Tavi Costa joins the podcast to discuss his views on the secular bull market in gold and the reason he is structurally bearish on the dollar.
We discuss interest rate differentials, how central bank reserves are shifting, and the significance of US monetary and fiscal problems.
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Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein. I am joined by my good friend, Tavi Costa. Tavi is a member and macro strategist at Crescat Capital. Tavi, welcome back to the show.
Tavi Costa:
Thanks for having me. Looking forward to this.
Ben Nadelstein:
Yeah, people aren’t following you. They really should because you’re one of the guys that I always look to when I want to see what you think is undervalued because it’s never what everyone else is talking about. I want to start off on an interesting one you were talking about, which was actually platinum. So obviously, we talk about gold and silver a lot on the We’ve done a platinum lease at Monetary Metals, so we know a bit about platinum, too. But you wrote this recently. You said that platinum has historically shown a strong correlation with Brazilian equities, not because Brazil has major platinum exposure, but because investors tend to climb the risk curve during secular bull markets in gold, gravitating towards assets like emerging markets and other metals. To me, that’s a perfect Tavi Costa tweet because it talks about all these different commodities. It talks about gold, it talks about emerging markets, how they’re all working together. So let’s start there. Where do you see this emerging markets, this gold bull run? How is it all working together today?
Tavi Costa:
I believe you first need to start with a big thesis that is gold itself. And without the green light of gold, there is a lot of things that won’t work. And so you have to operate under the idea that gold is entering a secular bull market. And I think there’s a lot of ways to measure that. Certainly, the price itself has gone up significantly, which then begs the question, is this the end, the beginning, the middle? And I think we’re seeing maybe two innings, maybe three innings of this gold move, but it’s got a lot of lags, very long lags, and potentially could be one of the longest secular bull markets for gold that we are probably going to experience in the next few years. That’s just my research by looking at, in particular, the needs that we have regarding monetary imbalances. But also, I would say even more important, perhaps, is what’s happening within the industry of lack of exploration and all sorts of things that usually tend to mark the bear market for gold that were very far from those usual signs of overspending and and supply changes that could really change the dynamics.
And so as investors begin to make money on gold, it’s just natural that you start to look for other ideas that have a strong link with metal. And it doesn’t take long until you start learning about silver. And most investors would come back and say, well, that’s a really risky asset that hasn’t worked for many years. And then And you get into the cyclicality aspect of silver, which is very much aligned with copper. And copper is more cyclical even than silver. And then you keep stacking these lines on a chart. So you got gold for 30, 40, 50 years chart, and you can overlay silver, and you see there’s a clear correlation. And then you overlay copper despite the the fact that everybody has so much conviction on saying this is a cyclical commodity. It’s highly linked to the economy. It’s industrial. It has a strong link with gold. I don’t think there has ever been a copper bull market that wasn’t first initiated by gold. And then you get into these other metals, and even agricultural commodities have a strong link with gold. And that’s just because natural resources are all interconnected in a certain way.
And And people don’t appreciate this, and they start appreciating this at the end of the commodity cycle. But everything goes back to gold. And so this is why it doesn’t mean… Right recently, we’ve seen a consolidation in gold space, and all these other metals have started to caught up with the gold price. That, to me, is just the beginning. It’s going to be a lot of that. And so platinum falls into that category because it’s I don’t know if you notice, but if you post something about gold or silver, people will often comment down below, Why don’t you look at platinum? It’s even cheaper. I know that. I’m talking about gold because that’s the grandmother of the whole thesis. You want to focus on that one. And then you look at the derivatives. And an obvious derivative of that is platinum, palladium, zinc, believe it or not, ultimately gets traction as well. And one to me that has been very much off the radar is emerging markets. It is, in my view, just as compelling as investing in the mining industry. It is just as undervalued as a mining industry, perhaps even more undervalued because recently gold miners and silver miners and even copper miners have done way better than they have in the last seven years or so.
And so we’ve seen a better economics and also share price performance. And emerging markets are still… People don’t understand very well why they would benefit from this, but it’s such a resource-rich part of the world that often stays neglected for for a long time, but it also has its own cycles that lead developed markets, especially US markets, at certain times in history. Just happens to be the case that those times are linked to the gold secular bull markets. Guess where we are? I am very, very focused on that part of the market because I think it’s the next one in line to start moving in a huge way. That does not make me less bullish on the other stuff. It’s just from an asymmetry standpoint, it seems to be the next domino to fall, although it’s not going to likely to fall. It’s likely a very optimistic view here moving forward.
Ben Nadelstein:
And now I want to push back because I’ve heard this argument, which is, yes, golds had this really nice bull run recently. Obviously, that’s added to the commodities story and even an emerging markets narrative. But there’s this major risk ahead, which is that the dollar has been weakening really on a tear recently, and there’s a chance that this could reverse, right? The dollar could get stronger, that could potentially hurt gold prices, and then there would be this waterfall for these other commodities. So is dollar strength something that you’re looking at in terms of arguing against this thesis or not so much?
Tavi Costa:
I think macro investors, the issue with macro investors oftentimes is being very oriented on the short term side. It is very normal to have a structural view and a tactical view in a macro world. I’m structurally extremely bearish on the dollar. I think this is the beginning of a trend, not the end of one. And it actually is in line with the steps. You’ve got gold, and now the dollar starts to move the other way. What’s pushing the dollar that way? I have a very strong view on this that has not yet been fully appreciated by the market, in my view, of which is the interest rate differential in the sense of urgency by the monetary policy that has been established in the US versus the rest of the world. A lot of people… A few years back, we used to be one of the biggest bulls in the dollar for many reasons. We always thought it was the cleanest of all dirty shirts. If you If you read our letters, back in 2024, we changed our view. We wrote a letter about… And that was the wrong time, in fact. Right when we put out that letter, which I wrote, the dollar actually surged because Donald Trump was likely to become the President.
And for whatever reason that I disagree completely, the dollar was rising. Trump is anything but a strong dollar. He’s the complete opposite of that. That was a very bad reaction by the market, mostly driven by the idea that we would see tariffs that would cause the dollar to rise. That was a narrative back then, that was about a year ago. The reason for that letter was really because I thought, when I looked at the interest payment relative to GDP in the US, and I looked at across the globe, I didn’t see a single other economy that is large enough like the US, that is paying anywhere close to what the US is paying in interest payments. And looking back in other periods in history, when you get to this four to call it 7% of GDP levels, of which the US is at around five when you include state and local governments as well, that’s where the danger zone becomes. And you don’t know exactly when it starts bothering the markets, but clearly, it starts to… Monetary policy becomes irrelevant when it comes to its dependency. It’s relevant because it has to be driven down in terms of the interest rate suppression to allow the country to continue to function normally.
And so this is where you see the devaluation of the currency at the cost of a strong fiscal policy that we’re seeing still. Eventually, the depreciation of the dollar versus things that are unthinkable, like the Euro, like the Brazilian riyal, like the Japanese Yen. Now we’ve seen some of these moves, and you’re saying, Well, can we see the other side of that? I think it’s possible to see maybe a tactical move the other way. I don’t want to be too cute on this idea, personally. I am very focused on currencies that continue to be very under-owned. The Canadian dollar is a great example. I think a lot of people have lots of skepticism, of which I share the same about the leadership politically in the country and the issues that we tend to see. But still, I think people forget the fact that throughout history, central banks go from owning US treasuries and to then back to gold. And then when they get into that trend of owning gold, they also are going to likely get into the trend of owning bonds and sovereign instruments from other economies. I think that’s what ultimately drives these other currencies to do better, alongside with the fact that we may see an interest rate different differential of policy that will likely drive that as well.
I have strong views on the two-year yield. I think the two-year yield, it could be, I think I’ve said this in the last few months. I think it could be cutting half very quickly in situations that are being forced by the Fed. And all that is likely to have an impact on the dollar. And that’s what ultimately drives… It gives you the green light, and in the investing in an emerging market. So to your point, yeah, we may see some… It’s just like the 10-year yield a few years back when we started that upward trend, there were moments where the 10-year yield will fall and so forth because it got over a crowded position. But I think the dollar, and call it, if you’re an investor for three to five years or 10, I think you need to plan ahead as if the dollar is likely to fall substantially. So any appreciation of the dollar would be an unwelcome repositioning moment for those investors. That’s the way I’m going to behave.
Ben Nadelstein:
And on that interest rate differential, which I think is important for people to understand, right now, the US has relatively higher rates compared to most other major currencies or major countries. And so do you think that there is a likelihood that basically this idea of Fed independence, where they say, Hey, we’re keeping rates high because that’s what we at the Fed think is the right thing to do. Do you think this is the death knell of that independence, where from here on in, the central banker will be 100 % politically chosen to put the interest rate where the President or the administration wants it to be, which means basically from here on in, we’re going to have zero interest rate policy?
Tavi Costa:
Yeah, I think it’s very likely to be the case. I’m not sure if it’s going to be zero, but certainly, look, if we take rates to zero and our costs on the debt to zero, okay, if you do the math there, our primary deficit of which excludes interest payment is still 4 %. So 4 % is a very significant deficit relative to GDP, and it’s still compounding the debt problem. So if anybody thinks that reducing rates will fix the fiscal problem, you’re very, very wrong. Ultimately, the government will be forced to not only do interest rate suppression, but very likely to reduce fiscal. And when we get into that world of suppression of fiscal as well, alongside with suppression of rates, that’s where the dollar is really going to have its big move. That the combination of monetary policy loosening along with a weak fiscal relative to prior years is basically one of the worst macro combinations you can find for a currency. And especially on the back of other countries potentially doing more fiscal rather than And so that’s going to be a big change. And it’s been the biggest driver of US exceptionalism has been certainly the fact.
If you look at the average fiscal stimulus in the US, especially Actually, from a prior primary budget standpoint or primary deficit standpoint, again, that excludes your interest payment. And you can go even deeper into this. If you look at the pro-growth spending. So take out social Security, all these other things, administrative costs, and all the other things that are not really supposedly pro-growth, like defense spending, like infrastructure spending, and all those things, construction spending. When you dive into those numbers, the US is running by far the largest across any other economy. If we ever see a squeeze in that, it will be, and I think it will ultimately get there, Not now, but ultimately, we’ll get there. It’s going to have to be some fear in markets, maybe in the bond market, maybe in the dollar, that ultimately forces that move of governments. Musk creating a new political party, saying, We shouldn’t be having these deficits. That’s where these whole trends start. He might not succeed as a politician. Who knows? But the narrative is getting around, and that’s important. And so clearly, we’re not even in the US, in Brazil and other places, I’m Brazilian, we talk about primary deficits all the time.
And that’s a normal comment, a normal subject. In the US, people don’t even know that term. What is a primary deficit? We’re going to be very much aware of that in five years because that’s going to be the topic. And so to To get back to your point about monetary policy, yeah, certainly. I mean, ’40s is a great place to start where we saw rates be basically fixed in terms of a levels on the short-end and the long-end. Very strong possibility that that could happen. If that happens, we can see cuts of that level would be somewhere close to maybe 300 basis points and maybe more 350 basis points from the short-end and then maybe another 200 basis points on the long-end. Those are real big movements. So if you’re an investor and you’re not looking for allocation on leverage of hard assets for the next three to five years, knowing those fiscal and monetary constraints we’re likely to face here in the US, I think you’re out of your mind. That’s my two cents. I could be very wrong again. But I’m willing to take that bet on history. So that’s my two cents on all this.
Ben Nadelstein:
Now, I want to ask you about the Treasury Secretary’s name, Scott Vassent. He’s actually a really strong advocate for gold. And he firmly believes there’s going to be a major global monetary realignment. And he’s basically said that the administration is looking at this and looking into how this will actually work. So my question for you is, do you think that this weakening of the dollar is some 4D chess where they’re saying, Hey, we’re going to mess with everyone’s currencies. We’ll weaken the dollar. We’re going to start putting our hand into the monetary realm, whether it’s choosing a new Fed chair, whether it’s Secretary Scott Bacent. Do you think that there is a plan behind this currency devaluation, if you want to call it that, where they’re going to say, Hey, now’s the time. The currencies are in a more even playing field. Let’s talk about moving to gold or moving to a unified currency. Let’s get everyone on the dollar. Do you think there is some Bretton Woods type agreement that is coming, or do you think this isn’t for DHS at all? They have no idea what they’re doing. They’re yelling about tariffs, they’re yelling about the deficit, they’re adding to the debt.
And as the dollar goes lower, they’re trying to say, Oh, yeah, this is all part of the plan?
Tavi Costa:
This is a good question. I do think there’s a real plan behind all this. From conversations with policymakers that we have contact with. I would also say I would not be too naive to think that the moves, for instance, that we saw, and I comment on this on Ax as well, probably didn’t get much attention, but certainly is my view that what happened with the 30-year yield in Japan, the rise in 30-year yields in Japan, is very different than what the narrative was throwing around. What was thrown around was that, Oh, my gosh, you’re losing faith or investors are losing faith of that part of the market, and the DOJ is losing control rates. I don’t think that’s the case at all. They’re basically the majority owners of that. They can have control over the interest rates in the 30-year any moment. I actually think that that was deliberate. And the reason for why it was deliberate is because it creates an interest rate differential issue between US and Japan. It allows the dollar to depreciate versus the Japanese Yen. And back in the ’70s, early ’70s. One of the things we saw during the time with Nixon was the same way the courts also did the whole issue with not allowing Nixon to go ahead with tariffs and all these things similar to Trump here.
The way Nixon actually appealed to those issues was saying that we had a balance of payments issue. One of the ways that he used to fix the problem of balance payments was a depreciation of the dollar. If you’re running a surplus, that is not wrong. I think what people are missing here is the same way we have a structural problem on the deficit from of the fiscal side, we also have a real problem on the current account side. Yes, the US has to run a current account deficit because it’s the world’s reserve currency, but it doesn’t have to run as steep as it has been running throughout history. And it’s one of the largest current account deficits we’ve seen in history. And so that needs to be adjusted, too. How do we fix that in the ’70s? Well, the way we, which wasn’t really a problem back in those days, but the way we fixed that issue was by allowing the dollar to devalue versus other fiat currencies of which we had a strong surplus with. Which ones are those countries today? China China has been one of the countries that people pay most attention to, but really is two major economies.
It’s Canada, and it’s the Mexican peso, by the way. So Mexico. And so those two currencies I did a calculation of which you have to adjust for elasticity and all these things. But if you look at the Canadian dollar, if we’re going to adjust the surplus that Canada is running versus the US just through the currency adjustment, you could see the Canadian dollar go up by 50 %. Now, I’m not saying that’s going to be the case because there’s all the factors, but you start running these numbers and you play maybe a 10 % move on the Canadian dollar, and you throw that on a chart, a long term chart, what are you going to see is a major breakout from a huge historical resistance that any person with a little brain on the technical analysis is going to be like, oh, my gosh, this thing just broke out. So I’m very, very open minded to these currencies because I think that looking back in history, it’s the currency devaluation that is likely to fix a lot of the current account problem. As we see that occurring, I believe that that’s going to be… I think markets are really under appreciating those adjustments in the near future.
Ben Nadelstein:
How accurate would you say this narrative is? Basically, Trump came in. He had the guy Elon Musk saying, Don’t worry, we’re going to get rid of trillions of dollars of debt. We’re going to get rid of the deficit. There’s going to be such a surplus. He said, Okay, I’m going to trust you with that one. He hires this guy. He comes in, and they get a couple of frauds. They get a couple of easy wins, some low-hanging fruit. But at the end of the day, the deficit is still getting blown out. That debt is still in the 31 trillions. And they basically said, Well, yeah, that whole issue of efficiency in government and lowering the debt, that’s just never going to happen. So now they turn to, Okay, what can we do for growth? And in the meantime, what can we do to weaken our currency to get, whether it’s current account deficits or these other problems that we’re seeing with trade, maybe let’s just use the currency tool because that seems to be the easiest tool that we can get. Do you think that that’s an accurate summation of what the administration saw, which is, Hey, it’s harder to deal with debt than it is to manipulate our currency?
Do you think that those spending cuts or the deficits, has that all been priced into gold now?
Tavi Costa:
Well, one, I don’t think we’ve seen any spending cuts. I was of the view that I was a big believer of the DOGE idea, and I like the idea just because it’s obviously a good thing for the country to go against all these frauds and abuse of capital, of taxpayers. But my two sense on this is that if you’re going to tackle the spending cut on the fiscal front, you’re going to have to understand that that’s going to have a major impact on growth. That is a very difficult thing to do. Unless you have an excuse for it, of which you can maybe blame the prior administration or some other things. I think the US tried to do… The administration tried to do that at the very beginning. Immediately, we saw issues with growth beginning to go the other way that they wanted. They thought that they could blame on the Prime Administration, and that derailed the whole situation and the tariffs as well. And if you ask me, I think that I don’t think Trump is the political leader that would be able to do that or likely to do that, I should say.
He’s obviously able to do that, but he’s probably unlikely to be the one to drive lower fiscal spending. I would say even Musk, if you just watch what they have done through their companies, these are not guys necessarily that… They like investing. They like redeploying capital. Although Musk did a great job cutting cost with Twitter and then became ax. Trump is even a lot more aggressive when it comes to redeploying capital and debt raises and so forth. I would expect that that wouldn’t change under his administration here. He’s a very pro-growth type of leader. I suspect that that’s still going to be the case moving forward. But look, I don’t know. I think Musk was right. If this would have gone the other way and would have seen the Biden administration or the Harris administration come back, it would have been different. It would have been Maybe we would have seen no signs of any cuts in spending. And it’s not coming from a political view. I’m just looking back of what they’ve done and what they probably would have continued to do. And I think instead of the dollar, even, we would see a big impact on the bond market.
To me, the fact that Trump was coming in, Bessent was coming in, it changed my outlook for the 10 year, for the 30 years as well. I definitely became less bearish on long term interest rates or long term treasuries. And if it was the opposite party coming I probably would have pressed on that first before the dollar. This is how policy driven markets could be in this case. But that doesn’t take away… I do think that Mar-a-Lago Accord, as people used to say not too long ago, and now that has completely fated as a narrative, I think that’s going to come back. I think ultimately, Besson will be able to find deals with other economies, Japan, maybe Canada, to take on US debt for terming out the debt in a huge way and reducing rates in a very significant way as well. I think ultimately we’re going to go there. I think that’s going to be a big part of the agenda. And as part of all these issues, you have to think about how do you fix that? Again, we have two chronic issues. You got this Fiscal and also the trade balance. Those two need to be fixed.
The Fiscal is a lot harder. The trade balance, Trump is trying to fix it with better deals and tariffs and so forth. But the other part of this that I also think it’s lacking attention is, what about the industries that are large enough globally that could increase revenues to the US from an export standpoint that we’re likely to see still? Now, if you go to Europe, for instance, you don’t see anybody driving American cars. Why can’t we see that in the future? Why can’t we see Fords and others, GMs in areas like Italy and so forth? Is that a possibility that we may see some of those cars in those areas changing a little bit of that trade balance? Very likely. What about the steel industry that also plays a big role into all this and are not playing yet? In It could be a huge part of all this. I do think that those industries are underappreciated today and are likely to gain more attention in the future. Not even talking about Tesla, I’m talking about your old-school brands in the auto industry space. I don’t know if I’m answering your question specifically, but I do think that if there’s a guy who’s got a chance fixing some of these issues, Scott Bison, the Treasury Secretary, certainly top of mind.
I think that his views on gold and so forth, it speaks volumes about his views about economics and how he likes to consider monetary changes. Now, look, if the US didn’t go through what they’re trying to accomplish here, it could be very close to losing its reserve status. Certainly, it was flirting with that idea, and it still is, but unlikely to happen if we pursue these policies, of which could be painful for the dollar, but doesn’t mean it would lose its reserve status if we go through those changes now. And once you see that those changes are occurring, particularly the dollar long term moves, that’s what triggers changes in capital allocation and asset allocation out of US-based dollar assets into foreign assets as well. And so I think that’s the biggest trend yet to occur.
Ben Nadelstein:
I want to ask you as we end this section about the tariff policy. So some people have basically said the tariffs have now been priced in. There’s this big shock, Liberation Day, we’re going to see crazy tariffs. Then those tariffs got fated or pushed back. And then there was negotiation and renegotiation. Do you think that tariff tantrum is basically over, and now people are saying, Okay, there’s going to be tariffs, but they’re going to be strategic. It’s not going to be this big bomb of tariffs. Or do you think that there’s more tariff pain to come? And how does that affect commodities versus equities? Because in my mind, getting a copper mine online in the United States basically is just not going to happen. But how that might hurt equities compared to a copper mine, I think they’re different stories. Maybe you see them differently. Yeah.
Tavi Costa:
And by the way, I don’t want to sound like I just want to have contrarian views, but I just caution people in general and also investors to pay attention to when a narrative is trying to be imposed to you in different ways. And I think one of the things that have been said a lot is that the tariff delays and the way Trump has really behaved since April seventh or so have helped the markets to move higher, particularly on the tariff front. I disagree with that view. I think what the market was sniffing around was really the big, beautiful bill, which is very stimulative and a big change in how the markets were pricing in potential shift with DOGE and now, fiscal cuts and so forth. And we saw anything but We saw the opposite of that. So 100 % depreciation is huge. We’re going to see a construction boom out of that. And clearly, the US was planning ahead for the data centers that we’re going to need and all the infrastructure we need for the grids. And the very likely issue that we may face in the next three years, which is an electricity shortage without major changes in infrastructure now.
And I still think I’m in the camp that we’re going to see That’s probably the Black Swan event of the next three years or so. If I had to point to one, I would point to electricity short because the demand is surging, and we just don’t have the infrastructure for that. Not in the US, but other parts of the world. There’s going to be pillars of investments that are going to come from this, from energy, from infrastructure, from raw materials like mines, like you said. I think that’s going to be relevant. The tariffs, yeah, I think the markets are optimistic on the bill front and maybe not appreciating the long lasting effects of tariffs in the markets yet. And obviously, what happened with copper yesterday, with the 50 % tariffs on copper, if any If anybody here thinks that we’re going to stay with those tariffs, you’re out of your mind. We would bankrupt the country if we do that. I mean, we can’t do that. So that is clearly, in my view, a negotiation tactic. And ultimately, that’s going to have an impact on price, too. But long term, this is extremely bullish for Copper.
Not this particular, but the scenario is very bullish for copper. And I think it’s highly unlikely we’re going to see 50 % tariff on copper, because that be shooting ourselves everywhere, not just in our foot. And so I think that those are big changes. I think what drives natural resources, however, deglobalization trends, on-shoring, construction needs, less dependency on China and other places. These are the things that usually drive resources. The difficulty of And all these changes in logistics and trade balances that we were talking about, those are going to be the big changes I had for natural resources that I think are likely to drive the prices of commodities a lot higher. And so this is why it doesn’t really bother me to watch these recent developments with Trump, because I think that that’s somewhat noise to the situation. I think we’ve triggered a big commodities bull market. A lot of people have not realized that we’ve seen a rotation of commodities since the last three to four years. That rotation is just getting started. It goes from gold to silver to copper, and then it comes back to oil and that gas, and it’s just agricultural.
For those who natural gas is dead, no, it’s not dead. It’s probably going to come back here soon. And orange juice goes in surges and come back down again. And lumber prices goes up. Pay attention to the trend. It’s just rotating itself over time. And the dynamic is very… It’s a real thing that happens in commodity bull markets. And so to me, nothing has changed in that front. If anything, it’s just Trump has really exacerbated this. And if anything, I would argue it’s very bipartisan, this whole situation about on-shoring. It’s the one thing that I think is really bipartisan, is we got to bring it back. And this is also what’s likely to change the electricity demand in the US. If you just notice what happened in China with their creation of becoming the manufacturing plant of the world, the one thing that happened was This electricity demand has surged in China over the last decades, and the US has flat-lined. And that’s going to change. That’s going to be a big change on top of AI. And that, to me, is going to be huge. That’s going to be the big shift.
Ben Nadelstein:
Let me now go to our rapid fire section and start with what we ended on there, which is AI and electricity. So do you think that the demands of electricity from these AI companies will mean that basically the US has to start at alternative forms of energy like nuclear power, or do you think maybe solar gets a boost from this? Where do you see AI pushing into that electricity world? Do you think we actually get some red tape cut and we start seeing nuclear, or do you think we just go all in on solar now?
Tavi Costa:
We will see nuclear, but nuclear is not the answer in five years. We need the answer in five years. Nuclear guys are dreaming. They’re just out of their mind. I love nuclear. I think uranium is great. I think as an investor, I think you should be thinking about that as an allocation in your portfolio. But most of the times you talk about the demand for electricity, of which is understated in terms of estimates, in my view, for most consultants. I think we may see triple what we’re hearing out there in terms of estimates. If that’s the case, if I’m right about this, then nuclear is not your answer in five years, guys. We can’t push nuclear reactors in five years. You’re out of your mind if you think that’s the case. You don’t understand that market at all. That’s going to be the answer 10, 15 years from now. Sure, it will be your answer, but not now. We got to think about now. What’s the next five years? Solar is cutting close. It might be part of your answer. Majority of the solar panels is mating China. Think about all that. That’s how we’re going to do all this.
Do we have the metals? I did the calculation myself. If we do what Musk said, 100 miles to 100 miles of solar panels in a buildup in the desert in the US, you’re probably going to be spending about five years of annual production of silver alone on that. Where do we want silver to be trading if that’s the case? Completely unviable. It’s It’s not feasible at all. The answer is probably on two parts of the market. One is well known, natural gas. We have enough natural gas. It’s five years from now, natural gas can go from a 40% energy source to maybe 60. We could go there. We’re going to have to double down on pipelines. Pipelines are going to have to be parallel pipelines. We have one. We’re probably going to have to build another one in two years, three years. You You might be able to do that, especially if you streamline those approvals. That’s going to be your answer. Canada is going to be your answer. Canada has a lot of natural gas, and we’re probably going to see inevitable trade partnerships in that front even more. And the last one that nobody likes to talk about, but it’s probably going to be the case is coal.
Now, pay attention to the big, beautiful bill. How much did we talk about coal in that whole thing? Trying to streamline coal production and so forth. Yeah, that’s probably going to come back. It’s answering the next five years. A lot of these coal mines and infrastructure has been aging, so it can’t really increase. But in five years, if we’re fast, yeah, we can maybe see in seven years something. We need to be considering that as an option as well. We can’t just rely on natural gas. It’s probably going to be another place to see big development. Sorry to long answer, but to me, this is a critical question to what’s happening here. Most times, very wrongly answered by the nuclear community that thinks that we’re going to answer this in five years. No, we’re not going to answer that in five years. Those things are going to take a long time to be built. It’s going to be a great investment. I don’t think it will be a bad investment. I just think it’s not… It doesn’t mean you shouldn’t be investing in them today either. I’m just saying it’s not your answer in five years.
Ben Nadelstein:
This is why we love having you on the podcast. Such great takes and well-evidenced. Okay, next one for you. Obviously, we’ve been talking in this podcast a lot about the current administration. What do you see as the risk of a new political administration coming in and saying, Hey, all that stuff we talked about, streamlining and investment and tariffs and weak dollar, just turn that ship right around. We’re coming right back to strong dollar and no nuclear and no investing. Let’s get rid of tariffs. We’re going back to globalization. What is the risk of a new administration turning around and changing these policies?
Tavi Costa:
I don’t know why any administration would like to have a strong dollar, but I think that would… At the current levels of the dollar, which is historically overvalued despite having its worst year to day performance since the ’70s, I don’t think any administration wants the dollar to be strong. Let’s start there. To your other points on streamlining all these things, man, if we go to that world that you’re saying, none of us own enough hard assets, I mean, for real. I think If that happens, it would be insane because the private market of AI would still drive the demand. And these guys, what they’re building, it’s insane. I think we’re going to see the biggest construction development in in the US in probably since we developed highways centuries ago. And so it’s going to be pretty significant. If you just look at the Stargate investments and construction buildings we’re seeing there, that’s one thing. And that’s not even the largest data center place we’re going to see in the world. I mean, we’re probably going to see a lot more in that front. And so We’re just getting started on construction. And then you add on top of it, just the cherry on top, housing inventory being so low.
And we’re probably going to see more construction on that front, too. So all these things are going to require a lot of materials. And so if that is met with what you just said, boy, this is going to be crazy. I don’t think it’s going to… Honestly, I don’t know. But I think it would be a huge mistake. And if that happens, I’m happy to change my view in terms of things, but it would really add to my thesis. That would be my answer to your question.
Ben Nadelstein:
Last time you were on our podcast, we talked about how a lot of analysts said, Hey, we’re going to be in this inflationary regime forever. And a lot of them didn’t adjust their views going forward. I want to ask you now about that inflationary regime. Have you adjusted your views? Are we still in an inflationary environment where investors should be thinking about the threat of inflation, or has that gone away? Is there a different threat? What should we be thinking about now?
Tavi Costa:
Not at all. I think inflation is running way harder than what the Fed is showing. We are in an inflationary era. I mean, look at the behavior of consumers, look at the conversations in dinners. Welcome to an inflationary era. Inflationary eras are not straight up in terms of acceleration of growth. We are in a deceleration of growth right now, but it’s likely to come back. I mean, with all these things being pushed by the administration now, with the policies, with the big beautiful bill and so forth, would not shock me at all to see inflation reemerging, which is going to put the Fed in a really interesting environment. Imagine if we see a shadow Fed chair put by the And speaking out on TV and doing speeches about how they’re going to suppress rates. What do you think is going to happen with inflation expectation in the market? Breakevens are going to go bananas on that. And if they don’t, because there are some mechanics that policymakers are driving that down, hard assets are going to reflect that regardless. And so you’re probably going to see, now this is the reason why commodities actually are going up despite the fact that with the fact that we’re seeing financial conditions actually loosen up quite a lot recently.
They’re going in a major divergence right now. I think we are in an… I have not adjusted my view on that at all. I remain of the opinion that inflation is here to stay, and It’s going to be creating big changes in consumer behavior that is already happening. I think we got to be investing with that mindset as well.
Ben Nadelstein:
Last one in the rapid fire section for you, which is, who do you think Trump is going to nominate to that Federal Reserve position? Do you think he’s going to try to swap in dissent out of Treasury Secretary? Do you think it’s going to be our friend, Judy Shelton, who’s going to be on the podcast soon? Do you think it’s going to be someone that the market has not even thought about? Who do you think is going to take that Fed spot.
Tavi Costa:
I love Judy, but I think she’s the wrong person to be there. If Trump wants to cut rates and do the crazy things that he wants to do in terms of suppressing and slashing rates around and so forth, I think she’s very much a sound money person that would not probably be the appropriate person to be running that. In my view, I think you won someone with a crazier hat to be running that show. I don’t think it’s going to be Bison either. I think he’s done an incredible job. But honestly, that doesn’t matter. I don’t think that view really matters. He’s going to pick somebody who’s going to slash rates regardless. And so if it’s Bison, I think if I was him, I would leave Bison where he is in terms of doing a great job in terms of building relationships with other economies and trying to come up with better trade deals. That’s a fine role that he has in the government. But I think he’s going to pick somebody who’s a little bit outside of the box here, potentially even somebody who is already a member that has been expressing their views a little more strongly.
I have no edge on this view. I have no strong opinions on that front. I’m just trying to offer some thoughts that are a little bit different than what is out there.
Ben Nadelstein:
Okay, now I want to ask you the last question we ask all our guests, which is, what’s a question I should be asking all future guests of the Gold Exchange podcast?
Tavi Costa:
I think that the biggest question is, that I always like to ask is, what’s the thesis against your high conviction view right now? And how could that play out if you’re wrong? In other words, give me the other side of your thesis And I think that people that spend enough time looking at markets and think about risk a lot would be able to answer that question, particularly money managers. And those that have not done that exercise probably shouldn’t be in your podcast. But it’s just my two cents. I appreciate people that understand the other side of a view, because that’s absolutely critical when you’re trying to come up with a high conviction idea. And I certainly try to learn my other side of it a lot because it helps me to understand my own high conviction view and how to revalue what are most… Why there’s a symmetry in one side of the market versus another and so forth. It’s very helpful to understand that side well. And yeah, so that would be… And maybe if that’s a question you already asked, because it’s obvious, I would say, who are the people that you listen to that help you to build that view that is outside of your outside of your high conviction ideas?
And I certainly spend… I go for runs a lot, and my runs, I spend most of my time listening to other crazy ideas that have nothing to do with my ideas.
Ben Nadelstein:
Tavi, it’s been a pleasure speaking with you. Where can people find more you and more of your work?
Tavi Costa:
They can find my work in at @Tavi Costa is my handle or on LinkedIn as well, if they’re looking to hear more about that as well. But it’s been a pleasure. Thanks for having me. And looking forward to speaking more with you.
Ben Nadelstein:
Tavi, thanks so much.
Tavi Costa:
Thank you.
