Jeffrey Gundlach: Our Next Turning Point

the road map from the past that most people think that they have confidence in uh mapping to the future was not really going to work. And I talked about

how with the Fed cutting interest rates, interestingly, long-term interest rates broke with the historical pattern that goes back almost 50 years. And that is when the Fed starts cutting interest

rates, of course, short-term interest rates decline. Uh, in fact, they usually

rates decline. Uh, in fact, they usually anticipate the Fed beginning to cut rates. In fact, to go one step further,

rates. In fact, to go one step further, the reason the Fed cuts rates is that the short end of the Treasury curve yields stop start falling because of market forces. But historically, every

market forces. But historically, every time, going back to 1980, anyway, when the Fed starts cutting short-term interest rates, long-term interest rates also fall. There's been there was no

also fall. There's been there was no exception to that going back to 1980.

And what I talked about a year ago is I don't think that's going to happen this time. In fact, I went so far as to say

time. In fact, I went so far as to say if we go into when the economy weakens or the markets weaken, we're going to have very different patterns than we had

in the past and that the dollar would not be a flight to quality asset and instead we would see uh other things become flight to quality assets. So,

what's great about the timing of all that a year ago is we got put to the test almost immediately on this thesis because we had the tariffs show up on

April 2nd and there was market weakness accumulating before April 2nd of last year. But then when they announced the

year. But then when they announced the tariffs, people were stunned at how much higher they were than forecast. It was

mostly a bluff, I think, and it turned out to be not implemented along that way. But the stock market went into it's

way. But the stock market went into it's hard to remember because it it was reversed fairly quickly, but it was much more severe than uh most people would have anticipated. I think the S&P 500

have anticipated. I think the S&P 500 almost went into a bare market. Uh if

you classically define as down 20%. I

think it was down about 18%.

>> Exactly.

>> So, but what happened is that uh the US market was no longer outperforming. That

that's unusual. Usually I think people think of that as a flight to quality asset and the dollar went down. If you

go back to S&P corrections going back to the year 2000, there have been 13 of them since the year 2000. That means

declines of 10% or more. Some of them are much more. Uh the one in April of last year was quite a bit more than 10%.

But during there were there were 13 of them going back to 2020. the first 12 of them uh every single time the US dollar index went up versus foreign currencies

and usually by about the same amount about 8 to 10% during that S&P 500. This

is the first time in the early second quarter of 2025. The first time going back uh back 25 years or so that the

that the dollar went down as the S&P 500 fell. the dollar went down actually

fell. the dollar went down actually about eight or 10 percent. And I I believe this is going to continue to be a proven thesis because it worked out

all the way through really 2025. I'm

just really referencing that volatility period in my remarks I just made. But

the US dollar uh assets for dollar-based investors, my recommendations going back about 18 months and certainly I talked about this a year ago is dollar-based

investors should be investing in foreign markets in foreign currencies because the dollar appears to me to have to be in a long-term bare market and uh it has

a lot to do with you know global tensions. It has a lot to do with

tensions. It has a lot to do with overinvestment by foreigners in the United States having been made over course of the past 16 or 18 years. And

so uh a lot of things one one very major uh aspect that I think doesn't get nearly enough play and many investors aren't even aware of is that over the

past 16 or 18 years there has been a monumental move of foreign investors investing in the US. uh starting about 18 years ago, the net foreign investment

position was they were net long versus our investments overseas by dollar-based investors, they were net long $3 trillion of US assets. Well, they kept

go they they started in earnest to add to those investments back then and they added about $25 trillion over about 15

years. So you had something like $1.5

years. So you had something like $1.5 trillion dollars come in net every single year.

It's no surprise, it's well known that the US market outperformed foreign markets almost continuously over that period. Do you think maybe there might

period. Do you think maybe there might be some causality? Sure, the US economy was was probably better and at times better managed, but when you have that

type of net inflow, that's net buying.

And so of course the US market had tremendous outperformance but now there's so much uh the imbalance is so great with 28 trillion dollars of foreign net investment in the United

States and there's reason to believe that that trend is certainly slowing but probably even reversing. So what will happen as we move forward? Well, that

means that some of that net foreign investment is likely to go out and be repatriated into their own countries.

And you don't need $1.5 trillion uh per year to have an impact. Um you know what if they just pulled out over a threeyear period, you know, I don't know, $3 trillion over a 10-year period, $8

trillion or something. That is very likely to cause a reversal in the stock market in the US outperformance. And

that has certainly happened last year. A

lot of smiling faces with the S&P 500 up nearly 20 20%, the NASDAQ up even more.

Uh these are nice gains. But if you're a dollar-based investor and you invested in emerging market uh index funds, even just index funds, you had a return of something like 37%. If you're a

dollar-based investor and you invested in the UK, you had very substantially higher returns. If you're a bond

higher returns. If you're a bond investor and you invested in emerging market debt as opposed to developed market debt or certainly US debt, uh you did much better. And then the best of

all is something that I didn't really recommend a year ago, but I started doing uh thanks to the increased confidence of how markets were behaving during that volatility period. For the

first time in my I'm here now at Double Line. We started about 17 years ago and

Line. We started about 17 years ago and over those first 16 and a half years we didn't own any emerging market currency

denominated securities but last June we decided it was time and we started to uh move into local currency emerging market debt not not in all of our strategies

because it's higher it's too high volatility for some more risk controlled strategies but for those that are more opportunistic we added to local currency emerging markets not on index fund

basis. We didn't want to own certain

basis. We didn't want to own certain securities uh particularly we would want to own China. We want to own certain of the countries in South America but we do invest heavily in South America in the

more stable countries and that has worked well and I have a strong feeling that that this is not the not the seventh inning of this outperformance. I

think it's I think it's maybe bottom of the first and so I I I strongly believe in that. I this thesis of the primary

in that. I this thesis of the primary thesis in my at the center of my investments and it's always uh it's exciting in the investment business sometimes sometimes it's kind of dull

there not much going on but then you start to think that maybe there's a sea change of fundamentals and if I interpret them correctly we could really

see uh some some uh differentiated posit positively differentiated performance and the the center of that thesis is dollar weakness I know I'm not alone on

this this I I was alone on that a year ago, but I'm not alone on that now because people tend to go move in in herds and they um you know they they they don't want to be wrong alone. One

of the things that that plagues the investment consultant industry and the and the investment committee indust uh industry at large asset pools is they they they herd together. They don't want

to be trail blazers because they don't want to be it's o they're more comfortable being right with a lot of co being wrong rather with a lot of company than being wrong than being you know so

they they don't want to be wrong alone and so I'm I I think that it's a little bit disconcerting that the the dollar trade is now well established that my

yield curve steepening idea which was I was the the voice of one crying in the wilderness on this about a year ago is that the long end of the bond market

is not going to rally unless it becomes manipulated. Uh, and there's a couple

manipulated. Uh, and there's a couple ways in which the long end of the bond the Treasury bond market can be manipulated. And when I say these

manipulated. And when I say these things, a lot of people push back on me because it flies against their experience. But one thing they could do

experience. But one thing they could do is if if the long rates go up too much and what does too much mean? I would say the long bond is at about 4.85 today. I

think if it heads towards 6% they will start to get really worried and get really worried about this little thing called interest expense which isn't a little thing anymore. The national debt

is very big. We all know that. But the

interest rates were so low for so long that you didn't really see it. You it

was disguised by the fact that you know the average Treasury rate was at around 1.8%.

And so with rates that low I mean just look at what Europe did. They put it at zero. If your interest rates are at

zero. If your interest rates are at zero, you can borrow infinity and you have don't have an interest expense.

You've got you're going to have some trouble down the road when you have to pay the principal back, but maybe you just refinance that at zero again.

>> Yeah.

>> So, if the rate goes up too much, I believe there will be action taken. And

I don't think this is all that radical of an idea because government officials have talked about this. Scott Bessant

himself before he was strong uh uh sworn in as Treasury Secretary talked about this as well that you know maybe you do yield curve control which they tried in

Japan. We uh a lot of people think that

Japan. We uh a lot of people think that we would never do yield curve control.

It it means fixing interest rates basically. The Fed can fix interest

basically. The Fed can fix interest rates obviously at the short end. um uh

the market may may revolt if they run too much of an inflationary policy, but they can also suppress long-term interest rates through a purchase program. The United States did that. If

program. The United States did that. If

you think US won't do that, they did that. They did that after World War II.

that. They did that after World War II.

The debt was so high and people were worried about inflation and the government was worried about interest expense problems. And so in in although in economists broadly forecast that

inflation was going to go up and in fact from 1945 until the mid-50s it went up a lot. It went up from about 2% inflation

lot. It went up from about 2% inflation which is kind of where we started uh our our our journey uh pre precoid you know and it got up to like eight or nine%.

All that while until 1951 anyway they were fixing long-term interest rates at 2.5%.

and buying them. So, one way to keep interest expense down is you do it artificially. It probably isn't a

artificially. It probably isn't a long-term solution, but you know, long-term for long-term for a politician is the the days to the next election.

And so, all they care about. So, what

they do, so you could do that yield curve control. They're talking about

curve control. They're talking about that. Another thing you could do is

that. Another thing you could do is something that's much more radical and I've gotten almost universal push back on this, but I've got a I got an ace up my sleeve on this thing that I've that

I've come to learn uh subsequent to me cooking up this potential idea. I've

actually learned some history of it. And

that is you actually say, you know what, we can we we used to have 1.8% interest rates. Now the average Treasury rate is

rates. Now the average Treasury rate is it's up at about 3%.

um since no interest rate is at 3% or lower, we're about 100% higher than the aggregate coupon on the bond market. So,

you know, it means it means that even if you don't have a deficit, which we're running about a $2 trillion deficit, even if you didn't add anything, you have higher interest expense. For

example, in the next 12 months, there are 10 trillion of Treasury bonds maturing. You know, 10 trillion of them.

maturing. You know, 10 trillion of them.

If the if the rate goes up 1% that's another hundred billion dollar in annual interest rate expense. We've already

have had interest rate expense go from $300 billion about a decade ago to $1.2 trillion $1.3 trillion depends what

exact fiscal year you look at. Uh and so the the interest expense problem's already gone up by a trillion dollars.

So what what could you do? Well, what

you could do, one thing is say, you know what? We we we don't we wish we hadn't

what? We we we don't we wish we hadn't gotten ourselves in this situation, but we're going to do something. We're going

to restructure the Treasury debt. We're

going to take every Treasury bond that has a coupon greater than one, and we are announcing today that that coupon is now one. And we will and everyone that's

now one. And we will and everyone that's below one, we will we'll let you keep your below one coupon. So, we're going to basically take the coupon down. Now,

one thing that would do since the interest expense is is already up at around 3% or so headed towards 4%, what would happen is if you could cut up from

4 to 1 or slightly less than one on average, you'd cut 75% of the interest rate expense and that would buy you another who knows how many years uh to build it back up and kick the can

further down the road. People say they would never do that. It it would be a total disaster for everybody that owned bond that had if you owned a a a 20-year bond that was at it probably was a

30-year bond issue 10 years ago, but it's still out there as a 20-year bond.

If if you had have one of those with a six coupon and it turns into a one, you're going to have something like an 80% loss overnight. And it's and it's non-reoverable loss because it's not

like, well, when's it going to recover?

They're not going to give you your coupon back. They're taking it away as a

coupon back. They're taking it away as a as a, you know, it's an economic management.

They they couldn't. And that's why it's that's why it's actually not a bad solution because it forces you to go cold turkey. Forces Nobody wants to

cold turkey. Forces Nobody wants to Nobody wants to go into withdrawal.

We've got all of this that the economy is operating with all this interest expense. Everybody sees that the

expense. Everybody sees that the trajectory is really scary, but they don't want to go into withdrawal. So

they they don't want to go to rehab, but that this 1% uh restructuring from every coupon down to 1%, you know, it would it would make make it so you couldn't

borrow any money for probably two generations. So it's tough love, right?

generations. So it's tough love, right?

So you say this is never going to happen. Well, I've got news for you. It

happen. Well, I've got news for you. It

happened in 1881 in the United States under President Garfield. It happened.

They basically were were saddled with Civil War debt and the Civil War debt was around 6% coupon. It's a crazy coincidence because I picked this 6% as

a thought experiment back when I came up with this radical idea and it turned out to be that's exactly what happened. It

was at 6%. They didn't drop it to three under the Garfield to one under the Garfield administration. They dropped it

Garfield administration. They dropped it to three and they gave people a choice.

They didn't say we're turning your coupon from six to three. They said,

"You can either turn your coupon from six to three or we'll we'll buy you out right now. We'll pay you cash. We'll

right now. We'll pay you cash. We'll

redeem your your your principal." That's

the same thing. If you've got a bond that has a 6% coupon for the next 6 years and they give you a hundred back, you have to reinvest at existing interest rate levels, not the legacy

interest rate. So, you're reinvesting at

interest rate. So, you're reinvesting at three anyway. So, it doesn't matter.

three anyway. So, it doesn't matter.

You're going from six to three one way or another. one you're taking a

or another. one you're taking a principal hit and the other you're taking a an interest hit, but they're actually identical.

Neil Ferguson uh uh who's a well-known and wellrespected economic uh thought leader, he often talks about Ferguson's law, and you might think that it's Neil

Ferguson's law, but it isn't. It's just

a weird coincidence. It's actually Adam Ferguson's uh rule and he lived from 1723 to 1816. So this goes back a long

ways and he came up with the idea that any great power that spends more on debt service than on defense risks ceasing to be a great power.

>> So there's this this trigger point when you're spending more on interest expense than you are in defense. And he goes back, he used at that time a couple of

historical examples. One was the Spanish

historical examples. One was the Spanish Empire in the 1500s who had a crazy uh thing. They they had 50% of revenue

thing. They they had 50% of revenue going to interest expense and unbelievably over 20 years it went to 87% of of revenue going interest rate

expense. Obviously, the empire collapsed

expense. Obviously, the empire collapsed under that because they didn't have any money for their military anymore and there was of course a lot of corruption.

Whenever you have uh that much debt and that much interest expense, unfortunately, it invites a lot of corruption as we've seen all over the United States uh with in more more

glaring obvious glaringly obvious obvious terms in the past year or two.

But basically there was another example of uh an empire that did that that was during Adam Ferguson's lifetime and that

was France the Bourban uh royalty who went to 50% got up to 50% of revenue going to interest expense and that they they got guillotined for that and other

things and then there was the Ottoman Empire which in the late 1800s got to 50% and they were gone by 1922 and then you had had Britain in the aftermath of

World War I with the same thing that sort of happened. So where's the US now?

Well, the US now is at 20% of revenue, a little higher than that, but it rounds down to 20% of revenue going to interest expense. So our

revenue is 5.4 trillion. Our budget is about 7.3 trillion. So there's that big deficit in there of 1.9 trillion that's going to keep being ladled on. And the

interest expense is already 1.2 trillion. and absent interest rate

trillion. and absent interest rate decreases uh that would be would really be effective. Well, then you know it's

be effective. Well, then you know it's going to keep going higher.

It it will happen when you have contracting GDP. It will happen very

contracting GDP. It will happen very rapidly when you have contracting GDP because of course that's a double whammy. you have decrease in tax

whammy. you have decrease in tax receipts and you have tremendous increase in expenditures for unemployment insurance and everything else. I I believe that it's almost

else. I I believe that it's almost certain that we would have by 2030 an economic contraction and I believe therefore that we're going to be in

trouble by 2030. My own base gates is actually 2029 something like that but who knows with precision on on that.

when I started this business uh you know it's 45 years ago or or more now maybe even um people talked about the uh bad

path that social security was on were doing a spend as you go and the the baby boomers one day would be uh not paying into the social security premiums they'd

be taking out of the system and they're an outsized population so they said in like 1980 this is unsustainable this is going to be a problem and the CBO go who

makes some fairly optimistic but but not not absurdly optimistic projections.

They said social security trust fund will be broke by60. So people

are like okay we got ourselves an 80year problem here. Whatever you know I'm

problem here. Whatever you know I'm going to worry I'm not going to worry about an 80-year problem. I'll stop you know I'll stop I'll worry about my fourpack a day habit 30 years from now.

My smoking habit, you know. So we won't worry about that. So then 10 years goes by and you get to 1990 and they have to do a new calculation because their assumptions had been as they always are

a little optimistic. And so they say, you know what, it's not60 anymore. It's

2050. All right. So now we got a 60-year problem. Still not going to keep people

problem. Still not going to keep people up at night. And then we go we go to let's just say 2020. Uh we've we have a stock market problem. We got to we we

had the global financial crisis comes in the middle of the OOS's and all of a sudden uh-oh they're going to run out of money by 2035 20 240 you know and now

they're basically saying we're going to run out of money by 2032.

That's the Social Security Administration now. They assume no

Administration now. They assume no recession. They assume deficit lower

recession. They assume deficit lower than it is. They assume interest rates lower than what they are now. and maybe

they'll be right uh if if the if the we got the right certain policies that maybe the president wants, but you know, it's it's it's no longer your grandchildren's problem. It's it's right

grandchildren's problem. It's it's right here and now, and we're going to have to deal with it.

>> So, this is this is what's really about.

And meanwhile, I I I'm struck so much by how ingrained even very experienced, well- reggarded economists are in the old pattern. Fed cuts rates, all rates

old pattern. Fed cuts rates, all rates come down. I was watching a podcast with

come down. I was watching a podcast with a guy who's pretty good. Uh, and it's a nice podcast because it's only about 20 minutes and he's he's he's a straight you can understand what he's saying. And

he was talking about, you know, people are talking about how housing would be more affordable if interest rates were would be pushed down by the Federal Reserve. But I don't know. I mean, they

Reserve. But I don't know. I mean, they can't really control long-term interest rates. And he pointed out even in that

rates. And he pointed out even in that podcast a couple of months ago correctly uh you know they've been cutting rates 175 basis points but the long-term interest rates are up and the 30-year

Treasury rate is up 100 basis points.

But he couldn't help himself slipping into his, you know, the old way of thinking because about 10 minutes later in the podcast, he said, "Well, maybe we can get mortgage rates down if the Fed

cuts rates the way Trump wants." I mean even somebody that respectable and that that capable of thinking fell back into that pattern. So I don't I don't I don't

that pattern. So I don't I don't I don't think I don't think uh manipulating interest rates is going to make housing more affordable because markets function. You know if if somehow by

function. You know if if somehow by magic you could get the mortgage rate down from a little under 6% now to a little under let's just pick a number a little under 4%. So down 200 basis

points through some through some magic, maybe bond buying or something or other.

All that would happen is home prices would go up. It's a supply and demand problem. It's it's not an interest rate

problem. It's it's not an interest rate problem. It's if you if you cut interest

problem. It's if you if you cut interest rates, you're going to have home prices go up. Look what happened during co that

go up. Look what happened during co that housing prices soared. They had interest rates right flat on the map way longer than they should have. They had a Fed

funds rate uh at at zero all the way into 2021. I mean, I remember Super Bowl

into 2021. I mean, I remember Super Bowl Fed meeting 2021. I remember saying the Fed should raise rates 200 basis points today and they raised him 25 basis

points. And that's why I came up with

points. And that's why I came up with this phrase just off the top of my head.

Jay Powell needs to paint or get off the ladder. Oh, either do your job, let

ladder. Oh, either do your job, let somebody else get up on that ladder and do the job for you. And he finally got into sink on a very belated basis. But

you'll notice that home prices didn't go uh didn't go down. they they stayed sticky and they haven't really they've come down to some areas that were overheated but not by any significant

amount. What you need is supply and you

amount. What you need is supply and you need supply that isn't so expensive.

I didn't I I've been traveling. I

haven't seen the specifics of it. I I

mean I think increasing supply is good but when the government incre increases supply using government methodologies a lot of the ideas will filter through

moneyaundering schemes.

>> Yeah.

>> You know we see we see what's been happening. California has put $24

happening. California has put $24 billion trying to get homelessness down over the past decade or so. $ 24

billion. It's been zero effective.

homelessness has done nothing but go up, you know. So, where did that money go?

you know. So, where did that money go?

They've got a scheme to build mini houses, which are like, I don't know, 300 square feet or something. They

wouldn't have any uh they would wouldn't have a kitchen. They wouldn't have any plumbing. They would just be a structure

plumbing. They would just be a structure and they would build them and they put them say on federal land, say in Los Angeles near the federal building, and homeless people could could live there

and at least have shelter. You know what the uh estimated cost was to build one of these houses with no uh no no uh kitchen, no plumbing. It was about a

million dollars a pop.

I I start with the the the what they call the highspeed rail that was supposed to go from Los Angeles to uh San Francisco. It was supposed to be

San Francisco. It was supposed to be done by 2020. Uh it was supposed to cost $30 billion and I've changed the name uh euphemistically to high greed fail

because they cannot they cannot complete this project. They don't have the

this project. They don't have the engineering skill to do it. It's just

unbelievable that our generations ago they were able to build Hoover Dam with technology far inferior to what we have now and we can't we can't build a high-spe speed rail anywhere near cost.

And now they're saying that to get it from San Francisco to Los Angeles, it would be another I can't remember 15 20 years and it's 100 billion over budget.

So there would be there's no wherewithal for that. So what they've done is

for that. So what they've done is they've trimmed the project down. Now

it's going it's it's trying to get from Merced to Bakersfield, which is 1/4th of the distance between Los Angeles and San Francisco. And of course it's 1/4 that

Francisco. And of course it's 1/4 that nobody is interested in. And they're now saying that that's going to be $35 billion. So it's one quarter of the

billion. So it's one quarter of the project at more than uh you one quarter of the project at you know at at a

massive increase in the budget. So we're

getting everyone knew this was going on but I I think the order of magnitude starting to get revealed. Uh I mean the Minnesota thing now it's bleeding into Maine. I you can't wait till the movie

Maine. I you can't wait till the movie goes to California because California is so much bigger and it's it seems to be I don't know I don't know if I don't know

if it's worse run or not but it certainly has has the wherewithal for that and there's plenty of evidence that that's going on. So, you know, that's

kind of where we are. And we have um this interesting news lately that uh Worsh is talking about having some sort

of an accord between the Fed and the Fed the Department of Treasury and the Federal Reserve, which is a a very alarming departure from history. Where

the departure from history is they're supposed to be independent. Now, I know the question of independence has been out there certainly since LBJ didn't appear to have the Fed independent.

Certainly, the Fed wasn't independent in the aftermath of World War II. And

certainly, President Trump has made a lot of noise about uh Feds should uh not be independent. So, so now we have the

be independent. So, so now we have the uh Fed chair to be and the Treasury Secretary talking about working together. That sounds a lot like

together. That sounds a lot like manipulation to me. In fact, it's almost an admission of manipulation. And it

sounds a lot like we're going to push short-term interest rates down and then fund a lot a lot of debt short-term because we can control that rate. It's

not going to be market driven. And when

the long bonds get up there in yield, and I'm going to say towards 6%, we will manipulate them down by borrowing at some low artificially low interest rate

like, I don't know, 3% 2% something like that, and we'll buy we'll we'll we'll we'll buy back Treasury bonds, and we'll we'll be issuing short-term money at low

rates. We're buying out debt of ours

rates. We're buying out debt of ours that's at high rates. That's a that's a a kind of a a version of that cut the coupon thing. It's kind of the same

coupon thing. It's kind of the same thing, but it's done more directly and in one way where it's a little bit more concealed.

But he hasn't always been a hawk. And he

has said publicly in the last few months that he can certainly see interest rates bring being brought down on Fed funds

rate in the short term. So he he I he's historically he's been known more as a balance sheet hawk and this is something that I applaud. He he he thinks that

it's wrong for the Fed to be out there with with 6.7 at one time was more than 7 trillion of treasuries. That's

obviously manipulating things and it it it seems like an inflationary policy. Uh

and if in fact Wars is uh uh he's kind of hawkish tilt because he thinks deficits are inflationary. He thinks the Fed having a big balance sheet is imprudent and potentially inflationary

and he wants and he wants to shrink the balance sheet. But to shrink the balance

balance sheet. But to shrink the balance sheet, you need to somehow fill the hole. If you shrink the balance sheet,

hole. If you shrink the balance sheet, you're shrinking the deficit or or you're you're making the market buy those bonds instead of the Fed. Well, if

the market, if the private market buys the Treasury bonds that the Fed owns, where's that money going to come from?

It's going to come from banks. I'm not

saying the banks are going to buy them, but I'm saying if Jeffrey Gunlock decides to buy some bonds because he thinks that the the yields are good.

I'll take a money out of out of the bank and that it'll I will now own bonds instead of having having funded banks.

Well, that's a problem for banks.

>> Yes. So this is a this is a real issue and it's one of the reasons why I think banks are uh are not having the greatest performance on on a trend basis. So he

wants the balance sheet down but to do that I think to have an economic offset since you'd be that would be restrictive for the economy because you're shrinking the banking system you might want lower

interest rates but every action has a consequence. You want balance sheet

consequence. You want balance sheet down, that's a good thing. But now

you've got short-term interest rates down. That's hurting the economy. It's

down. That's hurting the economy. It's

below the it might be below the inflation rate. And so we have negative

inflation rate. And so we have negative interest rates and long rates are going up. And uh this is a this is all kind of

up. And uh this is a this is all kind of explains all of this together explains why gold is going up so has gone up so

rapidly. One of the things that I've

rapidly. One of the things that I've done uh with my own personal money and re the last two trades I've done for my own personal money are very

anti-inancial asset. I bought gold

anti-inancial asset. I bought gold miners uh several months ago.

Thankfully, it was it was incredibly lucky timing. And I bought raw land,

lucky timing. And I bought raw land, more raw land. So, these are things that have just absolute value. They're

they're not manipulable. Uh and in fact the the uh the gold price is a as Jim Grant so wittly puts it as he often does. He says the gold price is the

does. He says the gold price is the reciprocal of investors faith in central planning and central bankers because they think they think the currencies are likely to be debased. Certainly the

dollar is being debased and the dollar had been hanging in at about 100 to 98 to 100 on the Dixie index for quite a while and that was exactly a trend line that goes back several years that has

held when the when the dollar has sold off. This trend line rising trend line

off. This trend line rising trend line has held. We're through that now and the

has held. We're through that now and the dollar is now highly vulnerable. So I'm

more more enthusiastic than ever about you know gold is up so much. I I was out on my skis about a year ago. I was asked at a financial program, uh, do you think

gold's going to 3,000? And at that time, the price of gold was 20 2970. He says,

do you think it's going to 3,000? And I

said, what kind of a forecast is that?

You're asking me, do I think it'll go up a percent. I mean, what? Who cares? I

a percent. I mean, what? Who cares? I

said, I think gold by your end is going above 4,000. I was out over my skis, but

above 4,000. I was out over my skis, but I was basically right. although it did here in 2026 actually go to 5,500 which

does seem it does seem kind of kind of up there relative to history but I don't think it's going lower by any meaningful amount and so I I think that it's

obvious that central bankers have been buying gold if you one of the thing that explains I talked about foreign investment going into the S&P 500 and maybe that 28 trillion some of it's

going to go out you know um but I I I think that uh there's something going on with the central bankers who sold off gold at low prices

for a long time. You know, when starting about 20 years ago, they were selling gold and buying and putting reserves more in dollars and so they sold gold at around $300 or $400 an ounce and they

increased their dollar reserves. Now

they realize that their dollar reserves don't look that good anymore and they've been buying gold back. And so central bankers have bought all of that gold back that they started selling 20 years

ago, except they sold it at $400, call it, and they're buying it back at 3,000 plus. But central bankers used to have a

plus. But central bankers used to have a lot of gold reserves. When the when we went off the gold system, they the dollar became the king currency. People

had the dollar thing and they brought their gold reserves down to something like 15% or so. I think they're likely to double them. They were 70% at one

time. If they just go to 30%. That's

time. If they just go to 30%. That's

massive gold demand. And I think everyone is starting to realize that you are not secure in currencies that are being manipulated. In this case, the

being manipulated. In this case, the dollar, which is likely to have an overly dovish Fed policy in my opinion.

I think we're going to be running an inflationary policy. And this is another

inflationary policy. And this is another reason why I'm not bullish on long-term treasuries until such time is that manipulation comes. So, but my job

manipulation comes. So, but my job managing this type of money, at least in part managing this type of money, is I have this awareness that we're going to be continue to lose money in long-term

Treasury bonds. The 30-year Treasury

Treasury bonds. The 30-year Treasury bond lost 50% of its value during 2022.

It went from 100 to 50. You know what?

It's still there.

>> It hasn't rallied. It's still there at that at that low point. It's almost on the lows. So, uh I I think that uh we we

the lows. So, uh I I think that uh we we see that uh the the these trends are are in place. The other thing that I thought

in place. The other thing that I thought was a real takeaway that's worth uh internalizing from 2025 is gold went up 70%

um and Bitcoin went down. I mean, you would think that if people are dollar skeptic skeptics and are buying gold and are central bank skeptics, you'd think

that maybe with the stock market enjoying a speculative rebound, you'd think that maybe Bitcoin could get get somewhere, but it didn't. It it fell about 6% last year and it's not doing

much of anything now either. So, what is going on here? We had all of this speculation and that uh you know that got up to a a fever pitch level and it

seems to not be working anymore. So we

we have the US market not outperforming anymore. We have Bitcoin not performing

anymore. We have Bitcoin not performing anymore. And and uh the last thing which

anymore. And and uh the last thing which is I think the last the thing of greatest concern and I think that that the the the worm has probably turned on

this too is the enthusiasm for private credit. Private credit became very

credit. Private credit became very popular in 2020 and 2021 when people had all that money that was being sprayed around by the government. And when they

looked at traditional stocks and bonds, just look at the S&P 500 and the Treasury bond market as placeholders, they didn't like what they saw. We had

we had long we had bond rates below 2%.

Inflation was clearly going higher.

There's that opening video I was was was was quoted from that time. I said, "It's obvious inflation is going higher, you

know." Uh, and so we we had we had that

know." Uh, and so we we had we had that going on and you looked at the S&P 500 and it was at nosebleleed levels kind of where it is now or where was it? Yeah.

Kind of where it is now. You looked at bonds, they looked terrible. So you say if I can map the public markets, if I can map stock a combination of stocks

and bonds, uh if I c if I can map that over to private credit, um I'm probably not going to like what I see. But if I don't know what's in the private credit,

I can't map it. So when things get really overvalued, people do weird behaviors. They start going into blind

behaviors. They start going into blind pools, spaxs and and private credit and the like, and they basically say, "I I agree with you that publicly traded bonds look terrible. Publicly traded

stocks look terrible versus their own valuation history. I'll tell you what,

valuation history. I'll tell you what, I'll put money in your lockup blind pool, spa, or private credit fund under one condition. You don't tell me what

one condition. You don't tell me what you're doing. because if you tell me

you're doing. because if you tell me what you're doing, I'll build a map over these public markets that I are provably overvalued and I'm not going to like what you have either. But what ended up

happening is people like moving in crowds. So the big university

crowds. So the big university endowments, they had been the pioneers in private credit and they had done very well with it. And when and when the uh public market when the bond market had

the worst year of all time in 2022, people said, "Wow, look how great my private credit did." you know, because it didn't drop 50% like the long bond.

Well, I've got a dirty little secret that the industry has. Private credit

does not mark tomarket. Private credit

is opaque and non-transparent and it borrows the precepts from private equity, which is kind of its its father.

It's private equity is private credit's father. What they do is they kind of use

father. What they do is they kind of use a moving average type of approach. So,

we actually have a double line paper out. It's up on doubleline.com this very

out. It's up on doubleline.com this very day is when we debuted it and it's called volatility laundering in private credit. Volatility laundering. So in

credit. Volatility laundering. So in

other words, what you do is if the I I'll just use the private the private equity example. You buy private you you

equity example. You buy private you you you you you sell your S&P 500 and you buy $100 of private credit and the S&P 500 goes from 100 to 50. Private credit

gets marked down from 100 to 80. It's

probably not worth 80, but they are marking it down. So there there looks like moving in the right direction, but then the market recovers. So the S&P 500 goes back to 100. Well, private equity

gets marked back up. So you're back to 100 in both cases. But what's the difference? They both have a zero

difference? They both have a zero return, but one has more than double the volatility. At least it's stated

volatility. At least it's stated volatility because it's a true daily mark. The other one is just a moving

mark. The other one is just a moving average of the actual prices. And so

we've seen headlines like this. We've

seen we've seen just total wipeouts in private credit start to happen late last summer when there was one uh uh home home renovation company that was doing

subprime loans that just famously went to zero in a matter of weeks. There was

a there were a couple private equ private credit funds that owned it and they marked it at 100 at the close of one mark period and they had to write it down to zero a few weeks later. 100 to

zero. I mean that's a that's a steep steep slip.

These are insurance companies that are owned by private equity. And then the private equity guys go and they and they fund private credit. So you've got something of a circular financing scheme going on, which is it's it's never a

problem until it starts to be a problem.

And it seems like that has begun to happen. I mean, you have you have I'm

happen. I mean, you have you have I'm not going to name names, but you had a very highly respected operator, very highly respected, who announced that they were marking down one of their

private credit funds 19% in a day. I'm

not talking about one position. I'm

talking about the fund >> is down 9. So are you telling me that half of your fund is really in good shape, so the rest is down 38%.

Or are you telling me that threequarters of your fund is in good shape and so the rest is down 76%. See, this is what's this is what's wrong with these types of things? got visited by a big insurance

things? got visited by a big insurance company client and he came in and it was be it was probably in January of last year and he had a very large private

credit portfolio and uh which is often the case. The uh he used many managers

the case. The uh he used many managers and so he said eight of his private credit managers owned the same exact deal which is not uncommon at all.

Private credit's a very close group. um

they they kind of used to be one big happy family and they would all participate in the same deal. So it's

not strange that a own the same deal.

What was strange is they had a mark marktomarket period probably at the end of the year uh 2024 and he said the range of the marks on this exact same

security. The high was 95, the low was

security. The high was 95, the low was 8. Now that's a spread there. 95 to 8.

8. Now that's a spread there. 95 to 8.

So again, this doesn't mean that the whole thing is rotten to the core, but the problem with booms and private equity, private credit has boomed. It

went from nothing in 2020 to a third of all leveraged finance today.

>> And when you start out, you probably do have a, you know, a pioneer opportunity.

You know, it's a new area. You probably

have higher spreads. You you can kind of control your terms. uh there's not a lot of you out there doing the lending and it's kind of like the wild west, you know, there's there's a little town and

they're all god-fearing people and there's a good sheriff, you know, make and everything's going well and people are relatively peaceful and then they discover there's gold five or 10 miles

away and all of a sudden people start flooding into the town and in with some people that are legitimate, you know, entrepreneurs are a bunch of scoundrels and a bunch of corner cutters and a

bunch of people that are there to pray off of other people and suddenly it's out of control. And I'm not saying everybody in that town is is immoral or amoral, but there's enough of them that

suddenly you've got a really big outlaw problem and the you know, you got the high noon movie going on uh sort of thing. That's what happens in boom

thing. That's what happens in boom periods of new financial markets. Just

think what happened to subprime back in starting in 20 uh 2004. Think about what happened in the repackaging market of loans and mortgages that got to a boom

period in 2007. Well, private credit has gone up that same type of magnitude as subprime. And we're starting to see

subprime. And we're starting to see these types of headlines. And of course, the good operators are are uh in a bind because they're kind of lumped together

perhaps with some of the bad actors. And

maybe they're honest when they say, "I saw this in a newswire story this uh a week or two ago. There are no red flags in our credit portfolio. In fact, I don't even think there's any real yellow

flags. So, it's mostly just green

flags. So, it's mostly just green flags." Yeah. Okay. But what about all

flags." Yeah. Okay. But what about all these headlines? What about portfolios

these headlines? What about portfolios being marked down 19%. You know, that type of don't worry, be happy talk. I I

I want to tell you I I I spoke at a a conference in in Hollywood last summer and I had the it was turned out that by

chance my fireside chat was after a panel of CI private credit titans. I

mean these are these are the big guys.

And I was really struck cuz I I got there earlier so I was listening to their their uh dialogue and I thought, "Wow, I've one thing that experience is

good at is you can spot the way people uh contort their language." So when when things are going well, they're all smiles and you can tell they genuinely are optimistic and bullish. And then

when start things start to get a little shaky, they start to say things like, "Well, there's we're kind of we kind of need more runway on our deals, you know, or we can't we can't cash anything out

because, you know, we told our investors there was a three-year hold period, but we haven't had any any returns in three years, and so we're asking them for more runway, and we need more money. We we

can pay your dividend by issuing you more shares, which is called pay inkind in the high yield bond market." And one of the red flags uh of high yield bond

market is when you pay in kind starts to go way up. Well, that's what's going on in in this area. So, I heard this panel and they were they were sounded about

what a CLLO panel would have sounded like in 2006 2007. You know, when you talk to high yield bond people, you know that they're the most bearish thing

they're ever going to say at the beginning of a year is they'll say, "Well, spreads are tight." That's true.

And you know, we are starting to see a little bit more stress in the system.

So, we don't really think you're going to get a price gain this year, but we we think you're going to earn the coupon.

>> That's what that's that's a bearish call.

>> Yeah.

>> From a high uh coupon sort of asset pool. And that's exactly what these guys

pool. And that's exactly what these guys were saying >> at the panel. So I just said, you know, this this is getting this is getting kind of weird. And then I I I I gave a

speech and there was a private credit person on in front of me and she was mostly a marketing person, very good speak, very slick, very polished. You

get basically it seemed like she was just had memorized a marketing pitch.

But they all say this. They say the thing about private equity is it's lower volatility. Yeah, maybe it's a little

volatility. Yeah, maybe it's a little higher return, but it's also lower volatility. Well, that's that it's a

volatility. Well, that's that it's a sharp ratio argument. It's that fake volatility again. So, that's not really

volatility again. So, that's not really a legitimate case. Then they go to the next talking point, which is at least at least was a few years ago truthful. And

that is just look at the past performance. Look how well private

performance. Look how well private credit has done versus public credit for the past few years. And that was a that was a truthful statement a few years ago. But that be started become untrue

ago. But that be started become untrue in October of 2022. private credit has underperformed even though it's not even properly marked even on the way it's

marked which is probably optimistic.

it's it's underperformed public credit for that time period. You know, so that argument and by the way, as they say in the prospectuses, past results are not indicative of future performance. Right.

Right.

>> Usually in my business where where I'm doing public things and people are allowed liquidity. If you underperform

allowed liquidity. If you underperform for four years, you you thank your lucky stars, you got a client left. When you

out when you underperform for one year, you can explain it away. you

underperform for two years, you know, hopefully they're they're uh you know, longer term oriented. You do three years and it's you're going to start getting

the big redemption notice. Four years,

it's it's done. But yet, private credit has done that for four years >> and and and yet you don't hear any anyone talking about that. And then the third argument is a cynical repackaging

of the initial sharp ratio argument.

they say. And another good reason to have a lot of private credit in your portfolio is that when markets get volatile, it helps you sleep at night to ride out that volatility of your private

credit, which of course again is just the moving average pricing. So, at this juncture, I I I I think there's really no reason because the spread on private

credit, which used to be kind of juicy back in 2000 and 2001, is that the juice is out of the orange. And so, it's not totally out of the orange because

private credit obviously pays demands a higher interest rate than public credit.

But wait a minute. If private credit, if you have to pay private credit higher interest rate than public credit, why aren't you going to public credit? Why?

Because they won't take you. They don't.

You're too risky. So this the question boils down to is 200 basis points of excess return on just the stated side and you hope that the losses won't be

worse but they will be because the the ratings of private credit are substantially worse than the ratings of public credit. The the B the B minus

public credit. The the B the B minus sector dominates uh B minus and lower sector dominates uh public credit and to private credit to a much greater extent.

It's only about 28% or so of public credit.

Well, I think that the first part of your question, both sides are right. I

do think it's going higher and I also think it's a storehouse of value. I

actually think those things are really two sides of the same coin. For the time being, I think you're okay in gold mining stocks. Now, gold, junior gold

mining stocks. Now, gold, junior gold miners are very risky, but they haven't really performed all that much. And with

the price of gold going up, the junior miners are likely to be bought by the senior miners. There's going to be

senior miners. There's going to be likely consolidation.

>> So, you you have two ways of of working in the miners. You get a takeout or else just the the sector as a whole goes higher. Physical gold is is very

higher. Physical gold is is very difficult. uh it's very difficult to do

difficult. uh it's very difficult to do but if you can uh that would be the preferred method of of actually owning it. I would not gold ETF is not for

it. I would not gold ETF is not for long-term storage of value. Gold gold

market gold ETF is simply a trade. It's

a way of getting quick exposure to the sector and there's nothing wrong with doing that but don't think that if suddenly the dollar gets revalued down massively right that somehow you're

you're going to be immune from that.

That's that's why I kind of buy land.

So, for example, the land that I've bought is a timber ranch.

>> So, it's it's basically farmland. It's

and it's it's very um it's very efficient to own because you get very substantial tax credits and you know, so you run it I'm running a timber farm and

I don't know how to run a timber farm and the the how do you do the control burns and what level to thin it to. So I

hire a company to do that and the the the rant that lumber is very useful. So

they do the burns, they thin it out, they harvest it in the optimal way and they pay me because because you know they take they take a significant fraction of of the wood because I got

much more than I need for just my fireplace and my my boiler.

>> Yeah.

>> You know to to to heat the house if if something goes wrong with the grid, you know. So, but it it's it's tremendously

know. So, but it it's it's tremendously efficient. It just it's it's almost I I

efficient. It just it's it's almost I I think I have negative I think I it cost me negative to carry it.

I I like farmland or else or else a way a quality of life aspect. So a and

I in a in an area where it's reasonable to believe that there will be population increase and that in spite of population

increase the quality of life is very very high. So, a a timber ranch really

very high. So, a a timber ranch really fits that because it it it tends to be in a rural area that rural areas are gaining in population more than than

urban areas primarily. And the quality of life is is worse probably than it was 30 years ago, but it's way better than it than than it is right now in, you

know, major cities. And it will probably continue to get worse over time, but at a far far more gradual pace.

First of all, it's at absolute nosebleleed valuations versus versus its own history. Um, it this doesn't happen

own history. Um, it this doesn't happen very often. It's brought out a little,

very often. It's brought out a little, but it's at a very high valuation versus like the cape Dr. Sher's cape ratio is extremely high and all those measures.

But also, I think foreign markets have have have especially emerging markets have a tailwind. And if you take a look at the Morgan Stanley, the MSCI index,

and you just look at the the United States piece of it, and you look at everything in the world, other United States, the United States uh price to book is more than it's about two and a

half times that of all of the rest of the world. Uh it's it's a kind of a

the world. Uh it's it's a kind of a multiple that I mean you can you can come up with reasons why it kind of made sense during the big buildout boom of

data centers and AI and all that stuff but that's that's not sustainable. And

so I I think on a valuation basis it's it's really uh obvious. And also again at the center of all this is an anti-dollar view. As a dollar-based

anti-dollar view. As a dollar-based investor you're going to get the currency translation. Where are you

currency translation. Where are you going to get the currency translation?

Well, it's probably going to be in solid emerging market areas. And it's already bu it's already begun to happen. That's

what's so that's what's so great about this is my anti-Smp like I want none of it. Uh you could have made that argument

it. Uh you could have made that argument uh convincingly uh two three years ago and you haven't been terribly wrong but you've been wrong. The S&P continue to

outperform but it's already reversed. We

see EM is outperforming uh UK is outperforming uh a lot of these are outperforming like growth is out growth has stopped outperforming value not terribly

convincingly but it has you know small cap versus large cap it's it's kind of convincing and and so it seems like you

have a a couple of fundamental pillars that are that are there and also it's that it's it's not so much that I'm waiting for it to start working it it it

has started to work and it's not late in this in the trend.

Our emerging market team has really been doing very very well in recent years and they're very Latin America focused which I think is is a good place to start. Uh

uh although we've been pretty much steered clear of Venezuela and Argentina, >> right, >> for years now. Now you had a beautiful day if you were a Venezuelan investor

when Maduro got booted out of there. The

bonds went up like 20 points, but they fell a lot more than that before then, too. So net to net.

too. So net to net.

>> Now when it comes to I like Southeast Asia for equities, I would never invest in China as a US investor. So forget

that. but other other Southeast Asia.

And then for the long term for the the kids college fund, I've been I've been recommending this for years is Indian equities, but it's a it's a demographic

powerhouse of a story with a history with a with a highly educated uh ethic and the ability for improvements through uh elimination of corruption, the legal

system and everything else. I I believe in it. not for this year, not for the

in it. not for this year, not for the next three years, but for the next 30 years. I think you're going to have a

years. I think you're going to have a repeat of China uh in in India over just like China did for the last 35 years. I

I think that's that's where we're headed. Just don't look at your

headed. Just don't look at your statement because when it goes down 20, you're going to sell. But if you hang in there, you've probably got a 10bagger.

It's really It's really all the same thing as the stocks. It's it's really we we want we want real economies. We we

want Latin America again. We've we've we actually own some India bonds for the first time I think starting about two years ago. They haven't performed all

years ago. They haven't performed all that well. India has been kind of a

that well. India has been kind of a sleepy spot lately, but that means it's a good time to buy it.

>> Yeah.

>> I mean, we're at we have our double line round table prime at the first part of January every year. of the same group of people. And Charles Payne, who I really

people. And Charles Payne, who I really like, has been on the panel every year or nearly every year. And he was talking about uh a nuclear a company, a a

company that makes small nuclear uh reactors. So, you can have they can

reactors. So, you can have they can power like a data center. They can put out a lot of power, but they're not so huge. And he recommended it last year,

huge. And he recommended it last year, and he said it went up massively last year, and it gave it all back. He said

it gave it all back. So I turned to him and said, "So aren't you buying it now?"

And he said, "Yeah, yeah, yeah, yeah, yeah." And so that's that kind of a

yeah." And so that's that kind of a thing. Sometimes when the fundamentals

thing. Sometimes when the fundamentals are really good, a a big gain can be given up just because of speculative uh change in the speculative trend. Like for example, one

speculative trend. Like for example, one one thing that's risky about gold, and we saw that one day where it dropped $500 intraday. One problem with gold is

$500 intraday. One problem with gold is that if there's trouble in the world, typically in our environment today, you would expect gold to do well and it has

done well. But if you go into a sell-off

done well. But if you go into a sell-off in risk assets, if the stock market drops 15% or broadly speaking, there's there's other problems. Uh there's

credit credit defaults or something.

What people do when they're they have an asset class that they own that is in freef fall is they sell something that's not in freefall. They sell things that haven't started going down yet. And so

what happens is the things start going down simply on flows. Gold gold has vulnerability on that. But I wouldn't I wouldn't worry about it. I I I would not

sell gold at 5,000. I don't know where it's going as a as a target at this point. But my target is higher.

point. But my target is higher.

Yeah, I like commodities. We we had been positive only on gold for the first part of last year. But once we got uh some of the industrial met metals going, you

know, copper and uh and such, we have the BCOM index, which is the one that I look at, BCOM on Bloomberg, Bloomberg Commodity Index. It finally started

Commodity Index. It finally started living above its moving average, 200 day moving average. After about 2 and 1/2

moving average. After about 2 and 1/2 years of living below it, it got above it, which was a sign that maybe something was stirring. And then the 200 day moving average started moving

higher. And so now we have a bull market

higher. And so now we have a bull market in commodities. We're positive on

in commodities. We're positive on commodity index broadly and we're positive on gold as you know add add a gold only exposure. So uh you you're

kind of overweight gold in the commodity complex. But I I'm we we're bullish on

complex. But I I'm we we're bullish on the BCOM index.

Yeah, that opportunity was pretty attractive about three months ago or four months ago. It's it's performed quite well since then, which is fine for

the last four months, but it means that the opportunity is less than it was. I

still think I still think it's the cheapest sector in the investment grade bond market. So, it still has that going

bond market. So, it still has that going for it. But, uh, the easy money has been

for it. But, uh, the easy money has been made. But, uh, one thing that's positive

made. But, uh, one thing that's positive about the commercial mortgage market is there has been an a very palpable

improvement in in, uh, the mood. People

aren't aren't instantly hanging up the phone on you when you say commercial mortgage securities might be something good. They're now actually seeing I mean

good. They're now actually seeing I mean there there's actually uh kind of a feeding frenzy that started a few months ago where deals were being uh uh brought

to market and being overs subscribed like 15 or 20 times. So that that means that there's a lot of positive sentiment. That's not in and of itself

sentiment. That's not in and of itself uh a one variable green light. When you

look from really sour sentiment like we were in for three years and it starts to become okay, that that means that it's probably on a a performance run in

positive direction.

I think today I would have a little bit more cash than I would typically have um waiting to deploy into more risky assets. And I would put that percentage

assets. And I would put that percentage at 20 or 25%.

I would have for a typical investor, I would have about that same breakdown, maybe 20% in real assets, gold, land,

commodities. I personally have more than

commodities. I personally have more than that, but I'm my my circumstance is not is more unique than than typical. And

and then equities, I would have about 35% uh in equities. I think they're overvalued. Uh, but I would have them

overvalued. Uh, but I would have them 100% in non-d dollar local non non- US local currency markets 100%.

So it's risky but you've got against that you've got cash and you've got these real assets and then the the remainder is in a intermediate to short

reasonably high-grade uh bond portfolio which is not very sexy but uh at leis so we're talking about maturities of

seven years and in uh and mostly in the investment grade or do or double B is the lowest type of credit in there because I think I think you're going to get better opportunities almost

everywhere. So, but you don't want to

everywhere. So, but you don't want to you don't want to you you want to be invested significantly with different profiles over time, but you know over the course of time. So, that's where I

am. It hasn't really changed much in in

am. It hasn't really changed much in in the past year. Um, which is one of the things in the investment business that is the most difficult is to uh make

changes after you've been right. this

that's really hard to do. So I um my my thought process these days is I've been right. I've actually been quite right in

right. I've actually been quite right in the past couple of years, last year in particular, and done done very well with that. But don't get complacent about

that. But don't get complacent about that. Just because you're right doesn't

that. Just because you're right doesn't mean that this is this is going to be a one-way thing. Because what when you're

one-way thing. Because what when you're right, particularly when you're managing other people's money, it's it's difficult because if if you bought Apple stock at $5 and it went to $500, you

have this great thing. You in every client meeting and you say, "Look at this cost five last 500. Look at this 100x." And so that's that gets a good

100x." And so that's that gets a good tone going at a meeting. You've made the money. You feel good about it. You have

money. You feel good about it. You have

emotional satisfaction. But if you sell that IB, if you sell that Apple stock, suddenly that's not there in the portfolio anymore and you don't have this wonderful thing to talk about and

and since it went from 5 to 500 in in addition these things I just said, you know, you've you have tremendous you have just a tremendous attachment to it,

you know. So, we need I remember when I

you know. So, we need I remember when I first bought um bank stocks. I was out of bank stocks for years and years and years and then finally I decided it was time after the global financial crisis

to buy bank stocks. And it just felt so strange. I felt like I was in in a

strange. I felt like I was in in a strange a strange place in a strange land, you know, because I sudden suddenly I was like I was like a a bank

stock guy and I've been anti-bank. So,

it it it kind of affects your own psyche. I I know most in investors

psyche. I I know most in investors aren't down in the weeds enough to perhaps know what I'm talking about, but it really is hard to make changes after you've been right. It's like you lose an

old friend. But having said that, I I am

old friend. But having said that, I I am not making changes. I'm staying where I've been because I think we're early on.

>> I think that large deficits are ultimately inflationary.

And so I I think we will be having uh not a terrible inflation problem in 2026. In fact, it might be pretty

2026. In fact, it might be pretty benign. Um the the tariffs uh don't seem

benign. Um the the tariffs uh don't seem to be all of that impactful. May maybe

3/10 4/10 to the CPI. It really doesn't look like we're getting more of much more of that. Uh so GDP right now that's being reported is incredibly skewed

towards a couple of sectors but so is inflation. So we we have a very uh

inflation. So we we have a very uh diverse a set of economic statistics. Uh

but I think ultimately deficits will lead to inflation and so we will have we'll have inflationary policy. So I

think that um the inflation will be viewed to be um maybe not in a conscious way but in the in the air it'll be

viewed to be a better solution than an outright debt collapse.

It's going to it's going to be incredibly destructive uh for uh the old institutions. It'll be very destructive

institutions. It'll be very destructive for large parts of the society. But it's

it's what's it's what has to happen. I

think we will choose that any default pressure on debt which would be really a problem. It would cause tremendous

problem. It would cause tremendous deflation and a collapse of the financial system. It will be it will

financial system. It will be it will encourage a pivot to inflationary policy. And what will come with you see

policy. And what will come with you see if inflation is the answer to wealth inequality.

You know, if if people are worried about wealth inequality, if you have hyper hyperinflation, then everybody's affected by it. It's

one of it's one of the reasons why inflation ends ends up being chosen at crisis periods because it's better than the alternatives. And what actually will

the alternatives. And what actually will happen is we will have a a society where individualism becomes

uh less coveted and uh community and involvement in societal will will become much more desirable. I I feel like that trend is already in its nent stages or

beyond because people are incredibly mentally ill with their isolation from other people. Shutting down the schools

other people. Shutting down the schools during COVID was just a fatal blow to an entire generation that will be scarred with mental illness from it for a long

long time and maybe their whole lives.

And they will start to see that community and interaction and knowing who your neighbors are and and caring for them will be viewed as much more

rewarding than how many how many likes you got by by people that you don't know and probably aren't even real people. So

that that's I think is coming. And you

know, there's a book that Neil How, the guy that wrote The Fourth Turning, recommended to me, and he said it's called Bowling Alone, and it it it speaks to this trend and how it's it

will reverse uh when we get to a new structure that's coming in the next several years at most. And we've talked about is during the 50s and 60s, people

loved having community involvement. They

had potluck dinners at their church.

they went bowling with their bowling league, you know, they would be members of the Elks Club. Now, nobody goes bowling except if they go bowling alone,

you know. So it's it's it's all about

you know. So it's it's it's all about how there's this pendulum that swings back and forth and you can go through hundreds of years of data and it's it's usually about one generation in uh being

encouraged for whatever reason to be rug ruggedly individ individualistic to the point where it becomes excessive and then it swings back to more of a sense of community. Yeah,

of community. Yeah, >> that's where we're headed. Uh and that's going to be really good. We got to get through the valley.

I think uh AI has really run through its first phase of investor uh and business people

enthusiasm. I I I think they're starting

enthusiasm. I I I think they're starting to realize that the progress pace that

they were uh very excited about is not really possible with in in a straight line. I mean, if I am not a huge AI

line. I mean, if I am not a huge AI user. I have a lot of people on my team

user. I have a lot of people on my team that do, but what I when I when I do some Google something and I and I AI

thing pulls up automatically and uh I find it to be inaccurate, but I I also think that AI can never create anything

ever. And so I think this this idea that

ever. And so I think this this idea that it'll take over some creative things has a a very very strong dead end to it because

I I can't imagine what it's going to be in college classes where you have to submit a a paper and we we're probably already starting to get observations

where the professor gets 10 papers that are identical and that that just isn't gonna fly. you know, that's that's

gonna fly. you know, that's that's that's that that just isn't a that isn't a productive a productive thing. It has

to be discarded. So, with fits and starts, we'll find a way to to implement it. I I think we're I think one of the

it. I I think we're I think one of the reasons going back to the S&P, but it's maybe has more to do with the S&P uh more the narrow group, but I I kind of want nothing to do with it because I

think we've gotten into that we've extrapolated the the joy of and the overbelief and now we have to we got to we got to dial that back. We don't have

the electricity for it. You know, it's just like the windmill craze. I I feel like that was so overbelieved. Now

people have started to realize that windmills create negative energy. I mean

it's like what are we doing here?

I I I'm I'm optimistic that the frustrations that I was experiencing say six 10 years

ago, six years ago, that I felt like I was the only person that saw that we needed to fix things, that people felt

that everything's just a-ok okay and we can just keep doing this forever. And

I'm encouraged that a lot of people that had never even thought about some of these problems now recognize them because that's that's exciting because

that means you can get to it >> and make something positive happen instead of keep circling this drain of of of

non nonsustainable financing and societal relations particularly in wealth relations.