So build up your intuition and your tolerance. How, because it's gonna be, some days you're gonna look at it and go, this thing's stupid. And then other days you're gonna be like, oh my gosh, wow, look at that. And you're gonna get a sense for that. And then it allows you to build and this is both at the institutional level and the retail level. This is across all things. When you don't have an intuition for an asset class, 'cause you haven't dealt with it. I would assume, most people are, of the age that a lot of times they don't have a lot of experience with gold in the markets today. So they're gonna have to build up that intuition. So start small, like, but start. And, look at how it interacts with your portfolio.

All right. welcome everybody to this. this gonna be a fun episode, about gold, bitcoin, precious metals, all the fun stuff that came out of this unique report. But before I get into it, for those who, are new to new listeners here, I got Mike Philbrick, CEO of Resolve Asset Management and co-founder of Return Stacked, ETFs. Myself, I'm president of Resolve Asset Management and co-founder of Return Stacked ETFs. And, today we have a special one for us, something we've talked about a lot in the past, Mike, since the day we met, we've been talking about gold back in 2011. gold is, very near and dear to my heart, given the lat Latin American angle and, you know, US immigrating to Canada because of, hyperinflation 7200% in six months. Man, do we wish we had owned some gold back then? so tell us a little bit about the report that we're gonna cover. 'cause it was the first time I've read it and, you know, you have all these beliefs and, and it's always been part of my portfolio and client's portfolios, but seeing the numbers that they put out and everything that they, that they talk about was actually quite awe inspiring, especially given what's happened recently. So why don't you tell us a little bit about the report, the authors and

Yeah. Again, it's in gold we trust and, the report is done annually. It's in its 19th year. It's published by Increment Ag, which is a Lichtenstein based asset manager. started in 2007. It's in four languages, and it really has become the global industry Bible, on gold and hard asset themes, across the world. And probably because it's, it's such an in-depth report. So there's a 400 page report. there's a sum rate report of 40 pages. 40 pages, and then there's a video summary as well. All of which, you know, depending on where you are and, and how you wanna, uh, how much you wanna dig into it and how much time you wanna devote to it will give you, some ideas on, on how they think about gold. And I think what's interesting is the track record that they have from just going back and looking through, if we, if we look at 2020s, IGWT or in Gold we Trust report, that's when I started really paying attention to the report just because it was such a good, summary of what was going on in the world. And they were calling for a $4,800 gold. you know, they talk about how a a bull market or a market, evolves and, and you, you and I know this, we've been around to know that generally you get a, an accumulation phase where there's some buying, but it, it's kind of ridiculed by peers, right? It's, it's frowned upon. And I would say really that's been the case up until the last year. you know, even, even central banks were selling up until the last couple years. Institutions have fairly sta small allocations, but I think we've transitioned into the, the public participation phase in the last year where you're starting to see some people pay attention. And I, I evidenced that from some of the ETF flows we're seeing in North America finally coming into the asset. Whereas I remember us talking about it last year where gold was on quite a, quite a run and having reasonably good performance and AUM in the large ETFs and, uh,

Yeah, it was going down

was going down. Right? It, it, it's insane. That, that was part of that stealth, stealth market where you, you get that sort of interesting buying. that's sort of, there's a transition happening. There's people that are sick of holding it, and there's the new people that are in. and so that was interesting. And last year's theme was the new, gold Playbook, which was the idea that, you know, emerging markets are gonna start to demand this, they're gonna demand alternatives to the US dollar. And, you know, we saw that over the last year, we saw countries like Poland becoming a major buyer. 2023 was a thousand tons, I think, of gold bought by central banks, which was the highest ever. and gold, ETF outflows reversed in sort of that second half of the year. So we're starting to see, the public and, you know, the, the, the public writ large, both institutional and retail catch on. So this year's report, is called The Big Long, which is a, an homage to the Big Short, obviously refers to the same sort of, the Big Long is like well be long Gold because there's a loss of, loss of trust in fiat currencies and institutions and global monetary systems, right? That, you know, long-term assets like, gold and Bitcoin are, somewhat of a contrarian bet, but we're probably now in the, in the fifth inning, if you will, in the middle, in the middle innings, and, you know, institutional allocators, family offices, pensions and um, retail investors remain heavily underweight. And so, by the way, In Gold We Trust report, if you put that, just Google that you can get this report, from, Incrementum and it's free and there's no obligation. They don't take your email or anything like that. So it's, uh, quite a, quite a good report. Got lots of great stuff that we're gonna dig into and, uh, encourage people to take a look at it.

so let's, um. Let's start with just, let's start from the beginning. Okay. Because I, this is some, something that I get asked a lot and it's, I think it's an important starting point because as investment professionals, we are often asked to think about investments from the cashflow perspective. What are, what are you investing in, what are the cash flows, what are the dividends? What's the yield that you're gonna achieve from these? And that's ultimately what you end up getting paid for, for taking the risk and whatnot. Yet, gold is not any of those things. You know, you, gold is just this thing that, that just doesn't seem to go away. For thousands and thousands of years, we have used it as a society. it shouldn't have a positive real rate of return. And yet is ex exhibited pretty robust, real rates of return, especially in the last 40 years. why is gold a thing that we should care about? Like, like how, how did we get here? I.

It's a, it's a very interesting question and, and one that's, that's hotly debated. To some degree I look at it and say, well, does the Mona Lisa create cash flow? Does it have value? So if you look at it from the perspective of the Australian, Australian Austrian School of Economics, that, that the idea of cash flows is something that's looked at a little bit differently. So I guess I'm not, I'm not actually sure, I'm not here to make that argument, from the standpoint of, Hey, it doesn't have cash flows, or it does. What we do see though, is it's a monetary asset and it's a monetary asset that seems to be in demand by central banks, which are running our monetary system. It is an asset that over the last 5,000 years has represented an interest, an asset that does not allow an interest of somebody else. It's not rehypothicated. If you own it, you hold it in your own hands, it's yours, and it has some value of transaction. And that transactional value is happening between governments, between people, been around for a long time. so I, I guess I'm just not gonna fight it and die on the rock that says, well, it doesn't have cashflow. There's a lot of things that we buy in this world that don't have cashflow that we perceive to have value in some way, shape or form. Yeah.

Yeah. And it seems, look, it's, there's a, I think I remember having Michael Green on the podcast and having him lay out the case originally why gold. 'cause we've had many stores of value in the past, right? We've had salt and, and you know, silver and different types of metals. But gold ended up being one that was plentiful across the whole crust of the planet. So it seemed to pop up everywhere. So if you were anywhere in the world, you somehow mined this beautiful metal. And then when trade began, that was the one common area that people could kind of see that was an ex, a medium of exchange. And then when you have every culture have gold, part of their ethos, right? We can just go back to the history of Latin America, India. it, I think has just, it became ingrained as a store of value. And, and we have now created a whole financial system around it. Central banks own it. And every single time in our, in what we studied gold, it seems to be a very important hedge for global macro, volatility, right? That like, that's number one. And then currency debasement. Those are the two elements that you can kind of count on when, when governments screw up from a fiscal perspective or if when there's war or chaos. Globally, we have seen a run to gold. normally it's a run to the US dollar. The reserve currency used to be the, uh, used to be the, uh, UK currency and before that many other nations that, that existed. But. That, that took, that, reserve currency dominance. But when it became, when the government itself started losing control of their expenditures, gold was always a place that seems to, you know, be there for investors. So from, from my perspective, it's just something that we have observed that does well, when I look at portfolio construction, I want things that make money over time, but act differently and create some sort of hedge for different scenarios that bonds and equities can't do. and we are, you know, it, it, it was stealthily making money for a couple decades and now people are starting to pay attention, which is interesting, this accumulation phase that you were talking about. Right. now let's, let's get into, why the recent run up in gold? You talked a little bit about it, right? But there, there's, there's a structural reason and then there's, there's some fundamental reasons. I just talked about some fundamental reasons, which is global macro volatility. That's certainly been an important thing that we've seen in the last couple of years, right? With the Ukraine war and what we're seeing now with Donald Trump. But then there's also the structural area that you were, you were about, that you also address. And the structural area is how much, like it's the, almost like the stock to flow idea,

Mm-hmm.

right? Like there's only a set amount of gold. There's one and a half percent of gold being mine year over year.

Yep.

and then, you know, there's another stat that I saw

And it costs money to mine that gold.

and it costs a lot of money to mine the gold and the price, that, the the, it, it's a 10 year cycle to mine it. And the incentives to mine it were the prices of 10 years ago when they're like, okay, what's the price? Now we'll start the process of opening up this mine. And, from a structural perspective, it's just been interesting to see. You know, I didn't even know this from the report. I'll, I'll push it up here. what percentage of, let me ask the audience here, what percentage of people's portfolios, of investors' portfolios do you think that gold represents? If, if anybody wants to guess? Anybody have an idea? We got a three lance lance nut and it says 3%. Then we got a one and a five. All right, I'm gonna share my screen here. yeah, it's actually around 1% according to this gold report, right? So you're looking at, out of the alternative sleeves that you got 42% of the whole alternative asset class, private equity, private real estate. The infrastructure, art and commodities. Gold is just 1%. Right. And there's a lot of room to run here, if given that that, that we have had zero adoption for all this time and people are waking up to, I mean, it really is the only class, asset class that has done really well this year. Right

Yeah. And I, I think, you know, there was, I, I, I, there was that whole, process where there was gold trading at a different price in London versus Shin Zhang, China. And you saw gold moving from the east to the west or I guess from the west to the

on the, yeah.

from the west to the east rather. And so, that's, that was where we had that stealth buying. Right. And now you're seeing it more proliferate into, and, and we didn't see it in AUM on ETFs like GLD for example. but now you've seen that. And I was talking to a reporter, with the Globe Mail in Canada and we had done a review last year on this very topic. And it was just interesting to go over it again and see this Yeah. This change in, in regime from the standpoint of central bank buying, of, of the, the assets because

the one, this is the one that you talked about, right? This is the, the cumulative gold ETF holdings

Right.

going flat. And then all of a sudden, you know, you have this demand, like the price of gold going up, and only now it's starting to pull retail demand for it.

yeah. So, so the point is it's not too late, right? So if you only have a 1% allocation or you have a zero allocation, then, you know, this is something to consider. And, you know, at, at the moment as we sit and chat about this on May 23rd, you know, we've got a little bit of digestion going on in the gold market. So it sets up the opportunity to start to think about how you might add assets, hard assets, like, uh, Bitcoin and gold and, and, and how they might compliment the portfolio. but yeah, it's, it's astonishing how low the exposure across, the asset allocators it has become.

Here's why. It's

in spite of the performance, in

Yeah. Here's why it's astonishing, right? Because this, this is a chart that got me. Where I'm like, if I would've shown anybody, this is just, for those listeners where I'm going, I'm looking at the performance of gold against different currencies from 2000 to today, and it's just a sea of green. It's not like other non-correlated asset classes that tend to have, you know, 50% of the, like commodities. 80% of the time they're losing money. 20% of the time when there's inflation, they're making a lot of money. Like gold has had a phenomenal run, fairly consistent. Volatility sim, similar to equities, 15% annualized volatility. It's actually lower than equities. And yet, you know, if I'd shown you blind these returns, you would've jumped at this opportunity until the moment I say it's a, it's gold.

Mm-hmm.

There's just this stigma, about gold in spite of the fact that we had ETFs, central banks buy it. Everybody knows about it. There's just, there's none of it in people's portfolios. So that

Well, well we're, the interesting thing is it is gonna be neat to watch the narrative for investors change, right? Because now we're in the public, public phase of it actually creeping out into institutions, creeping out into retail. And then the question is, of course, how do you, how do you put it into your portfolio? How are you gonna build it into your portfolio? What are the steps you might take to do so? And, um, what other assets might you use that have similar characteristics?

Well, it's terrifying right now, let's be honest. Right? You got two, you got a, a 25% return last year. Another 20 plus percent return this year. You know, it it, this is, this is why I like the report because it just, you always want some framing, okay, where are we? Is it over? Is it now like a 50% bear market for the next 10 years? and so, you know, some of the key elements about the report was how even like the US 30 year yield is higher than, you know, we've seen it in a long time. And then the, and then Germany, the last holdout of prudence when it came to fiscal spend just finally threw in the towel. And you've seen German bundts yields just pop through the roof. And, and so

And, and what do we know or what have we perceived about the relationship between real returns and the price of gold? Previously, higher real returns meant lower gold prices, right? Because the, you could get a real return, but in the face of rising yields, you have gold strength. That, to me, signifies a kind of regime shift. That this asset, and they refer to it a little bit here and there, and the report is like, are you playing offense with this asset or are you playing defense with this asset? And previously you were playing defense, right? This is a defensive asset that would actually score a few goals for you, but now it looks like it's turning into an actual asset that can create returns for the portfolio. It's shifting and there's a regime shift afoot as we change into the public, participation part.

So let me show you a chart that I was updating today that we used to use a lot. You and me, Mike. I'm actually, I'm actually gonna block off some of it first 'cause I, I'll show you what I used to do. 'cause I was, I was quite, again, I know this, it's just when you see it. Right. It becomes a little bit surprising, but I used to always, when I talk to investors, look, you should be as diversified as you can. You're currently in equities and bonds, you should probably be invested in, um, as, as many non-correlated things that are fairly liquid. Right. And so I would show I would show a chart that showed equities, gold, commodities, and currencies. And, let me see if I can bring it up. I'm gonna bring up an old chart here, but, it was, they all ended up at the same spot from 1990 to today. Okay. Let me, yeah, there we go. So we have, this is from 1990 to 20. It wa 20 21, 20 23. You can see how, you know, they all kind of ended up at the same spot. That dark blue line is an equal risk portfolio of all of them. But, since then, the, the treasury component has just plummeted. Right? it has been like, this is, this is the next chart here. Like that blue line has just, this is a 30 year treasury, just absolutely plummeted and flatlined from 2023 to 2025, and the winner ends up in the, in the most recent period to be almost to be gold. Right?

Right. Which follows a period 2011 when Gold peaked in its last run right to, what was it last year at, at probably around this time that was a, a 14 year, 13 year sideways market in gold and maybe we're on a 13 year sideways market in bonds.

Yeah. I mean, it, it has happened before, right? And few people know this, but how, what was the largest drawdown for, in real terms, for treasuries? This is a, my favorite, Meb Faber quote, is like, like 65% drawdown in real terms,

Mm-hmm.

right? Absolutely bonkers. And, and what did well at the time, you know, this is way back in, in the 1900s, but at the time you could have invested in gold minoring mining stocks. I actually did it in analysis. 'cause gold was pegged. But if you invested in gold miners, it did, they did fairly well. which is something that the report also talks about, and an interesting kind of transition away from gold. Like what did you, what did you garner from the, the gold miners part?

Well, it kind of, that old Don Cox saying right? When those who know it best, like it least you got a buying opportunity. And I mean, if there's something that hasn't disappointed more often over the last few years as Gold has actually appreciated, and to see whether you're looking at, you know, broad-based ETFs, GDX, GDXJ, the juniors in in gold, they really have not felt that participation. You know, there's this old, you know, if, if you get this gearing from, gold stocks that, you, you sort of get like a three to one leverage, when you buy gold stocks versus, you know, just owning the gold. And we haven't seen that. We've seen sort of one-to-one participation with a lot more volatility over the last year, call it. And if you go a little bit further back and say, well, let's go back, three years, what you see is, you know, the large cap gold stocks are up 65% and Gold's up 80, right? So the stock side of it has absolutely underperformed, the the physical metal side. But there's a lot in there when those gold companies are producing, they sell a lot of the production forward in order to make sure they can make ends meet. And when the price is kind of languishing from 2011 to 2023, you end up selling a lot of your production forward just to kind of get by. And then you start to getting, get into a period where, like you said, Rod, it's that 10 year cycle. You gotta build a mine in order to build the mine. You wanna take some of that, financing risk off the table. So as you're building and producing, you're selling forward your production in order to make sure you've got that locked in so you can run your, run your business. So very interesting. And it seems to me that, I don't know, maybe that set, that set that area is due for some catch up, but that's always a bit funny too, right? And you and I know that there's the beta in gold stocks and then there's the gold in gold stocks. And when you mix the two, you know, again, I think Increment did a great job on here's an interesting portfolio of how you might incorporate commodities and gold and silver and thinking like silver and gold stocks, and silver stocks are more of these kind of more offensive, like higher geared, opportunities, which they absolutely are. Which means they have more downside risk too.

Assuming you can't lever up the thing, you wanna lever up the most, like this is the basis, the basis risk that you, that you take. Like do you believe in gold and what it's gonna do? Well, yes, you could trade all these other things because you get more volatility outta them. But for guys like you and me that love futures contracts and, and want to get, in order to get a better portfolio construction, we can gear it up. I'd rather gear up that main, that main asset, right? So

Yeah, the, the, the main factor, right, if you like, like you've got, you've got operational risk, so you're gonna buy a co, a company that mines gold. Well, there's operational risk there, you know, tailing ponds go wrong. The shit's not

how much, how much of their gold exposure did they hedge?

Yeah, exactly.

and so you're not getting the upside, it's just, it's, you're taking on, you're taking on pro-cyclical risk that is correlated to the, the economic cycle. So I'd rather just buy the pure gold, even silver, right? Again, I think it's more about gearing, but silver ends up being more of an industrial metal,

Yes. More economic sensitivity, right? Yeah. So, so you want that unique orthogonal nature.

yeah, and I think. For, let's, let's kind of transition a little bit toward Bitcoin, right? Because they, this is kind of what, what's been termed as the new gold and the debates have, I've been part of many debates, people saying it's a hundred percent gold. No, it's a hundred percent Bitcoin. Bitcoin has the same qualities, but you know, you can transfer it, quickly. you can have it in low quantities if you want to. So you can have, you know, partial shares. You can travel with it without anybody having to, having to declare you can walk through borders with all this money in your pocket, in your brain. Like all these benefits of the new gold. so what are the similarities and where, where is the risk there

Oh, it's a, it's a great, and you and I are largely yes and people, right? I, I don't think it's an OR question, right? You can incorporate both, quite honestly. But as you say, so, so does Bitcoin have central banks around the world buying it in mass amounts? Starting but not yet,

Well, that's another thing they covered in the report that,

Yeah. You're starting

you have the crypto of, uh, what's his

yeah. El Salvador and

David Sachs. El Salvador. Buying, making it as you know, some.

Yep. So it's happening, right? So if we, if we set the table, so the market cap on gold is, call it 15 to 17 trillion. The market cap on, Bitcoin is 1.3 to 1.5 trillion, so call it 10 x. So gold represents 10 x. It's been around a lot longer, probably makes sense that that's the case. There's just different features to these two asset classes and a different, sort of track record or, and I mean, by track record, I mean, historically Gold's been around for a very long time. Bitcoin is the new kid on the block, and I think they both offer some very interesting and unique characteristics. One is that gold, you know, has a historical volatility of 10%. You know, it moves around a bit, but it's not like gold. Yeah. Where it's like 80. So volatility is just how much it goes up and down

Well, that's, that's my framework for it. All right. I'm not fully, like, I, you know, you are a, you're a lot more sold on this being a wave of the future than I am. I gotta be honest. But let's, let's just go through the similarities. So it seems to have that same idea that it's widely distributed around the globe, so anybody can get it with anybody, with a computer, which is most of the population now can get it. it is a, an asset that every four years, the, the amount that can be mined gets cut in half, right? Until there isn't more to mine. And so it becomes this asset, a scarce asset that will go up and down depending on whether humans actually care about it or not. Much like gold, right? We couldn't have, we couldn't quite pinpoint anything for gold except for the fact that we want it and humanity uses it and everybody's got broadly distributed. some gold. So, but, but 5, 6, 7 years ago, the volatility of Bitcoin was 120,

yeah,

is 15, golds been 15, then it's gone down to a hundred, to 80 and most recently going down to 75% annualized volatility. Now, that is a lot, right? But this is, this is my framework for it. So I like to use it in my portfolio as, as a currency debasement trade, but I'm always willing to have that go to zero. I do an equal risk approach, and, and we can talk about, I, I'll show you some slides that I've shown already in the ReSolve Riffs Podcast back in the, the Christmas episode with Meb, Corey and, and Wes. But if I'm, if you're right, the volatility of Bitcoin will con is it gets more and more adoption, the volatility of Bitcoin will get lower and lower and lower, and if you're managing that kind of currency debasement portfolio and equal risk, then that Bitcoin portion will get higher and higher and higher. If I am, like, I'm not saying that I want to be right about this, but let's say that the other side happens and Bitcoin becomes less and less of an option, that there's some issues that gets attacked. The volatility of that asset is gonna go up and up and up back to where it was in the beginning until it goes up so high that from an equal risk contribution perspective in my portfolio, it becomes a non allocation. Right? So the volatility to me, gives me all the information I need to require an asset that I, I think is very interesting, very, very interesting. But we can manage the risk by not having a static allocation, hopeful for the best. You know what I mean?

Oh yeah. And, and also your initial allocation or let, so in your context you say, well, I want some hard assets in my portfolio because I, I see a lot of what's happening in debt. I see debt monetization. I see fiscal dominance, and I see some things that are, are somewhat concerning. And I'm getting the confirmation of strangers through price, both price and Bitcoin, and price and gold. I, I have confirmation of strangers in that more people are buying and selling it. That's why the price is rising. So I like all, all of that makes sense. And then to say, well then how much, so if you have some position in your portfolio, let's say you've got 10% is kind of an easy one. People say 10% in gold. I dunno, I don't know how we got there, but that might be right. Might be not right. But if you got 10% in gold, then okay, what does that mean for a Bitcoin holding? Probably something in the neighborhood of, why wouldn't we do 10% to the both assets where you've got 8% in gold exposure and 2% in Bitcoin exposure, thereby equalizing those two exposures. So you've got equal risk coming from them and incorporating that, both the old and the new into the portfolio. From the standpoint of diversifying the portfolio, I think at this point we can probably suggest that Bitcoin is a bit more of an offensive player. Right? So

Well, I mean, it is, it is in that like in 2020, it didn't do what gold did, right? Gold went up, uh, in 20, in, sorry, in 2020. And so, but, but this year it's acting interestingly, right? It's actually doing offsetting gold and gold has a bad, bad period. So it's, let me show you the, um,

And, and gold and gold having a trend while Bitcoin was kind of languishing around the highs and having pullbacks. So they're very complimentary to one another as well. So again, I, I think it's, it's not an OR. And then the next question is, you know, as, as we are purveyors of the I concept of Return Stacked Portfolio Solutions. Well then, you know, why, why do you want to even give up your stocks and bonds that, you know, love and

but before, before we get into that, let, let me just kind of

Well that was just a

address, yeah. Let me just address kind of the, the concept of kind of equalizing risk here. And I, and I did this at a time when everybody was saying, I, I, you should either be your Bitcoin or gold. And I was just showing people how unfair that comparison is given the volatility, right? So this is, I started a reasonable period where, you know, Bitcoin wasn't absolutely insane. So 2018, just to show that yes indeed Bitcoin has done 20% return versus gold during that same period had done 10%. So this is, this is a little, this is back in, December of, of last

Still relevant.

Sharp ratio. Sharp ratio around 0.6 for both of them though, right? So what does that mean? It means that if I were to scale goal up to the same level of volatility of Bitcoin, which can be done with a futures contract, right? This might seem a little insane, but it's, it's insane to invest a hundred percent of your assets in an 80 vol product in the first place. If you're that type of person. You can also just easily lever up a gold futures contract, 5.7 times, I think, is that what I ended up doing there? to hit the same level of fall as BTC, and now we're looking at, better returns from gold during that period. In fact, if I were to like, we now know that 2025, you like gold's actually killing it. Um, so, so the question is, yeah, maybe gold, right? And of course my answer is, well, not both, right? If you were to equal risk this, again, you're equal risking, you're grabbing instead of 5.7%, you, you just buy 50% of Bitcoin and, um, 285% of, of a gold, futures contract and equal weight it and rebalance. And guess what happens? Because the correlations, what's interesting is that they're both, they both seem to be good for currency debasement stuff, but the, their daily correlations is some, it is on average zero, sometimes negative. And as you and I both know from Shannon's demon and the rebalancing premium, that when you have two negative correlated assets that in this case and both making money and you're able to rebalance from them, you create this, this rebalancing premium. And so what's interesting is that by putting this portfolio of equal risk together, your volatility goes from 80 to 61, but your returns go through the roof, your returns are significantly higher. 'cause of that rebalancing, premium sharpe ratio goes up. Right. So again, this is a portfolio construction over ethos or, you know, a gold religion or a Bitcoin religion. It's just be you like 'em both put 'em in equal risk. Now, I am not gonna invest in an 80 vol anything. I'm not gonna, I'm not gonna invest in this portfolio I'm showing you. Right? And so, what an average investor could do is what you just described, right? Instead of levering up your gold, lever everything, lever Bitcoin down to equal risk to your, to your gold allocation. So we could, you could do that by just looking at the market cap of gold versus Bitcoin, which I think is like bitcoin's, what 10% of you mentioned it earlier.

10 to one. Call it. 10 to one.

10. So, so 10 to one. So that's, you know, nine, nine 90% in, uh, in gold, 10% in Bitcoin. When you do equal risk contribution, it used to be like 7% when it, when you start doing this with Bitcoin in the beginning and now it's like bumping up to 15, to 20 to 20%, and it'll vary depending on like, volatility is expanding, contract correlation, expand contract. But I think that that, given that they're in around the same theme, I like that they're non-correlated. Even if you like the people talk about silver and miners, they're too correlated to be able to benefit from the non correlation if you can get the leverage, if you want it to from just using this. I like the, the fact that it's Bitcoin and gold being so non-correlated that they're creating their own return stream.

on a day-to-day basis, right?

Yeah, yeah, yeah.

they really, really are. And it, it stems from the fact there are very different buyers that own both of these assets still. Bitcoin is going through the institutionalization. I mean, gold has been institutionalized many, many moons ago. And, um, so it's an interesting, juxtaposition of both the new and the old, but both have, you know, finite supply building new supply is hard. Costs money, whether you're, whether you're mining Bitcoin or you're mining gold, whether you're trying to, you know, get the machines to solve the problem or get a, get a a contract approved to, uh, develop a, a site to mine gold. These are, these are hard things and uh, they cost money to do so. but again, I also think there's a different, a very different group of buyers for each of those if we look right down to it. And the individual investor doesn't really have to think through that in the sense that they have access to the products. Right. You

In a way they didn't a few years back. Right?

correct. Right. You've got, you've got, financialized Bitcoin products, whether they're through ETFs, whether through the futures markets, all allowing you to build in this unique asset class. We've had that in gold for some time. but again, combining those two together, bringing both the old and the new together and thinking through, not letting the maniacs run the asylum. Right. If you, if you say, well, I'm gonna give you a dollar of gold and a dollar of Bitcoin, that's fine too. But you know, you're largely gonna be dominated by the higher volatility asset, which is gonna be Bitcoin. but if you're thinking through an allocation from the perspective of, well, I've got some gold and I, you know, I'll sell a little bit of my gold and buy a stack of gold and Bitcoin, well, then you've got your Bitcoin stacked on your gold, which you could do.

You, you know what's interesting? I, I just remembered and pulled this up. When we, when we wrote the paper on, um, the rebalancing premium, like something about risk parity. In the beginning we did an analysis on the correlation between just three assets. Gold stocks and, treasuries. And so you can see the correlation is very low just within gold. And, and what's interesting here to point out is that if you just do the compound returns of the portfolio, like the, just an arithmetic addition of what they would do in a portfolio without rebalancing, you're looking at a 6.7% rate of return. The rebalancing between gold stocks and treasuries, which are not, you know, the, the correlation is pretty low. You're looking at an extra 1.2% per year in that portfolio. So that portfolio with daily rebalancing compounded an 8% rate of return. Now, now add a, another hyper non-correlated asset 'cause it's also, you know, low, it still has low correlation to treasuries and, and stocks. You're just adding more rebalancing premium, which I love.

And that, that's a, that's a really interesting time period too. June 82 to 2020. So you've got gold peaking at that point. You've got rates peaking, so you get a great bond bull run, but you get a pretty, pretty vi vigorous, gold bear market, right? So it, it's still, even though those were more persistent trends throughout that period, that 38 year period, you still came up with wonderful rebalancing opportunities between the asset classes. And that's, that's such a wonderful thing.

And here's why this is important, right? Here's why it's important. This goes back to, um, Antiel and when he, when we brought him in to, to speak about commodities, right? This, this view that commodities is, is a, has a zero, uh, real rate of return on their own. But when you create a commodity portfolio and you weigh them appropriately, and you, you capture that rebalancing treatment, guess what? Now you have a real return because you've, you've basically extracted a yield from non-correlated asset classes, right? So in a, in a way, like, yes. We just, we started the conversation by saying, what type of yield does gold provide us? What type of and yield does Bitcoin provide us? And they don't. But if you structure your portfolio the right way, if you include 'em in your portfolio just a little bit, you're already gonna be capturing an excess yield that is, you know, this idea of the, that one plus one equals three, right? Like this is the, the, whole is greater than sum of its parts.

And, and the systematic nature of that, right? You don't, you don't have to be super smart, to just do your rebalancing. I would say the, the challenge, I guess on the behavioral side is it's uncomfortable to rebalance sometimes because you're selling what's working and, uh, and buying what's not working a little bit. but that does work over time. and if you're, if you're gonna sin a little as I think Rob Barnett says, if you're gonna sin a little, go for it. You know, let

Let's talk about setting, staying a bit more. so let's go into other ways of doing portfolio construction. I think ultimately what we discovered in trying to get people to add diversifiers to their portfolio is that they don't want it. It's too different, it's too hard. Even as I showed that incredible run that Gold's had, since 2000 people are still resident to own something that different when that they can't understand. Right. So I think the advent of, of Return Stacking and all the things, all the different, products that are coming out that allow to stack things on top. Give people an out. Right? You gotta, you, you now have an option to possibly not have to sell your favorite toys, sell your core stocks and bonds in order to make room for these weird diversifiers. you can now actually just get, keep your 60 40 or 80 20 and just add the diversifiers on top. Yes, in this case, you know, prop volatility is likely to increase a little bit, but you don't have to go a hundred percent right. You add a 10%, 20% allocation depending on how, what your view is on, currency debasement and continued global macro spheres. It's a great way to, you know, yes and the problem.

I totally agree, and I kind of think that if we are honest with ourselves, the math makes sense. The returns are better in gold. They were last year, yet no one gave a Why? Well, there's a huge behavioral aspect to this. Are my friends doing it? My friends aren't doing it, and I'm not feeling the pressure of that, of those peers and that the, what do they call them, sort of, best practices. Then it's okay that, you know, we didn't hear it from anybody that, oh my god, gold did X and you're your diversified funded Y and that was less than X. No one ever says that. Right now the darling in the room is the S&P 500. you know, we've been around for a couple market cycles, so it hasn't always been that. Brick's been '08 and then the US back in 2000 again, and you go back to 82 and it was gold and gold stocks. So there's this huge behavioral tax that people pay waiting for that, that public adoption, right? They're not in, when there's a stealth opportunity, when you could be in, if you were just simply rebalancing or stacking or doing something that allows you to participate in the markets that your friends are participating in so that your tracking error's lower, so that your behavioral biases don't undermine your success. You know, versus taking the big plunge we just talked about, you know, the numbers from 1982 for crying out loud, like it makes sense to have some gold in your portfolio. Yet the allocation by pension funds, family offices, large, sophisticated asset allocators is a sub 1%,

Yeah.

right? We're we, we all are humans. Lemmings,

I mean, I must admit the, the coal community is a little weird. You know what I mean? Like, it's those

But I'm not talking. This is the funny thing,

I'm not gonna.

we get, we get painted as the gold community. I'm, I'm a centrist here. I'm not a gold guy. I'm a centrist. I'm like, you should have some, 'cause it's different because it adds value.

That's it. Like from a, like, I, I can get behind it from a portfolio construction perspective. I just, this, you and I have met a bunch of advisors that are, have been all in on gold and good for them. They, but they've been all in on gold. Like a hundred percent of

a long time.

do is around precious metals. I mean, we grew up with Eric Sprott.

Oh yeah. We're, uh, being Canadians,

Yeah, right. Like that's all that

and, and you're, you're Peruvian from, from the, the, you know, so, so natural resources in gold are, are well ingrained. They're probably more acceptable to us as investments than, you know, a lot of people in the US. And, and we do see that, like, we see that in the numbers. And I guess that this is, we're in that public stage where you're, it's gonna start to be okay as an allocator and advisor to start incorporating gold. Get this, it's gonna start to be okay. You're gonna be able to actually do that and not suffer the slings and arrows of being considered a weirdo. So that's something to consider. The, the pendulum, the behavioral pendulum is swinging. It's a little bit more centrist. The gold has, has some returns that back it. It's, we've got a number of concerns that gold can respond well to, whether those are geopolitical concerns, whether those fiscal dominance, monetary, there, there's some things that, that evolve to make gold sort of a key part of the portfolio, especially as bonds start to potentially falter. So it's going to garner some acceptance. So now how are you as an allocator or an advisor gonna start building that non-correlated source of returns into portfolios? Bitcoin's going through the same evolution, starting from a much smaller base, obviously. but again, how are you gonna think through allocating to these types of things in your portfolio? Do you wanna take some of the things that you know, love and trust out, sell some of your stocks and bonds, and do diversification through subtraction possible? Or do you wanna do diversification through addition where you

Well, let's talk about that, the difference between those two from a behavioral perspective, because I don't think that gets enough airtime in terms of when you, let's say, everything Trump solves everything. we have, we take care of the debt. the US becomes a reserve currency again. Everybody starts behaving. No more wars. You know, that's obviously gonna affect gold negatively. And if you've just chosen to have an allocation of gold, you'll, if you've made, sold your equities in order to get gold, you are not only losing whatever the 20% that gold might give you, you are losing out an opportunity cost of that equity component that may be up 30%. Right? So you're getting a double whammy by, in terms of allocating when you make room in your portfolio for these diversifiers. Whereas when you stack 'em on top, you're at the very least not having that opportunity cost of owning the equities in case they go up 20%. You're still having a little bit of tailwind, but you're cer you're certainly cutting it by a lot. Right? So in terms of wrapping your mind around adding weird things, you know, you, I think everybody here knows that, that we think that a good solution here is stacking. and, and, yeah. And then you gotta decide when, right? Like we, that's right now, even though I've been an advocate of gold from the beginning of my career, when people come to me now and they say, should I allocate? And I'm like, yeah. Yeah, you need to allocate. And, and then I have to go back to these reports and be like, okay, what's happening? Like, why, why is this still, why should I not be timing this as much as, uh, as I want to? And just the evidence is so like even the Chinese government with the, the capital controls, you know, nobody's gonna invest in like a few people invest in the stock market unless they're really gambling in inside China. Like apparently the only thing that they can invest in without a lot of control is gold. And that's a large part as to why all of this is happening. And as it become more insular, I think that's another interesting secular trend. La Latin America, emerging markets are buying more and more gold.

Well, that, that was the, that was the theme from last year, right? That that would start to happen. And the theme this year is now, now we're, it's, it's the big long, right?

yeah, now it's broad acceptance. Now it's, I mean.

is the part where you, when you get the broader acceptance, you're now gonna start to get the green light. Whether you're an allocator, working with an institution or pension fund, or you're an advisor working with, individual families, you're gonna start to get the green light to be able to incorporate this and not sort of compromise the, the relationship. Right. Not call into question the relationship for doing something that's too weird. And that, that's a real challenge in managing assets on behalf of other people is, you know, you wanna do the mathematically correct thing and the preferences of the individual investor sometimes get involved and don't allow for that to take place. That, that's, that's about as common as anything in this

And, and one thing that I've learned quite a lot from, with the com when it comes to macro cycles is, Bob Elliott, who constantly reminds us about how long it takes for macro cycles to actually play out, right? They take years, if not decades, to fully play out to their maximum extent. When, like, even, even the, the recent disinflationary growth period where equities kept on going up, right? It was like there was a straight line with a low volatility bonds, 40 years. Like these are long secular cycles that we've seen and bonds have finally broken, right? And it took 40 years for them to, to break in any meaningful way whatsoever. And so when you think about. Just the concept of, okay, price of gold is up. Well, there's gonna be all this demand. Where are we gonna get the, the supply from? Nowhere. It's gonna take 10 years to build more supply. You know, we still, we're not, I'm not seeing any commercials to, to sell my, my gold jewelry to get gold,

Not yet. That will be a sign though.

that will definitely be a sign right. When you like, these are the,

melting down the silver, uh, the silver forks and spoons.

Yeah. So when I think about it that way, I, I got, that gives me, okay, I need to have this as part of my core strategic portfolio. Right. It's not gonna be a fun ride on its own, but it is a portfolio.

yeah. And allocate. This is the nice thing. You can allocate it. into the portfolio over time. Like, you do not have to take the approach that today is the day where I'm gonna allocate the full X amount, right? So let's say you, you come to the conclusion that, well, alright, this is an asset class I probably should have 10, 10% in the portfolio. So what are the steps I'm gonna take? Well, let's buy 1% today. Let's get it on the books, let's get, let's get started. Because when you own it, you watch it and you get familiar with it, and you get some intuition as to how the asset responds in different circumstances. And that's always something that's, that's a bit challenging and unique. When something has gone to, through the process of becoming a 1% allocation across investors' portfolios, they're really not paying attention to it, right? So build up your intuition and your tolerance. How, because it's gonna be, some days you're gonna look at it and go, this thing's stupid. And then other days you're gonna be like, oh my gosh, wow, look at that. And you're gonna get a sense for that. And then it allows you to build the, and this is both at the institutional level and the retail level. This is across all things. When you don't have an intuition for an asset class, 'cause you haven't dealt with it. And I would assume, you know, most people are, are of the age that a lot of times they don't have a lot of experience with gold in, in the markets today. So they're gonna have to build up that intuition. So start small, like, but start. And, and look at how it interacts with your portfolio. And then, you know, in, in our, as you've, as you've mentioned so eloquently already, our perspective is you don't need to sell what's in your portfolio to add these diversifiers to stack them on top. And that will help alleviate some of the tracking error that comes from those times when those main assets are doing great.

Yeah, I mean, I think, I think we're moving the needle, Mike. I think we're gonna take this from 1% to two.

Let's do it.

I'm feeling it this time. It's crazy because we literally have had this conversation in every room that we stepped in since the day I met you.

and I know, and I feel as though, like, I get painted as a gold bug I'm just, I'm a gold centrist. I'm not a gold bug. I

we're not, we don't have outrageous weightings of gold in our portfolios.

at all.

just not zero. It's not zero.

Exactly. Exactly.

still have a bunch of people waiting, um, and watching. I'm just curious if anybody has any questions. I'm just gonna go up and see if there were any. There are some things we can't discuss here. Uh, volatility drag a problem with UGL on daily reset. Okay. So UGL is the double bowl, I think, right? Yeah. so

Yeah. So that's, yeah. Let you go. Go

we've, we've discussed volatility drag quite a bit. There's a couple articles on the return stack site. If you look up volatility drag, you'll, you'll get to understand a little bit more about, whether it's even a thing that, uh, you need to worry about from a portfolio construction perspective. Like there is no shame in using 2x levered anything as long as you are rebalancing and you are, you are rebalancing it against other non-correlated stuff. Volatility drag, is, is basically, you know, when you, when you 2x an asset class, what tends to happen is your variance goes up by 4x and your, compound rate of return is the variance of the portfolio. It's half the variance of, uh, is your arithmetic rate of return minus half the variance of the portfolio, right? So what you end up getting penalized if you are just owning that asset at 2x of volatility. But that doesn't just apply to 2x S&P or 2x gold, it applies to 2x anything. If you are increasing the volatility of your portfolio, whatever it is, you are increasing the variance and you are getting a drag from the compounding of, or negative compounding of that, like that variance drag. But if you are increasing leverage in order to have a more diversified portfolio. We, we use the example in one of the podcasts that we did, where you talk about the 2x S&P 500 versus stacking a hundred percent S&P and a hundred percent trend following, for example. When you stack a hundred percent S&P, your volatility is actually, you're, you're getting, you're not getting twice the return, and your volatility is, doubling. When you are stacking a non-correlated def, what we call defensive leverage on top, you're stacking the return, but because it's non-correlated to the underlying asset, you're not increasing your, necessarily the, the standard deviation and therefore your variance drag is much lower. Okay. And so it just, the, the answer is it depends on how you use it. Okay, so, so use it for portfolio construction. Use it to create robust portfolios. Make sure you're rebalancing and if you do it, it's a great instrument. It's volatility that you can use to, to create rebalancing premium.

The, um, those, those, I would, I would add one final, you know, UGL, that type of thing, where it's two x at the same asset. Those are, those are often trading assets, so you should be engaged in the, in the trading of the assets. As, as you've mentioned, they regear up every day, so if you make 10%, they're gonna regear that up tomorrow. At some point you get, you know, lots of leverage built into your position and you have a correction, and that's where you get that volatility drag. But if you were harvesting that and saying, well, no, I'm, I'm, I'm gonna trim a little as it goes up, and then I'm gonna add a little when it goes down, you can attenuate that and, and you might do that with cash, you might do that with other assets. It, it, it's all fine, but it does require, the leveraging is daily and the asset is somewhat volatile at times. So it can require adjustments daily. If, if, if you're doing that type of thing, it, it's fine. Certainly when we're looking at futures contracts and things like that in portfolios that we're managing, those are reviewed daily and are rebalanced, you know, brought back in line on, on a regular basis because the volatility with the, the leverage and the other pieces of the puzzle. Right. The other positions in the portfolio,

Look, when it comes to leverage, we always talk about internally that, that you don't want, when it comes to leverage, you don't want LICE, and LICE stands for leverage that, is illiquid, concentrated or excessive, right? So in this case, we're talking about a, a liquid product, but it is concentrated and it can be excessive depending on how much you put into it, right? And so you just wanna avoid LICE when it comes to leverage. And, and what you really want it to be is, is, is part of a portfolio, or you want to stack it with other things. And, and if you're gonna use leverage, use what we call defensive leverage, things that are non-correlated to the thing that the, the main stack that you are, that you're gonna use. So if, if you keep that in mind, you are gonna minimize the chances of blowing up. All right? We're coming up to an hour. Mike, anything that, that we may have missed that you want to chat?

Uh, no, I think, I think we've covered just about everything that we wanted to, uh, discuss. I think the report is well worthwhile. Um, we've got one of the, portfolio managers at Incrementum that's gonna join us in June, and we'll take a little bit more into the report itself and talk a little bit more of the, uh, the intricacies of, of the gold market itself, things that, that what, where we'll learn some stuff as well. So look forward to that and, uh, look forward to tuning in with that. And I think, you know, the other thing is every year that he was, um, in talking with the, the guys over there, they've noted that every year when they launch the report, gold is, goes down.

now what

It's just, it's just

Because they launched it. They launched it into a poor seasonal period. Or like we, we do seasonality and I think gold is entering a poor seasonal period, which is gonna be a great entry point.

Exactly. Starting start, start your allocation today. Go slow, go steady, get the intuition. You're gonna see that, public opinion. This is, you know, for what it's worth, from my perspective, public opinion is changing. We're entering that public phase. We're seeing that in the AUM growth in, in the ETFs. So it's something to look at and consider. And how you might allocate to that there are many ways to, to slice that, sandwich. Uh, we would, we would encourage you to look at the idea of return stacking as a way to incorporate it. And, uh, if you have any questions as always, reach out to us and,

You know, we've got a couple minutes and they, there's a couple of questions that I do want to answer. sorry. So they were talking about borrowing costs, right? So the, you know, it depends on how you borrow. You can get, again, if you're using, There's a bunch of product out there that is, that is helping you create capital efficiency by making revenue on your portfolio, by giving you like, WisdomTree as a 90 60, right? You're getting, you're getting leverage at the cheapest possible level of, on the futures markets, right? So yes. What you're gonna need to de decide is what you're stacking, is it likely to do better than cash? Right? And what, what we've seen, what we've shown you from gold, is that gold has had positive real rates of return. So when you think about creating portfolios, especially in the context of return stacking, it really is like, the way I think about it is Lego blocks, right? See if I have different colored Lego blocks here you have your equity. let's assume that this is, you got your equity risk premium. That you are going to buy and get exposure to, you're gonna get your bond risk term premium that you're gonna eventually over the long term get, you know, paid for taking duration risk. And then let's say that's a hundred portfolio, then you gotta decide, okay, what excess returns can I count on to be there? Well, it turns out the gold has had pretty decent excess returns in the last 40 years. So then you're whatever excess returns that end, that's you're stacking that return on top, and then you find another, thing that you want to stack, whether it's, uh, know, managed future trend or, merger arbitrage or, you know, market neutral portfolios that you can, you can literally decide to stack all of these different risk premiums that are non-correlated to each other, to the level of portfolio volatility that you can stomach, right? So yes, everything costs, to stack. It's always the risk-free rate. But every asset that we've discussed today has had a long-term excess return above cash. And if you feel like you can count on that over a long enough time horizon, then really you're just stacking excess returns plus the cash premium you get on your core holdings. Right? So, hope that answers your question. and yeah, if you guys ha want to reach out and ask any further questions, you can reach out at, RodGordilloP on Twitter. Mike, what's your, what's your handle, Mike? 99. Is it still? Yeah, Mike, that's his, his, uh, football jersey.

MikePhilbrick99.

MikePhilbrick99. And, uh, please, you know, this is not investment advice. This is just a couple guys talking about some research that we thought was interesting to share. and be happy to, to discuss further offline for anybody who wants to do that. And, uh, looking forward to that gold conversation continuing June, Mike. Thanks for, thanks for it was your initiative. I, I really enjoyed this conversation. Thank you for that.

Absolutely. Stay diversified everyone.

All right. See y'all.

See ya.