hi this is mike maloney and i've got ronnie stofferly again in the next episode of the uh coverage of incrementum's in gold we trust report ronnie how are you doing hi mike good to see you again okay so um you know your next section in this book investment strategies for inflation uh why don't you go over this and why don't we start it with that quote read us that quote that you've got in here from kevin muir yeah he says in the past couple of decades the two percent inflation target


behaved like a ceiling in the next 20 years the two percent inflation target will become a floor and that's exactly what what we have in mind so i i think mike um if if if we um analyze the last couple of decades i think that inflation hedges were abandoned and and funds moved into higher duration assets so low volatility secular growth and other themes but as soon as inflation expect expectations rise sustainably um the correlation between bonds and equities will turn positive so i think you know we all know


that bonds um have never performed well in inflationary times but i think it will be even more problematic if bonds are held as an equity hedge as they are being uh held at the moment so so many people also think that equities are a great inflation hedge well actually they are not it really depends on the sector it depends on the pricing power so what we did in this in this table basically we had a look at um what what actually works in inflation and as you can see commodities and gold do have the highest


inflation beta so if you think that inflation is becoming a topic you should have commodities in your portfolio you should have gold in your portfolio it is no coincidence that both asset classes did so well last year however it's still if i if i have a look at institutional portfolios commodities or gold are basically non-existent for gold it's 0.5 in institutional portfolios for commodities it's even less so of course we saw pretty big moves in commodities um it has come down recently but i think


this is really the beginning of a secular bull market that you can see on chart number 20 where we think that we are now at the beginning stage of a large commodity cycle that is first of all due to this new inflationary paradigm but also due to the lack of investment in commodity markets over the last uh one or two decades so we think that that the entire area of inflation um sensitive assets could really be at the beginning of a pronounced bull market and just one more thing mike that i want to uh to


add it's always for me it's it's always super interesting to talk to to investors and to asset managers from countries like turkey like brazil like vietnam because for them holding gold and uh thinking about currency and inflation is much more natural than if you compare it to an u.s investor um so so if you talk to a turkish investor for example about the role of gold about the role of currency hedges of inflation hedges it is something normal it's basically um one of his basic premises and and basic thesis that


he has for investing and i think this will come back in western markets although you know i think the average um investment advisor in the western world is roughly 45 or 50 or not now 55 years old so so actually over here in the western world nobody really no professional really experienced the 1970s as a fund manager so right they are 15 years old or something yes so they are navigating bonds doing uh poorly during uh periods of inflation in the 70s bonds were called certificates of confiscation


because they confiscated your wealth but yes uh the people in thai you know in vietnam and in brazil and so on uh they're going off of life experience they've been through these episodes before currency crises currency crashes big inflation hyper inflation they know what it's like to lose their wealth if you don't own gold and so they're they're much more open to it uh you know the last time that uh we got punished by inflation and where gold was the thing to have was the 1970s


and you know the u.s has been one of the very stable countries around the world you know we've had the crisis that happened in the 30s and the revaluation of gold and you know people don't realize that the u.s has been through a couple of hyperinflations there was the hyperinflation of the continental currency uh just before the revolutionary war during the revolutionary war and then there was uh the there was a small hyperinflation toward the end of the civil war from the introduction of the greenbacks but it


did get into inflation rates that touched a hyperinflationary environment i'm sorry i interrupted you there though but so keep on going i just had to make some comments about what you said because it was brilliant no no worries mike um so so i think you and and that's uh one of the core topics in the report that a new commodity cycle or a super cycle might be in the making now what's really interesting mike is is this observation on chart number 21 it shows the hundred year austrian


government bond so it's a century bond uh so it will be paid back in the year um 21 20 which is still quite a long long time from now i'm not 100 sure if the euro will still be around in the year 2120 um but then of course if you're a hold to majority investor it will be paid back at uh at hundred now what you can see on this chart it's it's it's called duration so the longer um the um the longer the the the bond the higher the sensitivity of bond prices two changes in interest rates and


especially to changes in inflation and what you can see here is that this um allegedly safe government bonds it was down um um roughly 36 percent over a couple of months um so this looks a bit like uh i don't know a fang stock or a cryptocurrency but it is the austrian government bond so so i think uh what's what's important and this is what we're showing um on chart number 22 that if this relationship between equities and bonds if this flips then basically um the the the basis of the so-called 60 40


portfolio um would be would be deprived so this negative correlation between equities and bonds would be removed and how could it be removed via rising inflation expectations so then perhaps treasuries would have to hand over the the scepter to gold so i think at some point conventional portfolios um will have higher allocations or i mean now they basically have no allocation to gold but they will have gold as a core investment again now it is a satellite investment it is an alternative investment but i think if


this correlation breaks down and actually the negative correlation between equities and bonds is the exception rather than the rule you can see it on this chart since the year 1900 it is it is pretty pretty clear that this negative correlation is not the rule but the exception but i think if this really should change then this is basically the next stage of the crisis and then i think at some point i'm very sure that a yield curve control will be introduced this is basically the next stage um actually there's already


some some some papers coming out um from from central banks and and and think tanks that basically confirm that yield curve control works so this will be introduced very soon i think that we would have to see a big number again which would probably be 2 for for 10-year treasuries but then be rest assured that price action in the market will not be left alone but we will see a cap on interest rates which should also be a very important trigger uh on the negative side for the us dollar and on the positive side


uh for gold yeah um uh for our audience uh just in case there isn't there's anybody out there that doesn't understand yield control i want you to sort of define that but under yield control doesn't the central bank don't the central banks have to start meddling in all durations of bonds where normally they they go after the short term short duration bills uh is what they uh usually meddle with and manipulate the markets and but to control uh the yield across the spectrum they have to start meddling


you know messing with everything yes yes so uh explain yield curve control to the audience well actually that the federal reserve would implicitly or or explicitly um announce i don't know how it's how it's going to be done that for example and and as as as i've said it was i think in 1942 or 1943 it was already uh introduced but but yield curve control was only uh introduced during war times never in peace times but back then um they pinned um the short end the the the bill rate at 0.37 percent


and the long end the 10 years at 2.5 so basically they would said would say we buy whatever it takes how much as pos as it needs to um guarantee um those levels so it is basically a quantitative easing without any limits and i don't know if it will be as i said implicitly or explicitly perhaps it's it's enough if um jay powell or whoever says well we've got the bazooka in the basement uh so dear market don't even think about uh getting 10 years above 2 or 2.5 percent or perhaps the market will test


the federal reserve but i think it will happen at some point i also think at some point the federal reserve will start buying equities um so they have to this will happen and therefore i think honestly mike i think that in a crisis we're seeing quite a lot of uh creativity and new measures being implemented so so of course um there's this um diminishing marginal utility and it has to be more and it has to be more extreme but i think they've got still some aces up there up their sleeves yeah but as you


stated yield curve control they've got to create a lot of currency to do that because basically you know if if you've got a bond that's at uh 2.5 or something like that but inflation is running over 5 which it is right now that means any investor is losing more than 2.5 and so uh in order to hold it there uh investors aren't going to be buying those bonds it's got to be the central bank that's buying those bonds and they got to do it all across the yield spectrum all the different bills notes and bonds


they've got to be buying and selling these things to target those certain percentages and what happens when the average investor is seeing these big negative rates and the currency supply exploding you know big negative real rates i'm talking about where inflation is way above these targeted prices and the governments the central banks have to keep it down here because otherwise the cost of the government debt the the national debts around the world explodes and then the whole game is basically


over with at that point because governments will not be able to afford to make the their debt payments uh um this what happens to gold in this situation where they're printing currency and they're making the safe haven asset you know supposed safe haven asset i consider it consider it uh uh return free risk to uh paraphrase uh i think i can't remember yes yes jim grant uh return free risk is what you're buying with a bond a bill or a node and uh and here if it's negative you're


actually paying to own it because of inflation and if the private investors turn away from bonds then the amount that the central banks have to buy to keep those interest rates down so that governments can pay their debts explodes and when that explodes the quantity of currency explodes which gives investors an even greater expectation of future inflation what's going to happen to gold and silver well that should be the perfect storm for for gold and silver but also probably for four commodities because um in such an


environment yes exactly um so perhaps we will even see those uh invisible sculptures at higher prices so i don't know but i but that's that's really the perfect storm for for um real assets yeah um you know when i said anything real uh i want to uh remind all of our viewers that uh the currencies are just numbers that they type if they're as real as the invisible sculpture i want to thank you very much ronnie uh for uh your insights in this continuing saga of the incremental ag's in gold we trust


report thanks so much ronnie thank you mike it's been a pleasure