[Music] [Music] I'm Charlotte McLoud with investingnews decom and here today with me is Adrien dat president of Adrien day Asset Management thank you so much for being here great to have you well thank you sha good to see you again good to be catching up with you of course as always and it's nice to catch so soon after the latest fed meeting because usually the FED comes up in our talks yes so so we'll talk about them again we got um they left rates unchanged which I think was widely expected I wanted to check in


with you and see if there was anything that stood out to you in the statement or in the PO comments afterwards yeah not really it was I think it was more or less as it was expected I mean a lot of people have said it was a very doish press conference um you know I'm not sure if that's true poell you can tell Powell is is is trying very hard to get across the message that inflation is they're going to keep on until inflation's beaten but there's always these nagging considerations in the


background um that are holding him back so yeah I I there was nothing really outting to me yeah I think I've been hearing that from quite a few people so yeah let's let's look at I think what people are wondering now is is is the F done hiking and let's let's get your thoughts on that well you know the interesting thing is they just released another Dot Plot you know where the FED members the 19 members of the FC um say what they're expecting and 12 out of 19 12 out of 19 are still


expecting another hike this year that's as of as of Wednesday as right now they're expecting another rate hike this year I I think prer and I think Powell in particular would like to have had another rate hike just to show just to show hey we're really serious but the war intervened and now you've only got December left so maybe they will maybe they won't in some ways to me that's not the important point the important point is how long will they keep rates at their current level so frankly if they


go up another quarter point to 5 and 3/4s it's it's not a huge deal one or the other the important thing is how long they keep them high because as many people keep emphasizing Peter bvar among them one of a Smart's economists out higher for longer is tightening because as you keep rates high for a long period of time more and more companies more and more households get into that higher interest rate bortex so you only have to look at for example corporations so you look at corporate debt and and relatively little


corporate debt came due this year but you look at next year it's almost twice as much comes due and if you look at 2025 it's another 50% on top of 2024 so if they keep rates High throughout 24 and into 25 then more and more corporations who've escaped the higher interest rate I mean it might affect their customers but it doesn't affect their balance sheet they've escaped it because they rolled they rolled over their debt for 3 years or 5 years or whatever it was um more and more


corporations are brought into and have to refinance and if a company a good quality company refinance 5 years ago they were probably paying 3% maybe now they'll be paying 8% you know they're paying double more than double yeah and you know another topic that we have touched on before is is the lag effect right so I wanted to bring that up and I think we had said you know it takes 18 to 24 months to feel the effects and it seems like we're coming into that that 18mon kind of time frame


so yeah absolutely and again this this is a a a theme that I've um that that that that I've mentioned many many times in many of my talks everybody investors economists politicians were all impatient these days we all expect things to happen especially if they're inevitable we expected the the inevitable to happen much sooner um than then it it will than we should so I did some work on I've always said 18 to 24 months as you ju as you just said well I looked to all of the recessions going


back to the 1960s and if you look at the time from when the FED first raise rates the initial rate hike to when the uh recession started it's an average of 22 months so that's the average and I would argue I would posit that this one should even be longer and it should be longer for two reasons um uh sorry what's the first one Mo of a second one it should be longer for two reasons um we had an extraordinarily long period of excessively easy money that enabled households and corporations to repair


balance sheets we also had the coid um handouts and so people have refinanced people refinanced mortgages uh corporate ation rolled over debt and so you know mo virtually everybody in some way or another took advantage of the zero interest rate environment of course we didn't pay zero but they took in advantage of a zero rate environment to to extend that debt and to lower the interest rates the only institution that didn't of course was the US government which I think is Criminal I think it's


criminal but the treasury secretary when rates were zero a negative in Europe a negative in Japan Jaan and the US was clearly the the most uh the most uh dominant um economy in the world why the FED didn't issue more 30-year bonds let alone 50 and 100-year bonds my goodness if Austria Austria issued 100y year bonds if Italy and Argentina of all places could issue 50-year bonds surely the us could have of course they didn't want to issue a 50y bond because they'd have had to pay 2 and a half% as opposed


to a quar % on short term so anyway the point is there is a much much longer Runway now people's balance sheets are stronger um the second reason I've remembered the second reason is you know yes you can look at when rates start hiking but it's also important to look at when rates go positive and rates didn't go positive till uh June July of this year so we've only had positive real rates positive real rates um for a few months um so I I would expect that 22 months which is the average to


actually be longer this time uh and we're not at 22 months yet so uh people who people who think we're going to have a soft Landing because we haven't had a recession yet I think well they haven't studied history but they're also just living in Cloud cooko land in my view okay okay I'm going to check back with you again then in we'll probably see each other in January I'll hope I'll check back with you and then then about what's going will be 20 no 21 months


okay not quite not quite not not quite still let off the okay off the hook until maybe yeah we we we'll find you then and see if the effects are coming through okay so this is this is all really interesting and so you started to talk about bonds and this is a situation the bond situation that I hoped you could help me understand a little bit better so I from what I understand at a really basic level we' got higher interest rates pushing up the bond yields this hurts prices and then I wondered if you could help break down


what's going on maybe talk about how this situation plays out as we go forward okay well of course you know and everybody knows that higher yields being lower bond prices so that's always sometimes when people say bonds are going down they said no no my bonds are going up nobody yields going up the bonds are going down okay um so we have a situation now it's a to me it's a basic I mean primary thing is is supply and demand you've got a huge increase in supply of treasuries and that treasuries


is coming from from this year and next year that that Supply is coming from three factors one is the increase in the deficit so the government has to issue more bonds to cover the deficit the second one is that we had a um the second one is that we had uh a moratorium on issuing on issuing treasuries during those uh government lockdown negotiations of the debt sealing negotiation sorry I get all these um all these panic panic uh negotiations confused the um uh the dead ceiling negotiation was early in the


year so the FED couldn't of the treasury couldn't issue any treasuries during that period so we have a catchup and that catchup you know is as much as another another trillion dollars of bonds before the end of the year and then the third factor is the one I just mentioned earlier which is a treasury issued at shorter at shorter maturities so if the treasury's been issuing a one two and threeyear maturities obviously we have more treasuries maturing this year than we would have if they had issued a 30 years


so put all those things together and you have a much higher supply of treasuries than we have for the last few years at the same time as we got a lower demand and the lower demand comes from if you look at what what have traditionally been the largest buyers of treasuries for fed number one people don't realize that fed is the largest buy of treasuries well a Fed with q is not buying treasuries anymore then the second one is the large foreign buyers if you look at the largest foreign buyers traditionally is China Japan and


Russia well Russia's not buying any anymore China's not buying anymore they're not heavy sellers but are not buying and Japan also has actually has turned net very small net seller when the Japanese economy is a tangent but when the Japanese economy when the Japanese interest rates move a little bit into positive territory a lot of Japanese institutional money insurance companies corporations have put their money abroad for the last 10 years are going to bring it back when they bring


it back that means they're going to start selling treasuries but for now for now you just have the FED not buying the largest foreign buyers not buying uh who comes next US banking system well the US Bank is banks are not buying a lot of treasuries not right now A they don't have the money cuz people are pulling the money out to put it into money market BS and secondly they saw what happened you know the cause of the banking crisis back in April so there banking banks in the US are buying less


I'm not saying I'm not buying any but they're buying less and so the treasury market is dependent upon Pension funds Insurance funds hedge funds a lot of hedge funds in the treasury market and they simply demanding a higher yield they're demanding a better price before they buy and so we've seen in the last two weeks we've had last week we had a uh threee 10 year 30 year all of which I won't say they failed but all of which were considered very bad auctions with very long tails and a lot of a lot of


the bonds were kept on the books of the dealers I know I don't if you know how it works but there's a bunch of Treasury dealers who sell the bonds guarantee that they will be sold and if they're not sold they remain on their books and so the amount the percentage are remained on on that books was much higher than normal this year we had this week I mean I think it was a 2year correct Me 2 year 5 year and another 10 year I can't remember but two of those three were also bad bad auctions so the


point is the market both at the short end and the long end is demanding higher interest rates people do not want to buy long-term or even M medium-term treasury bonds um you know unless they're compensated for so I think I think what we should take a look at now is you know we've talked about all these different fact going on in the broader markets can we relate it back to gold and what's happening with gold yeah no absolutely so I mean basically I think it's very very clear that a recession is


coming a lot of people when you say recession they automatically assume Gold's going to do badly in fact again if you look at all of the recessions back to the 1960s gold itself gold bulling gold went up in every one of those recessions except one and the one that went down it went down less than half a percent so not a lot so gold has typically done very well in recessions if you look at gold stocks the gold stocks were up in everyone there like nine of those recessions they were up in like six


they're down in three so on Balan they done pretty well but even in the ones where they were down they beat the S&P so the lesson from that is a gold will probably do very well will do well in the recession uh gold stocks will probably do well in the recession but they will also probably beat the rest of the market and I'll just you know I hate it when people play with Statistics to get the answer they want you know was it Paul krugman's got this wonderful new inflation measure that excludes not only


food and energy but I think it excludes um oh it excludes housing as well and if if if you don't eat drink or or power or light your house I mean well what's the problem guys everything's fine fine um but but I will say that if if you took if you started your measurement of that uh of of what I just said if you started your measurement one month after the recessional started then the gold stocks were up in every single one so and that's logical when you think of it when a recession starts people are moving out


of stocks and they're moving out of volatile stocks cyclical stocks so gold stocks get hit but then people when people look for a safe haven they come back into them so anyway gold stocks I think if we have a recession I don't think we should be afraid of golden gold stocks um now of course I forgotten what the question was oh we were just talking about where where was gold going to go on all of this so I think you did answer the question so I mean that's from the point of recession you've got higher


interest rates and higher interest rates the market demanding higher interest rates that's not necess again historically that's not necessarily a negative for gold at all though people think oh high interest rates bad for gold you know what people think is a positive for gold namely Wars turns out to be much less of a positive than people assume and you know you can look at the last 30 years or the last 40 years in fact and geopolitical events however serious they are they tend to have very they tend to have a positive


effect on gold but they tend to be very short-lived that was true of 911 it was true of a Russian Invasion last year we had a spike when when I mean gold moved up a week ahead of the invasion on on anticipation we had a spike when when the Russian tanks started rolling over the Border within 3 months gold was back to where it was before so the geopolitical spikes tend to be very very short so that's that's not something we should well first of all I mean just as human beings we don't want to hope for


tragedy in order for our goal to go up but just an investor that's not something we should pin our hopes on our expectations on it's it's more the dollar interest rates the economy these are the things that are going to affect gold right and okay so going back to the conversation we had in July this this fits with what we're talking about then you mentioned you saw the best value at the time in Gold stocks you also mentioned um oil stocks which I didn't follow up on at the time but I wanted to


just check in with you on oil stocks as well because we know in the gold space you really like royalty companies yeah what what's your thoughts on oil stocks well I think again for yeah I'm not an expert on the oil pel I think for most investors who are not you know dedicating half their life to studying something like a lot of people here are looking at the Gold stocks day in and day out I think you are better off sticking either with the big um uh uh uh International um Diversified companies


like Exxon or Chevron all verality companies one we own for example is one called Dorchester it's an LP and that's the problem you know in in the oil space most of Roy companies are limited Partnerships some investors just don't like limited Partnerships because you get those k1s that you have to put on your tax return and you know it's it's I mean most people these days have an accountant so it shouldn't really be a big deal you just say to your accountant hey I got a K1 let them deal with it but


a lot of people just don't like it but most of in oil face most of a good partner most of a good royalty companies most of them are royalty companies so uh the one I just mentioned dochester master limited dochester minor is called dester minor limited partnership dmlp is a symbol trading around $28 that's got a yield over C yield over 12% and it's well-run good quality conservative um you let's not forget these are wasting assets um but but this is not at the end of its life by any means that's another


thing I'll just make attention people know this but they forget it sometimes when they're buying things you know anytime you're investing in something that's a wasting asset it's really important you look at how what's the expected life left you don't want to buy something with a 12% yield and then find that you know it runs out of oil next year obviously no it's still still a good point still relevant for people to remember well you you forget you get excited 12% wow let's buy that yeah but


yeah I but but I'm I'm not buying much in the oil space right now because I think a lot of the a lot of the oil companies have have have just gone up a little bit too far too fast I mean obviously oil has moved dramatically oil was already moving of course before uh the Hamas um uh terrorism incident but um uh but it shot up after that so I always hate to chase prices when you see some shoot up like that you know the likelihood is that it's going to settle back at some point so I would just pause


a little bit the other thing that makes it very difficult and again people don't always think about this but when you're look in at cyclical Industries mining in general uh as as well as oil and gas if you're a fundamentalist investor like I am a value investor like I as I am um you can get very confused because the multiples will tend to be very high when the stocks are actually at their low and the multiples can be low because the cash flow increases so a cash flow increas is more than the price


of a stock so at the top the multiples at the top the multiples will tend to be low and so as a value investor you can sometimes get you can sometimes get a bit tricked by that and see low low multiples and think oh well that must be a good buy similarly you see high multiples and think well I'm not I'm not going to buy that so the multiples on a lot of these EMP companies expiration and production companies for smaller ones are quite high right now um but I think a lot of them are in a bottoming phase the thing


to really look at to me is about balance sheet how long can these companies last um how long can these companies last before oil and gas prices are sustainably higher now of course we have good oil prices right now we don't have good gas prices okay thanks thanks for going into that that was that was interesting I think as we are wrapping up I just want to check in and see if you had any advice that you would leave infestors with at the moment yeah I guess two things one is as as I said just you know


if you if you have a scenario that makes logical sense to you and it seems inevitable to you don't get too impatient things always take longer to play through than we expect them to always that doesn't mean you have to be stubborn and refuse to change your your mind but just be patient and I think if you're buying I'm I'm now talking more about the seniors but the other thing I would say is if you're buying the high quality senior Miners and royalty companies right now don't get up be patient don't get


upset that they're not moving more rapidly well they're moving but in the right direction um you know if you buy AO under 50 you're buying a great company at a great price and in 18 months or or 24 months you're going to be very very happy you bought it and whether it goes to 46 or 49 just don't get wrapped up in that kind of stuff okay I think I think that's a nice place to finish it up we will check back with you when it was 22 months come let's see what you have to say but thank you so


much for coming on to talk about what's going on in the market oh well thank you very much for having me Charlotte of and once again I'm Charlotte McLoud with investing.com and this is Adrien day thank you for watching if you like this video make sure you subscribe to our Channel we'd also love to hear your thoughts so leave us a comment below we'll see you next [Music] time