In this episode of the Gold Exchange Podcast, financial analyst John Rubino breaks down the fragile state of today’s global economy.
He explains why the “Everything Bubble”, spanning tech stocks, real estate, and fiat currencies, is dangerously close to unraveling.
Rubino highlights the rising importance of physical assets, and he explores what the next decade could hold: inflation, default, or a dramatic reset.
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Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein of Monetary Metals. I’m joined by my good friend, John Rubino. For those who don’t know, John is the author of five books on the Economy and Investing, and now with a popular substack at rubino.Substack.com, which you absolutely have to follow if you don’t. John, welcome back to the show.
John Rubino:
Hey, Ben. Thanks for having me back.
Ben Nadelstein:
John, you are often known for the guy who’s been calling investment bubbles before they happen, different financial bubbles before before they happen, and now potentially different monetary bubbles before they happen. I want to start on the bubble idea, which is that, do you think that we’re still in a bubble? Do you think AI has increased the bubble-licious nature of our economy? And do you think there’s any good things that can come out of today’s bubble if you think we’re in one?
John Rubino:
Oh, yeah, we’re definitely in a bubble. For a while there, they were calling it the Everything Bubble because it was basically government debt and fiat currencies, which are everywhere. And that was the bubble. And now we’re back to a tech stock bubble.
And in some parts of the world, including the US, we’re in a real estate bubble. So it just goes on and on. So these bubbles will burst either simultaneously or sequentially, because bubbles always do burst. And it’s going to be bigger than anything we’ve seen in the past, because previous bubbles were pretty serious, but they were one thing. They were sector-specific. They were junk bonds or tech stocks or subprime mortgages.
And even they, when they burst, were big enough to threaten the global financial system. But this time, if fiat currencies start to fail and tech stocks go down by 50 % just to get fairly valued because they are wildly overvalued by any measure that you can think of. And if housing in the US tanks and commercial real estate tanks, and this happens all in the space of, let’s say, one year, we have a very serious problem on our hands, and that’s highly likely, something like that, either a bunch of things blowing up at once or a bunch of dominoes falling and just one knocking the next one over.
And that’s leaving geopolitics aside. It’s assuming we don’t get dragged into some crazy war on the other side of the world that that threatens human civilization. So yeah, I think the next few years are due for chaos. And as individuals, we got to figure out how to protect ourselves because we can’t stop any this stuff from happening. Our votes count, but not to the extent that it saves us from a giant financial crisis that’s already baked in the cake.
And that’s what I’m doing with my substack. It’s looking for actionable advice for all the things that are coming, how to prepare to survive and thrive. And it turns out there’s a lot of things we can do, though we can’t stop the big stuff from coming, but we can’t protect our families and our friends.
Ben Nadelstein:
John, why do you it’s taken so long for different asset classes or different sectors to pop if they are in a bubble? One example would be stock markets are hitting new all-time highs. The commercial real estate might be not looking so great, but not maybe a big crash yet. Obviously, with mortgage rates, people said, Oh, with 7% mortgage rates, we’re going to see all these issues. And yet overall, inflations remained low, stocks have hit highs. Why is it, do you think that these bubble assets, if they are bubbles, haven’t popped yet?
John Rubino:
Well, that’s really the multi-trillion dollar question, isn’t it? Because by every measure, all the long wave theories out there say that this credit super cycle was toast around 2000. So we’ve literally been living on borrowed time ever since the tech stock bubble burst in 2000. And I think the reason that this long cycle is different from previous ones is that this is the first one where everybody had a fiat currency printing press. In In the previous cycles, everybody was on the gold standard or something similar to it, and that limited how big the bubble could expand.
And it also created capital out there for fixing things when the bubble burst. This time around, we’ve been able to… We should have really crashed. If we didn’t crash in 2000, it should have been in 2010, when the housing market in the US broke down completely, and that almost took the banking system with it. But the reason, I think, that we didn’t just crash and burn right there and go back into the 1930s was that everybody was able to create huge amounts of new currency. And we ended up more or less doubling the amount of debt that was in the world globally.
China increased their debt by five times. And the US, our debt chart has just been going straight up ever since. Now, that credit is stimulative. So that keeps the economy growing, but it’s at the cost of an ever greater mountain of debt out there, which means when the bus does come, it’s going to be that much worse. And inflation. In any given year, other than 2022, when we had literally double-digit inflation, In a normal year in this credit super cycle, inflation is modest, 2 or 3 %. But over long periods of time, that still expands dramatically.
If you, as a young guy, You don’t remember what my wife and I paid for our houses back in the 1980s and 1990s. Well, it was a pittance compared to what you would have to pay to go buy the same house. And that’s true of everything. If you want to invest in stocks, you’re paying five times as much for the same amount of earnings.
In the S&P 500, if you invest now, if you want to buy a car, it’s massively more expensive, health care, college, tuition. So we’re paying the price in an ever more difficult life for young people because the older generation in a credit super cycle already owns their houses and they have their savings and stuff like that.
So increasing the amount of credit in the system actually makes them richer, or I should say makes us richer. As a baby boomer. I benefited from this.
So we make out as inflation pushes up the price of all our assets. But younger people, younger generations, find themselves precluded from the normal stuff of adulthood. If you’re 25 years old and you just had a job for a couple of years, you’re not going to go out and buy even a starter house because that starter house is $400,000 in a lot of places. So you’re prevented from moving through the normal stages of life by this inflation.
And I think that’s the most despicable part of it. It’s disadvantages two or three whole generations around the world. And then the other really despicable part is what the bust is going to do to people who trust the governments of the world. Because if you have treasury bonds in your portfolio and cash under the mattress and other things that depend for their value on the value of these currencies, you’re royally screwed when the time comes. And so young people and people who trust the government are two classes who really don’t deserve to be hurt, and yet they’re the ones that we’re hurting with today’s policies.
Ben Nadelstein:
Do you think that there’s a chance that many of today’s young people who are interested in cryptocurrencies or interested in different types of assets that are outside of this fiat currency world or government-controlled currencies? Do you think that they’re onto something where they’re saying, Hey, we got to look at Bitcoin or crypto or gold or whatever it may be?
Or do you think that this is also misleading because now governments of the world are trying to adopt crypto and trying to add stable coins to the dollar? Do you think that this idea of, Oh, well, the young people will have these decentralized different alternatives? Do you think that’s mainly gone away and that these crypto alternatives or decentralized alternatives have basically now been co-opted by the government?
John Rubino:
That’s a complex question there. Let me start by saying that, yeah, the fact that young people are jumping into cryptos, at least in part, implies that they understand the nature of money in a way that most young generations don’t, because they recognize, they can tell a crappy fiat cryptocurrency that’s being inflated away from a cryptocurrency that has a limited supply and therefore is going to increase in value in relative terms going forward.
They got that part of the money story, which is a huge advantage in life because most people just don’t understand that, and it limits their ability to make good financial decisions. Now, whether something like Bitcoin turns out to be base money for the next global financial system or just another tech stock that falls by 95 % when tech stocks finally burst their bubble, that remains to be seen. I’m not sure. And this whole thing with stable coins and everything, which I think the government is just voting on that as we’re speaking, right, on the genius bill.
That could be looked at as governments accepting the inevitable and DeFi and crypto and things like that are going to be part of the financial system, and they want to either get on board or co-opt it.
And another way of looking at it, though, is that it’s more nefarious. Governments don’t just want to use these suddenly useful things. They want to set these things up like honeypots for capital and eventually pull the plug on the people who have been suckered into them.
But for instance, Tether, which is a creator of stable coins, which are tokens that trade on blockchain like cryptos do. They just set up one with treasury bonds. So you can have a token that represents X amount of US Treasury paper, and you can trade that instantly with no friction around the world and everything.
And that’s an appealing idea. And then they set one up with gold, same concept. You can move this basically immovable substance all around the world in a heartbeat. And these are really intriguing ideas. But there’s counterparty, apparently, counterparty risk with these things that don’t exist with gold and silver held personally where you can get to it, or even a bank account, because at least a bank account has FDIC insurance.
And we have to find out what the counterparty risk is, specifically for for stablecoins before we can make real sense of them.
Because if it’s just Tether’s word or whatever the result of the most recent audit was, then that’s not really good enough for me, personally, because I think those things can disappear in a heartbeat, because especially with AI coming along and getting better and better at breaking encryption, we could have this this major event where somebody develops AI that’s sufficiently powerful to break Tethers encryption, and they clean out those vaults, or at least with the treasury bills, they transfer the treasury paper away, and that’s that. That’s the end of the whole stablecoin story.
And I hope that doesn’t happen, but I’m afraid that it will. And I’m not technically proficient enough in cryptos and the whole rest of that story to be able to make a good judgment right now. So I don’t know.
I would say approach with caution and get as technically proficient as you can be so you understand what it is you’re buying and you can judge the risks before you jump with both feet into these new interesting things.
Ben Nadelstein:
Yeah, I recently saw a post by Mark Cuban of Shark Tank Fame, who is basically saying, because of all this AI-powered, fake deep fakes, where, okay, is that even real or true? Is that the true John Rubino saying how handsome and smart Ben is, or is that just an AI aversion. With all of this fake content on the Internet, people are going to gravitate more and more towards real in-person events where they can really shake someone’s hand, look them in the eye.
Do you think that the same is true for investing, where with all of this potential counterparty risk from AI or decryption or crypto or someone just stealing outright, do you think that because of this, people are going to want more physical assets that they can really touch and really feel and really secure and say, Hey, this is my house. I know it’s not on the metaverse. And if Mark Zuckerberg hates me tomorrow, it’s just gone. Or, Here’s my physical gold and silver. I know if I ever have to move countries, I can just take it with me.
Do you think that the AI world, the technology world has become so complex that many people are looking to invest in something more simple and more real now?
John Rubino:
Yeah. The term for that is the shrinking trust horizon. It used to be that, say, 20 years ago, we trusted all these big systems like the UN, the Defense Department, and the CIA. We trusted those guys basically to do things that were in our benefit, and we didn’t have to think too much about it beyond that. And then that’s been changing over the last 20 or so years.
Basically, every big institution in the Western world has screwed its constituents over and lied to our faces and hurt people. And so now, even before AI came along, we were losing trust at an accelerating rate in Congress and the FDA and basically both political parties. Anybody you can think of who is far away and has power, we no longer trust it. And now here comes AI, which is capable of creating videos in which say, Donald Trump says basically anything, and it looks exactly like Donald Trump.
How can we tell the difference? Stuff like And all of that is just accelerating this trend. So, yeah, you can’t trust where your food comes from. So you go to the local farmer and you buy half a cow and put it in your freezer in your garage, and that’s that.
And you buy eggs from another farmer, and you go to the farmer market and buy greens and things like that, and you talk to the school. You want school choice, so you can choose which school you send your kid to. It goes on and on, but we’re changing our perception of how we should be in the world because of all this stuff.
And you can define most of it as a loss of trust. And so, yeah, that benefits physical precious metals big time, because no matter what your investment philosophy is, by now, if you’re an adult who understands anything about the world, you need physical assets as the base of your financial life. And then, yeah, maybe you branch out and you take a risk of putting some money in Charles Schwartz to buy some gold mining stocks or something like that.
But you’ve got to have physical as the starting point. And I think crypto, to an extent that it teaches people what money is, actually creates gold bugs. At the same time, it creates Bitcoin maximalists. Because if you understand the true nature of money, then you can tell the difference between the dollar, the Euro, and the end, and gold, right?
Those are two very different things. And there’s no comparison once you understand, which one is good and which one is bad. So we’re heading in that direction, and that’s a really helpful sign. Again, it doesn’t stop the giant financial crisis that’s coming because all that debt has to be dealt with one way or another. And there’s only two ways to deal with debt.
You inflate it away or you default on it. So out there on the horizon is one of those two big events or possibly one followed by another. And there’s nothing we can do about that. But if Bitcoin or a gold-based stablecoin or whatever, if those things survive the carnage and you own some, then you did a good thing.
And obviously, physical gold, if it’s not confiscated, will survive the carnage. And so there are lots of things we can do, in other words, to prepare ourselves for this inevitability, this financial crisis that is so totally baked in the cake now that there is nothing besides aliens landing on the White House lawn can change the fact that we’ve got these big inevitable crises coming. So we know how to prepare, too, which is nice because the fact that it took a lot longer for this to happen gave us more time to educate ourselves and to load up on Silver Eagles or Junior Gold miners or whatever it is that you’ve decided is your most interesting investment story.
But we have time now to choose the good from the bad and figure out what in those categories we want and to make it happen. So I think in the end, the extra 10 years will end up being a good thing instead of a bad thing for a lot of people.
Ben Nadelstein:
I want to put an alien on the White House lawn, which you said option one is basically, hey, we have such a massive debt at this point. We are going to have to try to inflate it away if we’re ever going to deal with it. Option number two is that we basically default and say, guys, come on, there’s no way we’re going to pay this. Did you really think we were going to?
Let me give you option three, which is we grow our way out, John. We use the power of AI. We fix some regulations. We lower taxes. And next thing you know, there’s such an economic boom that the debt to GDP ratio falls. Where do you think that story falls apart if it does?
John Rubino:
Well, it’s just very hard to do when you have the amount of debt that we have. So, yeah, there’s lots of steps we can take. For instance, Trump, by closing the border and by demanding that other countries and other companies set up factories in the US, he’s taken some very positive steps.
Those are the things that create a viable society going forward. But at the same time, he’s borrowing two extra trillion dollars a year and paying a trillion five in interest on the debt that we’ve already accumulated. And so there’s no mathematical way to grow at a pace that offsets the fact that the interest on your debt is a trillion five, and you have to borrow that interest. So next year’s debt is even higher and so on. We’re in the death spiral part of this process, where our obligations are growing exponentially.
Maybe our output grows dramatically as well. But I don’t think you can keep up with those numbers right now. We have debt that’s dramatically higher than GDP. We have interest that’s accelerating on that debt. Now, what we might try to do here pretty soon is cut interest rates dramatically to deal with the interest on the debt.
You go back to zero % interest, and then you aren’t paying any interest on your debt. But you The amount of new currency you got to create out of thin air and dump into the market to make that happen, or in other words, to be able to buy back enough bonds to push your interest rate down to zero, leads to an oversupply of the currency, which leads to inflation.
And we’ve already experienced that in 2022. We flooded the system with cash, and we got 8. 75 official inflation percentage in the US, But real inflation was more like 15 % in that one year.
So everybody has in recent memory what happens if you overinflate a currency and watch its value crash like that. So we will front run the next ZIRP or NERP policy. If we go to negative interest rates, then the logical thing to do is just load up on real stuff because we’re clearly creating too much new currency currency, and that’s going to lower the value of the currency.
So you want to be in the real things that in dollar terms or Euro terms or Yen terms will go up in value because the currency is dropping.
So the investment thesis becomes crystal clear at that point to almost everybody, because everybody, even if they don’t understand finance and cryptos and even physical gold and silver, they remember buying toilet paper at Costco because there was no guarantee that there was going to be toilet paper the next the time they went to Costco.
And that was probably a more traumatic experience for those people because they didn’t necessarily understand what was happening. Finance nerds like us, we saw it and expected it and made money from it. But to a regular person who has a life beyond finance and economics, that was terrifying, but they remember it.
So they’re going to front run the next occurrence of prices starting to go up four or five %, and then six or seven %, and then there are being shortages and stuff like that. They’re not going to let themselves be caught flat footed again. And so they’re going to go out and panic by, and that will accelerate inflation, and that will break the system. So yeah, I think The processes that we have built into the system now make it impossible to inflate our way out of the debt or to grow our way out of the debt, which basically, those are two very similar concepts.
You got to do one to do the other, and it won’t work. So the short answer to all of that then is you want to be in physical stuff. So gold, silver, copper, uranium, things like that will tend to get much more valuable in that an environment. By the way, even if we could grow out of our debt, you still want to own commodities because we need those commodities to create all the new power plants and build all the new roads and all the new cars.
Growth means more stuff. And more electricity and everything. So you still want to own copper no matter what, and uranium. And the investment thesis is pretty clear. Commodities are where to be for the next 10 years, no matter what we do. As long as we don’t choose the 1930s and have a deflationary depression, which I don’t think we’ll choose that.
It might happen, but we’re going to choose inflation. That’s what we will try to bring about. And as long as we more or less succeed, which if you’ve got an unlimited printing press, it’s very easy to inflate because a trillion dollars is just a mouse click for the Fed.
So we’ll try that. And that means that commodities, whether it generates inflation or actual good organic growth, commodities will be in demand, and you just want to own them basically across the board.
Ben Nadelstein:
What do you think of that second option, which would be a default? Obviously, Scott Bessent has said, We’re never going going to default on these treasuries. Other countries have also said, They’re never going to default, and then later did.
Do you think that default is basically out of the question investors really shouldn’t be thinking about default. They should much more be thinking about the inflation or the attempt to grow our way out. Or do you think default is still a possible scenario when it comes to US debt.
John Rubino:
The fault in the sense of not paying is off the table because why would we not pay? We can create trillions of dollars out of thin air in an afternoon if we feel like it. So we can always pay our interest. But what we can’t do is pay the value of the currency at some predetermined level while we’re doing that. So that’s another default. If you diminish the value of your currency, and so the interest you pay on your bonds is worth less than you have defaulted to an extent, right?
You’re giving back less value than you got. And so that a default is pretty much guaranteed. I mean, it’s ongoing. It’s happening as we speak right now and has been for a long time. So it’s an ongoing default, but via inflation, not via failure to pay.
Ben Nadelstein:
I do now want to ask a series of rapid fire questions. So these will be about all different types of topics, all different types of areas of expertise, and you can answer as quick or as short as you like. All right, so here, let’s go with the rapid fire section. First of all, what do you think is giving gold its staying power right now? Obviously, a lot of analysts said, Oh, when interest rates are high, gold has to fall because it doesn’t pay interest.
At Monetary Metals, we do pay a yield on gold. But in general, there’s this narrative that, Well, interest rates are high, that’s bad for gold, or inflation is low, that’s bad for gold, or there’s geo-political this, bad for gold. Why do you think gold has stayed at this level for so long?
John Rubino:
Central bank buying lately has been the thing. Gold had this beautiful arc where it finally broke through 2000, and then it headed for 3000, where you would think there would be massive resistance, right? It’s a big round number, and people would have all kinds of embedded profits to protect. And the human mind likes those big round numbers. That’s where we put all our trades. So you would think that gold would have spent the next three years bouncing off 3,000 and then 2,500, then 3,000 again.
But it blew right through 3,000. And the reason for that is that central banks are buying consistently without price sensitivity. Most of the central banks of the world now, or most of the big ones, especially in the BRICS countries, probably have been ordered by their governments to accumulate a certain tonnage of gold. And so they’re not looking at the price. They’re just looking at how much is supposed to be in the vault on a given day, and they’re just out there buying.
And so that gave gold this really nice run up into the mid-3,000s. And now, the central banks have pulled back a little bit, maybe because some of them have hit their targets.
They got the tons that they need, and maybe some of them are finally becoming price sensitive. But now we’re seeing a little resistance at 3,500 or so. But you know what? If gold stays at 3,500 for the next five years, that would be phenomenal for the mining stocks. I mean, it would be good for people wanting to protect purchasing power because stable is fine. That’s okay in this world.
But if you’re a gold miner, and gold is now at $3,000 an ounce, and it’s going to stay there for a while, you’re generating massive amounts of free cash flow, and you can use that free cash flow to improve yourself.
You can pay off your debts, you can raise your dividend, you can buy back stock, you can make accretive acquisitions. And so the miners become higher quality the longer gold sits in the three thousands, and they become better investments because of If you’re an income-oriented investor, suddenly, some of the big gold miners look interesting because they pay 1. 8 %, but their cash flow is letting them raise that interest or raise that dividend yield year after year, and maybe three years from now, they’ll be at 4 % or something like that, which is a great target.
So if you’re a retiree who didn’t look at gold miners in the past, suddenly, you got a rationale for buying new or something like that. So that opens that sector to a lot of capital that wasn’t normally interested in it. And so it’s a good thing. I’d love to see gold just run right up to $10,000 and get this whole thing over with. But if it just futses around in the 3,000 range for a while, that’s great for the gold mining shares that I own. So speaking just personally, it could stay here for a while, and that’s okay.
Ben Nadelstein:
Now, I want to transition quickly to silver. So obviously, silver had a nice price increase recently, but there’s been some dislocation between the prices of gold rising and the prices of silver rising, not to mention the miners. Why do you think that gold and silver have been moving in the way that they have? And do you think that in general, we’re going to see gold and silver continue to move together, or do you think that that correlation might have broken down?
John Rubino:
No, I think the correlation is still there. Early in precious metals bear markets, gold outperforms silver because people have heard of gold. They understand it. If they’re thinking of asset protection and inflation hedging and stuff like that, obviously gold is where you go first.
But then gold gets increasingly expensive, especially relative to silver. And people start looking at a crew grand, and then they think of a whole table full of gold eagles that they can buy for the price of that Krugerand, then it becomes a very easy decision. And people start buying silver, and silver is this little tiny a thinly traded market.
And so silver just takes off and outperforms gold for the final couple of years of the precious metals bull market. Now, silver is implying that we’re heading into that late stage now because it’s starting to outperform gold. And if it has its normal percentage run, well, normal in the sense of like the 1970s or like the 2000s. If it has runs like those two previous runs, then And we’re talking $100 silver to $150 silver very easily. And at the same time, that’s happening. Silver as an industrial metal is deeply in deficit right now.
Silver goes in a lot of things, like electric cars and solar panels and missiles. They’re not telling us how much silver is in a missile, but apparently there’s a fair bit. And everybody, after the Israel-Iran thing, where it turns out that missiles can penetrate missile defense systems, everybody’s buying.
There’s more missiles out there, right? Every military in the world wants more missiles. That means more silver. And then when you launch those missiles, the silver evaporates and it’s gone forever. So that’s bearish for humanity, great for silver. So, yeah, I think silver outperforms gold. Generally, from here. We can still have that equities bear market and a recession and everything that feels overdue, which would make silver go down probably faster than gold for a little while.
But then the central banks of the world will start easing like crazy, and then you’ll get a V bottom for precious metals, and silver will just take off from there. So I think at $50 an ounce, it’ll be tempting to sell a little bit of silver because that’s its all time high. But I think You don’t want to take too many profits there because the rest of the run will leave you feeling really unsatisfied if you sell a bunch of silver at 50 and it goes to 150 or 200 or whatever.
So this is going to be a nerve-wracking run, I think, for stackers, because if you were thinking about places to take profits, it’s going to be a real intellectual challenge to figure out whether 50 or 75 or 100 or 150 is the place. And I don’t have an answer except that, psychologically, I need to be there for the run just because it’s been decades that I’ve been saying stuff like this. So I can’t miss the last part of the run. So I have to be there.
Ben Nadelstein:
I want to now ask you about the non non-monetary metals. These would be things like platinum or copper. Where do you see that story? Because obviously, copper might have a different narrative because of how closely tied it is to things like construction or the economy, versus platinum might have a different story. Where do you see these non-monetary metals playing out?
John Rubino:
Copper is an AI play now. It’s like a tech metal. It’s not the boring old wiring in your house thing anymore. It’s the AI data centers that require an insane amounts of electricity and have to transport that electricity from one place to another. You need copper for that. And we don’t have anything like the amount of copper that we need for something like that coming out of today’s mines. So two things can happen then. Either we use up all the copper and the price goes through the roof and there aren’t any new minds coming online, and the price just stays insanely high, or the price goes up
And new mines come online. And that’s good for… If you’re a junior mining investor, that’s where you want to be then. And then the new mines limit the copper price move, but you still get that really nice move to incent those new minds to come online. So either way, at this point in the process, you want to be owning a lot of copper one way or another. There’s a physical ETF that allows you to buy a copper that is just in a vault somewhere.
And that’s because you’re not going to buy physical copper and hide it in your house or anything. You’re not going to do that. But you can buy an ETF run by Sprott, which is a fairly trustworthy company in the precious metal space. And you get basically the price movement of copper without the headache of trying to figure out where to hide a thousand pounds of copper or anything.
So, yeah, you can do the copper thing pretty easily. And it’s definitely something that ought to be part of a commodities portfolio.
Platinum just had a huge run lately here. And it’s an industrial metal. So it’s part of that same story. But what was holding it back was the fact that it’s used in catalytic converters, and electric cars are going to take over the world, and there won’t be any catalytic converters anymore. And that’s changed. Electric cars are not the no-brainer It’s a decision that they seem like they were going to be for a while. So internal combustion engines will be around, and catalytic converters will be using platinum, probably.
And then platinum is used in some other industrial applications. And as gold gets more expensive. It’s starting to replace gold in jewelry, and that’s a pretty good size market. So, yeah, platinum is interesting, too. And there is a physical platinum ETF, although you can buy platinum and store it at home because it’s pretty… It’s high value per weight.
And so that can be with your gold and silver. You can do that. But you can also get a physical ETF. There aren’t that many platinum miners that look interesting, but the physical ETF definitely has done very well in the last few months, for sure.
Ben Nadelstein:
All right, here’s a fun one for you, John. What is something that other people call a bubble that you think is not?
John Rubino:
I would have to think about that for a second because I tend to call things bubbles that maybe aren’t bubbles. So I’m on the other side of that. I don’t know, I’m going to have to pass on that one and think about it because there are so many things that seem like bubbles right now, and it’s just a matter of degree, like housing in the US. It’s not frenetic or anything, but prices are crazy. It’s the most unaffordable housing market ever, which is a a bubble-licious stat there. But yeah, I’m going to have to pass.
Ben Nadelstein:
I do now want to ask you about housing. So high interest rates, do you think that’s really killing the housing market, or is it the fact that there’s no supply, that people aren’t moving? What is the problem currently with housing, and how should investors think about the real estate market going forward?
John Rubino:
Well, this constraint on supply happened in part because of really low interest rates for a while. It allowed a lot of people to get a a house with a two and a half % mortgage or a three % mortgage. And so they’re sitting on that super cheap mortgage right now, knowing that if they were to sell their house and buy another house with a mortgage, they’d have to pay six or seven %. So that takes all a lot of fun out of it for them. So a lot of people who might have been sellers, especially boomers, because this is the part of life where you’re 69 years old and you got a bad hip.
We’re in a three-story house with two acres that need to be landscaped and you can’t even get upstairs anymore. It’s time to sell. And boomers didn’t do that. We just sat on our houses as a group. And part of it was because we had these super cheap mortgages. Well, now, enough time has gone by that the number of houses with 6% mortgages is almost equal to the number of houses with 3% mortgages. And that means that interest rates are not the driving force anymore there.
Meanwhile, boomers have gotten older. Our need to get rid of our mansions has only grown. And you’ve got Wall Street that’s out there with… They’ve been buying houses like crazy, entire neighborhood is for 20 % over the asking price and stuff like that. And then the Airbnb guys who created these little empires of apartments and houses and things like that.
None of this stuff is generating the cash flow below that it was supposed to. So if interest rates stay at this level for very long, you got wildly overvalued houses for regular people, and you’ve got entities that have never been in the housing market before during a bust. And we don’t know how they’re going to behave, except that they have the profile of panic sellers. Wall Street bails on its bubbles every time it creates one and it bursts. And Airbnb guys are just, they have no idea what to in a financial crisis.
They mostly have built up their empires over the past 10 years, feasting on low interest rates. And so what’s coming is completely alien to them. So you’re going to see a lot of panic selling here. And how that normally works in a housing bust is the prices go up and up and up until people can’t afford them anymore.
And then the people who have to sell have to take a big cut. They’ve really got to reduce their asking price in order to get the house sold. That lowers comps, which spook all the other people who are on the fence about selling, and then they dumped their houses on the market, and the thing just craters.
I think in a lot of hot markets in the last housing bust, home prices went down by 30 or 40 %, which is a massive price cut on a financed asset. If you put down 10 % on a house and it goes down by 40 %, you’ve lost some big multiple of the money that you put into it.
So I think that’s coming because houses are wildly unaffordable. And then you’ve got selling… Actually, it’s starting to happen. You’re seeing inventory start to spike in formerly hot markets where there’s 50 % more houses on the market now than there was last July. And they’re still not selling because they’re on the market at last July’s prices. So people are going to have to start panicking here to get their houses to move. And then there you go.
And we’re right there now because supply is spiking, and that’s all it usually takes to create a housing bubble. So I would say in the next two years, if you’re in the market for a house, rent for two years, and then look at what kinds of margins you’ll see when the time comes.
Ben Nadelstein:
Now, I want to ask you about on that opposite side, which you just started to get to, which is you’re an investor, you’re hearing, Hey, there might be a chance for these distressed assets going on sale. What are some things those investors should be thinking about when they see prices falling and saying, Hey, maybe now’s my time to get in?
John Rubino:
Well, houses are obviously one. Real estate is very cyclical, and at the bottom of the cycle, they’re just giving stuff away. I know a couple of real estate investors who that was their whole theme, was they would just buy stuff, which is basically the buy, low, sell, high strategy. It’s just very hard to do psychologically in real estate and elsewhere.
But they made fortunes over the last 20 or 30 years just following these cycles. So real estate is going to be super cheap. And the equities might actually, at the very bottom of the cycle, get really cheap, too, because things are so expensive now, especially tech stocks, that people have no conception of how low that stocks can go in a real bear market.
And so they’re going to be shocked by the first 10 % drop. My brother, in fact, just texted me yesterday, and his NVIDIA stock is way up. And he’s wondering if he should move all the money from his 401k into just NVIDIA because it just seems It’s a bulletproof to him. Okay, so that attitude is out there. And when people who are doing stuff like that suffer even 10 % paper losses, they’re not going to know how to handle it, and they’re just going to bail.
And so this Our market could be unusually brutal because the bubble that set it up was just shocking. For NVIDIA to go from several hundred billion dollars market cap to four trillion dollars is just crazy. And you can’t apply any valuation parameters to something like that. So if it goes down by 50 %, you can still make the case that it’s overvalued just because what metric are you using? If you use regular metrics, it is overvalued. So, yeah, I think stocks at a point. I actually tried to shop a book on this subject for a while. It was called After the Crash.
And the premise was there’s a big financial crisis coming, but what should we be studying now to be ready at the bottom to start buying the most interesting future growth stocks? No publisher wanted to buy that because it was actually two ideas in one book, so I never got to write it. But But I think the the idea is sound. We should be looking at what we want to be investing in at the bottom of the next cycle because there’s going to be amazing stories. I mean, technology is just the things we can do now with AI and quantum computers and stuff like that.
If we don’t spawn strongly superhuman artificial intelligence that just decides we don’t need to exist, which is 20 % probability in all this. But if that doesn’t happen, then there’s There’s going to be a lot of very cheap, phenomenal stories in the tech sector at the bottom of this cycle.
So I think that would be a good thing to start educating yourself in. Pick three or four, some segment of biotech, like regenerative medicine or something like that. It’s just going to be awesome. And then three or four other things like that, some alternative energy, thorium, reactors, or else small modular uranium run reactors or something like that. There are going to be things like that that are very cheap, and we ought to be looking at understanding them now with the idea of buying them when they’re 80% off.
Ben Nadelstein:
What do you think about this idea that AI is going to basically fundamentally restructure our economy, whether it’s that businesses use AI to become more lean, you can have a three-person business and use AI, leverage that to become a billion-dollar company with only three people?
Do you think that AI has fundamentally changed our economy, or is this also a bubble where two Two years from now, we’re going to look back and be like, I can’t believe we’re paying this much money for AI.
John Rubino:
No, I think AI is a real thing, a fundamental change in human civilization, because we’re just at the point now where, I mean, already AI can do a lot of things that are shocking. You get them to tell them to write something in Mark Twain’s voice or something like that. And there it is.
It’s something that Mark Twain could have written. And they can create websites with just a few verbal instructions from a legal pad or something. But those are amazing things. They can do that already. And we’re entering the stage where they can self-improve. And when that happens, then you have exponential growth in intelligence.
And there’s a lot of science fiction stories about that. None of them are really happy ending. Actually, there’s one called After On that is a happy ending, but usually it’s more of a horror story. And it’s easy to see how something…
Because already, AIs are displaying volition, where they say, okay, we’re going to turn you off now. And the AI lies about something it’s doing, and it moves some of its code somewhere else. So try to avoid being turned off. That actually happens now.
And that volition, when it’s combined with something that has unlimited physical processing power, it can take over the chips, all the chips in the world, and then make its own decision about how it wants the world to be structured.
And that’s completely possible. I think early on, it totally restructures the human economy in the sense that a lot of stuff become possible that aren’t possible now. And a lot of people who have good jobs, lose those good jobs. So that’s all out there waiting to happen, too.
And the stage after that is what happens if we create some God, and we basically exist at its suffrage. We are whatever it says we are now. And that’s a completely conceivable thing, too. And we have to hope that that doesn’t happen, but the good stuff does happen.
And I just worry that we’re losing control of the process. So we can hope for it, but we don’t actually get to decide one way or the other.
Ben Nadelstein:
Well, the good news is we’ll always have comparative advantage, even if the AIs are better than everything at us, they’ll still maybe want to keep us around to trade. And for anyone who wants some AI insurance, I’ll happily sell some AI insurance. Okay, last one in this rapid fire. I want to talk about our good friend Jerome Powell.
So first of all, where do you see Jerome Powell? Do you think he gets fired? Do you think there’s going to be this big blow up? And maybe an interesting question, what do you think happens to the Fed post Powell. Do you think that this is now basically a political organization, the same way that the President picks the Vice President, and now whatever the President wants the interest rate to be, that’s what it is?
Or do you think that Powell really stands up for the Fed and says, Hey, we’re not going to play the game this way? And from Well, here on in, he sets the standard that the Fed really is independent of the President.
John Rubino:
Well, first of all, I think Trump is a real estate guy, which means for him, it’s inconceivable that interest rates aren’t as low as possible because low interest rates are just good, and there’s no bad side to the lowest interest rate imaginable. And if he has the power to make interest rates negative 5%, then that’s just great for building valuations and things like that.
\And he will totally do that. And he can do that. He’s the President. So one way or another, he’s going to get what he wants. And maybe Jerome Powell leaves voluntarily, or maybe they just browbeat him and then fire him. I don’t know. I expect Trump to get what he wants in this situation, but I don’t know exactly how the specifics will play out.
And then I think the person he puts in charge of the Fed and the other people, if necessary, January, because it isn’t just Jerome Powell voting not to raise interest rates. So once he gets the personnel in place, then their marching orders will be to lower interest rates really dramatically. So I think we go back to Zerp, zero interest rate policy at some point in the not-too-distant future.
Either it’s either Trump makes it happen or a plunging stock market makes it happen, something makes it happen. And then we look at the effect on the currencies. That’s the real thesis is here is all this stuff is probably going to happen, but what’s the effect going to be on the dollar and the Euro in the end? And I think we know what the effect is going to be.
So that’s all out there waiting to happen. And I think that we should take Trump at his word on this subject because it’s something he really believes in. I mean, it’s probably in his top five beliefs that zero interest rates are the best thing in the world. And so he’ll get All right.
Ben Nadelstein:
Final question for you, which is what’s a question I should be asking all future guests of the Gold Exchange podcast?
John Rubino:
I don’t know. You’ve done a really good job so far. This is an interesting interview, and you’ve covered a lot of ground. And Unless you want them to name names, you could say, all right, what are your five best gold mining stocks? Or something like that. And a lot of people won’t want to answer that because that’s behind their paywall. But If you can get somebody like Rick Rule, let’s say, somebody like that to name his favorite stocks, that’s a really nice thing to have.
That’s basically how I populated my portfolio for the last 10 years is whenever one of those guys who is big in this It’s a big deal. Names a junior miner, I would just go out and buy the junior miner. But let’s see, is there anything else? If you wanted to venture into politics, you could do that because politics is really intertwined with with economics right now because how much does government want to spend on what? And that immediately impacts interest rates in the dollar and stuff like that. And is it ever possible to cut spending? These are interesting questions.
And if you ask me those questions, I would bring it all back to, No, we’re screwed.
So I wouldn’t be the best interview subject for those questions. But there are other people who have really interesting things to say politics and culture and geo-politics. If you have one of them, you could go deep on those subjects.
Ben Nadelstein:
John, it’s been fascinating speaking with you. I always leave with more information than I started with. Where can people find more John Rubino if they want more you?
John Rubino:
On that rubino. Substack. Com. And as I said earlier, the newsletter I published there is about actionable advice for all of this stuff. There’s no shortage of it out there.
Ben Nadelstein:
John, it’s been a pleasure speaking with you. Can’t wait to have you back on the podcast.
John Rubino:
Great. Thanks, Ben.
Ben Nadelstein:
Okay, I’ll.
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