're even cheaper and they just keep getting cheaper on a relative basis. So what does it take to get, you know, to really get a bid under, under a sector?

[00:40:17.10] - Speaker 3
Or should we be looking at just straight up oil futures as opposed to the oil producers? Or do you see an actual catalyst that can get those to.

[00:40:24.07] - Speaker 1
Rip? Yeah, I think you brought part of the answer. I kind of like the commodity side because the, the commodity has to be consumed, right? I mean when we trade stocks, I mean we're trading ideas and you could, these anomalies can persist for a very long time. Well, you know, or you have to, you have to burn it. So that would be part of the answer. The second answer. I think buybacks are a big part of the story. If you really do have a, any, you know, it's, it's, it's, it's possible like I like the, the market, the. I mean it's funny. Energy investors have been so beaten down, we'll never be loved again. People will never give us any money whatsoever. But then if that's the case then, and, and we do have these. And you see that to some extent the gold mining space, I mean the, like I said, the, the flow hasn't come. But Yeah, I mean $4,000 gold versus you know, break even price of like 1600 or something. Yeah, like, I mean you can, you could buy, these companies is going to buy themselves up. So that's, that's one way obviously they could buy each other up.

[00:41:40.10] - Speaker 1
We see that in the gold mining space. So there are still ways I, I think for capital to, for markets to work. Like maybe we broke the, the retail channel like the, the, you know, the passive sector is just gonna, you know and I, I, I, yeah, I don't think it's going to change like more and nor should it necessarily change like I, I, in some way. The index fund I think has saved a lot of people a lot of money and it's compounded wealth and it's, but it doesn't mean that the, the mechanism of of capitalism overall are, are, are.

[00:42:18.09] - Speaker 3
Broken. Yeah, that makes great sense. And I mean I think the buybacks is, is a great point. That would be hopefully what you're looking for if, if they're really profitable.

[00:42:27.21] - Speaker 1
Right. Or you see that by the way on the, on the other side too. I think that's, you see on, on the AI Max 7 type they used to be. So basically their model was they would the Google the Meta they would have this big buyback program but then they you know, obviously stock based compensation is you know, a huge thing, right? About a third of their, you know, actually more than that. If you go to higher level at Google like you know people make probably like you know, 2/3 of the comp on on stocks and you know, but it used to be like the, the balance was more or less you know, the, the buyback covered the, the SBC basically. And one thing that I find interesting is is lately on the type of deal that we see, you know, equity financing, we see debt financing. So maybe that, because you need for the system to work so you know the, the passive flow is going to come and you know the Vanguard Target Date Fund is going to buy X shares of Google meta and the Max 7. Right. But the, the temptation is all to issue a bit more than that.

[00:43:42.20] - Speaker 1
And I, I worry that with this kind of capex boom and you certainly see them getting more and more creative with the financing, some of them being circular, some of them being dead. It's like okay, at one point I think that's one way this whole kind of bubble will, will burst is when we'll see it's not going to be based on valuation. It's just going to be based on supply and demand. We're going to see more shares being sold that are being bought by index funds. And so the, basically what I'm describing is the exact opposite picture of, of the energy and, and gold mining sector where you have a sector that's kind of eating itself versus another one that's you know, structurally expanding the.

[00:44:19.20] - Speaker 3
Float. Yeah, that, that's a great point. That makes a ton of sense about expanding the Float in terms of the eating itself up. How do you think they will be able to balance both gold and energy producers? How do you think they're going to be able to balance the capex, you know, pouring that cash into expansion versus buying themselves up? Like do you think they'll stay really disciplined and focus on buybacks or are they going to try to double production capacity? Because that's always what we run into in the past with commodities. Right. I mean energy's been way more disciplined over the last, over the last 10 years because investors have just said no. But again, a lot of that was because the green story, they didn't see, you know, they, they just, they saw this wall in the future and so they were basically saying like no, you got to pay it out in dividends, you got to buy shares back. But are they going to start to change that? Are they going to start to realize the same thing you and I are looking at and say the energy mix isn't changing. Maybe you do need to go ahead and dial up production.

[00:45:23.10] - Speaker 3
Do you think that changes? And how do we. And what are you watching for any bellwethers on again, both gold and.

[00:45:31.03] - Speaker 1
Energy? Yeah, I mean it's always a risk at the end of the day. Management always has this tendency, right. It, it's human. You want a bigger company, you want to acquire your, your rival, you. So it's, it's always a risk. Now the question is, is it? I would argue where is the risk? The bigger right is where is the kind of ego driven megalomaniac CEO going to, you know, spend a couple hundred billion dollars or something with a very low return on capital? Is it? I mean, come on. It's, it's in tech, you know.

[00:46:04.18] - Speaker 3
Like economic capital right now though. I mean when you look if gold, gold is 4,000 versus 1500 break even like that seems like pretty good investment, pretty good ROI for, for increasing.

[00:46:16.05] - Speaker 1
Capacity. That's my point. Yeah. First goal. Yeah. You do. Opening minds and all that. Like it would actually be. Yeah. Positive for, for, for, for, you know, I mean break evens would have to go up a lot to, to invest that marginal dollar. It's still earning a above cost of capital return. So that's certainly in gold. It's not, it's not a factor. And then in the energy. You were absolutely right. I mean, yeah, it's, it's been a, you know that, that's the story of the 2010s, right. It's all these, you know, shale boom and over investing and, but Again it left, it left so many scars you know and then again I think where are the investors going to impose the discipline? Is it going to be in, in. In tech? I mean you know Elon can just pretty much walk into a board. I'm. I'm gonna build Teslas on Mars. You know here, here's the check. What do I.

[00:47:16.20] - Speaker 3
Sign? Yeah where do I.

[00:47:17.23] - Speaker 1
Sign? So so again it's to me it's always always relative like where's the. It's a human trait but I, I think that risk is still much greater. The risk of overspending is is always is, is. Is is everywhere but it's greater in tech. And again I. If we think about these big investment cycles they, they always end up in tsoe. I mean this is the. If you. We're talking about contractors right I mean wanna see you have the people talk about the, the positive contractors like the things like momentum and value and you know what once the most clearest one factor is negative one it's. It's capex it's. It's sectors and companies that rapidly grow capex underperform. I mean you've seen that across industries, across time. So again that I think energy is. Is of the hook.

[00:48:13.17] - Speaker 3
Here. That's really interesting. You know and I actually have not heard capex kind of talked of as one of the key factors and.

[00:48:21.28] - Speaker 1
That negative because it's negative. Right. So I mean the incentive on the you know an academic is you want to find an anomaly that works because you want to launch a, a fund that you know harvest that, that. That anomaly. But.

[00:48:34.11] - Speaker 3
Yeah all the. I mean at least from the. And it's harder for the retail investor obviously but that's part of when options come into play. Right. So that's one of the things we talk about is harder to get short but you know certainly if you're looking at put options and if you have a diversified strategy I think that's a great point kind of tying this back to use kind of user base. If you're selling selling these zero dte puts like where do you want to be long some tails And I think that's. You make a great point that would be the ones to own it where the capex is high. Do you see capex expenditure? So we discussed that in gold it could be a positive in energy. It hasn't happened yet but but could start to have like that'll be the big question is what they do if we get the energy price rally in.

[00:49:17.09] - Speaker 1
2026. Yeah again this, this would be Good problem to have. Right. I mean, for, for this, you know, scenario to play out, you need, I mean, for now we've had this kind of low energy. You see, you've seen, you know, well, you know, drop, you've seen us production kind of roll over. So I think you need a couple years of, and also you, you need it, you need a much deeper curve so that, you know, because what matters is kind of the longer, you know if you want to hedge new production. So I, I think we're still very far from having this, the, the conversation.

[00:49:51.16] - Speaker 3
Yeah. So then granted that we are. How, so then how do you decide between the underlying versus the stock? Right. Like energy. Because I noticed for gold, you were saying you like gold. I mean, again, I realize there's a pretty high correlation. Whereas energy kind of gravitated towards the stocks. What about buying crude.

[00:50:10.10] - Speaker 1
Futures?

[00:50:10.29] - Speaker 3
Right. Or, or gold miners? Like, how are you kind of thinking about that decision right.

[00:50:16.08] - Speaker 1
Now? So, so for goal, I, I think the, I would probably go, I mean, okay, historically the miners have been crap. Right. It's historically that it's, it's unfortunate. It's quite common across the resource complex that these are, you're giving your money to, you know, cowboys that, you know, if they have, you know, a dollar in their pocket, they'll spend two and they're terrible allocators of capital. And that being said. Yeah, you know, listen, goal is going to do what he's got to do. You know, it's super speculative at this point. It, you know, who knows, maybe it consolidates here and gets back on the uptrend. Maybe, you know, it could. But I do know that the miners are going to make a killing either way. Right. You mentioned, you know, break even, you know, 1500. So there's so much, so much room. So I, I, I, I would, I would probably go with the miners with, with the, the caveat that, you know, the, the beta is probably more than one depending on which names it is. Maybe if you go with the kind of better quality larger miners, you get a beta of 0.6, 0.7. So energy.

[00:51:31.29] - Speaker 1
Yeah. Maybe it's the commodity itself. You know, maybe it's again, going back to my idea that the biggest risk for 2026 is that, yeah, we see oil price spike again and that makes suddenly the Fed completely unable to hold its, you know, 2ish view. Then it's, it's probably going to be, you know, the, it's, it's, it's, yeah, it would be, it'd been a physical commodity.

[00:52:03.18] - Speaker 2
Perhaps. Thank you. On mute.

[00:52:08.13] - Speaker 1
Ryan.

[00:52:08.25] - Speaker 3
Sorry. I think that's always the question for, for me, you know, background as a commodity trader. As we move into the macro, at least, you know, where do you want to, you know, place your bets and they behave pretty differently. So I guess, you know, we talked about a few different really interesting kind of macro leaders and potential laggards in terms of, you know, building your macro strategy. Do you tend to jump around what, what drives your focus from a fundamental standpoint like how much is kind of central bank and, and that's for versus valuations of the individual asset classes. I mean I realize to a degree you have to use all those, but if you're a retail investor trying to think about how do I keep forming a view and then updating view. So if the stuff we talked about today is coming to fruition, if you kind of built a simple checklist of what are the three to five things I should be looking for that tell me that this is happening or that the world is changing, my outlook needs to change. What would be on you at top of mind, on your.

[00:53:08.11] - Speaker 1
Radar. So primary my audience for Sonax is institutional and specifically pension funds. And these are probably the slowest investors out there where, and in a way it's their advantage, right? It's, you know, if you can plan for, you know, 15, 20 years, you can earn some premiums that are not available for people who have more. So that, so that's, that's what I focus on. My, my impression on general kind of asset allocation questions is it's kind of like playing tennis against, you know, really bad players is, is you win by not losing. And so that's why I, I, I stayed silent on that gold versus Bitcoin question because I'm like, I, you know, I, I'm not really sure we can pick, pick winners but maybe the, the way you make money is by, by avoiding losers. And you know one study I was making, so you know that I guess you mentioned respect, you know this permanent portfolio idea, right? The idea that you kind of want to break your portfolio in four quadrants. And so I'm just going to walk through one. One is stocks basically stocks to well when the economy does well.

[00:54:46.22] - Speaker 1
So it's kind of a bit of growth. One is long term Treasuries and then that usual you, it's your hedge against recessions. The third one is going to be your kind of commodities. Gold goes in there. That's, that's a hedge against inflation. And then the, the bottom one would be cash which does well when nothing else does. And historically that portfolio has been extraordinarily steady, like barely a down year. Not nothing stunning, but I mean you can probably increase that with leverage. But that, you know, if I look at that, I'm like, okay, I, maybe I'm not gonna pick the winner. Like, I can, I can see a case where, you know, you know, stocks are massively overvalued and they correct a lot. I can also see a case where stocks keep doing very well. So I'm, I'm, you know, same between. One thing though is like, I've noticed it's maybe a lot easier to identify the thing that's not going to do well than the thing that's going to do well. And, and that's been really my, my main message for the past four or five years is that these kind of long term treasuries are broken.

[00:55:57.29] - Speaker 1
So, and I, I don't, I don't think it's, it's, it's going away. And you asked me like, what, what, what trigger would I see for, for this to break? I mean, you need to see what we saw in the late 70s. Uh, you need to see very high inflation. You need to see a, a revolt of the population. You need to see central banks becoming more independent. You need to see politics moving back to the center. You need to see geopolitical tensions cool down. So my idea is we're very, very far from it. So yeah, I think the biggest risk again is that these trends of the past five years accelerate. Not that we revert to the mean. And that's something to keep in mind because I feel a lot of the finance, any sort of models wants to bring you back to the mean. Right. It's, it's just the nature of, of, of, of modeling because it looks at the data. It's like, oh, we're too high, we're gonna go down. It's like, no, but there are trends that are, you know, that actually the, you know, in physics you have a, the what brings you to the center and what brings you out.

[00:57:08.10] - Speaker 1
I think the, the, and then the faster you go, the stronger the. We are still in the, the thing is spinning faster and.

[00:57:15.05] - Speaker 3
Faster. That's, that's fascinating. I could go on talking about this all day. I mean, I completely agree with you. I mean we, you know, we dropped from our fund the one bucket we've sort of dropped is, is treasuries. It's not to say we don't touch the space, but, but yeah, I couldn't agree with you more, Fabio, did you want to hit on anything else? But before.

[00:57:34.21] - Speaker 2
We. No, I think. I think this was awesome. I think we have a few. Couple of minutes left just to respect your time. Vincent. I think it was a very awesome session. We touched a lot of things, so I really appreciate your. Your comment, you being here, and we hope to have you back again soon sometimes, if you. If you. If you're interested, and it's awesome. Thank you. Thank you so.

[00:57:56.14] - Speaker 1
Much. And thank you, Ryan, as.

[00:57:58.10] - Speaker 3
Always. Yeah.

[00:57:59.03] - Speaker 1
Thanks. I enjoy. Enjoy the conversation. It was a pleasure. Thank you. Thank you.

[00:58:03.26] - Speaker 3
Guys. Have a good.

[00:58:05.07] - Speaker 1
One.