Market BUBBLE To Pop (Uncut) 03-08-2025

Market BUBBLE To Pop, Here Is Why & How To Profit | Diego Parrilla

My inflation is different from yours and different from all the listeners here. So the idea that inflation is one single number is part of the game. They’re trying to make us believe that inflation is this one thing, very precise, 2.0754. No, it’s not a single number.

And that’s point number one. Hello and welcome to Soar Financially, a channel where we discuss the macro to understand the micro. My name is Kai Hoffman.

I’m the Ed.J.R. Mining guy on X and of course, your host of this channel. And I’m looking forward to welcoming a first time guest to the program. It’s Diego Paria.

And he’s a best selling author. You might have heard the anti bubbles or the energy world is flat. He’s also a guest lecturer over at the Imperial College in London.

And he’s a chief investment officer over at Kutriga Asset Management, somebody who’s got a wide ranging knowledge of the of the markets. And we’re going to tap into that. His book titled The Anti Bubbles already gives it away what we’re going to talk about bubble behavior, bubble investing, and how do we protect ourselves and what are some potential solutions to the overall crisis that we’re seeing in the world.

So buckle up. It’s going to be an interesting and fun conversation. I just had the pleasure of chatting with Diego for a couple of minutes before hitting the record button.

And we got some interesting topics lined up that we’ll go into. Before I switch over to my guest about 80% of you watching are not subscribed. Please change that it helps us out tremendously.

And we do appreciate it a lot. So thank you so much for that. Now, Diego, it is great to have you on the program.

Thank you so much for joining me. Buenas dias. It’s my pleasure to be here.

Thank you. Yeah, really looking forward to this. It’s great to have you on the program.

And maybe to gauge where where your head is at and where this, you know, conversation will be heading. Give us a bit of an overview. What’s your assessment of the economy and the financial markets right now? Well, I think we’re now entering a new phase.

Obviously, Trump and the tariffs, I think, are a bit of a game changer. And potentially, we’re heading into what could be a perfect storm, I think, for for hostile markets. If you think about, you know, what it means as the tariffs, I mean, first and foremost, was there’s a lot of debate, I think, they’re very inflationary.

And that’s, you know, point number one, it’s probably the one of the weaknesses of the system is it’s higher inflation, because it prevents or central banks potentially from from from easing, which is much needed. The second thing is bringing a lot of uncertainty. And I think this is if that uncertainty holds on for a while, they’re, you know, very clear precedents and studies that show that it has a direct impact on investment on economic activity.

And I think you can also hit on volatility. And we’re already seeing volatility picking up in markets, I think FX is particularly picking up markets that historically have been much more muted, we’re seeing big moves. And I think volatility is contagious.

So if you look at the combination of inflation, lower economic growth and, and volatility, I think it’s a it’s a triple whammy, that can actually compound into, into interesting situation. I think that looking at that, historically, we’ve seen, you know, 6040 balance portfolios being this idea that, you know, you’re going to be upset by each other, but precisely, you know, the manipulation of monitoring fiscal policies and the risk of what we call cold drawdown, which is fixed income down and equity down at the same time, effectively, what we saw in 2022, it’s that Achilles heels of financial markets, because it exposes a lot of false diversification and hidden leverage. So as we do that, and you add volatility in the mix, and potentially geopolitics and other dynamics, it’s not a very healthy environment.

If you add other big drivers that have been fueling the market, such as AI, and the AI bubble, I think there’s a lot of similarities to 2001. It’s pretty obvious that it’s a game changer technology. There’s the world is going to be, you know, there’s a before and after what we’ve seen.

But having said that, we know that the markets can go, you know, this, this technology is going to attract a lot of capital, you can create significant overcapacity, we’re really seeing, you know, multiple competing products and things that, you know, theoretically, and the valuations are telling you, like with Nvidia or others that, you know, there’s a lot of beliefs that have been driving this huge valuations that starting to be to be challenged. And I think as you have the game, you know, this game changer technology with the huge investment, huge capacity, you could eventually lead to almost overcapacity, as we saw in the dot com bubble and others. And that can effectively take a lot of valuation from, you know, a lot of write offs and assets that eventually will result in a flatter world in a world where, you know, we’ll have big winners and losers.

But I think the, those headwinds that we have from this technological move is starting to fade a little bit. And I think that could, you know, be exposed also by this pickup in volatility and positioning. So it’s certainly a period to be prudent.

At the same time, and as I always say, you know, mommy and daddy, central banks and governments know this well. They know and we’re seeing, you know, just Germany in the last couple of days going again with another historic move, basically looking to lift some of the debt limits and going heavy for defense and others. So in a world where, you know, governments and in general, the world is very indebted.

You know, can we take even more debt? And is that, where’s that going to be funded from? And how are we going to cope with higher yields? And I think there’s no question that in my mind that central banks will have to step in and print more money and yield curve control will be one of the mechanisms that I think will be required to contain the surge in yields. And this brings us back to inflation again, as you effectively transforming what is a credit problem into an inflation problem. So I think it’s all back to the book, you know, the idea that the misconception that when you have a problem, you can solve it through monetary and fiscal policies, i.e. by printing money and debt.

It’s a gross misconception. We’re not really solving any problems. We’re doing four things.

We’re delaying the problems, kicking the can down the road, how far we can do that. Number two, we’re transferring the problems. For decades, we’ve looked at currency wars and beggar-thy-neighbor policies.

We’re now shifting to trade wars. Third, we’re transforming the problem into inflation and inequality and social unrest. And that brings geopolitics.

And fourth, this is not a zero-sum game. It’s actually enlarging the problem. So I think the thesis is being reinforced with the passage of time.

And arguably, I think the tariffs could be one of the catalysts that exposes some of these dynamics. So challenging times ahead, a lot of risks, I would say, but there’s a lot of opportunity as well. That was an excellent overview, Diego.

I really appreciate that. Lots to follow up on, of course, that we can get a bit more granular and more detailed on. But I think that was a very good overview of the overall situation right now, that what is happening.

Maybe we’ll start with… I’ve taken so many notes, I have to admit. Maybe we’ll start with the inflation debate and what’s driving inflation right now. What was originally driving inflation? I think there’s still a debate about what drove inflation to 9% in the US.

Was it just monetary supply or was it supply and demand on the product, on the physical side? So I’m curious what your thoughts are on that. And what is driving inflation higher as we speak right now? We’re sitting at 3% in the US. It’s coming back in other places as well.

So what are your thoughts on inflation here? Let’s start with something very simple. The… My inflation is different from yours and different from all the listeners here. So the idea that inflation is one single number is part of the game.

They’re trying to make us believe that inflation is this one thing, very precise, 2.0754. No, it’s not a single number. And that’s point number one. As a corollary of that, I would say that official inflation is total and utter BS.

It does not represent the real increase in prices. It’s a basket that is manipulated and changed. We’re moving the goalposts.

And third, the actual real inflation is significantly larger than official inflation. And that’s kind of, if you think about the compounded effect of inflation, it’s not a coincidence that we have a 2% inflation target by most central banks. People wonder, where did that 2% come from? My view is we’re all frogs in a monetary broth where the official temperature is increasing at 2% per annum.

And that is sort of low enough that us frogs will stay in the water, but high enough that we will die boiled over time. And I’m old enough to believe that 20 years is not what it used to be. And what I mean by that, yeah, they go fast.

Your 2% over 20 years is 40%. And that’s ignoring compounding. If you look at inflation at 3%, 4%, 5%, 10%, effectively the tax on cash, the dilution of wealth, the loss of purchase power, it grows exponentially.

And this is the game. The central banks and the governments play the game where they make us believe that inflation is under control, is low. And yeah, they can effectively have a first mover advantage because they can borrow and spend.

And they get the benefit of that today. And they will pay you back with some $100 in 10, 20, 30 years that will not buy you a piece of tuna. And so I think this inflation, it drives everything.

And this finance monetary party that we’re witnessing worldwide is being financed by cash and fixed income investors. And as you switch your brain from thinking in nominal terms, oh, I’m earning a 3% yield. That’s nominal.

That’s good. When you factor in the real inflation, it’s obviously a loss. And if you’ve added taxes and other things, then this makes things even worse.

So I think the entire game is all about inflation. And inflation has two very big components. It’s inflation itself, like 2 plus 2 equals 4. But then there’s inflation expectations, which is really what gets central banks really nervous.

Because when inflation expectations go up, that’s when central banks start losing control. As frogs start to jump off the monetary broth, we don’t longer want to be in those yields, in those bonds that are paying artificially low levels that are effectively diluting us. And as we are forced to, or we willingly jump because of inflation expectations into real assets or equities or other things, effectively, they get in trouble because they borrowed way too much and they need to refinance themselves.

And this is why mommy and daddy, the central bank needs to step in with print money and lend them at those artificially low yields, which effectively creates inflation and feeds the problem. So arguably, the damage is already done. And I think inflation is like the entropy of the universe.

It only goes up. And yeah, I think it’s very much at the cornerstone of global financial markets. It’s always been.

But I think the bluff is in some ways being called. But you can see how they play this idea of deflation is the enemy and finding, you know, always excuses for spending more and borrowing more. Last few years was all about climate.

Now it’s going to be all about defense. I mean, we just need to keep the thing going and spending and borrowing. And in the frogs are being diluted and paying for this party.

Now, I love the frog analogy. It makes sense. Two percent a year.

But the question is like, it seems like my kid is fiddled with the oven or the stove because it wasn’t two percent for the for the longest time. For the last five years, it wasn’t really two percent. And the target is out of reach.

We got close. Two point four percent, if you believe the official numbers, if we go by that. But we’re back to three and it’s trending higher.

What’s the new goal for you? Where do you think inflation will end up? Is it constantly ticking up higher? What do you think? What are your inflation expectations? I think inflation expectations are picking up and I think they can accelerate. And once they accelerate, they’re difficult to stop. And this is why central banks need to be forceful about it.

And and I think we’ve seen it. We’ve tried. And on the other hand, we’ve seen one of the, if not the biggest financial fiscal expansion outside of war in history.

And this is very addictive and very difficult to to unwind. So, you know, you think about initiatives like like Doge or others and of course they’re needed. But if you actually do the numbers and you compare the total size of what Doge could do relative and you compare it to what difference does it make in basis points for the cost of borrowing of the country and financing.

And it’s almost negligible. I mean, what really matters here is for the government is in some ways how much that they have. Can they afford those higher yields? Are the bond vigilantes asking for them because of the imbalances? And so I think to your point, I think it’s going to be difficult if we have a crisis to send yields back to zero when we all know that inflation is the genies out of the bottle.

This has pretty deep implications for many things, including how reliable, not only reliable, but how reactive and how much defensive power does fixed income have. To make some very round numbers, you know, if you’re holding 10 year treasuries at four and a quarter percent and yields went to zero, you could gain potentially up to 42 and a half percent in capital gain. Just doing some very simple math.

The reality is if rates don’t go all the way down to zero, if let’s say 2% was a new floor, then obviously the fixed income is not going to defend you as much as you thought. And if on the other hand, inflation is so high that we actually can’t even cut, which I think we will if we have the really big crisis coming. But in the meantime, I think that 2% to 3% will probably be within acceptable levels.

Again, it’s inflation numbers, so it’s complete BS. Having many friends in Latin America and talking about this, like, guys, you’re our teachers. Where are we heading into? Tell us.

They would tell you that 5% a year is not a problem. Once inflation expectations kick in, it’s 5% a month when just the entire system just implodes, right? Nobody waits to buy their sneakers for a few days. So it sounds very far-fetched that we’re going that way.

But I think that the combination of fiscal expansion and basically the inflationary pressures that we might see through tariffs, which in my latest newsletter, I’m sort of talking about the three Bs, bluff, bargaining, or belief. And I generally think that Trump is all of the above. I think he’s kind of bluffing a little bit, but that would imply that he’s just not going to use them.

I think he will. So it moves us into bargaining, which is, look, I’m going to threaten you with this and I will impose some, but not as much as I said, because I got away with what I wanted. Or third, is this really a matter of principle? Am I going to do this? Because I fundamentally believe that China has been abusing the system and whatever else, and we need to defend ourselves.

And whilst I think there’s a bit of the three, I think the belief will prevail. And I think the market is not ready for it. And I don’t think we fully appreciate what it means to the world, because it’s going to hit us where it hurts most, as I said at the beginning of the discussion.

It’s uncertainty, it’s inflation, it’s lower economic growth, and it’s volatility. It’s a dangerous combo. Yeah, let’s stay on that tariff topic a little bit.

And I’ve had that conversation in Canada. I was in Toronto earlier this week at the PDAC, the world’s largest mining conference. And the debate went around tariffs, of course, because they were announced or re-announced that weekend, and they came into effect on Tuesday.

But everybody says, let’s just wait and see. Don’t worry about it. It’s a lot of talk.

It’s a mix of bluff and believe. Yes, it’s being used as a bargaining chip. But has the market lost confidence in what Trump is saying, perhaps? Or is it starting to follow a different narrative? Because just this morning, I woke up and I read in the FT that he’s rolling back tariffs for a month, at least on the auto industry, and potentially other concessions being made as well.

How serious can we take that now? He’s only six weeks into the office. How much of bluff are we calling that bluff at some point? Or is the market calling that bluff? Look, I think Trump is in a position of power. He’s surrounded by very smart people.

They know exactly what the consequences are. And I think they will try to lead him out of taking measures that are too aggressive. But I think he’s going to do it.

He’s used the word pain, which doesn’t really come out. I never heard that much from him. To me, he actually knows it’s going to be painful.

And if you’re a boxer and you want to punch the other guy and knock him out, you’re going to take some punches yourself. So I think he knows that he’s getting into a fight. There’s going to be some punches thrown and he’s going to get hit with a few.

But I think he knows, and I probably agree with him there, that the other guy is going to be much worse off. I think in this battle, those who have abused monetary and fiscal policies most, those who rely most heavily on beggar-thy-neighbor policies, where they’re effectively abusing monetary policy to dilute their currency and lure people into sending their money, their technology, their investments, their jobs abroad just because they’re 20% cheaper. That’s what tariffs do.

They are like, you devalue by 20%. Cool, I’ll tariff you by 20%. And so I think this is sort of checkmate on those economies that have been abusing monetary policy in a way where it’s always portrayed as a domestic issue, but it’s not.

The only reason we ever have negative nominal interest rates in Europe, which is a complete aberration, it’s because we wanted to devalue the euro and the Fed was at zero to take my argument further. Had the Fed been at 2%, we would have never, ever, ever seen negative nominal yields, or rather, interest rates in Europe. Yields is a different story.

But so I think in that sense, this is an absolute and relative game. And I think they’re going ahead and the question is, how bad is it going to get? And as it happens, always reminds me of this amazing philosopher, Mike Tyson, who would say, everyone has a plan until they punch you in the face, which I think is one of the most important lessons for many people and certainly policy makers. They have all these great plans until the market just punches you in the face.

And we’ve seen it so many times, right? And effectively having to unwind things. And we know for a fact that mommy and daddy have plans, they try, they wishful think, they do things, but ultimately, they always go back to the same old, same old, which is more printing and more debt, which is effectively why from a game theory perspective, the system is designed to finish in stagflation. No, I think we’re already in a stagflationary environment anyway.

You know, growth in the US has slowed down again, like from 3% GDP to 2.3. And you still can debate whether those numbers are real or not, whether we’re actually seeing actual growth, and whether there’s underlying growth without the propping up and the deficit spending. That’s the something we can debate as well. But on the tariff debate real quick, Diego, curious what your thoughts are.

You hinted at it, and you mentioned it earlier, but I want to get just a tad more granular is tariffs and inflation, like the correlation there. I’ve had guests on like Peter Schiff said, don’t worry about it, tariffs are not inflationary. Maybe a one time effect, but not over time.

What are your thoughts? And how do you think the tariffs, especially on Canada and Mexico will reflect on US inflation numbers? Well, I think you can create as many theories as you want. We look at history, and I think it’s clear they’re inflationary. And just by construction, they’re going to increase prices on both sides.

But I think they have second order effects, which are deflationary, because as prices go up, you destroy demand. So that’s the stagflation side of the story. And given the fact that the situation is already fragile, I think that will require the monitoring fiscal response, which is inflationary again.

So I think what the path looks like and how fast it happens and whatever we’ll see, but I think it’s, in my opinion, it’s inflationary. But again, we were back to the point earlier, it’s going to, there’s not a single number of inflation, it’s going to depend on who and where. But by design, I think sometimes we try to overthink or overanalyze, I think this thing is designed to be again, inflationary at the outset, and you will have second order effects.

But ultimately, I think it’s bad news as it’s stagflation. Let me bring up, I just want to show a chart real quick. Nothing crazy.

It’s just the VIX index. I hope you can see Diego. But my point is like it’s been going up dramatically.

We’re at 23. Personally, I’m not like the VIX is still a mystery to me, what it means. I haven’t spent too much time studying it.

But I’ve seen it back in August, it was extremely high. And we’ve seen the liquidity drain out of the markets, although it was only temporary. What is the high VIX number, the 23.5 tell you right now, like you said, volatility is coming back.

But what is the impact? What does that mean? And how does the consumer like being is it being affected here? Well, let’s explain in very simple ways what the VIX measures. So the VIX is a measure of implied volatility. And for those who, you know, to bring things into normal lingo, and so that you can calibrate whether it’s high or low.

A good rule of thumb is to remember that, you know, VIX at 16%, approximately, it’s actually the square root 252. But around 16%, it’s consistent with the implied daily move in the S&P of 1%. And that is linear.

So a VIX at 32, it’s roughly consistent with a 2% daily break even on the S&P and 48 with the 3% and so on and so forth. So the 36, 48, 60, so 3, 4, 5. Now, in that sense, the VIX is an anti-bubble. The relationship between the equity and the VIX, it’s inversely related.

So you have periods when equities collapse and volatility increases, it’s a measure of panic. You have periods, on the other hand, of extreme complacency, where, you know, volatility is low and equities are high. And they in fact, follow what I define as a reflexive relationship, they kind of feed on each other.

So artificially low volatility can contribute to artificially high equity prices, both through qualitative and quantitative drivers. You know, qualitative is complacency, mommy and daddy have her back, there’s no risk. And quantitatively, you have things like CPAs or trend followers, risk parity, vol target, strategies that as volatility goes down, they lever themselves up.

And as volatility increases, they’re forced to unwind. And in some ways, that dynamic between the S&P and the VIX is very important. And what we’re seeing with the pickup in volatility is consistent with levels that are implying that the S&P should be moving in the 1.3, 1.4, 1.5% daily, which it’s actually on the higher end.

But it can go substantially higher if things do break down. It has been, as an insurance is a market that it has a lot of risk premia. So people buying the VIX or call options on the VIX like we do, you’re effectively buying options or on volatility or volatility.

This insurance market, you know, if you want to sleep at night, and you want to buy these things, they come at a cost. It has a very steep negative cost or negative carry as we call it. And it’s, in fact, so attractive that it can lure a lot of complacent people into going very short.

And so these things can actually explode and on their own, right. And as volatility increases, it actually translates into higher value at risk, it translates into higher margin calls, and it can actually trigger the sell off and compound with moves in correlation and liquidity. So the VIX is extremely important is sending us a bit of a signal.

Beyond the price itself, I recommend that you look at the shape of the curve. And so the VIX as futures, what you posted there is the spot index, which is not really tradable, it doesn’t really mean much. When you buy the futures, and you roll the futures, you buy things like the ETF, they’ve been weapons of wealth destruction, I mean, they’re really erode value in a massive way.

So it’s an instrument that is tricky. But what is interesting is the market is in backwardation. And both for commodities and volatility, this tends to be a sign that this is sort of for real.

The market hasn’t, you know, I think a little bit like from a Darwinistic perspective used to be a very reliable signal. So when commodity markets like oil or the VIX move into backwardation, so the front futures above the spot futures where the normal shape is a contango, as you move into backwardation, it’s like a green light for potentially higher vol. I think a lot of people have been trading that signal.

So the market defends itself, and it’s kind of been chopping a lot of people that are playing that. But I think it’s a sign of concern. The market is telling you, you know, I’m willing to pay more for implied volatility.

It’s a time to be, you know, playing safe and buying more insurance. Realized volatility is also increasing, although it’s not realizing as much as the implied. And the skewness in the shape of the curve is starting to tell you, you know, that this could be a little bit for real.

So, you know, the next few months are going to be interesting. And I think looking at the valuations in equity markets and the absolute level of the VIX is, I’d say, moderate. It’s, you know, not as low as the 15 or, you know, that we’ve seen the last few months with more complacency.

But yeah, it’s a fascinating market. We follow very closely. We traded a lot.

And it can offer, you know, probably one of the most reliable reactive sources of protection during two and three Sigma events. But it’s probably one of the most expensive in terms of cost and carry. So, you know, it’s timing is quite important.

And, you know, you need a lot of science as well into, you know, how do you play it with calls or call spreads, or it’s a fascinating market. It gives you a lot of information. And it can be it can be a very powerful part of the team.

No, absolutely. And in terms of indicators of what’s to come, Nick, I’d also look at the bond market on it on a daily basis, just to see where the 10 year yield is. And it’s come down, meaning I would assume the bond vigilantes have left the party for now.

Maybe they’re outside for a smoke. I don’t know what they’re doing. But it seems like they’ve retreated.

Just a couple weeks ago, we did interviews talking about where’s the bond? Where are the bond yields headed? Is it 5%? Is it 6%? Now we got to talk about 3% almost like it’s it’s trending down the yield. What is that telling you? What are you making of that? Well, first of all, I think there’s clear alignment from the government to to have those yields as low as possible. Can they do it on their own? Theoretically not.

Because they’re borrowing ever so more. If the central banks come to the rescue, and the last round of cuts, we saw something quite interesting, which is, you know, the Fed was cutting the front end and the market was saying, no way. And we have a steepener.

And so as front end, which is controlled by central banks, is going down, the back end, which is more freeze is going up saying, you’re just going to create more inflation, you’re going to have to wait there. To some extent, you know, those flows in the back end, again, whether they’re vigilantes or real money flows, we’re still at nominal levels, we’re still we’ve earned the our way to have a bit of protection in terms of duration. So, you know, if equity markets do sell hard, sell off hard, then I think fixed income will potentially come to come to the rescue in at least impartial way.

So, in that sense, it makes sense that the flows will go in there. The other thing that is quite worrying is if you think about, you know, the talk about Japan and, you know, hiking interest rates and the big level of debt that they have, and potentially the repatriation of money to Japan, which arguably will be buying JGBs at higher yields. And some of that could come from selling treasuries, you know, whether it’s China or Japan or others.

And as you get higher yields, you have that pressure coming from flows. I mean, yesterday, with the big announcement in Germany, we saw the 10 year going up by 25 basis points, that’s, you know, approximately linear form would be 20, you know, 2.5% move in a huge market. So, the long end is not 100% free flow, it’s not telling you exactly what the expectations are for where rates are going to be or inflation.

There’s a big driver of flows and people buying and selling and I think there’s a lot of two way traffic. But ultimately, if things happen, I think they become safe havens and money flows in there away from other pockets. And yeah, so they have a role to play.

The question I was asking at the beginning is, you know, if inflation is the problem, then is it really consistent? Does it really make sense that you flow into them when the underlying problem is inflation? So, that risk of core drawdown, fixed income down, equity down, it’s very vicious. And I always use the analogy that a portfolio construction, you know, portfolio is like a football team, a soccer team, right? I’m Spanish, you’re German. We speak football, I think.

And I would argue that equities are the striker, fixed income is the defender, and volatility is the goalkeeper. So, if fixed income is doing its job and the defenders are defending well, you don’t really need a goalkeeper. But if things really go sour, for whatever reason, or the defender is like the bond with negative nominal yields, I used to compare him with rest in peace, the legend Beckenbauer, right? I used to call France the boom Beckenbauer, because like, one of the best defenders in the world, but at negative nominal yields, the guy is 75, he’s not going to be able to defend that much.

So, I think it’s a critical part of the market is a big pot. It has all these dynamics that we discussed with inflation, I mean, nominal versus real flows, yield curve control, vigilantes, inflation, it’s a fascinating market. And you’re, you’re right.

I mean, we need to pay close attention to it. But in some ways, it might be telling you something that it’s like, okay, let’s pile into this, because I don’t like the other side. Or you could have very different interpretations, like, oh, inflation is under control.

And yeah, let’s just, you know, this is this is a good place to be. I think there’s a bit of truth in all the thesis, time will tell. But, but yeah, I think in the, at the outset, inflationary pressures are bad for bonds.

If the crisis gets bad, you will get that bid. And how far can it go in terms of protection is a question, but I think it’d be limited. And, and ultimately, the answer will be more of the same, which effectively brings more inflation.

And again, it puts the pressure on. So, the end game is currency devaluation. The end game is, you know, the with 100% certainty, all the monetary and fiscal abuse ends up diluting the currency.

And was lots of people are very negative on the dollar. It’s a bit of a dominoes who is who is weakest. And we’ve seen what’s happened in Japan, you know, with with the monetary fiscal abuse.

I personally think China is much more vulnerable to a much, much weaker yen, the euro is loving the fiscal expansion. And I think it’s, in some ways, reflecting the unwind of probably one of the most consensus views that was euro lower. So there’s a lot of pain on the street with euro going from 103 to 108.

In a few days, we haven’t seen such big boofs in a while. And so it brings this huge question of, you know, is the dollar a safe haven or not? And with with the world polarizing and, and all the things that are happening? I think, yes, but that would bring us into a topic we both I think love, which is gold, which is, you know, I think gold, ultimately, in this currency game, that’s, that’s the one you want. And why I think gold, you know, when I wrote my book, it was called the subtitle of the antibubbles was gold’s perfect storm.

And my line was, you know, gold has a few hundred dollars of downside, it has a few thousand dollars of upside. And, and, you know, I think it’s, it’s going to be a market that I think has significant upside. I mean, for multiple reasons.

Yeah. I’m just sharing a meme. I saw it this morning, and you just touched on that.

And it’s exactly like Lushrub shared it on on X, but euro parody, where’s that euro parody? You got the goose chasing the forecaster. I just love that meme. It made me laugh this morning.

I was having my morning coffee. No, but you touched on my last topic that I want to touch on, as I said, or as you mentioned, you’re the author of antibubbles. And to maybe to change momentum a little bit, Diego, as well.

I mentioned it to you before hitting the record button is like, do you sometimes feel like the boy who cried wolf? Back in 2017, you put your book out the antibubbles. Bubbles are visible everywhere. We’ve been pumping money into the system.

It’s only gotten worse with COVID. Lots more QE, bit of QT, but more stealth QE than QT, to be honest. Are you worried that you’re crying wolf and be like, what is the antibubble? And how do we protect ourselves? You touched on one of the solutions already, of course, but are you worried? Is that a concern of you that you’re the boy who cried wolf? Look, no, it’s not a concern to me.

I see myself more like a doctor diagnosing a terrible disease to a friend. I feel that as a doctor, I want to be correct. As a friend, I want to be wrong.

And I generally believe that the thesis that I put out in 2017 has not only survived, it’s actually strengthened. And whilst there were things that nobody could anticipate, like the pandemic or wars or other things, it kind of reinforces the thesis. Every single time that we’ve had a crisis, call it a regional banking crisis in the US.

I mean, nobody remembers that. We had several failures bigger than Lehman, right? And it was a blip. Why? Because they came in, they changed the rules, they printed and borrowed and end of story.

COVID was obviously a whole new level. But even the wars, in Europe, we have this huge problem with energy, and we subsidize energy, which means, okay, become totally price insensitive. And I am going to literally send prices to infinity because people at the pump are price insensitive.

And I’m going to make sure that I have those molecules so my system doesn’t stop. And ultimately, all it does is that those energy subsidies transform an energy problem into an inflation problem, because you’ve just diluted the euro and increase your debt. So I think that this has been reinforced.

But it’s fair to say that I feel like I’m the goalkeeper of the football team. So it’d be ludicrous for me to be trying to score goals. I know my job.

But this is not a game of conviction. It’s not what you know, if you’re the goalkeeper, you’re like, Oh, I think they’re going to attack in the next five minutes. You just you have a role to play.

You’re under the goal and you have to be ready and warmed up and ready for the other team to attack. And so in that sense, I will be the only thing we do is focus about how to defend the portfolio. And we do that both in, you know, volatility and terrorist mandates.

So for those who are investors, they can look at Igneo, Igneo usage or strategy quadriga. But we have another strategy called Aqua, which is effectively long only equity with the overlay. And it shows you that links to my work at Imperial College and the academic work that I do in the power of creating the team, you know, how the upside alpha of equities with the downside alpha protection and the rebalancing alpha can create really amazing teams.

So last year, with S&P up like 24, 25%, the our strategy was up like 28. Something that is strange, because it’s like, how can a strategy that has defenders and goalkeepers beat the strategy with only attackers in a bull market? And it shows you the power of defense, right? I use the analogy of Formula One, where, you know, the Formula One, the engine is your equities is your power is your speed. And theoretically, the brakes are there to slow you down and keep you safe.

So our linear monkey brain say, Oh, if I have a car with brakes, it’ll be it’d be slower. And the answer is no, we are actually way faster. Because the fact that you have good breaks means you can go faster for longer, you can avoid the accidents.

And, and, and that’s exactly what happened. So I think for anybody, you know, you asked me how do we play these markets? I feel that with a 5, 10, 15, 20 year view, inflation is one way I think it’s hard not to be invested. And as a corollary, in risk as a corollary, I think equities have to be a core part of the portfolio.

I think fixed income has a role to play, but the juice is less and I think the long term will be big, big losers from inflation. So how do you marry that? I think the idea is you have to be long equities with protection. And that has to be accumulated and monetized.

If you don’t monetize it, it’s, it’s there’s no point in buying it. And that’s kind of the role we play for investors and how we’re, you know, trying to address what is in a extraordinarily difficult environment, you know, of high risk, and high inflation, but also high opportunity. So yeah, if anybody’s interested in hearing more, just you can follow me on LinkedIn or Twitter or reach out directly.

And we’ll be happy to add people to the distribution list. And but yeah, fascinating times. Let’s see.

Let’s see how the movie plays out. Tell me about it. I’m running a podcast on this topic.

So tell me about it. Um, maybe one last question. We touched on it already.

But it really is gold. I just want to get a bit more insights here from you. Gold has run almost to $3,000 early or late last week, I started calling gold meme gold.

And it was right before gold sort of took $100 nosedive and corrected a little bit. It seems to be heading up higher again. But what are your thoughts on gold? Does it still have that role right now, especially at 3000 that it can protect your wealth? You said a couple $100 downside 1000s of dollars upside.

Does that still apply at 3000? Absolutely, I think, you know, it’s, it’s a long term play. I think, if you look at the screen too much, you’re going to completely lose sight of what’s happening. I’m an extraordinarily big picture kind of person.

I think it you know, you need to think about what’s happening in the in the true macro scale. And this this pullbacks and move up it’s, it’s noise as far as I’m concerned. There’s a lot of poker players on the table that are making this quick bets in and out and I’m sure they’re really good and they probably make a lot of money.

Good luck to them. I’m a chess player. I play long term.

And I think it’s gold is extremely well positioned. The fact that it’s 123,000 is just a number. If you think about it in in many other ways, you know that it’s hard to say what’s the fair value of gold.

But look, I think it’s it has a role to play. I think the you know, if we go into crypto that we’ll need another hour or so to discuss but I’m I’m very much a gold guy. I like the physical nature of gold.

I like certain things I have been very skeptical of, of more of the the wealth effect created by, you know, thin air, like the fact that the I know this open a different debate, you know, go in Bitcoin, blah, blah, blah is different. But the entire mimic coin and the Trump coin and it just it’s just so ridiculous in itself, you know, but that you can actually create those 30 40 billion of wealth effect out of nowhere. And it’s so obvious why there’s a massive conflict and why they want crypto higher.

It’s wealth effect. It’s making people feel rich is to keep that thing. And I was there was one of the CEOs in a dinner the other day with the CEO of one of the biggest banks and which remain nameless.

And, and then this guy was like, you know, we’re amazed, you know, when when crypto had this 500 billion, you know, wipe out, and it’s like, Where did the money go? It’s like, you know, we were looking at fixed income and equities. And I was like, excuse me, you know where he went? He went where he came from, it never existed. And that’s wealth effect, right? So I think in the case of gold or paintings or wine, you could argue that, you know, it’s just, you know, the beauty is in the eye of the beholder, or it’s how much it’s worth.

But I do think gold has been around for a long time. I think it’s some central banks are betting on it. I think part of the strength in the dollar historically has been precisely that dominated, you know, the the amount of gold back in the currency by, by many multiples, every other central bank, I think it was 10x the second bank.

And so I think in that sense, look, and gold is it has some unique characteristics that make it make it what it is. It’s not the only solution, it’s going to have big drawdowns, it’s going to be volatile. But if you actually think about where do I park my money in or some of it relative to euros or dollars or yen or yuan, or sterling, I think in a 5, 10, 15, 20 years, it’s hard for me to see a scenario where gold is not done very well against those currencies.

But you know, so will real estate or other real assets as well. So, you know, it’s not just that I’m in love with gold, which I like, and I am in some ways. But, but yeah, I think gold is unique.

I think, you know, we could easily be looking at 10k in because the moves, you know, when I used to trade gold, I started my career in 97, 98, you know, it was $250 and the bid offers were like, you know, nothing. And as the market gets larger, the bid offers get wider, the positions get bigger. And so we’ll see where it takes us.

But look, we continue to believe in gold. We play a lot in the option space. There’s really fascinating opportunities in playing gold versus other assets as well.

And so it’s a lot of fun. It’s a great asset to own. It gives us a lot of opportunity in many ways.

But again, like always, you know, beware of leverage. Just make sure people are prudent. They play this for the long term.

And I think if you do that, I think gold will probably do well in the portfolio. But if people get too carried away with too much leverage, it can be a very vicious animal as well. So yeah, I do think that this move feels like much, much safer hands than before, much long term oriented, less spec.

In fact, I think a lot of people completely missed out. But yeah, we’ll see where it goes. But yeah, good, good.

Fantastic asset. Oh, absolutely. That’s, we live by it up here, here at Zora Financially.

Diego, what a wonderful conversation. I tremendously enjoyed the last 52 minutes here with you. You know, we can follow you on X, but where else can we send our viewers? We’ll put the links down below, of course, as well.

Yeah, look, I don’t contribute as frequently, but I do occasionally. So on X, you can, you have my, my, my connection at Perla Diego, double R, double L. Feel free to reach out through LinkedIn as well if you’re, you know, if people want more information about what we do and the strategies or the newsletter. And yeah, just feel free to reach out.

We, you know, always keen to, to listen to the other side. And we, you know, try to fall in love with the problem, not the solution. So very, very keen to, to, to help out in with what I think are very big problems.

So do look forward to connecting with, with your audience. And thank you for the time. I enjoyed the discussion as well, Kai.

Yeah, fantastic. Thank you so much for coming on, Diego. We’ll have to do this again soon.

And maybe we’ll get to meet in person one day. I’m still looking, maybe I’ll be down in Madrid on the 15th. I still need to get travel approval.

So it’d be great to catch up. I live between London and Madrid, but we might, we might catch each other. That’d be, that’d be fantastic.

Diego, thank you so much for your time. Everybody else. Thank you so much for tuning in here to Soar Financially.

And I just decided if you made it this far through the interview, you deserve to be rewarded. We’re giving away one of Diego’s books. So make sure to put down a book down in the comments.

And we’ll just randomly draw one of the comments and ship the book to you. We’ll reach out. So make sure to check out, check your inbox after the draw.

And put it down below. We’ll do that. The anti-bubble.

We’ll give that away. I’ll help you educate yourselves about bubbles and how to protect yourselves once the bubbles start to burst. Thank you so much for tuning in.

Please subscribe to the channel. We’ll be back with lots, lots more here on Soar Financially. Thank you.