Hello listeners.

Welcome to another episode of the Jacob Shapiro Podcast.

This is the last podcast that I will be recording before the election.

We are recording on Thursday, October 31st.

You will get another episode from us on Monday with Will Freeman.

A really great episode about Latin American politics.

But this is our pre election episode.

We didn't put out an episode last week because both Rob and I have been traveling and also I was trying to get some ducks in a row for podcast going forward for the next couple of weeks and prepping for the election.

So here we are, we address the election and you know, I say this in the podcast, but I want to say it here too.

If you're coming to us for partisan views or for what is right or what is wrong, Fox News, msnbc, all those other places, they do it much better than we do.

We're trying to just give you an objective sense from a markets perspective and from a geopolitics perspective what's at stake in this election, what direction we think it's going to go in some of the scenarios.

What happens if Trump wins, what happens if Harris wins?

How you should be thinking about that.

That is the level at which we are talking about things in this podcast.

So if that's not what you want to listen to, like you don't have to listen and if that is the type of analysis that you want.

Most of my listeners are good at self selecting that kind of objective analysis.

Great.

We are so happy to have you.

If you want to talk to me about anything that we are doing in the context of elections, if any of the things we talk about in terms of portfolio management or investment, if those things are sort of resonating with you, email me at jacobuggnitive.investments and we can talk about that.

Last but not least, if you reached out about CI Club, thank you so much for reaching out.

I have not been able to reply to each and every one of you.

I've replied to a few of you, but our team has all of your emails, all of your contact information.

There will be more information coming out about that in the next week or two and there is still time to express interest.

Again, jacobognitive.investments.

if you want to send in some more interest about that, if you don't know what I'm talking about, we did a whole episode about Club CI It's a couple episodes ago.

You can check it out.

Okay, enough for me.

The next time that you hear my voice, we will have a new president in the United States and we can start talking about the geopolitics of the 2028 presidential election.

Yeah.

Cheers and see you out there.

All right, Rob, we are recording on Halloween here in the United States.

Is Halloween a big deal in France?

Are there people dressed up running around, or is this still a uniquely American phenomenon?

There's little gleamings of it, like, I just went to the grocery store to pick up lunch, and the woman behind the counter had a big witch's hat on, which I've never seen too much before.

But there's no trick or treating.

That's the disappointing thing.

I haven't seen any of that.

Okay, so you're not.

You're not prepared for children to come to your door later this evening, or it is evening there already.

We're getting there.

No, I am not.

So any children who are listening to this and hoping to knock on our door and get candy, don't even bother.

They should not get it.

Okay, well, so it's Halloween.

The election is coming up next Tuesday.

We have fastidiously avoided focusing too much on the election.

We haven't been able to ignore it completely, but we've been focusing on other things.

But, Rob, I don't think we can avoid it any longer.

It is certainly the question that both of us are getting most often, whether it's from a portfolio perspective or a macro perspective or a consultant.

Like, everybody is asking, what do you think about the election?

So I thought what we would do is I thought we could sort of, at a very high level, sketch out the possible scenarios that are in front of us and talk about what the implications are for markets and geopolitics.

I thought we might also do a little retrospective on the last four years, maybe talk about expectations from when Biden was first elected to where we are now.

And then, just for listeners both new and old, remember that we have no desire to be partisan whatsoever here at all.

If I do my job correctly, by the end of this podcast, you'll have no idea who I'm voting for.

Although if you've listened for long enough, you probably know what it's going to be.

But this conversation, we are going to try to pitch at just the facts, ma'am.

Like, think about the scenarios and not give you any of the partisan nonsense.

If you want that, Fox News and MSNBC and a host of other things are available to you.

Steve Bannon is out roaming the streets again, too.

You can listen to his podcast again because he's.

He's out of jail.

He only got four months instead of the years that he should have out of defrauded, Defrauding people out of their money for building the wall.

Anyway, Rob, I guess I'll just start with the simplest question.

I'll ask you the question that everybody's been asking me.

So it's my own little form of revenge.

Who do you think is going to win on Tuesday?

Is.

I have no idea.

An acceptable answer.

I know they always say when you're doing media, never say, I don't know.

But I really, I have no idea.

It's a toss up.

Who do you think?

Yeah, it's also sort of like the rule of improv comedy that if you're doing improv, you can never say no.

You always say yes.

So I guess there's a rule in media that you should never say, I don't know.

You know, I, since about February or March, I have been warning both our investment clients and a few of the consulting clients.

I still have.

Not that I had a high confidence interval with this, but that I thought Trump was probably going to win.

Like, if you put a gun to my head and said, most likely scenario, I think it's a second Trump administration.

And that was before the switch to Harris, before the assassination attempts, all the crazy things that have happened since then.

And it really just comes down to two simple facts.

The first is if you.

And this is both from national Gallup polls, around 52% of the electorate is saying that the economy is the most important issue to them, full stop.

And that's the highest percentage of people saying that the economy is the most important issue for them since 2008.

So in 2008, 55% of the electorate was saying that the economy was the most important thing to them.

This, this year, it's 52.

If you go back to 1996, every other election year, it was somewhere between 38 and 44%.

So we're not talking a huge difference here, but a meaningful, you know, 8 to 10 percentage points people saying the economy is more important.

And then the second thing that Gallup has is that they ask them which candidate would do better handling the economy.

And 54% say Donald Trump and 45% say Kamala Harris.

So unlike a lot of the, the polls and the swing states, and when you're thinking about who's actually going to come out to vote, all of which are within the margin of error, which I think substantiate your view to just say, I don't know, because not even the pollsters have any clue.

Nine percent's out of the.

Out of the.

What's the phrase, why did that just go out of my head?

Out of the.

What is the thing in statistics?

Margin of error?

Yes, margin of error.

I just said it to myself and it just disappeared.

9% of that poll is out of the margin of error.

So I actually think the race is fairly simple.

It will come down to the seven or eight swing states.

And is that 9% mark, not 9% difference between managing the economy?

Is that going to show up with the folks that are in the swing states voting?

And the reason I just have my doubts about, aside from the fact that, okay, like if economy is the most important issue and most a lot, not a large, like many people, many more people are saying that they trust Trump to deal with that more than Harris, then that's tell number one.

Tell number two is just in the swing states themselves.

I think the reason, the reason Biden eked out a victory in 2020, he was a white dude who was from Scranton and he could talk that middle class, manufacturing, sort of populist America.

Like, he could do that in a way that really landed with the tens of thousands of voters that are going to literally swing those states.

Kamala Harris has, I think she's improved tremendously as a candidate from when we first saw her sort of come onto the national stage in 2019.

But I go back to the way that she performed in her one debate with Trump where she was incredibly eloquent and charismatic about a range of issues, especially her responses about women's health care as somebody with a daughter now and another on the way, like, really?

That landed home for me.

But when you ask her about the economy, whether in the debate or since then, she sounds like a robot.

She has not been able to generate any kind of feeling or empathy or plan around the economy itself.

And so that number has stayed locked in place that people think Trump is better to deal with the economy.

And I think that's just sort of where it is.

So I think it's Trump.

The flip side, if I'm playing devil's advocate, you know, and many of the listeners who have been with us for a while know that I've been crisscrossing the country speaking at various gigs recently.

And a few of those gigs have been in some of the Midwestern swing states.

And it's not that people are out there saying I'm going to vote for Harris, but I do get the sense, at least from some of those folks that I've met in places like Wisconsin or Michigan that they're tired of Trump, that it grates on them, his entire, the whole presentation, all of the scandal surrounding him, they're just sick of it.

They're like, do we, is this really the best option that we have?

And so I think Kamala's best hope is that voter turnout for Trump is suppressed and, and that she can push enough of her people to the polls.

And a few of the swing states, maybe it's Georgia, maybe it's somewhere else, and she, she can sort of eke out the victory that way.

So I think she has a viable path to victory.

I just think that her road is much harder and that she has not been able to get the albatross of the economy off her back.

And it's, honestly, it's been the worst part of her campaign.

And unfortunately for her, it's the part that probably matters most for the electorate.

And Rob, this might be a good way for us to back into our conversation about what this means in particular for markets.

The most shocking thing about everything I just said should be that Americans are worried about the economy.

Like, the economy is doing great.

I was just looking at the Wall Street Journal this morning, and they have an op ed that says the next president inherits a remarkable economy.

The high quality of recent economic growth should put a wind at the back of the White House's next occupant.

Unemployment is down.

Inflation.

You and I both think inflation is going to be more volatile, but it's come much more in line than, than it was even a year or two years ago.

You just sort of tick off all the boxes and the economy looks fairly good.

But Americans are not telling people that it feels good to them.

And we're about to see whether they're going to vote on that basis, too.

So there's my little answer to you.

I don't know if it's satisfying or not.

I would like to piggyback on a few things there before we get into the nitty gritty of markets, because in your substack you wrote it's the economy, stupid just this last week.

And I hear what you're saying, but I think there's a big element there of people will respond to polls in a way that corresponds to how the question is asked.

And I have no doubt that economics as a topic is probably more top of mind than at any period since 2008.

But at the same time, we did a whole podcast on this and people can come listen to that.

I think there's much deeper and more important issues and sort of visceral things going on that are driving support for Trump or any sort of insurgent candidate.

And that's driven by a lot of primarily cultural things.

And I said in that interview, and I'll say it again, I don't think that that trend is going to turn around until you have exhaustion set in, at least if you look historically at how that's turned, you know, in the past.

So, you know, I was in, in the US Last week visiting family in rural Connecticut.

And I can tell you, for what it's worth, support there for Trump is huge.

Everywhere you go, there are signs and it's very noticeably higher than it was in 2020.

And it's very noticeably not about the economy.

Like there are people with flags and signs and everything all over their lawns.

And it almost feels, I don't know, like there's almost an aspect of menace to it, if that makes sense, like people poking others in the eye.

And I don't think that's about inflation or unemployment or the things that we're used to thinking about.

It's a much deeper thing.

So anyway, I won't rehash all of that, and we've already spoken about that at length, but I do think that's an element that people who like to reduce everything to economics tend to overlook.

Yeah, I hear you.

And I'm in, in metropolitan New Orleans where literally every single sign is Harris Walls, obviously, or there's even Republicans for Harris signs that are out here.

You're not expecting a whole lot of Republican support here in the city of New Orleans.

But, but just two points on what you just said.

The first is the New York Times actually had an incredible information graphic that they posted yesterday that was looking at where people have moved in different neighborhoods over the last couple of years.

And they found that people are sort of self selecting.

So Republicans are moving to more solidly or heavily Trump neighborhoods from a voter perspective and Democrats are moving to more solidly or heavily Biden, places that voted in the last election.

So I do think you're getting a little bit of an echo chamber.

We already have this with the media that we consume.

People don't consume the same media anymore.

But I think even in the people that they're interacting with, you're just surrounded by people of a like minded nature.

So maybe you go into a neighborhood in rural Connecticut and you're right, maybe they're foaming at the mouth for Trump and everything is great.

And maybe you go to, well, probably not a neighborhood, but a small city nearby and they're probably foaming at the mouth for Harris and calling all of the Trump guys fascists in that neighborhood.

And there is something disturbing there about the future of the US Electorate.

But to your point about exhaustion, another one of these Gallup polls that I've put some stock in, just because the percentages are so large, is when you look at party identification trends going back to 1988, it used to be that, you know, Democrats and Republicans were averaging somewhere around 33, 35, 40% of the electorate.

And then you had independents as a smaller faction.

Folks who identify as independent have gone up to 42%.

And now people who identify as Democrats is down to 29% and as Republicans down to 27%.

So that if we're looking for exhaustion, like, that's a form of exhaustion right there, that's Nixon, Silent majority sitting there and saying, can we please turn on some other movie?

We are tired of this.

Now, I don't.

It's not far enough along yet as a trend that it was able to affect the 24 race.

But if that chart continues to go in that direction, I have a sneaking suspicion that 2028 might be the year that we do get that exhaustion and maybe we do get some kind of new political figure that tries to put together some kind of different policy.

Because, I mean, that's another thing here with both of these candidates.

There's nothing new here, and there's no.

Even from a policy perspective.

This is something I've been saying that I've been getting some flack for.

But I really do think it.

There's not a lot of difference between these two, at least when it comes to foreign and trade policy.

Like, we're talking about America first, protectionist, sort of demagogic ideologues on both scores.

We're talking about tariffs versus taxes.

Like, it's all just.

It's all in the details.

It's not a huge difference.

So, I don't know.

My silver lining that I've been telling people is, yeah, 24, like, it's been a melodrama, but literally nobody likes it.

And maybe in 2028, the exhaustion will set in.

I don't know.

Maybe that's.

Maybe that's too optimistic.

No, I think that's the right metric to look at is anything that can show you, you know, people looking and craving normalcy.

So, anyway, just getting back to the fiscal situation and the economy, I think let's dig into that because this really is tied into markets and it's really important.

So what is the real status of the economy right now?

Just for a Very quick snapshot.

The status is pretty good.

I think you could say we're in sort of the autumn of the business cycle, where things are still looking quite strong.

On the services side, it's been remarkably durable.

The one sort of area that's been really slowing down is non residential construction.

So from a demand standpoint, after showing an extraordinary boom coming off of the stimulus programs that were introduced in 2021, non residential, non residential construction is up only 3% year over year, which sounds fine, but 12 months ago it was up 20% year over year.

So you're seeing essentially that level off and start to trickle lower from a very high plateau.

And that's very important because that is dictating a lot of how people feel about the economy right now in terms of cyclical swing factors.

You can look around and see that they're building data centers, they're building warehouses, they're building manufacturing facilities.

That area has been on fire.

So the fact that it's slowing down, I think is really quite important because when you look at what markets expect and what markets are focused on, really, there's sort of this overarching assumption that stimulus, infrastructure, government, fiscal spending is going to remain in full gear.

So just to take one specific example, to show you that I'm not just full of crap, I want to bring up my perpetual punching bag, Nucor Steel.

Again.

Listeners, take a shot.

We're adding Nucor Steel to Thomas Cromwell.

If at any point Rob mentions those two things on the podcast.

Time to take a drink.

Yes.

Nucor Steel, my old friend.

So this is a great one to talk about though, because it is truly a bellwether.

Like steel is used for everything.

But here's the situation with Nucor Steel.

Nucor Steel's earnings are collapsing because they had a huge tailwind from these stimulus programs.

And as the non residential sort of a construction boom has come off the boil, steel prices have collapsed and volumes have started to drop, you know, low double digits year over year.

So in the last quarter, Nucor Steel did $1.50 in earnings and in 2021 they did $7.40, just to put that in context.

So earnings have collapsed.

The expectation, however, is extremely bullish.

Everyone has buy ratings on Nucor Steel.

Everyone, whether you look at Wall street or buy side investors is saying, oh, well, this is going to be great.

Because infrastructure, stimulus, bridges, all of the sort of trends that we've seen and the expectations are that Nucor Steel is going to somehow have a remarkable and miraculous growth in earnings next year and then in 2026, even more growth.

But there's no real basis for that.

And I pick up on that because that is very reflective of a lot of investment themes that are sort of animating markets right now is sort of this sort of nebulous belief that whoever wins, they're going to spend a shit ton of money.

Something is coming down the pipe, some program, some stimulus, they're going to cut taxes, they're going to introduce another infrastructure stimulus on top of the one that's already two thirds through the pipe.

That is the dominant narrative.

And I think it's really important to think about when you think about where markets are likely to go from here, because that's underwriting a lot of the current valuations in the industrial part of the economy.

And the industrial stocks, which have been notably strong in the last few months as the tech story has started to peter out.

That's interesting.

Do you think the market has, because one of the things I've heard commonly in the last couple of weeks, and it's literally just the last few weeks, is that I've heard the phrase the markets are pricing in a Trump victory.

Do you feel that way or do you feel like the market is more voicing uncertainty?

Because if it is pricing in a Trump victory, yes, there's the promises of stimulus and things like that.

But there were two things that sort of caught my eye this week as I was doing my normal, well, actually three things as I was doing my normal reading.

The first is the Trump administration is actually starting, it looks like, to prepare plans to severely limit not just illegal immigration into the country, but legal immigration.

And we've already seen that labor costs have gone up considerably.

The second thing, and I think you and I both got a question about this at a meeting we were in yesterday, this idea that Donald Trump is going to empower Elon Musk to somehow participate in the government and slash federal spending by as much as $2 trillion, which is absolutely mind boggling.

But, but that's out there.

And then another thing that really caught my eye was if you start, if you listen to some of the, you know, the investor calls for companies that were reporting in Q3, they were talking about how they might prepare for tariffs if Trump won.

And so, for instance, here's the CEO of Columbia Sportswear saying we're buying a bunch of stuff today for delivery next fall and we are set to raise prices.

So companies that are buying a bunch of inventory today expecting that there will be these huge tariffs and that the prices are going to go up massively and they want to have that and then pass along the price of the consumers.

And maybe this is far too anecdotal, but, you know, my wife is due with our second in a couple of weeks.

We went ahead and bought a new stroller.

I remember the last time we bought a stroller for our first daughter.

It took like weeks for the thing to get here to ship everything else.

I put in the order for that thing on Sunday, it was here on Tuesday.

I mean like all of the kinks that we got used to in the supply chain, like there was no kinks with this.

They were like, do you want some extra attachments and do you want some extra adapters?

Like we've got everything you could possibly want.

Like, please buy it right now.

So anyway, three pieces there, take them in whatever direction you want.

As to whether markets are pricing in a Trump victory, I'm not sure that they are.

I think that's a lazy way of saying they're pricing in more demand side stimulus.

And that's likely to happen no matter who wins because as you point out, the actual policies being proposed are not particularly different.

The idea seems to be that there's going to be federal spending, sort of a bolus regardless.

And you can see that, as I said, in a company like Nucor Steel or any industrial cyclical company, you know, people are talking about, well, if Trump wins, you know, there could be another infrastructure stimulus or it's going to be really good for American manufacturing.

And they are associating protectionism with demand strength.

And I think that shows the sort of ignorance of what happens in these cases.

Because if Trump wins, I guess you could say markets are pricing it in because the 10 year US treasury yields is creeping back up every day and is now back up to 4.3%.

The overnight interest rate is 4.75%.

So what are markets telling us about future inflation?

Inflation expectations we've talked about recently how if you parse through the survey data, inflation expectations appear to be perhaps getting a little bit unhinged.

And no one is talking about 10 year yields.

But that is the elephant in the room when you think about what are markets really pricing in.

And I think that's, I think the, you know, there's the old adage in markets that bond markets are much smarter than equities.

And I think there's some truth to that.

And if you look at what bonds are saying, they're telling us whether it's pricing in a Trump victory or more even odds, it's hard to Say whoever wins inflation is going to be the beneficiary at the end of the day.

And that means higher bond yields and equities do not reflect that.

They're reflecting the Goldilocks scenario where you get all the demand side stuff continuing, but none of the negatives.

So you get tariffs.

Oh, that's going to be great for US Manufacturing, but, oh, it could totally destroy US Demand because inflation is going to surge.

It's very similar.

I was rereading a very good book which is called Nixon's Economy, Booms, Busts, Dollars and something.

I forget the subtitle, but I think it's an interesting period to look at.

Not because everything is the same, but as far as the way the economy zigged and zagged and how they overreacted to any initial sign of weakness during a period when inflation was rising, unleashed the fiscal taps, implemented tariffs to try to support US Production because they were afraid of a slowdown and ended up tilting us into the 197374 inflation surge and recession.

There's something to be taken from that example, I think.

And what did you make of the Musk Trump slashing spending by $2 trillion thing?

I mean, it's sort of so crazy that I don't even know whether to bring it up.

But it's also like they're talking about it, so we have to talk about it.

I think that much like Trump, Musk will basically do whatever he thinks is popular.

And I don't think he is a staunch fiscal conservative.

I mean, I don't know.

But again, getting to something that you talk about in the context of geopolitics a lot, you have to look at the incentives.

And no government, you know, Trump's included, has made any significant cuts to federal spending in the last decades.

So it's not clear, absent, you know, some new change in the structural incentives, why they would start doing that now.

That seems like jaw, jaw to me.

Yeah, well, I'm just, I'm, I'm bringing it up because you mentioned that it looks like market expectations are for increased federal spending.

But what if it is a Trump victory?

And what if he follows through on 60% tariffs on China and 20% tariffs on Mexico?

Let's cut down the fiscal spending.

Let's say he makes it a goal to cut spending by 500 billion rather than the 2 trillion figure?

Not saying he does it.

I'm saying what if he says that as a goal as he's coming in?

Like, what, what does the combination of those things do to markets?

Do Markets just go oh my God.

And like completely freak out the opposite direction.

Do you think that they can price in that sort of eh, like whatever.

They can say whatever they want to say but like we're going to get through this sort of thing.

I'm circling around the scenario of if it is a Trump victory, do you see sort of a massive surge in inflation overnight on the back of the concerns about tariffs or do you see the opposite because of concerns about inflation surging?

I'm just trying to find my way through the woods.

Like what do you happens the next day or the next week?

I'm not sure that it will be similar to the 2016 election where you saw a really strong market response on the election victory announcement.

I mean then if you look at the 10 year yields, it jumped massively the day after the election.

I think markets are probably pricing in a pretty high probability that he will be reelected or at any rate that if he's not it won't be that different in terms of policies, you know, the one exception being tariffs of course.

So I mean I don't know how to answer your question other than to say that ultimately we're experiencing kind of the, if you want to use a Saturday night comparison, it's you know, 10pm on Saturday night and we're all feeling good and the beer is flowing and you know there's going to be the inevitable wake up and realization hangover the next morning.

It's just a matter of when that happens.

Because if you look at the trends of fiscal spending, this isn't like, you know, the usual, I mean people have been talking about the federal debt since I was a kid and it's never mattered very much.

Well now it's matters because the sheer numbers involved are huge.

Like we're going to do 2 trillion of deficits this year and the economy is at full employment.

I mean that's just for context.

That's like 8% of GDP.

So very quickly the numbers add up and the interest rate sort of drag on the federal budget is getting very, very significant.

So that's only to say that at some point rising inflation is going to create a political response.

And the political response by definition is going to be one of we have to clamp down, we have to bite the bullet here.

I don't think it's going to be Trump to deliver that message.

Maybe he will, but probably you're talking about the next administration or he'll have to do a very big U turn.

But I just, it's hard to imagine him running on that platform in any way, shape or form.

I think probably he'll look at price controls or other sort of remedies that don't involve, you know, a message of, of sobriety.

Well, one thing and what you're saying, I just want to drill down at this a little bit, I mean, and correct me if I'm wrong, it sounds to me like you're saying that equity markets and bond markets are looking at this a little bit differently.

So if the 10 year yield is rising, they're worried about inflation, they're worried about the Fed coming in and raising rates.

So liquidity being a problem, whereas equities are up, up, up, there's going to be more federal spending.

All of this geopolitical trade wars and things like that is net positive for American manufacturers.

So either for Trump or Harris, or maybe it's the same for both of them.

Are both of those wrong?

Are both of those right?

If somebody's thinking about investing right now, where do you hide out?

Or do you just take it off the table and say both of these markets don't have it wrong?

It's probably going to be something that we don't even know yet and we're seeing irrationality on both sides.

Are you picking bond markets?

Are you picking equities or are you picking neither?

When in doubt, always trust the bond market.

I think that's the approach.

I mean, this is similar to the very late 1960s when bond yields were going up and there was this feeling that you could have your cake and eat it too, that inflation was going to be temporary, usually because equities are very long term in duration and driven by different sentiment related factors.

I think what you're looking for here is the growing realization that inflation was not a temporary thing, that the issues.

And again, this is going to be a surprise because the Fed has no incentive to suggest until the data is unavoidably obvious, that inflation is anything but a temporary thing.

But if you look at inflation expectations, if you look at what bond markets are telling you, if you look at forward indicators of price pressures, even now with energy and food prices in the floor, they're still remarkably durable.

Everything points to inflation rearing its head again.

And the issue there is not just about the data.

It's not about building your financial model.

It's the sentiment, it's the psychological shock that oh shit, this is the new normal.

And when you think about how that sort of reflects out in the long duration of equities and what they price in, in terms of Expectations that could be a real landmine for risk assets and markets.

So it's a time to be very cautious and you will have excellent opportunities to buy great assets.

I can almost guarantee that.

Especially if the 1970s or any even rough blueprint for what's ahead in terms of volatility.

And I think probably it's not a bad one, but even then you could have bought.

Markets were down 45% 1974.

That was a pretty darn good time to be buying.

Not in 1971.

Is this also, you think, part of the reason we've seen, I mean, it's funny, like the inflation narrative.

Like if you look at Brent crude and this has been true all year, I mean, oil is rejecting the notion of this and you've talked about agricultural commodities too.

But if you look at something, say like the price of gold since the beginning of the year, I mean, we've had a pretty big run up in that.

So what are those indicators, you think, for what you're talking about?

How do you put commodities and precious metals and even crypto into the picture that you're painting?

Yeah, I think you have to look at the price of gold and the price of Bitcoin because they're both telling you something very important.

Gold is the traditional metric.

Everyone knows what that's all about.

But the thing that's striking about Bitcoin is that bitcoin is absolutely on a tear, despite the fact that kind of risky small cap stocks, the sort of things that bitcoin previously was moving in lockstep with, are not doing well right now.

So what that tells me is that bitcoin is slowly making this transformation away from the speculative plaything of 2021 and into the true kind of gold surrogate that is the long term bull case.

And what that suggests is sort of anecdotally what we're hearing in a lot of places, which is that people are realizing that the federal budget is getting debauched and the currency is getting debauched and, you know, and preparing themselves accordingly.

And that's how it works.

Like, if you look at any of these historical examples, it's never obvious at first.

It always feels like really good times for quite a while until it spirals and volatility spikes out of control.

And, you know, that sounds very doomerish, but.

Well, no, you're saying now is the time for caution.

You're not saying the sky is falling, but you're just saying be prepared because there are some disturbing storm clouds on the horizon.

Rob, I haven't told you this yet.

And podcast listeners haven't even heard this yet because the episode where I talk about this a little bit with our guest comes out on Monday.

It's going to be an episode about Latin America, and we only tangentially talked about it there.

But this was an absolutely wild statistic that has been stuck in my head ever since I recorded that podcast earlier this week.

Again coming out on Monday, that Will Freeman is his name and he was citing data that suggested that 11%.

11% of global gold production comes from illegal wildcat mining in Latin America, full stop.

I thought that figure was absolutely shocking.

Maybe I just don't know the gold market well enough, but I feel like a lot of times when we're, when we're hearing about Bitcoin and the, the skepticism around cryptocurrencies, it's, oh, it's being used for all these nefarious means and for weapons and, and drugs.

And is that really where you want to be?

Gold is safe.

Gold is apolitical.

Not if a bunch of drug cartels are running around Latin America mining gold because the price of cocaine has gone down.

I don't know, I just thought that was absolutely mind boggling.

It probably doesn't affect the gold market at all.

I just, I don't know.

Is that as mind boggling to you as it was to me, or am I behind the times?

I think it's maybe an indicator of how little sort of mainstream gold mining is, has really gone on.

If 11%, like, you know, drug cartels are very innovative, but to put in place the kinds of massive capital you need to do mining on a large scale, like you need a large publicly traded company to do that.

So I think it shows that the supply response has not been particularly strong from the normal channels to the extent where that number could stick out like a sore thumb like that.

Okay, well, let's go back to the economy for a second because, and maybe I've been remiss about holding us back 35 minutes and 28 seconds until I asked this.

But so what if, what if we're wrong?

What if it's Harris?

Does that change anything meaningfully in your opinion?

Does that maybe push some of the doom a little bit further out?

Because she's not talking about 60% tariffs the day she comes into office.

She's basically promising more of the same.

So is there, you know, I've said that if you're looking at, from a macro level at Harris and Trump policies, they are the same flavor of policies, but tactically they're very different.

So are you less afraid if it is a Harris victory?

Is there something different to do if it's a Harris victory or is it really just the same?

I think directionally it's the same.

The magnitude is less.

She doesn't have any particularly new ideas from what I've seen.

I think you're right to point out it will be much of the same.

Much of the same means, you know, a continuation of the policies of the last four years which have been kind of the hallmarks were the ira, the CHIPS act, you know, industrial policy, maybe not implemented particularly well or with much enthusiasm and more, you know, yay, rah rah than actual shovels in the ground if you look at the numbers and what's actually happening.

But I would expect that kind of to continue.

Probably a little more focus on trying to be responsible in terms of the deficit.

Very likely that would be at least optically falling on higher income people, capital gains rate potentially going higher, which would be received very badly.

So but for the most part we're talking about minor changes because I mean the situation that we're in was really created by both parties the last two administrations.

You know, Trump's at the table in terms of when deficits started to really blow out.

It was in 2016 17, especially with the decline in the corporate tax rate.

That was the point when sort of government receipts essentially flatlined and spending accelerated.

Spending is still going up because the vast majority of spending is non discretionary.

It's Social Security, it's Medicare and it's defense, which is kind of unavoidably going to go up given the environment that we're in.

So yeah, I would expect with the tariffs sort of extreme scenario off the table, I think that would be much better for risk assets.

That would sort of take some of the real really bad scenarios off the table and I think make things more normal.

But normal has been not normal.

So.

Yeah, and I think this is a good.

Well, first of all, when you said that, I mean, part of me just thinks maybe we're making this too difficult.

Like maybe it's literally just invest in biotech and invest in defense and probably you'll be fine because that's where most of people's interest and the spending is probably going to go.

And whether you look at biotech companies or you look at the defense companies, just look at a chart of Lockheed or some of these other big defense players doing incredibly well.

Just on the Israel Middle east drama, get a couple, you know, more significant conflicts in there or things like that, things are gonna go up.

But to your point, I think it's good also to do a little bit of a retrospective, which is, you know, you said Trump set the table, corporate tax rate.

Maybe the story would have been different if not for Covid, but then Covid meant that there were, you know, we stimulated the economy even more, and in the moment, there was good reason to do it.

I react very negatively to people who talk about the COVID stimulus in a negative light, because I remember how scary it was at the time.

I mean, we.

We didn't know whether we were going to be able to go out of the house for six months, like we were all watching station 11 or the last of Us and thinking, you know, is a dystopian zombie universe about to come for us?

So I get why we did it in the moment, but it came on the back of the corporate tax rate and spending already being blown out.

And that, that gets us to the situation where we are today.

All of which is a way of asking, you know, how do you think historians will look back at Biden's economic record?

Do you think that they will look on it favorably?

Do you think that they will look on it unfavorably?

I mean, I know a lot of that depends on what happens next.

But, you know, he had a big spike in inflation, but he's gotten us to this Goldilocks economy where most of the data tells you that things are going well.

So I just wonder how you think people will look back on this.

Four years of economic policy.

I think it was the right thing to do.

I agree with you.

If the question is how will people look back on it?

I think they're going to look back very unfavorably.

And the reason is you never know the counterfactual.

It's fresh enough in our memories to remember what the counterfactual was, which was out of control, global pandemic, everything shut down because the worst case scenarios didn't happen.

I think it'll be very difficult for people in the future to really imagine what sort of range of probabilities were being dealt with when some of the original stimulus went through.

That said, I think people are going to look back and tie this into the narrative of accelerating irresponsibility.

I think there's going to be a lot of anecdotes that live long in the memory of people who just got $250,000 checks from the government and supposedly used those to support employees or whatever, and just went and bought stuff with it, which personally, we know many anecdotes like that and it sticks in your craw.

And I think especially if we're right about the longer term trajectory of inflation, it's going to be viewed, I think, in retrospect, as the great excuse, the great excuse to do what politicians wanted to do anyway, which was spend money.

And if you look at the sort of cadence of stimulus programs, the original programs that were taking place earlier in the pandemic I think were well justified.

The later ones, I think are much more questionable, especially because we are well on the way to sort of normalization and recovery.

And in many ways you could argue that they were sort of pouring gasoline on a fire that was already going pretty well.

And certainly in hindsight, I think that's probably how they're going to look.

If any of these scenarios that we're mapping out for 2025 and 2026 really materialize, I think they're going to get a lot of blame from history.

Yeah, I think I've talked about this in the podcast before, but the cases of companies or people that got assets as a result of the stimulus and then did whatever they want with them, it sticks in my crawl, particularly because I started my own consulting company in March 2020 and we were not eligible for any of that money because we didn't have prior year receipts on revenue, and they used prior year receipts on revenue to justify those things.

So I could not keep a couple of people employed that I wanted to keep employed because there was no money coming in and I couldn't get anything from the, from the pandemic stimulus.

And I thought it was, you know, whoever designed this, like who you want to be supporting is probably the small businesses and the startups.

That's the engine of the economy that keeps it going.

These other bigger institutions probably didn't need the support.

So when you think about how those things actually got enacted, that almost got a little bit personal for me.

And I still think about that.

But I love the idea of the great excuse.

I think that that one might actually stick.

So hopefully historians will look back and listen to this podcast at this point in time.

Well, Rob, I think we're closing in on the end of the podcast.

So what are key takeaways?

Is it really just get out your popcorn and watch the election and prepare for some volatility or what are some tangible things that you think listeners can do as they're preparing to go down this rabbit hole that starts on Tuesday.

From an investment standpoint, a lot of what we just said is very gloomy sounding.

I don't mean to make that the whole picture.

We're focused on a very specific thing, which is federal deficit, dollar interest rates, things like that.

Not to sound like a politician myself, but the fundamentals of America remain very strong.

And we say on this podcast a lot that the things that matter are sort of human capital, knowing how to do things, technology.

The rest is just kind of balance sheet structuring.

And on the former issue, the US is going from strength to strength in many ways.

So I don't have fundamental worries about the US in a longer term sense at all.

That said, what you need to do is you need to be flexible and you need to be nimble and you need to pick your shots.

That is the ultimate takeaway from an investment standpoint because it is going to be a get out your popcorn sort of period in time in sort of a bittersweet way.

We're already experiencing that to some extent, but history shows, especially if you want to look at the 1970s as sort of a rough blueprint for what to expect, that was also an incredible time to be investing.

If you were opportunistic, if you retained a lot of liquid dry powder.

I know that sounds like an oxymoron, liquid dry powder.

It's both liquid and dry.

But you know what I'm saying, mixing my metaphors and wait for events to offer you extraordinary opportunities.

Because the problem that people have, the mistake that they make when they're leaving the sort of period that we've just experienced for several decades and entering the period that we're entering, which is a higher volatility sort of environment, is they neglect sort of the time factor.

The fact that you want to step in when everyone is freaking out and they will freak out just like they will have periods of euphoria.

And that's what has been the, you know, the background of the last few years.

You can see this starting to build.

So there will be great opportunities to buy all sorts of income oriented assets, all sorts of long duration sort of innovation assets, and also to diversify into international markets, into strong currencies elsewhere.

You're going to have plenty of opportunities to do this.

And that's where the growth and the sort of safe havens to make it through the storm are going to lie for the most part.

But if you think you can just kind of ride it out and be passive, I'm repeating the same stuff on this podcast all the time.

That's just going to leave you very dissatisfied.

Whether you're talking about bonds or risk assets and equities.

Yeah, I vividly remember even a month or two ago, a lot of the investment banks coming out with research reports that were basically like, hey, lock in yields now, because it's never going to go higher than this.

I think some of those reports will look fairly bad in retrospect.

Last question, though.

And I'm curious how you do this because we talked a little bit about the deficit and about government debt, and yet you're also saying not a lot of concerns about the fundamentals and about the long term of the United States.

And when I get asked that question, I was asked it last week, I usually cite that Wharton study that says, yes, debt is a big issue in the United States and if it doubles from here, as it probably will the next 15 to 20 years, when you get to the end of that doubling.

Yeah, that's the point at which things will get very, very difficult for the United States.

So I always say, look like, yes, we're robbing Peter to pay Paul, but the bill's not going to come due for the next 15 or 20 years and probably there'll be some other cataclysm that will move people away from the like.

We're talking about very long time horizon things here.

And if you're waiting for that doom scenario to come about, you're going to miss 15 years of growth or whatever.

You're going to miss the sugar high that's going to come here going forward.

How do you square optimism about US Fundamentals with the fact that the deficit is being blown out and that deficit spending is going to increase no matter who wins, and that there is no move towards fiscal conservatism, at least on the horizon in US Politics.

I think the things to look at in terms of actual fundamentals for the US are not necessarily financial.

Finance is how you keep score.

And sometimes you need to reset the game board.

And if you look historically, every great civilization has experienced this, whether you're talking about Japan in 1948 when they had a hyperinflation and basically a societal reset after experiencing the most incredible trauma in history.

And within 10 years they were back on their feet because they had those fundamental strengths and advantages.

Germany, I mean, you can look at many, many historical examples.

Britain, US after the Civil War, we basically had a giant monetary reset.

And anyone who owned assets us after World War II, you know, we repressed interest rates, we blew out inflation.

If you look at the CPI numbers pre war versus post war, like anyone who owned bonds was just screwed.

Like you it was a confiscation of wealth.

And that's what inflation is, that's what currency debasement is.

It's a reset of the game board.

It's a confiscation of existing wealth, but not human capital, not know how.

Unless in the process of that confiscation, in the process of that reset, you get truly, you know, revolutionary societal problems, which I think, I mean, you can opine on that, but I don't think we're, we're quite there, you know.

Yeah.

The British Empire analogy is the one that I always go to because I think it has the most in common with the United States.

And British debt levels surpass where they are in the United States in the early 1800s.

So in the context of the Napoleonic wars, they had decades of living large and then suddenly they faced Napoleon and they had to spend even more to defeat Napoleon.

And then it took them a period of decades to wind it down, but they did.

But the thing that allowed Britain to do that was India.

If not for India, we're probably not talking about the British Empire.

I think in the 19th century it was the ability to conquer India with superior technology and the British trading companies and all those other things that I think gave Britain the steroid shot in the arm that it needed to carry it not just through World War I, but all the way to World War II.

And in some ways that's the disturbing scenario because if you're, if you're the United States, like, you're right.

Hyperinflation is one way maybe to get out of the debasement of the currency situation.

Another is to win a war and to confiscate wealth from somewhere else or to set up a framework in which things go better for you.

I think that was actually the British model.

So sometimes when I'm feeling very pessimistic, that's the scenario I go towards.

And I worry about US China relations when I think about that.

Yeah, maybe.

But I think it's also, we're in a situation where society is just so much richer than it ever was historically.

So it's really hard to look at these historical examples and say that it's going to play out in the same way.

And even then there's a lot of cause for optimism.

Like the Roman Empire almost completely fell apart in the 200s.

I mean, almost like the roads broke down, you know, just complete chaos.

And yet they bounced back and had a good 200 year run of strength after that.

So don't underestimate how durable sort of These human capital and cultural factors can be.

And on that front, the United States is sitting pretty.

So England is a little bit weird, too, because they also made a very specific choice after the Napoleonic wars to defend the pound.

They were implementing a deflationary policy.

I don't think you could even get away with that today because in order to do that, you basically have to screw over 90% of your population.

And at that point, that's great if they can't vote and they don't have enough money to make it from one day to the next and can't mobilize or do much.

But today, you take away someone's PlayStation for 10 minutes and it's a political crisis.

So I think it's just fundamentally different now.

And again, it's always fun to talk about this sort of stuff and to make the historical examples and to opine about hyperinflation and stuff.

But let's just keep in mind that we have to remember the proportions of how bad is bad and what does it really mean to be bad.

And when you're talking about financial assets versus truly bad outcomes for civilization and society, I think those are two different things.

And I'm not sure that even, you know, the hyperinflation examples of the past are great ones to look at, in part because so many of them came out of truly bad scenarios like societal collapse.

You know, hyperinflation historically was always a supply issue.

Hyperinflation happened because all of your factories got blown up in a war or, you know, 30% of your population got massacred in the 30 years war or these terrible, terrible things.

The US is nothing like that.

Our problem is we're too generous with our retirees and we're cutting taxes too much.

So all told, that's a pretty good problem to have.

And it's one that can get resolved in a lot of different ways.

And probably the equilibrium is some sort of inflationary outcome.

I think that's true.

But when you look at true currency debasement, true hyperinflation, historically, that's been associated with nightmares, and we're not remotely in that.

Life is pretty good.

Life is pretty good.

But not to sound the America first narrative too much, but the factories left here without firing a shot.

If the factories are behind a 60% tariff wall in China, I mean, you're not gonna be able to flip the switch that quickly.

All right, I don't know.

We have to leave it there because I have to go on and record another podcast.

So, Rob, I will speak to you after the election.

Hopefully things will be we'll be Talking about the 2028 election in our next podcast because the cycle begins again.

Cheers, man.

It.