Episode 231

full
Published on:

6th Jun 2025

In Gold We Trust 2025 - The Big Long

ReSolve Riffs returns with a deep dive into the world of alternative assets, featuring Mike Philbrick—CEO of ReSolve Asset Management and co-founder of Return Stacked® ETFs, and Rodrigo Gordillo, President of ReSolve Asset Management and co-founder of Return Stacked® ETFs, both of whom are recognized voices in asset management and diversification. In this engaging episode, Mike and Rodrigo explore a broad range of topics, including gold’s structural fundamentals, bitcoin’s emerging role, portfolio diversification techniques, behavioral biases, and the macro trends shaping global investment strategies.

Topics Discussed

  • Structural fundamentals and the historical role of gold as a monetary asset
  • Institutional shifts and the public adoption phase in gold investing
  • Comparative analysis of gold versus bitcoin in today’s market
  • Portfolio diversification through equal risk contribution and return stacking
  • Behavioral influences and challenges in market timing and allocation
  • The impact of central banks, emerging markets, and global macro trends on gold demand
  • Leveraged products, futures, and the risks associated with volatility drag
  • Strategic portfolio construction using non-correlated assets for enhanced returns
Transcript
Mike Philbrick:

So build up your intuition and your tolerance.

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How, because it's gonna be,

some days you're gonna look at

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it and go, this thing's stupid.

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And then other days you're gonna be

like, oh my gosh, wow, look at that.

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And you're gonna get a sense for that.

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And then it allows you to build and

this is both at the institutional

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level and the retail level.

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This is across all things.

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When you don't have an intuition

for an asset class, 'cause

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you haven't dealt with it.

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I would assume, most people are,

of the age that a lot of times

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they don't have a lot of experience

with gold in the markets today.

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So they're gonna have to

build up that intuition.

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So start small, like, but start.

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And, look at how it interacts

with your portfolio.

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Rodrigo Gordillo: All right.

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welcome everybody to this.

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this gonna be a fun episode, about gold,

bitcoin, precious metals, all the fun

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stuff that came out of this unique report.

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But before I get into it, for those who,

are new to new listeners here, I got Mike

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Philbrick, CEO of Resolve Asset Management

and co-founder of Return Stacked, ETFs.

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Myself, I'm president of Resolve

Asset Management and co-founder

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of Return Stacked ETFs.

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And, today we have a special one for us,

something we've talked about a lot in the

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past, Mike, since the day we met, we've

en talking about gold back in:

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gold is, very near and dear to my heart,

given the lat Latin American angle and,

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you know, US immigrating to Canada because

of, hyperinflation:

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Man, do we wish we had

owned some gold back then?

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so tell us a little bit about the

report that we're gonna cover.

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'cause it was the first time I've read

it and, you know, you have all these

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beliefs and, and it's always been part

of my portfolio and client's portfolios,

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but seeing the numbers that they put out

and everything that they, that they talk

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about was actually quite awe inspiring,

especially given what's happened recently.

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So why don't you tell us a little

bit about the report, the authors and

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Mike Philbrick: Yeah.

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Again, it's in gold we trust

and, the report is done annually.

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It's in its 19th year.

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It's published by Increment Ag, which

is a Lichtenstein based asset manager.

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started in 2007.

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It's in four languages, and it really has

become the global industry Bible, on gold

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and hard asset themes, across the world.

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And probably because it's,

it's such an in-depth report.

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So there's a 400 page report.

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there's a sum rate report of 40 pages.

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40 pages, and then there's

a video summary as well.

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All of which, you know, depending

on where you are and, and how you

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wanna, uh, how much you wanna dig

into it and how much time you wanna

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devote to it will give you, some ideas

on, on how they think about gold.

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And I think what's interesting is the

track record that they have from just

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going back and looking through, if we,

if we look at:

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we Trust report, that's when I started

really paying attention to the report

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just because it was such a good, summary

of what was going on in the world.

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And they were calling for a $4,800 gold.

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you know, they talk about how a a bull

market or a market, evolves and, and

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you, you and I know this, we've been

around to know that generally you

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get a, an accumulation phase where

there's some buying, but it, it's

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kind of ridiculed by peers, right?

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It's, it's frowned upon.

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And I would say really that's been

the case up until the last year.

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you know, even, even central banks were

selling up until the last couple years.

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Institutions have fairly sta

small allocations, but I think

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we've transitioned into the, the

public participation phase in the

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last year where you're starting

to see some people pay attention.

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And I, I evidenced that from some of

the ETF flows we're seeing in North

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America finally coming into the asset.

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Whereas I remember us talking

about it last year where gold was

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on quite a, quite a run and having

reasonably good performance and

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AUM in the large ETFs and, uh,

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Rodrigo Gordillo: Yeah, it was going down

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Mike Philbrick: was going down.

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Right?

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It, it, it's insane.

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That, that was part of that stealth,

stealth market where you, you get

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that sort of interesting buying.

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that's sort of, there's

a transition happening.

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There's people that are sick

of holding it, and there's

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the new people that are in.

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and so that was interesting.

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And last year's theme was the new,

gold Playbook, which was the idea that,

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you know, emerging markets are gonna

start to demand this, they're gonna

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demand alternatives to the US dollar.

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And, you know, we saw that over

the last year, we saw countries

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like Poland becoming a major buyer.

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2023 was a thousand tons, I

think, of gold bought by central

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banks, which was the highest ever.

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and gold, ETF outflows reversed in

sort of that second half of the year.

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So we're starting to see, the public and,

you know, the, the, the public writ large,

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both institutional and retail catch on.

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So this year's report, is called The Big

Long, which is a, an homage to the Big

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Short, obviously refers to the same sort

of, the Big Long is like well be long

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Gold because there's a loss of, loss of

trust in fiat currencies and institutions

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and global monetary systems, right?

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That, you know, long-term assets like,

gold and Bitcoin are, somewhat of a

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contrarian bet, but we're probably now

in the, in the fifth inning, if you will,

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in the middle, in the middle innings,

and, you know, institutional allocators,

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family offices, pensions and um, retail

investors remain heavily underweight.

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And so, by the way, In Gold We Trust

report, if you put that, just Google that

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you can get this report, from, Incrementum

and it's free and there's no obligation.

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They don't take your email

or anything like that.

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So it's, uh, quite a, quite a good report.

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Got lots of great stuff that we're

gonna dig into and, uh, encourage

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people to take a look at it.

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Rodrigo Gordillo: so let's, um.

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Let's start with just, let's

start from the beginning.

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Okay.

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Because I, this is some, something

that I get asked a lot and it's, I

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think it's an important starting point

because as investment professionals,

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we are often asked to think about

investments from the cashflow perspective.

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What are, what are you investing

in, what are the cash flows,

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what are the dividends?

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What's the yield that you're

gonna achieve from these?

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And that's ultimately what you

end up getting paid for, for

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taking the risk and whatnot.

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Yet, gold is not any of those things.

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You know, you, gold is just this thing

that, that just doesn't seem to go away.

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For thousands and thousands of

years, we have used it as a society.

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it shouldn't have a positive

real rate of return.

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And yet is ex exhibited pretty

robust, real rates of return,

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especially in the last 40 years.

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why is gold a thing that

we should care about?

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Like, like how, how did we get here?

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I.

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Mike Philbrick: It's a, it's a

very interesting question and, and

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one that's, that's hotly debated.

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To some degree I look at it and say,

well, does the Mona Lisa create cash flow?

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Does it have value?

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So if you look at it from the perspective

of the Australian, Australian Austrian

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School of Economics, that, that the

idea of cash flows is something that's

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looked at a little bit differently.

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So I guess I'm not, I'm not actually

sure, I'm not here to make that

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argument, from the standpoint of, Hey,

it doesn't have cash flows, or it does.

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What we do see though, is it's a monetary

asset and it's a monetary asset that

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seems to be in demand by central banks,

which are running our monetary system.

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It is an asset that over the last

5,000 years has represented an

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interest, an asset that does not

allow an interest of somebody else.

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It's not rehypothicated.

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If you own it, you hold it in

your own hands, it's yours, and

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it has some value of transaction.

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And that transactional value is

happening between governments, between

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people, been around for a long time.

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so I, I guess I'm just not gonna

fight it and die on the rock that

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says, well, it doesn't have cashflow.

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There's a lot of things that we

buy in this world that don't have

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cashflow that we perceive to have

value in some way, shape or form.

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Yeah.

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Rodrigo Gordillo: Yeah.

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And it seems, look, it's, there's

a, I think I remember having Michael

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Green on the podcast and having him

lay out the case originally why gold.

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'cause we've had many stores

of value in the past, right?

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We've had salt and, and you know,

silver and different types of metals.

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But gold ended up being one

that was plentiful across the

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whole crust of the planet.

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So it seemed to pop up everywhere.

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So if you were anywhere in the world,

you somehow mined this beautiful metal.

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And then when trade began, that was the

one common area that people could kind of

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see that was an ex, a medium of exchange.

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And then when you have every culture

have gold, part of their ethos, right?

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We can just go back to the

history of Latin America, India.

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it, I think has just, it became

ingrained as a store of value.

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And, and we have now created a

whole financial system around it.

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Central banks own it.

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And every single time in our, in

what we studied gold, it seems

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to be a very important hedge for

global macro, volatility, right?

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That like, that's number one.

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And then currency debasement.

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Those are the two elements that you can

kind of count on when, when governments

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screw up from a fiscal perspective

or if when there's war or chaos.

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Globally, we have seen a run to gold.

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normally it's a run to the US dollar.

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The reserve currency used to be

the, uh, used to be the, uh, UK

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currency and before that many

other nations that, that existed.

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But.

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That, that took, that,

reserve currency dominance.

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But when it became, when the

government itself started losing

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control of their expenditures, gold

was always a place that seems to,

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you know, be there for investors.

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So from, from my perspective, it's

just something that we have observed

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that does well, when I look at

portfolio construction, I want things

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that make money over time, but act

differently and create some sort

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of hedge for different scenarios

that bonds and equities can't do.

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and we are, you know, it, it, it

was stealthily making money for a

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couple decades and now people are

starting to pay attention, which

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is interesting, this accumulation

phase that you were talking about.

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Right.

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now let's, let's get into,

why the recent run up in gold?

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You talked a little bit about it, right?

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But there, there's, there's a

structural reason and then there's,

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there's some fundamental reasons.

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I just talked about some fundamental

reasons, which is global macro volatility.

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That's certainly been an important

thing that we've seen in the

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last couple of years, right?

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With the Ukraine war and what

we're seeing now with Donald Trump.

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But then there's also the structural

area that you were, you were

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about, that you also address.

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And the structural area is how

much, like it's the, almost

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like the stock to flow idea,

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Mike Philbrick: Mm-hmm.

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Rodrigo Gordillo: right?

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Like there's only a set amount of gold.

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There's one and a half percent of

gold being mine year over year.

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Mike Philbrick: Yep.

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Rodrigo Gordillo: and then, you

know, there's another stat that I saw

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Mike Philbrick: And it costs

money to mine that gold.

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Rodrigo Gordillo: and it costs

a lot of money to mine the gold

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and the price, that, the the, it,

it's a 10 year cycle to mine it.

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And the incentives to mine it were

the prices of 10 years ago when

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they're like, okay, what's the price?

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Now we'll start the process

of opening up this mine.

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And, from a structural perspective,

it's just been interesting to see.

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You know, I didn't even

know this from the report.

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I'll, I'll push it up here.

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what percentage of, let me ask the

audience here, what percentage of people's

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portfolios, of investors' portfolios

do you think that gold represents?

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If, if anybody wants to guess?

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Anybody have an idea?

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We got a three lance

lance nut and it says 3%.

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Then we got a one and a five.

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All right, I'm gonna share my screen here.

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yeah, it's actually around 1%

according to this gold report, right?

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So you're looking at, out of the

alternative sleeves that you got 42%

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of the whole alternative asset class,

private equity, private real estate.

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The infrastructure, art and commodities.

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Gold is just 1%.

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Right.

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And there's a lot of room to run here,

if given that that, that we have had

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zero adoption for all this time and

people are waking up to, I mean, it

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really is the only class, asset class

that has done really well this year.

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Right

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Mike Philbrick: Yeah.

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And I, I think, you know, there was, I,

I, I, there was that whole, process where

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there was gold trading at a different

price in London versus Shin Zhang, China.

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And you saw gold moving from the east to

the west or I guess from the west to the

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Rodrigo Gordillo: on the, yeah.

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Mike Philbrick: from the

west to the east rather.

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And so, that's, that was where

we had that stealth buying.

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Right.

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And now you're seeing it more proliferate

into, and, and we didn't see it in

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AUM on ETFs like GLD for example.

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but now you've seen that.

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And I was talking to a reporter, with the

Globe & Mail in Canada and we had done

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a review last year on this very topic.

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And it was just interesting to go

over it again and see this Yeah.

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This change in, in regime from the

standpoint of central bank buying,

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of, of the, the assets because

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Rodrigo Gordillo: the one, this is

the one that you talked about, right?

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This is the, the cumulative

gold ETF holdings

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Mike Philbrick: Right.

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Rodrigo Gordillo: going flat.

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And then all of a sudden, you know,

you have this demand, like the price

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of gold going up, and only now it's

starting to pull retail demand for it.

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Mike Philbrick: yeah.

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So, so the point is it's

not too late, right?

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So if you only have a 1% allocation or

you have a zero allocation, then, you

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know, this is something to consider.

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And, you know, at, at the moment as we

sit and chat about this on May 23rd,

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you know, we've got a little bit of

digestion going on in the gold market.

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So it sets up the opportunity to

start to think about how you might

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add assets, hard assets, like, uh,

Bitcoin and gold and, and, and how

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they might compliment the portfolio.

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but yeah, it's, it's astonishing

how low the exposure across, the

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asset allocators it has become.

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Rodrigo Gordillo: Here's why.

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It's

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Mike Philbrick: in spite

of the performance, in

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Rodrigo Gordillo: Yeah.

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Here's why it's astonishing, right?

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Because this, this is a chart that got me.

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Where I'm like, if I would've shown

anybody, this is just, for those

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listeners where I'm going, I'm looking

at the performance of gold against

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different currencies from 2000 to

today, and it's just a sea of green.

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It's not like other non-correlated

asset classes that tend to have, you

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know, 50% of the, like commodities.

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80% of the time they're losing money.

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20% of the time when there's inflation,

they're making a lot of money.

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Like gold has had a phenomenal

run, fairly consistent.

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Volatility sim, similar to

equities, 15% annualized volatility.

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It's actually lower than equities.

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And yet, you know, if I'd shown you

blind these returns, you would've

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jumped at this opportunity until

the moment I say it's a, it's gold.

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Mike Philbrick: Mm-hmm.

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Rodrigo Gordillo: There's just this

stigma, about gold in spite of the fact

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that we had ETFs, central banks buy it.

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Everybody knows about it.

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There's just, there's none

of it in people's portfolios.

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So that

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Mike Philbrick: Well, well we're,

the interesting thing is it is

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gonna be neat to watch the narrative

for investors change, right?

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Because now we're in the public, public

phase of it actually creeping out into

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institutions, creeping out into retail.

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And then the question is, of

course, how do you, how do you

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put it into your portfolio?

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How are you gonna build

it into your portfolio?

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What are the steps you

might take to do so?

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And, um, what other assets might you

use that have similar characteristics?

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Rodrigo Gordillo: Well, it's

terrifying right now, let's be honest.

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Right?

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You got two, you got a,

a 25% return last year.

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Another 20 plus percent return this year.

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You know, it it, this is, this

is why I like the report because

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it just, you always want some

framing, okay, where are we?

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Is it over?

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Is it now like a 50% bear

market for the next 10 years?

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and so, you know, some of the key elements

about the report was how even like the

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US 30 year yield is higher than, you

know, we've seen it in a long time.

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And then the, and then Germany, the last

holdout of prudence when it came to fiscal

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spend just finally threw in the towel.

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And you've seen German bundts

yields just pop through the roof.

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And, and so

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Mike Philbrick: And, and what do

we know or what have we perceived

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about the relationship between

real returns and the price of gold?

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Previously, higher real returns

meant lower gold prices, right?

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Because the, you could get a real

return, but in the face of rising

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yields, you have gold strength.

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That, to me, signifies

a kind of regime shift.

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That this asset, and they refer to

it a little bit here and there, and

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the report is like, are you playing

offense with this asset or are you

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playing defense with this asset?

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And previously you were

playing defense, right?

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This is a defensive asset that

would actually score a few goals

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for you, but now it looks like it's

turning into an actual asset that

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can create returns for the portfolio.

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It's shifting and there's a regime

shift afoot as we change into

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the public, participation part.

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Rodrigo Gordillo: So let me show

you a chart that I was updating

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today that we used to use a lot.

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You and me, Mike.

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I'm actually, I'm actually gonna

block off some of it first 'cause

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I, I'll show you what I used to do.

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'cause I was, I was quite, again, I

know this, it's just when you see it.

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Right.

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It becomes a little bit surprising,

but I used to always, when I talk

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to investors, look, you should

be as diversified as you can.

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You're currently in equities and

bonds, you should probably be invested

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in, um, as, as many non-correlated

things that are fairly liquid.

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Right.

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And so I would show I would show

a chart that showed equities,

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gold, commodities, and currencies.

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And, let me see if I can bring it up.

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I'm gonna bring up an old chart here,

but, it was, they all ended up at

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the same spot from 1990 to today.

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Okay.

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Let me,

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yeah, there we go.

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So we have, this is from 1990 to 20.

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It wa 20 21, 20 23.

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You can see how, you know, they all

kind of ended up at the same spot.

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That dark blue line is an equal

risk portfolio of all of them.

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But, since then, the, the treasury

component has just plummeted.

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Right?

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it has been like, this is,

this is the next chart here.

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Like that blue line has just, this is a 30

year treasury, just absolutely plummeted

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and flatlined from 2023 to 2025, and

the winner ends up in the, in the most

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recent period to be almost to be gold.

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Right?

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Mike Philbrick: Right.

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Which follows a period 2011 when Gold

peaked in its last run right to, what

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:

was it last year at, at probably around

this time that was a, a 14 year, 13 year

358

:

sideways market in gold and maybe we're

on a 13 year sideways market in bonds.

359

:

Rodrigo Gordillo: Yeah.

360

:

I mean, it, it has happened before, right?

361

:

And few people know this, but how,

what was the largest drawdown for,

362

:

in real terms, for treasuries?

363

:

This is a, my favorite, Meb Faber quote,

is like, like 65% drawdown in real terms,

364

:

Mike Philbrick: Mm-hmm.

365

:

Rodrigo Gordillo: right?

366

:

Absolutely bonkers.

367

:

And, and what did well at the time,

you know, this is way back in, in the

368

:

1900s, but at the time you could have

invested in gold minoring mining stocks.

369

:

I actually did it in analysis.

370

:

'cause gold was pegged.

371

:

But if you invested in gold miners,

it did, they did fairly well.

372

:

which is something that the report

also talks about, and an interesting

373

:

kind of transition away from gold.

374

:

Like what did you, what did you

garner from the, the gold miners part?

375

:

Mike Philbrick: Well, it kind of,

that old Don Cox saying right?

376

:

When those who know it best, like it

least you got a buying opportunity.

377

:

And I mean, if there's something that

hasn't disappointed more often over

378

:

the last few years as Gold has actually

appreciated, and to see whether you're

379

:

looking at, you know, broad-based ETFs,

GDX, GDXJ, the juniors in in gold, they

380

:

really have not felt that participation.

381

:

You know, there's this old, you know, if,

if you get this gearing from, gold stocks

382

:

that, you, you sort of get like a three

to one leverage, when you buy gold stocks

383

:

versus, you know, just owning the gold.

384

:

And we haven't seen that.

385

:

We've seen sort of one-to-one

participation with a lot more

386

:

volatility over the last year, call it.

387

:

And if you go a little bit further

back and say, well, let's go back,

388

:

three years, what you see is, you

know, the large cap gold stocks

389

:

are up 65% and Gold's up 80, right?

390

:

So the stock side of it has

absolutely underperformed,

391

:

the the physical metal side.

392

:

But there's a lot in there when those

gold companies are producing, they sell

393

:

a lot of the production forward in order

to make sure they can make ends meet.

394

:

And when the price is kind of

languishing from:

395

:

up selling a lot of your production

forward just to kind of get by.

396

:

And then you start to getting,

get into a period where, like you

397

:

said, Rod, it's that 10 year cycle.

398

:

You gotta build a mine in

order to build the mine.

399

:

You wanna take some of that,

financing risk off the table.

400

:

So as you're building and producing,

you're selling forward your production in

401

:

order to make sure you've got that locked

in so you can run your, run your business.

402

:

So very interesting.

403

:

And it seems to me that, I don't

know, maybe that set, that set that

404

:

area is due for some catch up, but

that's always a bit funny too, right?

405

:

And you and I know that there's

the beta in gold stocks and then

406

:

there's the gold in gold stocks.

407

:

And when you mix the two, you know,

again, I think Increment did a great job

408

:

on here's an interesting portfolio of

how you might incorporate commodities

409

:

and gold and silver and thinking like

silver and gold stocks, and silver

410

:

stocks are more of these kind of

more offensive, like higher geared,

411

:

opportunities, which they absolutely are.

412

:

Which means they have

more downside risk too.

413

:

Rodrigo Gordillo: Assuming you can't

lever up the thing, you wanna lever up

414

:

the most, like this is the basis, the

basis risk that you, that you take.

415

:

Like do you believe in gold

and what it's gonna do?

416

:

Well, yes, you could trade all

these other things because you

417

:

get more volatility outta them.

418

:

But for guys like you and me that love

futures contracts and, and want to

419

:

get, in order to get a better portfolio

construction, we can gear it up.

420

:

I'd rather gear up that

main, that main asset, right?

421

:

So

422

:

Mike Philbrick: Yeah, the, the,

the main factor, right, if you

423

:

like, like you've got, you've got

operational risk, so you're gonna

424

:

buy a co, a company that mines gold.

425

:

Well, there's operational risk there,

you know, tailing ponds go wrong.

426

:

The shit's not

427

:

Rodrigo Gordillo: how much, how much

of their gold exposure did they hedge?

428

:

Mike Philbrick: Yeah, exactly.

429

:

Rodrigo Gordillo: and so you're

not getting the upside, it's just,

430

:

it's, you're taking on, you're

taking on pro-cyclical risk that is

431

:

correlated to the, the economic cycle.

432

:

So I'd rather just buy the

pure gold, even silver, right?

433

:

Again, I think it's more about

gearing, but silver ends up being

434

:

more of an industrial metal,

435

:

Mike Philbrick: Yes.

436

:

More economic sensitivity, right?

437

:

Yeah.

438

:

So, so you want that

unique orthogonal nature.

439

:

Rodrigo Gordillo: yeah, and I think.

440

:

For, let's, let's kind of transition

a little bit toward Bitcoin, right?

441

:

Because they, this is kind of

what, what's been termed as the

442

:

new gold and the debates have, I've

been part of many debates, people

443

:

saying it's a hundred percent gold.

444

:

No, it's a hundred percent Bitcoin.

445

:

Bitcoin has the same qualities, but

you know, you can transfer it, quickly.

446

:

you can have it in low

quantities if you want to.

447

:

So you can have, you know, partial shares.

448

:

You can travel with it without anybody

having to, having to declare you can

449

:

walk through borders with all this

money in your pocket, in your brain.

450

:

Like all these benefits of the new gold.

451

:

so what are the similarities and

where, where is the risk there

452

:

Mike Philbrick: Oh, it's a,

it's a great, and you and I are

453

:

largely yes and people, right?

454

:

I, I don't think it's

an OR question, right?

455

:

You can incorporate both, quite honestly.

456

:

But as you say, so, so does Bitcoin

have central banks around the

457

:

world buying it in mass amounts?

458

:

Starting but not yet,

459

:

Rodrigo Gordillo: Well, that's another

thing they covered in the report that,

460

:

Mike Philbrick: Yeah.

461

:

You're starting

462

:

Rodrigo Gordillo: you have

the crypto of, uh, what's his

463

:

Mike Philbrick: yeah.

464

:

El Salvador and

465

:

Rodrigo Gordillo: David Sachs.

466

:

El Salvador.

467

:

Buying, making it as you know, some.

468

:

Mike Philbrick: Yep.

469

:

So it's happening, right?

470

:

So if we, if we set the table,

so the market cap on gold is,

471

:

call it 15 to 17 trillion.

472

:

The market cap on, Bitcoin is 1.3

473

:

to 1.5

474

:

trillion, so call it 10 x.

475

:

So gold represents 10 x.

476

:

It's been around a lot longer, probably

makes sense that that's the case.

477

:

There's just different features to

these two asset classes and a different,

478

:

sort of track record or, and I mean,

by track record, I mean, historically

479

:

Gold's been around for a very long time.

480

:

Bitcoin is the new kid on the block,

and I think they both offer some very

481

:

interesting and unique characteristics.

482

:

One is that gold, you know, has

a historical volatility of 10%.

483

:

You know, it moves around a

bit, but it's not like gold.

484

:

Yeah.

485

:

Where it's like 80.

486

:

So volatility is just how

much it goes up and down

487

:

Rodrigo Gordillo: Well, that's,

that's my framework for it.

488

:

All right.

489

:

I'm not fully, like, I, you know, you

are a, you're a lot more sold on this

490

:

being a wave of the future than I am.

491

:

I gotta be honest.

492

:

But let's, let's just go

through the similarities.

493

:

So it seems to have that same idea

that it's widely distributed around

494

:

the globe, so anybody can get it with

anybody, with a computer, which is

495

:

most of the population now can get it.

496

:

it is a, an asset that every four

years, the, the amount that can

497

:

be mined gets cut in half, right?

498

:

Until there isn't more to mine.

499

:

And so it becomes this asset, a

scarce asset that will go up and

500

:

down depending on whether humans

actually care about it or not.

501

:

Much like gold, right?

502

:

We couldn't have, we couldn't quite

pinpoint anything for gold except for the

503

:

fact that we want it and humanity uses it

and everybody's got broadly distributed.

504

:

some gold.

505

:

So, but, but 5, 6, 7 years ago,

the volatility of Bitcoin was 120,

506

:

Mike Philbrick: yeah,

507

:

Rodrigo Gordillo: is 15, golds

been 15, then it's gone down to a

508

:

hundred, to 80 and most recently going

down to 75% annualized volatility.

509

:

Now, that is a lot, right?

510

:

But this is, this is my framework for it.

511

:

So I like to use it in my portfolio as,

as a currency debasement trade, but I'm

512

:

always willing to have that go to zero.

513

:

I do an equal risk approach, and,

and we can talk about, I, I'll show

514

:

you some slides that I've shown

already in the ReSolve Riffs Podcast

515

:

back in the, the Christmas episode

with Meb, Corey and, and Wes.

516

:

But if I'm, if you're right, the

volatility of Bitcoin will con is it gets

517

:

more and more adoption, the volatility

of Bitcoin will get lower and lower and

518

:

lower, and if you're managing that kind

of currency debasement portfolio and

519

:

equal risk, then that Bitcoin portion

will get higher and higher and higher.

520

:

If I am, like, I'm not saying that I want

to be right about this, but let's say

521

:

that the other side happens and Bitcoin

becomes less and less of an option, that

522

:

there's some issues that gets attacked.

523

:

The volatility of that asset is gonna

go up and up and up back to where

524

:

it was in the beginning until it

goes up so high that from an equal

525

:

risk contribution perspective in my

portfolio, it becomes a non allocation.

526

:

Right?

527

:

So the volatility to me, gives me

all the information I need to require

528

:

an asset that I, I think is very

interesting, very, very interesting.

529

:

But we can manage the risk by not having

a static allocation, hopeful for the best.

530

:

You know what I mean?

531

:

Mike Philbrick: Oh yeah.

532

:

And, and also your initial allocation

or let, so in your context you say,

533

:

well, I want some hard assets in

my portfolio because I, I see a

534

:

lot of what's happening in debt.

535

:

I see debt monetization.

536

:

I see fiscal dominance, and I see some

things that are, are somewhat concerning.

537

:

And I'm getting the confirmation of

strangers through price, both price

538

:

and Bitcoin, and price and gold.

539

:

I, I have confirmation of

strangers in that more people

540

:

are buying and selling it.

541

:

That's why the price is rising.

542

:

So I like all, all of that makes sense.

543

:

And then to say, well then how

much, so if you have some position

544

:

in your portfolio, let's say you've

got 10% is kind of an easy one.

545

:

People say 10% in gold.

546

:

I dunno, I don't know how we got

there, but that might be right.

547

:

Might be not right.

548

:

But if you got 10% in gold, then okay,

what does that mean for a Bitcoin holding?

549

:

Probably something in the neighborhood

of, why wouldn't we do 10% to the both

550

:

assets where you've got 8% in gold

exposure and 2% in Bitcoin exposure,

551

:

thereby equalizing those two exposures.

552

:

So you've got equal risk coming from

them and incorporating that, both the

553

:

old and the new into the portfolio.

554

:

From the standpoint of diversifying

the portfolio, I think at this point

555

:

we can probably suggest that Bitcoin

is a bit more of an offensive player.

556

:

Right?

557

:

So

558

:

Rodrigo Gordillo: Well, I mean,

it is, it is in that like in:

559

:

it didn't do what gold did, right?

560

:

Gold went up, uh, in

, in, sorry, in:

561

:

And so, but, but this year it's

acting interestingly, right?

562

:

It's actually doing offsetting gold

and gold has a bad, bad period.

563

:

So it's, let me show you the, um,

564

:

Mike Philbrick: And, and gold and

gold having a trend while Bitcoin

565

:

was kind of languishing around

the highs and having pullbacks.

566

:

So they're very complimentary

to one another as well.

567

:

So again, I, I think it's, it's not an OR.

568

:

And then the next question is, you know,

as, as we are purveyors of the I concept

569

:

of Return Stacked Portfolio Solutions.

570

:

Well then, you know, why, why do

you want to even give up your stocks

571

:

and bonds that, you know, love and

572

:

Rodrigo Gordillo: but before, before we

get into that, let, let me just kind of

573

:

Mike Philbrick: Well that was just a

574

:

Rodrigo Gordillo: address, yeah.

575

:

Let me just address kind of the, the

concept of kind of equalizing risk here.

576

:

And I, and I did this at a time

when everybody was saying, I, I, you

577

:

should either be your Bitcoin or gold.

578

:

And I was just showing people

how unfair that comparison is

579

:

given the volatility, right?

580

:

So this is, I started a reasonable

period where, you know, Bitcoin

581

:

wasn't absolutely insane.

582

:

So 2018, just to show that yes indeed

Bitcoin has done 20% return versus gold

583

:

during that same period had done 10%.

584

:

So this is, this is a little, this

is back in, December of, of last

585

:

Mike Philbrick: Still relevant.

586

:

Rodrigo Gordillo: Sharp ratio.

587

:

Sharp ratio around 0.6

588

:

for both of them though, right?

589

:

So what does that mean?

590

:

It means that if I were to scale goal

up to the same level of volatility

591

:

of Bitcoin, which can be done

with a futures contract, right?

592

:

This might seem a little insane,

but it's, it's insane to invest a

593

:

hundred percent of your assets in an

80 vol product in the first place.

594

:

If you're that type of person.

595

:

You can also just easily lever

up a gold futures contract, 5.7

596

:

times, I think, is that

what I ended up doing there?

597

:

to hit the same level of fall as

BTC, and now we're looking at, better

598

:

returns from gold during that period.

599

:

In fact, if I were to like, we

now know that:

600

:

gold's actually killing it.

601

:

Um, so, so the question is,

yeah, maybe gold, right?

602

:

And of course my answer

is, well, not both, right?

603

:

If you were to equal risk this,

again, you're equal risking,

604

:

you're grabbing instead of 5.7%,

605

:

you, you just buy 50% of Bitcoin and,

um, 285% of, of a gold, futures contract

606

:

and equal weight it and rebalance.

607

:

And guess what happens?

608

:

Because the correlations, what's

interesting is that they're both,

609

:

they both seem to be good for currency

debasement stuff, but the, their

610

:

daily correlations is some, it is

on average zero, sometimes negative.

611

:

And as you and I both know from

Shannon's demon and the rebalancing

612

:

premium, that when you have two

negative correlated assets that in

613

:

this case and both making money and

you're able to rebalance from them, you

614

:

create this, this rebalancing premium.

615

:

And so what's interesting is that by

putting this portfolio of equal risk

616

:

together, your volatility goes from 80 to

61, but your returns go through the roof,

617

:

your returns are significantly higher.

618

:

'cause of that rebalancing,

premium sharpe ratio goes up.

619

:

Right.

620

:

So again, this is a portfolio

construction over ethos or, you know,

621

:

a gold religion or a Bitcoin religion.

622

:

It's just be you like 'em

both put 'em in equal risk.

623

:

Now, I am not gonna invest

in an 80 vol anything.

624

:

I'm not gonna, I'm not gonna invest

in this portfolio I'm showing you.

625

:

Right?

626

:

And so, what an average investor could

do is what you just described, right?

627

:

Instead of levering up your gold, lever

everything, lever Bitcoin down to equal

628

:

risk to your, to your gold allocation.

629

:

So we could, you could do that by just

looking at the market cap of gold versus

630

:

Bitcoin, which I think is like bitcoin's,

what 10% of you mentioned it earlier.

631

:

Mike Philbrick: 10 to one.

632

:

Call it.

633

:

10 to one.

634

:

Rodrigo Gordillo: 10.

635

:

So, so 10 to one.

636

:

So that's, you know, nine, nine 90%

in, uh, in gold, 10% in Bitcoin.

637

:

When you do equal risk contribution, it

used to be like 7% when it, when you start

638

:

doing this with Bitcoin in the beginning

and now it's like bumping up to 15,

639

:

to 20 to 20%, and it'll vary depending

on like, volatility is expanding,

640

:

contract correlation, expand contract.

641

:

But I think that that, given that

they're in around the same theme,

642

:

I like that they're non-correlated.

643

:

Even if you like the people talk about

silver and miners, they're too correlated

644

:

to be able to benefit from the non

correlation if you can get the leverage,

645

:

if you want it to from just using this.

646

:

I like the, the fact that it's Bitcoin

and gold being so non-correlated that

647

:

they're creating their own return stream.

648

:

Mike Philbrick: on a

day-to-day basis, right?

649

:

Rodrigo Gordillo: Yeah, yeah, yeah.

650

:

Mike Philbrick: they really, really are.

651

:

And it, it stems from the fact

there are very different buyers

652

:

that own both of these assets still.

653

:

Bitcoin is going through

the institutionalization.

654

:

I mean, gold has been

institutionalized many, many moons ago.

655

:

And, um, so it's an interesting,

juxtaposition of both the new and the

656

:

old, but both have, you know, finite

supply building new supply is hard.

657

:

Costs money, whether you're, whether

you're mining Bitcoin or you're mining

658

:

gold, whether you're trying to, you know,

get the machines to solve the problem

659

:

or get a, get a a contract approved

to, uh, develop a, a site to mine gold.

660

:

These are, these are hard things

and uh, they cost money to do so.

661

:

but again, I also think there's

a different, a very different

662

:

group of buyers for each of those

if we look right down to it.

663

:

And the individual investor doesn't really

have to think through that in the sense

664

:

that they have access to the products.

665

:

Right.

666

:

You

667

:

Rodrigo Gordillo: In a way

they didn't a few years back.

668

:

Right?

669

:

Mike Philbrick: correct.

670

:

Right.

671

:

You've got, you've got, financialized

Bitcoin products, whether they're

672

:

through ETFs, whether through the

futures markets, all allowing you

673

:

to build in this unique asset class.

674

:

We've had that in gold for some time.

675

:

but again, combining those two together,

bringing both the old and the new

676

:

together and thinking through, not

letting the maniacs run the asylum.

677

:

Right.

678

:

If you, if you say, well, I'm gonna

give you a dollar of gold and a

679

:

dollar of Bitcoin, that's fine too.

680

:

But you know, you're largely gonna

be dominated by the higher volatility

681

:

asset, which is gonna be Bitcoin.

682

:

but if you're thinking through an

allocation from the perspective of,

683

:

well, I've got some gold and I, you

know, I'll sell a little bit of my gold

684

:

and buy a stack of gold and Bitcoin,

well, then you've got your Bitcoin

685

:

stacked on your gold, which you could do.

686

:

Rodrigo Gordillo: You, you

know what's interesting?

687

:

I, I just remembered and pulled this up.

688

:

When we, when we wrote the paper

on, um, the rebalancing premium,

689

:

like something about risk parity.

690

:

In the beginning we did an analysis on

the correlation between just three assets.

691

:

Gold stocks and, treasuries.

692

:

And so you can see the correlation

is very low just within gold.

693

:

And, and what's interesting here to

point out is that if you just do the

694

:

compound returns of the portfolio, like

the, just an arithmetic addition of what

695

:

they would do in a portfolio without

rebalancing, you're looking at a 6.7%

696

:

rate of return.

697

:

The rebalancing between gold stocks and

treasuries, which are not, you know,

698

:

the, the correlation is pretty low.

699

:

You're looking at an extra 1.2%

700

:

per year in that portfolio.

701

:

So that portfolio with daily rebalancing

compounded an 8% rate of return.

702

:

Now, now add a, another hyper

non-correlated asset 'cause it's

703

:

also, you know, low, it still has low

correlation to treasuries and, and stocks.

704

:

You're just adding more

rebalancing premium, which I love.

705

:

Mike Philbrick: And that, that's a, that's

a really interesting time period too.

706

:

June 82 to 2020.

707

:

So you've got gold peaking at that point.

708

:

You've got rates peaking, so

you get a great bond bull run,

709

:

but you get a pretty, pretty vi

vigorous, gold bear market, right?

710

:

So it, it's still, even though those

were more persistent trends throughout

711

:

that period, that 38 year period, you

still came up with wonderful rebalancing

712

:

opportunities between the asset classes.

713

:

And that's, that's such a wonderful thing.

714

:

Rodrigo Gordillo: And here's

why this is important, right?

715

:

Here's why it's important.

716

:

This goes back to, um, Antiel and

when he, when we brought him in to,

717

:

to speak about commodities, right?

718

:

This, this view that commodities

is, is a, has a zero, uh, real

719

:

rate of return on their own.

720

:

But when you create a commodity

portfolio and you weigh them

721

:

appropriately, and you, you capture

that rebalancing treatment, guess what?

722

:

Now you have a real return because you've,

you've basically extracted a yield from

723

:

non-correlated asset classes, right?

724

:

So in a, in a way, like, yes.

725

:

We just, we started the

conversation by saying, what type

726

:

of yield does gold provide us?

727

:

What type of and yield

does Bitcoin provide us?

728

:

And they don't.

729

:

But if you structure your portfolio the

right way, if you include 'em in your

730

:

portfolio just a little bit, you're

already gonna be capturing an excess

731

:

yield that is, you know, this idea of the,

that one plus one equals three, right?

732

:

Like this is the, the, whole is

greater than sum of its parts.

733

:

Mike Philbrick: And, and the

systematic nature of that, right?

734

:

You don't, you don't have to be super

smart, to just do your rebalancing.

735

:

I would say the, the challenge, I guess on

the behavioral side is it's uncomfortable

736

:

to rebalance sometimes because you're

selling what's working and, uh, and

737

:

buying what's not working a little bit.

738

:

but that does work over time.

739

:

and if you're, if you're gonna sin a

little as I think Rob Barnett says, if

740

:

you're gonna sin a little, go for it.

741

:

You know, let

742

:

Rodrigo Gordillo: Let's talk

about setting, staying a bit more.

743

:

so let's go into other ways of

doing portfolio construction.

744

:

I think ultimately what we discovered

in trying to get people to add

745

:

diversifiers to their portfolio

is that they don't want it.

746

:

It's too different, it's too hard.

747

:

Even as I showed that incredible run

that Gold's had, since:

748

:

still resident to own something that

different when that they can't understand.

749

:

Right.

750

:

So I think the advent of, of Return

Stacking and all the things, all the

751

:

different, products that are coming

out that allow to stack things on top.

752

:

Give people an out.

753

:

Right?

754

:

You gotta, you, you now have an

option to possibly not have to sell

755

:

your favorite toys, sell your core

stocks and bonds in order to make

756

:

room for these weird diversifiers.

757

:

you can now actually just get,

keep your 60 40 or 80 20 and

758

:

just add the diversifiers on top.

759

:

Yes, in this case, you know, prop

volatility is likely to increase

760

:

a little bit, but you don't have

to go a hundred percent right.

761

:

You add a 10%, 20% allocation

depending on how, what your view

762

:

is on, currency debasement and

continued global macro spheres.

763

:

It's a great way to, you

know, yes and the problem.

764

:

Mike Philbrick: I totally agree, and

I kind of think that if we are honest

765

:

with ourselves, the math makes sense.

766

:

The returns are better in gold.

767

:

They were last year,

yet no one gave a Why?

768

:

Well, there's a huge

behavioral aspect to this.

769

:

Are my friends doing it?

770

:

My friends aren't doing it, and I'm

not feeling the pressure of that, of

771

:

those peers and that the, what do they

call them, sort of, best practices.

772

:

Then it's okay that, you know, we didn't

hear it from anybody that, oh my god,

773

:

gold did X and you're your diversified

funded Y and that was less than X.

774

:

No one ever says that.

775

:

Right now the darling in

the room is the S&P 500.

776

:

you know, we've been around

for a couple market cycles,

777

:

so it hasn't always been that.

778

:

Brick's been '08 and then the US back

in:

779

:

82 and it was gold and gold stocks.

780

:

So there's this huge behavioral

tax that people pay waiting for

781

:

that, that public adoption, right?

782

:

They're not in, when there's a stealth

opportunity, when you could be in,

783

:

if you were just simply rebalancing

or stacking or doing something

784

:

that allows you to participate in

the markets that your friends are

785

:

participating in so that your tracking

error's lower, so that your behavioral

786

:

biases don't undermine your success.

787

:

You know, versus taking the big

plunge we just talked about, you

788

:

know, the numbers from 1982 for

crying out loud, like it makes sense

789

:

to have some gold in your portfolio.

790

:

Yet the allocation by pension funds,

family offices, large, sophisticated

791

:

asset allocators is a sub 1%,

792

:

Rodrigo Gordillo: Yeah.

793

:

Mike Philbrick: right?

794

:

We're we, we all are humans.

795

:

Lemmings,

796

:

Rodrigo Gordillo: I mean, I must admit

the, the coal community is a little weird.

797

:

You know what I mean?

798

:

Like, it's those

799

:

Mike Philbrick: But I'm not talking.

800

:

This is the funny thing,

801

:

Rodrigo Gordillo: I'm not gonna.

802

:

Mike Philbrick: we get, we get

painted as the gold community.

803

:

I'm, I'm a centrist here.

804

:

I'm not a gold guy.

805

:

I'm a centrist.

806

:

I'm like, you should have some, 'cause

it's different because it adds value.

807

:

Rodrigo Gordillo: That's it.

808

:

Like from a, like, I, I can get behind it

from a portfolio construction perspective.

809

:

I just, this, you and I have met a

bunch of advisors that are, have been

810

:

all in on gold and good for them.

811

:

They, but they've been all in on gold.

812

:

Like a hundred percent of

813

:

Mike Philbrick: a long time.

814

:

Rodrigo Gordillo: do is

around precious metals.

815

:

I mean, we grew up with Eric Sprott.

816

:

Mike Philbrick: Oh yeah.

817

:

We're, uh, being Canadians,

818

:

Rodrigo Gordillo: Yeah, right.

819

:

Like that's all that

820

:

Mike Philbrick: and, and you're,

you're Peruvian from, from the, the,

821

:

you know, so, so natural resources

in gold are, are well ingrained.

822

:

They're probably more acceptable

to us as investments than, you

823

:

know, a lot of people in the US.

824

:

And, and we do see that, like,

we see that in the numbers.

825

:

And I guess that this is, we're in that

public stage where you're, it's gonna

826

:

start to be okay as an allocator and

advisor to start incorporating gold.

827

:

Get this, it's gonna start to be okay.

828

:

You're gonna be able to actually do

that and not suffer the slings and

829

:

arrows of being considered a weirdo.

830

:

So that's something to consider.

831

:

The, the pendulum, the

behavioral pendulum is swinging.

832

:

It's a little bit more centrist.

833

:

The gold has, has some

returns that back it.

834

:

It's, we've got a number of concerns

that gold can respond well to, whether

835

:

those are geopolitical concerns, whether

those fiscal dominance, monetary,

836

:

there, there's some things that, that

evolve to make gold sort of a key

837

:

part of the portfolio, especially as

bonds start to potentially falter.

838

:

So it's going to garner some acceptance.

839

:

So now how are you as an allocator

or an advisor gonna start building

840

:

that non-correlated source

of returns into portfolios?

841

:

Bitcoin's going through the

same evolution, starting from

842

:

a much smaller base, obviously.

843

:

but again, how are you gonna

think through allocating to these

844

:

types of things in your portfolio?

845

:

Do you wanna take some of the

things that you know, love and

846

:

trust out, sell some of your stocks

and bonds, and do diversification

847

:

through subtraction possible?

848

:

Or do you wanna do diversification

through addition where you

849

:

Rodrigo Gordillo: Well, let's talk

about that, the difference between

850

:

those two from a behavioral perspective,

because I don't think that gets enough

851

:

airtime in terms of when you, let's

say, everything Trump solves everything.

852

:

we have, we take care of the debt.

853

:

the US becomes a reserve currency again.

854

:

Everybody starts behaving.

855

:

No more wars.

856

:

You know, that's obviously

gonna affect gold negatively.

857

:

And if you've just chosen to have an

allocation of gold, you'll, if you've

858

:

made, sold your equities in order to get

gold, you are not only losing whatever

859

:

the 20% that gold might give you, you

are losing out an opportunity cost of

860

:

that equity component that may be up 30%.

861

:

Right?

862

:

So you're getting a double whammy by, in

terms of allocating when you make room

863

:

in your portfolio for these diversifiers.

864

:

Whereas when you stack 'em on top,

you're at the very least not having

865

:

that opportunity cost of owning the

equities in case they go up 20%.

866

:

You're still having a little bit

of tailwind, but you're cer you're

867

:

certainly cutting it by a lot.

868

:

Right?

869

:

So in terms of wrapping your mind

around adding weird things, you

870

:

know, you, I think everybody here

knows that, that we think that a

871

:

good solution here is stacking.

872

:

and, and, yeah.

873

:

And then you gotta decide when, right?

874

:

Like we, that's right now, even though

I've been an advocate of gold from the

875

:

beginning of my career, when people come

to me now and they say, should I allocate?

876

:

And I'm like, yeah.

877

:

Yeah, you need to allocate.

878

:

And, and then I have to go

back to these reports and be

879

:

like, okay, what's happening?

880

:

Like, why, why is this still,

why should I not be timing this

881

:

as much as, uh, as I want to?

882

:

And just the evidence is so like even

the Chinese government with the, the

883

:

capital controls, you know, nobody's

gonna invest in like a few people

884

:

invest in the stock market unless

they're really gambling in inside China.

885

:

Like apparently the only thing

that they can invest in without

886

:

a lot of control is gold.

887

:

And that's a large part as to

why all of this is happening.

888

:

And as it become more insular, I think

that's another interesting secular trend.

889

:

La Latin America, emerging markets

are buying more and more gold.

890

:

Mike Philbrick: Well, that, that was the,

that was the theme from last year, right?

891

:

That that would start to happen.

892

:

And the theme this year is now, now

we're, it's, it's the big long, right?

893

:

Rodrigo Gordillo: yeah,

now it's broad acceptance.

894

:

Now it's, I mean.

895

:

Mike Philbrick: is the part where

you, when you get the broader

896

:

acceptance, you're now gonna

start to get the green light.

897

:

Whether you're an allocator, working

with an institution or pension fund,

898

:

or you're an advisor working with,

individual families, you're gonna

899

:

start to get the green light to be

able to incorporate this and not sort

900

:

of compromise the, the relationship.

901

:

Right.

902

:

Not call into question the relationship

for doing something that's too weird.

903

:

And that, that's a real challenge in

managing assets on behalf of other

904

:

people is, you know, you wanna do

the mathematically correct thing and

905

:

the preferences of the individual

investor sometimes get involved and

906

:

don't allow for that to take place.

907

:

That, that's, that's about

as common as anything in this

908

:

Rodrigo Gordillo: And, and one thing

that I've learned quite a lot from, with

909

:

the com when it comes to macro cycles

is, Bob Elliott, who constantly reminds

910

:

us about how long it takes for macro

cycles to actually play out, right?

911

:

They take years, if not decades, to

fully play out to their maximum extent.

912

:

When, like, even, even the, the recent

disinflationary growth period where

913

:

equities kept on going up, right?

914

:

It was like there was a straight line

with a low volatility bonds, 40 years.

915

:

Like these are long secular

cycles that we've seen and bonds

916

:

have finally broken, right?

917

:

And it took 40 years for them to, to

break in any meaningful way whatsoever.

918

:

And so when you think about.

919

:

Just the concept of,

okay, price of gold is up.

920

:

Well, there's gonna be all this demand.

921

:

Where are we gonna get

the, the supply from?

922

:

Nowhere.

923

:

It's gonna take 10 years

to build more supply.

924

:

You know, we still, we're not, I'm

not seeing any commercials to, to

925

:

sell my, my gold jewelry to get gold,

926

:

Mike Philbrick: Not yet.

927

:

That will be a sign though.

928

:

Rodrigo Gordillo: that will

definitely be a sign right.

929

:

When you like, these are the,

930

:

Mike Philbrick: melting down the

silver, uh, the silver forks and spoons.

931

:

Rodrigo Gordillo: Yeah.

932

:

So when I think about it that

way, I, I got, that gives me,

933

:

okay, I need to have this as part

of my core strategic portfolio.

934

:

Right.

935

:

It's not gonna be a fun ride on

its own, but it is a portfolio.

936

:

Mike Philbrick: yeah.

937

:

And allocate.

938

:

This is the nice thing.

939

:

You can allocate it.

940

:

into the portfolio over time.

941

:

Like, you do not have to take the

approach that today is the day where I'm

942

:

gonna allocate the full X amount, right?

943

:

So let's say you, you come to the

conclusion that, well, alright,

944

:

this is an asset class I probably

should have 10, 10% in the portfolio.

945

:

So what are the steps I'm gonna take?

946

:

Well, let's buy 1% today.

947

:

Let's get it on the books,

let's get, let's get started.

948

:

Because when you own it, you watch it

and you get familiar with it, and you

949

:

get some intuition as to how the asset

responds in different circumstances.

950

:

And that's always something that's,

that's a bit challenging and unique.

951

:

When something has gone to, through

the process of becoming a 1% allocation

952

:

across investors' portfolios, they're

really not paying attention to it, right?

953

:

So build up your intuition

and your tolerance.

954

:

How, because it's gonna be,

some days you're gonna look at

955

:

it and go, this thing's stupid.

956

:

And then other days you're gonna be

like, oh my gosh, wow, look at that.

957

:

And you're gonna get a sense for that.

958

:

And then it allows you to build the,

and this is both at the institutional

959

:

level and the retail level.

960

:

This is across all things.

961

:

When you don't have an intuition

for an asset class, 'cause

962

:

you haven't dealt with it.

963

:

And I would assume, you know, most people

are, are of the age that a lot of times

964

:

they don't have a lot of experience

with gold in, in the markets today.

965

:

So they're gonna have to

build up that intuition.

966

:

So start small, like, but start.

967

:

And, and look at how it

interacts with your portfolio.

968

:

And then, you know, in, in our, as you've,

as you've mentioned so eloquently already,

969

:

our perspective is you don't need to

sell what's in your portfolio to add

970

:

these diversifiers to stack them on top.

971

:

And that will help alleviate some of the

tracking error that comes from those times

972

:

when those main assets are doing great.

973

:

Rodrigo Gordillo: Yeah, I mean, I think,

I think we're moving the needle, Mike.

974

:

I think we're gonna take

this from 1% to two.

975

:

Mike Philbrick: Let's do it.

976

:

Rodrigo Gordillo: I'm

feeling it this time.

977

:

It's crazy because we literally have

had this conversation in every room that

978

:

we stepped in since the day I met you.

979

:

Mike Philbrick: and I know, and I feel

as though, like, I get painted as a

980

:

gold bug I'm just, I'm a gold centrist.

981

:

I'm not a gold bug.

982

:

I

983

:

Rodrigo Gordillo: we're not, we

don't have outrageous weightings

984

:

of gold in our portfolios.

985

:

Mike Philbrick: at all.

986

:

Rodrigo Gordillo: just not zero.

987

:

It's not zero.

988

:

Mike Philbrick: Exactly.

989

:

Exactly.

990

:

Rodrigo Gordillo: still have a bunch

of people waiting, um, and watching.

991

:

I'm just curious if

anybody has any questions.

992

:

I'm just gonna go up and

see if there were any.

993

:

There are some things

we can't discuss here.

994

:

Uh, volatility drag a problem

with UGL on daily reset.

995

:

Okay.

996

:

So UGL is the double bowl, I think, right?

997

:

Yeah.

998

:

so

999

:

Mike Philbrick: Yeah.

:

00:50:26,144 --> 00:50:26,774

So that's, yeah.

:

00:50:26,774 --> 00:50:27,314

Let you go.

:

00:50:27,314 --> 00:50:27,524

Go

:

00:50:27,584 --> 00:50:30,074

Rodrigo Gordillo: we've, we've

discussed volatility drag quite a bit.

:

00:50:30,104 --> 00:50:31,964

There's a couple articles

on the return stack site.

:

00:50:31,994 --> 00:50:35,384

If you look up volatility drag, you'll,

you'll get to understand a little bit

:

00:50:35,384 --> 00:50:40,761

more about, whether it's even a thing

that, uh, you need to worry about from

:

00:50:40,761 --> 00:50:42,171

a portfolio construction perspective.

:

00:50:42,171 --> 00:50:47,601

Like there is no shame in using 2x levered

anything as long as you are rebalancing

:

00:50:47,961 --> 00:50:51,081

and you are, you are rebalancing it

against other non-correlated stuff.

:

00:50:51,621 --> 00:50:58,001

Volatility drag, is, is basically,

you know, when you, when you 2x an

:

00:50:58,001 --> 00:51:04,301

asset class, what tends to happen

is your variance goes up by 4x

:

00:51:04,521 --> 00:51:09,650

and your, compound rate of return

is the variance of the portfolio.

:

00:51:10,070 --> 00:51:13,980

It's half the variance of, uh, is your

arithmetic rate of return minus half

:

00:51:13,980 --> 00:51:15,090

the variance of the portfolio, right?

:

00:51:15,090 --> 00:51:18,390

So what you end up getting

penalized if you are just owning

:

00:51:18,390 --> 00:51:20,820

that asset at 2x of volatility.

:

00:51:20,820 --> 00:51:26,760

But that doesn't just apply to 2x S&P

or 2x gold, it applies to 2x anything.

:

00:51:26,820 --> 00:51:31,980

If you are increasing the volatility

of your portfolio, whatever it is,

:

00:51:31,980 --> 00:51:35,970

you are increasing the variance

and you are getting a drag from the

:

00:51:35,970 --> 00:51:40,020

compounding of, or negative compounding

of that, like that variance drag.

:

00:51:40,530 --> 00:51:45,645

But if you are increasing

leverage in order to have a

:

00:51:45,645 --> 00:51:47,325

more diversified portfolio.

:

00:51:47,535 --> 00:51:51,049

We, we use the example in one of the

podcasts that we did, where you talk

:

00:51:51,049 --> 00:51:55,699

about the 2x S&P 500 versus stacking

a hundred percent S&P and a hundred

:

00:51:55,699 --> 00:51:56,989

percent trend following, for example.

:

00:51:57,589 --> 00:52:02,599

When you stack a hundred percent S&P, your

volatility is actually, you're, you're

:

00:52:02,599 --> 00:52:06,772

getting, you're not getting twice the

return, and your volatility is, doubling.

:

00:52:07,522 --> 00:52:11,122

When you are stacking a non-correlated

def, what we call defensive leverage

:

00:52:11,122 --> 00:52:15,889

on top, you're stacking the return,

but because it's non-correlated to

:

00:52:15,889 --> 00:52:19,789

the underlying asset, you're not

increasing your, necessarily the,

:

00:52:19,909 --> 00:52:22,639

the standard deviation and therefore

your variance drag is much lower.

:

00:52:22,909 --> 00:52:23,269

Okay.

:

00:52:23,899 --> 00:52:27,319

And so it just, the, the answer

is it depends on how you use it.

:

00:52:28,279 --> 00:52:31,969

Okay, so, so use it for

portfolio construction.

:

00:52:31,969 --> 00:52:33,499

Use it to create robust portfolios.

:

00:52:33,499 --> 00:52:37,069

Make sure you're rebalancing and if

you do it, it's a great instrument.

:

00:52:37,069 --> 00:52:40,579

It's volatility that you can use

to, to create rebalancing premium.

:

00:52:41,280 --> 00:52:44,830

Mike Philbrick: The, um, those,

those, I would, I would add one final,

:

00:52:44,920 --> 00:52:48,100

you know, UGL, that type of thing,

where it's two x at the same asset.

:

00:52:48,160 --> 00:52:52,000

Those are, those are often trading

assets, so you should be engaged in

:

00:52:52,000 --> 00:52:54,040

the, in the trading of the assets.

:

00:52:54,040 --> 00:52:57,730

As, as you've mentioned, they regear

up every day, so if you make 10%,

:

00:52:57,730 --> 00:52:59,170

they're gonna regear that up tomorrow.

:

00:52:59,770 --> 00:53:03,675

At some point you get, you know, lots

of leverage built into your position

:

00:53:03,855 --> 00:53:08,355

and you have a correction, and that's

where you get that volatility drag.

:

00:53:08,625 --> 00:53:12,015

But if you were harvesting that and

saying, well, no, I'm, I'm, I'm gonna

:

00:53:12,015 --> 00:53:15,525

trim a little as it goes up, and

then I'm gonna add a little when it

:

00:53:15,525 --> 00:53:19,935

goes down, you can attenuate that

and, and you might do that with cash,

:

00:53:19,935 --> 00:53:21,195

you might do that with other assets.

:

00:53:21,200 --> 00:53:25,305

It, it, it's all fine, but it does

require, the leveraging is daily and

:

00:53:25,305 --> 00:53:27,285

the asset is somewhat volatile at times.

:

00:53:27,285 --> 00:53:30,105

So it can require adjustments daily.

:

00:53:30,315 --> 00:53:32,925

If, if, if you're doing that

type of thing, it, it's fine.

:

00:53:33,225 --> 00:53:36,345

Certainly when we're looking at

futures contracts and things like that

:

00:53:36,465 --> 00:53:39,705

in portfolios that we're managing,

those are reviewed daily and are

:

00:53:39,705 --> 00:53:44,175

rebalanced, you know, brought back in

line on, on a regular basis because

:

00:53:44,175 --> 00:53:48,335

the volatility with the, the leverage

and the other pieces of the puzzle.

:

00:53:48,395 --> 00:53:48,605

Right.

:

00:53:48,605 --> 00:53:49,955

The other positions in the portfolio,

:

00:53:50,510 --> 00:53:53,270

Rodrigo Gordillo: Look, when it comes to

leverage, we always talk about internally

:

00:53:53,270 --> 00:53:56,990

that, that you don't want, when it comes

to leverage, you don't want LICE, and LICE

:

00:53:56,990 --> 00:54:02,630

stands for leverage that, is illiquid,

concentrated or excessive, right?

:

00:54:02,630 --> 00:54:06,770

So in this case, we're talking about a,

a liquid product, but it is concentrated

:

00:54:06,770 --> 00:54:09,440

and it can be excessive depending

on how much you put into it, right?

:

00:54:10,070 --> 00:54:12,470

And so you just wanna avoid

LICE when it comes to leverage.

:

00:54:12,680 --> 00:54:17,210

And, and what you really want it to be

is, is, is part of a portfolio, or you

:

00:54:17,210 --> 00:54:19,760

want to stack it with other things.

:

00:54:20,300 --> 00:54:23,960

And, and if you're gonna use leverage,

use what we call defensive leverage,

:

00:54:23,960 --> 00:54:27,380

things that are non-correlated to

the thing that the, the main stack

:

00:54:27,380 --> 00:54:29,300

that you are, that you're gonna use.

:

00:54:29,300 --> 00:54:33,260

So if, if you keep that in mind, you are

gonna minimize the chances of blowing up.

:

00:54:33,757 --> 00:54:34,207

All right?

:

00:54:34,777 --> 00:54:35,767

We're coming up to an hour.

:

00:54:35,827 --> 00:54:38,347

Mike, anything that, that we may

have missed that you want to chat?

:

00:54:38,789 --> 00:54:41,969

Mike Philbrick: Uh, no, I think, I think

we've covered just about everything

:

00:54:41,969 --> 00:54:43,709

that we wanted to, uh, discuss.

:

00:54:43,709 --> 00:54:45,689

I think the report is well worthwhile.

:

00:54:45,779 --> 00:54:51,159

Um, we've got one of the, portfolio

managers at Incrementum that's gonna

:

00:54:51,159 --> 00:54:55,029

join us in June, and we'll take a

little bit more into the report itself

:

00:54:55,029 --> 00:54:59,259

and talk a little bit more of the,

uh, the intricacies of, of the gold

:

00:54:59,259 --> 00:55:02,229

market itself, things that, that what,

where we'll learn some stuff as well.

:

00:55:02,529 --> 00:55:06,009

So look forward to that and, uh,

look forward to tuning in with that.

:

00:55:06,009 --> 00:55:09,895

And I think, you know, the other thing

is every year that he was, um, in

:

00:55:09,895 --> 00:55:13,345

talking with the, the guys over there,

they've noted that every year when they

:

00:55:13,345 --> 00:55:15,445

launch the report, gold is, goes down.

:

00:55:16,960 --> 00:55:17,230

Rodrigo Gordillo: now what

:

00:55:17,305 --> 00:55:17,727

Mike Philbrick: It's just, it's just

:

00:55:17,830 --> 00:55:18,610

Rodrigo Gordillo:

Because they launched it.

:

00:55:18,610 --> 00:55:20,620

They launched it into

a poor seasonal period.

:

00:55:20,620 --> 00:55:25,900

Or like we, we do seasonality and I think

gold is entering a poor seasonal period,

:

00:55:25,900 --> 00:55:27,520

which is gonna be a great entry point.

:

00:55:28,000 --> 00:55:28,600

Mike Philbrick: Exactly.

:

00:55:28,840 --> 00:55:31,780

Starting start, start

your allocation today.

:

00:55:31,780 --> 00:55:34,090

Go slow, go steady, get the intuition.

:

00:55:34,330 --> 00:55:36,587

You're gonna see that, public opinion.

:

00:55:36,797 --> 00:55:39,767

This is, you know, for what

it's worth, from my perspective,

:

00:55:40,097 --> 00:55:41,357

public opinion is changing.

:

00:55:41,357 --> 00:55:42,947

We're entering that public phase.

:

00:55:43,157 --> 00:55:46,487

We're seeing that in the

AUM growth in, in the ETFs.

:

00:55:46,727 --> 00:55:48,407

So it's something to look at and consider.

:

00:55:48,407 --> 00:55:52,964

And how you might allocate to that there

are many ways to, to slice that, sandwich.

:

00:55:53,384 --> 00:55:56,174

Uh, we would, we would encourage

you to look at the idea of return

:

00:55:56,174 --> 00:55:57,764

stacking as a way to incorporate it.

:

00:55:58,304 --> 00:56:00,974

And, uh, if you have any questions

as always, reach out to us and,

:

00:56:01,079 --> 00:56:02,909

Rodrigo Gordillo: You know, we've got a

couple minutes and they, there's a couple

:

00:56:02,909 --> 00:56:04,139

of questions that I do want to answer.

:

00:56:04,189 --> 00:56:04,379

sorry.

:

00:56:04,519 --> 00:56:06,344

So they were talking about

borrowing costs, right?

:

00:56:06,344 --> 00:56:09,044

So the, you know, it

depends on how you borrow.

:

00:56:09,044 --> 00:56:12,814

You can get, again, if you're using,

There's a bunch of product out there

:

00:56:12,814 --> 00:56:16,624

that is, that is helping you create

capital efficiency by making revenue

:

00:56:16,624 --> 00:56:21,404

on your portfolio, by giving you

like, WisdomTree as a 90 60, right?

:

00:56:21,404 --> 00:56:24,974

You're getting, you're getting

leverage at the cheapest possible level

:

00:56:25,364 --> 00:56:27,664

of, on the futures markets, right?

:

00:56:27,664 --> 00:56:28,264

So yes.

:

00:56:28,684 --> 00:56:32,734

What you're gonna need to de decide

is what you're stacking, is it

:

00:56:32,734 --> 00:56:35,224

likely to do better than cash?

:

00:56:35,554 --> 00:56:35,854

Right?

:

00:56:35,944 --> 00:56:42,034

And what, what we've seen, what we've

shown you from gold, is that gold has

:

00:56:42,334 --> 00:56:44,044

had positive real rates of return.

:

00:56:44,044 --> 00:56:48,344

So when you think about creating

portfolios, especially in the

:

00:56:48,344 --> 00:56:51,644

context of return stacking, it

really is like, the way I think

:

00:56:51,644 --> 00:56:52,964

about it is Lego blocks, right?

:

00:56:53,624 --> 00:56:57,224

See if I have different colored Lego

blocks here you have your equity.

:

00:56:57,484 --> 00:56:59,744

let's assume that this is, you

got your equity risk premium.

:

00:57:00,299 --> 00:57:04,409

That you are going to buy and get

exposure to, you're gonna get your bond

:

00:57:04,469 --> 00:57:08,195

risk term premium that you're gonna

eventually over the long term get, you

:

00:57:08,195 --> 00:57:09,965

know, paid for taking duration risk.

:

00:57:10,445 --> 00:57:12,785

And then let's say that's a

hundred portfolio, then you gotta

:

00:57:12,785 --> 00:57:15,695

decide, okay, what excess returns

can I count on to be there?

:

00:57:15,725 --> 00:57:17,765

Well, it turns out the gold

has had pretty decent excess

:

00:57:17,765 --> 00:57:19,955

returns in the last 40 years.

:

00:57:19,955 --> 00:57:23,435

So then you're whatever excess returns

that end, that's you're stacking

:

00:57:23,435 --> 00:57:27,875

that return on top, and then you find

another, thing that you want to stack,

:

00:57:27,875 --> 00:57:32,939

whether it's, uh, know, managed future

trend or, merger arbitrage or, you

:

00:57:32,939 --> 00:57:36,959

know, market neutral portfolios that

you can, you can literally decide

:

00:57:36,959 --> 00:57:39,809

to stack all of these different risk

premiums that are non-correlated to

:

00:57:39,809 --> 00:57:44,519

each other, to the level of portfolio

volatility that you can stomach, right?

:

00:57:44,519 --> 00:57:47,099

So yes, everything costs, to stack.

:

00:57:47,159 --> 00:57:48,419

It's always the risk-free rate.

:

00:57:49,199 --> 00:57:53,309

But every asset that we've

discussed today has had a

:

00:57:53,309 --> 00:57:55,589

long-term excess return above cash.

:

00:57:55,979 --> 00:57:59,969

And if you feel like you can count

on that over a long enough time

:

00:57:59,969 --> 00:58:04,979

horizon, then really you're just

stacking excess returns plus the cash

:

00:58:04,979 --> 00:58:07,319

premium you get on your core holdings.

:

00:58:07,499 --> 00:58:07,739

Right?

:

00:58:07,769 --> 00:58:09,539

So, hope that answers your question.

:

00:58:09,649 --> 00:58:14,059

and yeah, if you guys ha want to reach

out and ask any further questions, you

:

00:58:14,059 --> 00:58:17,602

can reach out at, RodGordilloP on Twitter.

:

00:58:17,742 --> 00:58:19,722

Mike, what's your,

what's your handle, Mike?

:

00:58:19,722 --> 00:58:20,202

99.

:

00:58:20,202 --> 00:58:20,952

Is it still?

:

00:58:21,762 --> 00:58:24,372

Yeah, Mike, that's his,

his, uh, football jersey.

:

00:58:25,002 --> 00:58:25,982

Mike Philbrick: MikePhilbrick99.

:

00:58:26,592 --> 00:58:27,462

Rodrigo Gordillo: MikePhilbrick99.

:

00:58:28,189 --> 00:58:31,639

And, uh, please, you know,

this is not investment advice.

:

00:58:31,639 --> 00:58:34,219

This is just a couple guys talking

about some research that we

:

00:58:34,219 --> 00:58:35,689

thought was interesting to share.

:

00:58:36,099 --> 00:58:39,909

and be happy to, to discuss further

offline for anybody who wants to do that.

:

00:58:40,209 --> 00:58:43,969

And, uh, looking forward to that gold

conversation continuing June, Mike.

:

00:58:44,779 --> 00:58:46,729

Thanks for, thanks for

it was your initiative.

:

00:58:46,729 --> 00:58:48,109

I, I really enjoyed this conversation.

:

00:58:48,109 --> 00:58:48,589

Thank you for that.

:

00:58:49,229 --> 00:58:49,509

Mike Philbrick: Absolutely.

:

00:58:49,899 --> 00:58:50,989

Stay diversified everyone.

:

00:58:51,829 --> 00:58:52,069

Rodrigo Gordillo: All right.

:

00:58:52,369 --> 00:58:52,879

See y'all.

:

00:58:53,009 --> 00:58:53,619

Mike Philbrick: See ya.

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About the Podcast

Resolve Riffs Investment Podcast
Welcome to ReSolve Riffs Investment Podcast, hosted by the team at ReSolve Global*, where evidence inspires confidence.
These podcasts will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets and everyone in between. In this show we interview deep thinkers in the world of quantitative finance such as Larry Swedroe, Meb Faber and many more, all with the goal of helping you reach excellence. Welcome to the journey.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.